VAT Deduction and Formal Invoice Requirements

Process: 759/2015-T

Date: January 22, 2016

Tax Type: IVA

Summary

Process 759/2015-T addresses the formal requirements for VAT invoices under Portuguese tax law and whether formal deficiencies can justify denial of VAT deduction rights. The case involved a company challenging a VAT assessment of €12,848.48 for November 2012, where the Tax Authority (AT) disallowed €26,528.80 in VAT deductions, arguing that invoices from five service providers failed to adequately describe the services rendered, violating Article 36(5) of the Portuguese VAT Code (CIVA). The taxpayer argued that the invoices complied with legal requirements, that supporting documentation provided during inspection clarified the nature of services, and that CJEU case law protects VAT deduction rights even when formal requirements are not perfectly met, provided material requirements are satisfied and no tax fraud exists. The Tax Authority countered that Article 36 requirements are substantive (ad substantiam), not merely probative (ad probationem), meaning invoices must independently demonstrate compliance without reliance on external documentation. Vague descriptions such as 'services provided' or 'work performed' were deemed insufficient to specify or quantify services as required by law. The Authority emphasized that the invoice itself—not annexes—constitutes the legal document evidencing the tax credit and the right to deduction. A preliminary jurisdictional issue arose regarding the tribunal's competence to rule on the taxpayer's request for recognition of a €13,680.32 VAT reimbursement, as this does not constitute a tax assessment act under Article 2 of the Legal Framework for Tax Arbitration (RJAT). The case highlights the tension between formalist interpretation of invoice requirements and the CJEU's substantive approach favoring VAT deduction rights when material conditions are met and fraud is absent, raising fundamental questions about the balance between administrative control and taxpayer rights in Portuguese VAT law.

Full Decision

ARBITRAL DECISION

I. REPORT

A…, SA - BRANCH IN PORTUGAL, registered at the Commercial Registry Office under the sole registration number and legal entity number…, with permanent representation at…, Building…, Floor… and…, ... (hereinafter referred to only as "Claimant"), following the dismissal order of the gracious appeal of the VAT assessment relating to November 2012, filed a request for the constitution of a singular arbitral tribunal, under the provisions of paragraph a) of no. 1 of article 2 and article 10, both of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as "LFATM"), with a view to:

a) Declaration of the illegality of the Value Added Tax (VAT) assessment act no. 2013 … relating to the period of November 2012, in the amount of € 12,848.48 issued by the Tax and Customs Authority ("TCA" or "Respondent Entity") and consequent annulment thereof, as well as of the respective assessment of compensatory interest, in the amount of € 354.59;

b) Recognition of the right to reimbursement of amounts unduly paid; plus the corresponding indemnity interest;

c) Recognition of the Claimant's right to reimbursement of VAT, in the amount of € 13,680.32 set forth in the periodic VAT declaration for the period of November 2012, plus indemnity interest;

For this purpose, it alleges, in summary, that:

The VAT assessment act suffers from the defect of violation of law, specifically articles 19 and 36 of the VAT Code ("VATC"), by:

i. Contrary to what was alleged by the Tax Inspection Services of the Directorate of Finance of Lisbon, the invoices relating to the service providers (B…, Lda; C…; D…, Lda.; E… UNIPESSOAL, LDA. AND F…, SA) which supported the VAT deducted in the period of November 2012, at issue herein, comply with the legal requirements provided for in article 36 of the VATC, since not only are the services sufficiently described in the respective text;

ii. Since the Claimant attached in the course of the inspection procedure, various supporting documentation to the aforementioned invoices that enable identification of the nature of the services provided by the suppliers in question and "consequently the compliance of the applicable rate and the amount of VAT deducted in the aforementioned periodic declaration";

iii. And since the TA has not challenged any other requirements of the right to deduction of the tax, namely its connection to the performance of taxable operations and the existence of any indication of fraudulent conduct, nor were any periods for the deduction of the tax violated;

iv. The corrections in the amount of € 26,528.80 should be annulled and the deduction of VAT assessed by the suppliers in question should be accepted;

v. It has been the understanding of the CJEU that the right to deduction of VAT cannot be prejudiced, even in situations where formal requirements have not been met, provided that material requirements have been observed and there is no indication of tax fraud.

vi. It concludes, urging for the success of the arbitral request, with the consequent annulment of the aforementioned assessment and respective interest and recognition of the payment of indemnity interest, as well as the recognition of the right to reimbursement of VAT, requested in the declaration for the period of November 2012.

With the arbitral request, 21 documents were also attached.

The arbitral tribunal was constituted on 22-01-2015, in accordance with the provisions of paragraph c) of no. 1 of article 11 of the LFATM.

Notified for this purpose, the Respondent Entity presented its response, in which it invokes, in summary:

i. The invoices in question do not comply with the requirements contained in paragraphs a) and b) of no. 5 of article 36 of the VATC, given that they do not specify or quantify the services provided to the Claimant;

ii. If an invoice does not observe all the requirements mentioned in article 36 of the VATC, it is not issued in legal form, thus not allowing the deduction of the tax contained therein;

iii. The invoices "constitute the legal document that evidences the tax credit materialized in the right to deduction and not in any annexes";

iv. The formalities required are ad substantiam and not ad probationem, not allowing them to be replaced by any other means of proof, as follows from article 364 of the Civil Code;

v. Vague and imprecise references such as "work performed" or "services provided" are insufficient given that there is no specification of which services were provided;

vi. It also cites national and CJEU jurisprudence; and,

vii. It concludes on the legality and maintenance of the VAT assessment act.

It also attached the administrative procedure file ("APF").

On 26 March 2015, the first (and only) meeting of the Arbitral Tribunal was held at the CAAD headquarters, in accordance with the terms and for the purposes provided for in article 18 of the LFATM, with the parties being notified to present written submissions.

The Claimant did so, maintaining its position on the arbitral decision request.

For its part, the Respondent, in addition to maintaining its position set forth in its response, raised the question of the material incompetence of this Arbitral Tribunal to rule on the approval of the VAT reimbursement request set forth in the periodic VAT declaration for the period of November 2012, since this is not a tax assessment act.

Since this is an exception that must be raised of its own motion, the Claimant was notified to exercise its right of reply. And in response, it argued that the assessment of the aforementioned reimbursement request constitutes a consequential request to the main request for annulment of the VAT assessment act, and therefore the exception invoked should be dismissed.

As it was not possible to prepare the decision by the designated dates, the initial period was successively extended, according to orders dated 2015.07.22, 2015.09.22 and 2015.11.22.

II. PRELIMINARY MATTERS

The Respondent invokes the material incompetence of the Arbitral Tribunal as to the request for "recognition of the Claimant's right to reimbursement requested in the periodic declaration for the period of November 2012, in the amount of EUR 13,680.32" filed by the same at the conclusion, alleging that this is not "a tax assessment act, self-assessment, withholding at source or payment on account act susceptible to being assessed by this arbitral jurisdiction", in accordance with no. 1 of article 2 of the LFATM and the limitations imposed by Ordinance no. 112/2011, of 22 March 2011, and therefore the same cannot proceed.

In exercise of the right of reply, the Claimant argued that the assessment of the aforementioned reimbursement request constitutes a consequential request to the main request for annulment of the VAT assessment act in question, and therefore the exception invoked should be dismissed.

Let us examine this.

In accordance with no. 1 of article 2 of the LFATM, the "competence of arbitral tribunals comprises the assessment of the following claims:

a) Declaration of illegality of acts assessing taxes, self-assessment acts, withholding at source acts and payment on account acts;

b) Declaration of illegality of acts determining the taxable basis when they do not give rise to the assessment of any tax, of acts determining the taxable base and of acts fixing patrimonial values".

In accordance with article 2 of Ordinance no. 112/2011, of 22 March 2011, the TCA is bound by the "jurisdiction of the arbitral tribunals functioning at CAAD which have as their object the assessment of claims relating to taxes the administration of which is entrusted to them, referred to in no. 1 of article 2" of the LFATM.

Indeed, the recognition of the right to VAT reimbursement, as formulated by the Claimant, does not constitute one of the claims that falls within the provision of the aforementioned article 2 of the LFATM, and the TCA is not bound by this type of dispute.

On this matter, this Arbitral Tribunal has already pronounced in the decision rendered in case no. 48/2014, of 2015-10-03, whose understanding we follow here, when referring that:

"Which means that the competence of arbitral tribunals functioning at CAAD is limited to the declaration of illegality of acts of the types referred to in article 2 of the LFATM, being thus a mere annulment contentious process, structured according to the procedural model prior to the 2002-2004 administrative contentious reform, which continues to apply in tax contentious matters.

On the other hand, it is understood that the competence of arbitral tribunals is restricted "to activity connected with acts assessing taxes, being outside its competence the assessment of the legality of administrative acts of total or partial dismissal or revocation of exemptions or other tax benefits, when dependent on recognition by the Tax Administration, as well as other administrative acts relating to tax matters that do not involve assessment of the assessment act, to which refers paragraph p) of no. 1 of art. 97 of the TCPC".

Given the legal framework mentioned above, to determine the competence of the Arbitral Tribunal, it is necessary to examine the content of the impugned act, in order to verify to what extent it involves or does not involve assessment of an assessment act.

According to some doctrine, the concept of VAT reimbursement used for the purposes of numbers 4 et seq. of article 22 of the VAT Code corresponds to a situation in which, from the balance determined in the period, a VAT credit in favor of the taxable person results that will be used in subsequent periods (in a running account logic), unless the taxable person uses the faculty to request reimbursement thereof, avoiding its carryforward and application in subsequent periods. In such a way that "the reimbursement request, as well as its assessment by the Tax Administration do not constitute legal facts, since they do not constitute per se any fact that determines a legal alteration of the situation of either party".

This doctrine accompanies the jurisprudence of the ACS, set forth in the Decision of 12/7/2007, case no. 0303/07, where it can be read, among other things, that only "assessment acts, in the strict sense", cause "a modification in the tax situation of the taxpayer, defining the existence of an obligation (which through this act becomes certain, liquid and enforceable, including by coercive means in case of voluntary non-compliance)", which is not the case with acts refusing VAT reimbursement, since they do not result for taxpayers in any obligation they did not previously have." In the same sense, see, among others, the Arbitral Decision of 4 April 2014, case no. 238/2013-T, where it can be read that with respect to the reimbursement request, the competence of arbitral tribunals functioning at CAAD to assess the legality of acts of dismissal of reimbursement requests of amounts paid in compliance with previous assessment acts is not expressly provided for.

In the present case, the reimbursement request comes configured as an act consequential to the annulment of the assessment. However, as was stated above, presupposing the Claimant's request the assessment of the legality of reimbursement acts, which are independent of the assessment act, thus one cannot even speak of an act consequential to the annulment of the assessment."

The Claimant is thus not correct in referring that in case of success of the main request in the present case both the assessment should be annulled and the reimbursement request should be approved, since in case of success of the annulment, the Respondent will be obliged to re-establish the situation that would have existed had the tax act, object of the decision, not been performed, and should thus accept the deduction of the tax, restoring to the Claimant's running account the VAT in credit.

In light of the foregoing, this Arbitral Tribunal thus has no competence to rule on the request for "recognition of the Claimant's right to reimbursement requested in the periodic declaration for the period of November 2012, in the amount of EUR 13,680.32", and thus the dilatory exception of absolute incompetence of this Tribunal to rule on that matter is upheld, dismissing the Respondent from the instance as to the request in reference [contained in the second part of para. ii) of the final request], in accordance with articles 576, no. 1 and 2 and 577, paragraph i) of the CPC, applicable ex vi article 29, no. 1, paragraph e) of the LFATM.

Accordingly, the Arbitral Tribunal was properly constituted and is materially competent to rule on the remaining requests, in accordance with the provisions of art. 2, no. 1, para. a) of the LFATM.

The parties possess legal personality and capacity, are legitimate and are properly represented, in accordance with the provisions of articles 4 and 10, no. 2 of the LFATM and art. 1 of Ordinance no. 112-A/2011, of 22 March.

The case does not suffer from nullities and there are no other exceptions that must be addressed or that obstruct the consideration of the merits of the case.

III. GROUNDS

The issue to be decided in the present case thus consists in determining whether the invoices in question comply with the formal requirements for the exercise of the right to deduction.

3.1. Facts

Having examined the present case and on the basis of its elements, with interest for the decision to be rendered, the following facts are established as proven:

The Claimant is a branch of a company not resident in national territory, with permanent representation at…, Building …- Floor … and…, in ... (see Tax Inspection Report at pp. 4 to 5);
The Claimant is a VAT taxable person, under the normal monthly periodicity regime, registered with the activity of marketing services, sales promotion, advertising, brand protection support and various administrative services, having commenced its activity on 11.11.1992 (see Tax Inspection Report, article 5 of the arbitral decision request and the response of the Respondent);
Within the scope of the contract executed with G… B. V. ("G…"), a taxable person resident in the Netherlands, without permanent establishment in Portugal, the Claimant develops the following activities in Portuguese territory:

a) promotion and marketing of G…'s products in Portugal;

b) receipt of orders from distributors;

c) local implementation of sales and marketing strategies coordinated and adapted by G…;

d) provision of customer assistance services and collection services to G…;

e) protection of the … brand in Portugal (see Tax Inspection Report and article 5 of the arbitral decision request);

The Claimant requested a VAT reimbursement in the periodic VAT declaration for November 2012 ("VAT 2012.11"), in the amount of €14,365.95, to which the number …/0 was assigned (see Tax Inspection Report and article 7 of the arbitral decision request);
Following the aforementioned VAT reimbursement request and for the purpose of its assessment, the Claimant was subject to an internal tax inspection procedure, of partial scope, in compliance with Service Order no. OI2013…, of 2013/01/14, carried out by the Tax Inspection Services of the Directorate of Finance of Lisbon (see Tax Inspection Report, article 7 of the arbitral decision request and articles 2 and 6 of the Respondent's response);
With a view to confirming the values contained in the periodic VAT declaration for the 2012.11 period, the Claimant was requested to provide elements necessary for the analysis of the aforementioned reimbursement request (analytical balance sheet, extract of the current account of account 24-VAT and justification of the values included in the various fields of the 2012.11 periodic declaration, which elements the Claimant presented on 04.02.2013 (see Tax Inspection Report and administrative procedure file – pp. 77 to 150);
By means of Official Notice, dated 12 April 2013 (Official Notice no.…), the Claimant was notified of the proposed corrections of the Tax Inspection Report, with a proposal for corrections in the total amount of € 27,214.43, on the grounds that the same unduly deducted VAT in field 24 of the periodic declaration, relating to accommodation expenses, in the amount of € 685.63, and that it unduly deducted tax, in the amount of € 26,528.80, relating to invoices issued by its service providers because they did not contain the designation of the services provided to it, as required by article 36 of the VATC (see document 1 attached to the arbitral decision request and also contained in the administrative procedure file – pp. 24 to 33);
Not agreeing with the proposed correction, in the amount of € 26,528.80, the Claimant exercised its right of prior hearing, on 2013.05.04, alleging that the nature of the services was identified and properly explained, through the documentation that it submitted during the inspection procedure (see document 2 attached to the arbitral decision request and also contained in the administrative procedure file – pp. 35 to 46);
The Claimant accepted the proposed correction of the missing VAT, in the amount of € 685.63, relating to tax unduly deducted with accommodation expenses (see document 2 attached to the arbitral decision request);
By Official Notice no.…, dated 4 June 2013, the Claimant was notified of the Tax Inspection Report, with the corrections relating to the missing tax in the amount of € 26,528.80 being made with the following grounds, which are transcribed here in the part with interest for the decision:

"(…)

The Directorate of VAT Services (DVAT), through Circular Office no. 181044 of 1991/12/06, issued instructions on the requirements to which invoices and equivalent documents must comply:

This in its Points 1 to 1.3 — establishes the following:

Point 1 — In accordance with no. 5 of Art. 35 of the VATC (art. 36 at the time), invoices must contain the "quantity and usual denomination of goods transmitted ..., with specification of the elements necessary to determine the applicable rate, that is, they must correctly identify the goods sold.

Point 1.3 - The invoicing of service provisions should always quantify and specify the operations, and cannot accept, for example, the mere indication of "services provided"

The taxpayer deducted in this period the VAT supported by the following invoices contained in Annexes 2 and 3:

B…, LDA: Taxpayer no. …

Invoice no. …/2012 of 2012-11-13, in addition to the expenses with the athletes' accommodation, to which we made reference in the previous point, was also invoiced for expenses of "sound equipment C2T, portal and presenter - P…" in the amount of 5,142.63 € (4,181.00 € + 961.63) Annex 2

C…, Taxpayer no. …

Invoice no. … of 2012-10-31 issued with the designation of "Remuneration for October 2012 relating to the set of services provided at Building…, in accordance with the Service Provision Contract signed on 09/09/2009.

D…, LDA — Taxpayer no. …

Invoice no. A … — of 2012-10-24 — whose designation is: … ESS — Promo Labels and various…—…, as per v/ PO Number …"

Invoice no. A … — of 2012-10-27- whose designation is: "Campaign …in ..., ... and…, as per PO Number …"

Invoice no. A…— of 2012-10-27 - with the designation of: "Campaign…, …, Camp. … …, as per v/ PO Number …"

Invoice no. A…— of 2012-11-30- whose designation is: "Campaign…, …, Production and Assembly as per PO Number …"

Invoice no. A…— of 2012.11-30- whose designation is: "Campaign…, …, Production and Assembly as per PO Number …"

Invoice no. A … — of 2012-11-30- whose designation is: "Campaign … in ..., ... and…, Production and Assembly as per PO Number …"

E… UNIPESSOAL, LDA - Taxpayer no. …

Invoice no. … of 2012-11-28 - with the designation of: "…- Sp. Su 13

…-… -Service provided at our facilities - PO …

F…, SA - Taxpayer no. …

Invoice no. … of 2012-11-15 - whose designation is: "…/Product Display in stores …

From the above, it is demonstrated that the invoices issued by its service providers do not contain the designation of the services provided to it, as required by art. 36 of the VATC, and therefore the taxable person unduly deducted in Field 24 of the periodic declaration of 2012.11 VAT, the amount of 26,528.80 €, as per the calculation schedule prepared for this purpose:

CALCULATION OF VAT UNDULY DEDUCTED IN THE PERIODIC DECLARATION OF 2012-11

[Table with columns: NAME, DOCUMENT, DATE, VALUE, VAT, TOTAL - containing detailed breakdown of invoices from B, C, D, E, and F entities with dates, values, VAT amounts and totals]

TOTAL: 115,342.62 | 26,528.80 | 141,871.42

6.3- Summary of proposed corrections

As a result of the above described, the total of proposed corrections is € 27,214.43 as demonstrated:

MISSING TAX

Point 6.1: 685.63

Point 6.2: 26,528.80

Total: 27,214.43

(…)

9 — Conclusions

As a result of the analysis performed of the statement presented by the taxable person, we add the following:

(…)

Thus, from the above, we confirm that the invoices issued by its suppliers, C… and D… do not contain all the requirements required by art. 36 of the VATC, elements which are essential for them to be considered equivalent documents and which would allow A…, SA to exercise the right to deduction of the VAT supported, given that the description contained therein is insufficient, since the services provided are not itemized, not allowing assessment of the materiality of the underlying transactions, nor their quantity or total. Invoices can consist of more than one page, but not annexes.

With respect to the invoices issued by the other suppliers, and in light of the provisions referred to in no. 5 of art. 36 and the instructions of the DVAT, the invoicing of service provisions should always indicate, among other elements, the date on which they were performed and the quantity and usual denomination of services provided, which does not occur in the cases analyzed.

In light of the above, it is understood that for the purposes of exercising the right to deduction of VAT, only with the fulfillment of all the legal requirements required by art. 36 of the VATC is an invoice considered to be issued in legal form, as required by no. 6 of art. 19 of the VATC.

Given that the only elements provided by the taxable person, when exercising the right of hearing, were only clarifications on some of the service provisions that were invoiced to it and that should have been contained in those invoices, it is concluded that these are not issued in legal form, and therefore the initially proposed corrections are maintained.

Thus, the VAT reimbursement being assessed and requested in period 12.11, in the total of €14,365.95, should be dismissed in its entirety.

As a result of the corrections proposed in this Report, in the total of € 27,214.43, missing tax was determined in the amount of € 12,848.48.

(…)" - see document 2 attached to the arbitral decision request and also contained in the administrative procedure file – pp. 49 to 68 of the administrative procedure file);

The Claimant was notified of VAT assessment no. 2013…, issued on 2013-07-02, in the amount of € 12,848.48 (under document no. 2013…) for November 2012, as well as the assessment of compensatory interest, in the amount of € 354.59 (under document no. 2013…), relating to the same period, both with payment deadline 2013-10-07 (see Documents 4 and 5 attached with the arbitral decision request, whose contents are hereby deemed fully reproduced);
The Claimant, on 2013-09-02 and 2013-08-23, proceeded to pay the aforementioned assessments (see Document 6 attached with the arbitral decision request, whose contents are hereby deemed fully reproduced);
Not agreeing with the tax act of the aforementioned VAT assessment, the Claimant filed a gracious appeal on 05-02-2014, whose proceedings were processed at the Directorate of Finance of Lisbon under case no. … 2014 … (see Document 7 attached with the arbitral decision request, whose contents are hereby deemed fully reproduced);
By Official Notice no.…, dated 09.06.2014, the Claimant was notified of the project for dismissal of the gracious appeal, having exercised its right of prior hearing on 1 July 2014 (see Document 8 attached with the arbitral decision request and administrative procedure file of the Gracious Appeal, pp. 245 to 263);
By Official Notice no.…, dated 04.08.2014, the Claimant was notified of the order dismissing the gracious appeal, issued by the Division Head, in substitution capacity (see Document 8 attached with the arbitral decision request and administrative procedure file of the Gracious Appeal, pp. 264 to 275);
On 2014.11.04, the Claimant filed the present request for constitution of a Singular Arbitral Tribunal (see electronic request in the CAAD computer system);
From the descriptive of invoice no. …/2012, issued by service provider B…, Lda., on 13-11-2012, there appears, in addition to the mention of "…" (which is not relevant here), the description "…", further specifying that the quantity is 1, followed by the unit price of € 4,181.00, the VAT rate (23%), the total net of tax, as well as the incidence and total VAT value. The descriptive further contains the mention of "PO…, of 12/11/2012" (see document 15 attached with the arbitral decision request and administrative procedure file – pp. 158, whose contents are hereby deemed fully reproduced);
On 28 October 2010, the Claimant executed with the Municipality of … a contract designated "Selection of a partner to together with the Municipality organize, promote and publicize the sporting event called "Race of the …" (Contract no. …/2010), see document 16 attached with the arbitral decision request (certificate issued by the Municipality of…);
Said partnership contract would be in effect for two years, see document 16 attached with the arbitral decision request (certificate issued by the Municipality of…);
From the descriptive of invoice no. …/2012, issued by service provider C…, S.A., on 2012-10-31, there appears the mention "Remuneration for October 2012 relating to the set of services provided at Building…, in accordance with the Service Provision Contract signed on 09/09/2009", indicating € 27,951.29 as the value, followed by the VAT rate of 23%, specifying the VAT value of € 6,428.80 (see document 18 attached with the arbitral decision request and administrative procedure file – pp. 96, whose contents are hereby deemed fully reproduced);
On 9 September 2009, the Claimant executed with C…, S.A. (hereinafter referred to only as C…), a service provision contract, under which the latter contracts with the former "a complex service provision that encompasses an integrated offer of services relating to management of building systems, equipment maintenance, building management, technical assistance, cleaning and physical security/surveillance and allocation of a physical space, which is identified below, services which are properly identified in ANNEX II to this contract" (see document 19 attached with the arbitral decision request and administrative procedure file – pp. 173 to 195, whose contents are hereby deemed fully reproduced);
C… further undertook to provide the Claimant with the availability of a space in the building…, with 1,307 m2, on floor 2, 350 m2, on floor 3 and 30 parking spaces, with numbers 42 to 45) and 63 to 64, on floor -1, 66 to 71 and 76 to 77 on floor -3 and 19 to 25 and 69 to 77 silos on floor -… of the same building, in conditions for the Claimant "to be able to develop its activities, the aforementioned space being equipped with cleaning, air treatment, air conditioning, lighting, connection points for specific electrical and data networks, C… developing for this purpose the activities better specified in ANNEX II" - see document 19 attached with the arbitral decision request and administrative procedure file – pp. 173 to 195, whose contents are hereby deemed fully reproduced);
The initial monthly remuneration payable for the aforementioned "set of services provided" to C… was 26,640.00 euros, plus VAT, at the legal rate in force (see document 19 attached with the arbitral decision request and administrative procedure file – pp. 173 to 195, whose contents are hereby deemed fully reproduced);
Said contract was executed for a period of six years, with its beginning on 1 December 2009 and ending on 30 November 2015, renewing automatically for successive periods of three years (see document 19 attached with the arbitral decision request and administrative procedure file – pp. 173 to 195, whose contents are hereby deemed fully reproduced);
From the descriptive of invoice no. A-…, issued by service provider D…, Lda., on 2012-10-24, there appears the mention "…–…– Promo Labels and various…–…, as per v/PO Number….", specifying that the quantity is 1, followed by the price of € 5,840.00, the VAT rate (23%), indicating the gross values, the VAT base, the VAT values, as well as the invoice total (see document 20 attached with the arbitral decision request and administrative procedure file – pp. 132, whose contents are hereby deemed fully reproduced);
The Claimant, in accompaniment of the aforementioned invoice A-…, attached in the course of the aforementioned inspection procedure, the Budgets nos. …/12 (dated 2012.10.04), …/12 (dated 2012.10.02), …/12 (dated 2012.10.10), …/12 (dated 2012/10/10) and …/12 (dated 2012.11.02), according to which the reference is mentioned, followed by the description, where the services are itemized (such as project management, production, assembly and logistics), specifying the respective price, concluding with the total price, mentioning that the indicated price is without VAT and that VAT at the rate of 23% is added - see document 20 attached with the arbitral decision request and administrative procedure file – pp. 133 to 138;
From the descriptive of invoice no. A-…, issued by service provider D…, Lda., on 2012-10-27, there appears the mention "… in ..., ... and ..., as per v/PO Number…", specifying that the quantity is 1, followed by the price of € 8,995.00, the VAT rate (23%), indicating the gross values, the VAT base, the VAT values, as well as the invoice total - see document 20 attached with the arbitral decision request and administrative procedure file – pp. 127, whose contents are hereby deemed fully reproduced);
The Claimant, in accompaniment of the aforementioned invoice A-…, attached in the course of the aforementioned inspection procedure, the Budget no. …/12 (dated 2012.10.01), according to which the reference is mentioned, followed by the description, where the services are itemized (such as project management, production, assembly and logistics) in the various stores, specifying the respective price, concluding with the total price, mentioning that the indicated price is without VAT and that VAT at the rate of 23% is added - see document 20 attached with the arbitral decision request and administrative procedure file – pp. 128 to 131;
From the descriptive of invoice no. A-…, issued by service provider D…, Lda., on 2012-11-30, there appears the mention "…, …, Camp…., as per v/PO Number…", specifying that the quantity is 1, followed by the price of € 32,000.00, the VAT rate (23%), indicating the gross values, the VAT base, the VAT values, as well as the invoice total - see document 20 attached with the arbitral decision request and administrative procedure file – pp. 112, whose contents are hereby deemed fully reproduced);
The Claimant, in accompaniment of the aforementioned invoice A-…, attached in the course of the aforementioned inspection procedure, the Budgets nos. …/12 (dated 2012.10.09), …/12 (dated 2012.11.22), …/12 (dated 2012.11.02), …/12 (dated 2012.11.02), …/12 (dated 2012/11/22), according to which the reference is mentioned, followed by the description, where the services are itemized (such as project management, production, assembly and disassembly), specifying the respective price, concluding with the total price, further mentioning that the indicated price is without VAT and that VAT at the rate of 23% is added - see document 20 attached with the arbitral decision request and administrative procedure file – pp. 113 to 126;
From the descriptive of invoice no. A-…, issued by service provider D…, Lda., on 2012-11-30, there appears the mention "Campaign…, …, Production and Assembly, as per v/PO Number…", specifying that the quantity is 1, followed by the price of € 7,208.31, the VAT rate (23%), indicating the gross values, the VAT base, the VAT values, as well as the invoice total - see document 20 attached with the arbitral decision request and administrative procedure file – pp. 155, whose contents are hereby deemed fully reproduced);
The Claimant, in accompaniment of the aforementioned invoice A-… attached the Budget no. …/12 (dated 2012.11.22), according to which the reference is mentioned, followed by the description, where the services are itemized (such as project management, production, assembly and disassembly), specifying the respective price, concluding with the total price, mentioning that the indicated price is without VAT and that VAT at the rate of 23% is added - see document 20 attached with the arbitral decision request and administrative procedure file – pp. 156 to 157;
From the descriptive of invoice no. A-…, issued by service provider D…, Lda., on 2012-11-30, there appears the mention "Campaign…, …, Production and Assembly as per v/PO Number…", specifying that the quantity is 1, followed by the price of € 10,649.00, the VAT rate (23%), indicating the gross values, the VAT base, the VAT values, as well as the invoice total - see document 20 attached with the arbitral decision request and administrative procedure file – pp. 153, whose contents are hereby deemed fully reproduced);
The Claimant, in accompaniment of the aforementioned invoice A-…, attached the Budget no. …/12 (dated 2012.11.21), according to which the reference is mentioned, followed by the description, where the services are itemized (such as project management, production, assembly and disassembly), specifying the respective price, concluding with the total price, mentioning that the indicated price is without VAT and that VAT at the rate of 23% is added - see document 20 attached with the arbitral decision request and administrative procedure file – pp. 154 to 160;
From the descriptive of invoice no. A-…, issued by service provider D…, Lda., on 2012-11-30, there appears the mention "Campaign ,… in…, … and…, Production and Assembly, as per v/PO Number…", specifying that the quantity is 1, followed by the price of € 8,945.00, the VAT rate (23%), indicating the gross values, the VAT base, the VAT values, as well as the invoice total - see document 20 attached with the arbitral decision request and administrative procedure file – pp. 107, whose contents are hereby deemed fully reproduced;
The Claimant, in accompaniment of the aforementioned invoice A-…, attached in the course of the aforementioned inspection procedure, the Budget no. …/12 (dated 2012.10.15), according to which the reference is mentioned, followed by the description, where the services are itemized (such as project management, production, assembly and disassembly) and stores, specifying the respective price, concluding with the total price, mentioning that the indicated price is without VAT and that VAT at the rate of 23% is added - see document 20 attached with the arbitral decision request and administrative procedure file – pp. 108 to 111;
From the descriptive of invoice no.…, issued by service provider E… UNIPESSOAL LDA., on 2012-11-28, there appears the mention "…–…–…– Service provided at our facilities - PO…", specifying that the quantity is 1 for each of those services, followed by the unit price of € 480.00 and € 4,520.00, indicating the respective VAT rate (23%), further indicating the basis for application, the VAT value, as well as the invoice total. It is further mentioned that "the articles/services contained in this document were made available/provided on this date" - see document 21 attached with the arbitral decision request and administrative procedure file – pp. 139, whose contents are hereby deemed fully reproduced;
The Claimant, in accompaniment of the aforementioned invoice no.…, attached in the course of the aforementioned inspection procedure, the Budget no. …/12 (dated 2012.11.21), according to which the description of services (identical to that of the invoice) appears, specifying the respective price, concluding with the total price (without VAT), specifying the VAT value, as well as the total to pay - see document 21 attached with the arbitral decision request and administrative procedure file – pp. 140, whose contents are hereby deemed fully reproduced;
From the descriptive of invoice no.…, issued by service provider F…, SA, on 2012-11-15, there appears the mention "…/… pax month of Oct/12" - PO…", indicating that the quantity is 1, followed by the unit price of € 4,583.02, indicating the respective VAT rate (23%), as well as the basis for application, the VAT value and the total amount. Below the banking data, it is mentioned that "the services were completed on the date of issuance of this document, article 36 of the VATC" - see document 13 attached with the arbitral decision request and administrative procedure file – pp. 95, whose contents are hereby deemed fully reproduced;
The Claimant, within the scope of its activity, acquired the services contained in the invoices above identified, and, insofar as such services were acquired with a view to performing and their connection to its taxable operations, proceeded to deduct the tax (see articles 25, 26 and 91 of the arbitral decision request and not contested by the Respondent);
During the aforementioned inspection procedure, invoice no. …/2012-A, issued on 29-10-2012, by H…, whose VAT was not disregarded by the TCA, was attached, and which contains among others, the mention of "…"- see pp. 93 of the administrative procedure file, whose contents are hereby deemed fully reproduced.

Given the positions assumed by the parties, as well as the facts admitted by agreement, the established facts were based on the documents attached to the case and mentioned in each of the points of the factual matter, whose authenticity was not contested.

There are no other facts not proven with interest for the decision of the case.

3.2 Law

The issue to be decided in the present arbitral case consists in determining whether the invoices above identified, whose assessed VAT (in the total amount of € 26,528.80) was not considered deductible by the respondent entity comply with the legal requirements provided for in no. 5 of article 36 of the VATC, combined with no. 2 of art. 19 of the same act, as well as the mentions mandatorily required by EU regulatory provisions.

Indeed, as shown by the evidence, the respondent did not accept the VAT deducted by the Claimant in the aforementioned invoices on the grounds that the description of the services is insufficient, since the services provided are not itemized (invoices issued by service providers "C…" and "D…"), or because the date on which the services were performed is not indicated, nor the quantity and usual denomination of services provided (as to the others), and therefore such invoices were not issued in legal form, "as required by no. 6 of art. 19 of the VATC".

For its part, the Claimant understands that the requirements contained in the aforementioned rules were met, since not only are the services sufficiently described and identified in the respective text, but it also provided during the procedure various supporting documentation that allows "to attest the nature of the services provided by such entities and, consequently, the compliance of the applicable rate and the amount of VAT deducted".

Let us examine this.

What is at issue in the present case relates solely to the formal requirements of the right to deduction of VAT, since, as shown by the established facts, no other prerequisites for the exercise of the right to deduction were challenged, nor the existence of any indication of fraudulent conduct on the part of the Claimant.

Given the relevance of the exercise of the right to deduction of VAT, it is important to first make a brief reference to its legal regime. And on this matter this Arbitral Tribunal has already pronounced, namely in the decisions rendered in cases nos. 148/2012-T and 59/2013-T, whose arbitral jurisprudence we follow.

Thus, as evidenced in the Arbitral Decision rendered in case no. 148/2012-T (which we follow here) regarding the nature and scope of the right to deduction:

"As is known, VAT is an indirect tax of EU origin, multiphase, which tends to affect every act of consumption (general tax on consumption).

The right to deduction is an essential element in the functioning of the tax, which must guarantee its principal characteristic — neutrality.

In reality, the right to deduction is embodied as the essential element in the functioning of the tax, the "cornerstone of the value added tax system", based on the so-called method of deduction of the tax, method of tax credit, indirect subtractive method or also method of invoices. According to this method, and in accordance with the provisions of article 19 of the VATC, through an arithmetic subtraction operation, from the tax calculated on sales and service provisions (outputs) and identifiable in the respective invoices, the tax supported in purchases and other expenses (inputs) is deducted. As provided by the 2nd paragraph of no. 2 of article 1 of the VAT Directive (hereinafter VATD), "In each operation, the VAT, calculated on the price of the good or service at the applicable rate to the said good or service, is due, with prior deduction of the amount of tax which has directly affected the cost of the various elements constituting the price". The mechanism of exercising the right to deduction allows the taxable person to expunge from its burden the VAT supported upstream, thus not reflecting it as an operational cost of its activity, eliminating the cumulative or cascade effect, thereby providing the economic neutrality of the tax.

In accordance with the provisions of the VATD, the VAT Code determines, as a general rule, the deductibility of the tax due or paid by the taxable person in the acquisitions of goods and services made to other taxable persons.

The express situations of exclusion of the right to deduction are exceptional and relate to specific cases stated by the national legislature in exhaustive terms, in accordance with the provisions of the VATD, depending on the type of expenses in question.

The rules for the exercise of the right to deduction of the tax include objective requirements, more linked to the type of expenses, subjective, relating to the taxable person and temporal, concerning the period in which it is possible to exercise the right to deduction of VAT, which must be verified simultaneously to exercise the right to deduction.

As objective requirements of the exercise of the right to deduction of the tax, we have, in particular, the fact that the supported tax must be contained in an invoice issued in legal form (that is, it must comply in its requirements with the general provisions of article 36, no. 5 of the VATC), that it is Portuguese VAT, and that the expense itself confers the right to deduction of VAT (that is, it should not be an expense excluded from the right to deduction, in accordance with the provisions of article 21 of the VATC).

In concrete, with respect to the elements that must appear in invoices, article 36, no. 5 of the VATC determines that they must be dated, numbered sequentially and contain, in particular, the following elements: "a) The names, firm names or corporate designations and the domicile or residence of the supplier of goods or service provider and the recipient or purchaser, as well as the corresponding tax identification numbers of taxable persons;

b) The quantity and usual denomination of goods transmitted or services provided, with specification of the elements necessary to determine the applicable rate; packages not actually transacted must be the subject of separate indication and with express mention that it was agreed that they would be returned;"

As subjective requirements of the exercise of the right to deduction of the tax, it is determined, in particular, that the goods and services must be directly related to the exercise of the activity in question. In accordance with the provisions of article 168 of the VATD, transposed in part by article 20, no. 1, paragraph a) of the VATC, the taxable person may deduct the VAT supported in the Member State where it is established, in transmissions of goods and service provisions, as well as assimilated operations in intra-Community acquisitions of goods and in imports located there, "When the goods and services are used for the purposes of its taxed operations (...)".

This rule, in accordance with EU Law rules, thus requires that there be a causal nexus between the acquired good or service (input) and the taxed output for the VAT to be susceptible to deduction. That is, the VAT supported upstream in a given operation is only deductible insofar as it can be related downstream with an effectively taxed operation, with the relationship being assessed based on the allocation and inclusion of the supported cost in the price of the taxed operation.

(...) Finally, as a requirement of the exercise of the right to deduction we also have the temporal requirement, in accordance with which "The right to deduction arises at the moment when the deductible tax becomes due", while maintaining, however, the cumulative requirement of possession of the invoice or the receipt of VAT payment which forms part of import declarations.

For its part, in accordance with the rules of no. 1 of article 19 of the VATC, it is established that the following confer the right to deduction, namely, the tax due or paid by the taxable person in the acquisitions of goods and services made to other taxable persons and the tax paid by the acquisition of services referred to in paragraphs e), h), i), j) and l) of no. 1 of article 2 of the VATC.

In accordance with the provisions of no. 1 of article 20 of the VATC, the following confer, in particular, the right to deduction of VAT, transmissions of goods and service provisions subject to tax and not exempt from it, and transmissions of goods and service provisions that consist of operations carried out abroad that would be taxable if carried out in Portugal.

It is unanimously recognized by the CJEU jurisprudence that the mechanism of the right to deduction is an essential element of VAT functioning as designed in the VAT Directives, assuming a fundamental role in guaranteeing the neutrality of the tax and equality of tax treatment. Thus, it is constant jurisprudence of the CJEU that, the right to deduction being a fundamental element of the VAT regime, it is only possible to limit this right in the cases expressly provided for by the VATD and, furthermore, with respect for the principles of proportionality and equality, and it is not possible to empty the common VAT system of its content.

(...) It is also important to note that, in accordance with CJEU jurisprudence, the principle of VAT neutrality requires that the deduction of tax paid upstream be granted if the substantive requirements have been met, even if taxable persons have neglected certain formal requirements. In this context, in accordance with the CJEU, provided that the Tax Administration has the data necessary to determine that the taxable person, as the recipient of the operations, is a debtor of VAT, it cannot impose, with respect to its right to deduction, additional conditions that may have the effect of making the absolute exercise of this right impossible.

In summary, from the CJEU jurisprudence, it is clear that the exercise of the right to deduction of VAT is a fundamental right, which can only be limited in cases expressly allowed by EU Law rules or by general principles of law accepted in this field, such as the principle of abuse of rights." (italics ours)

From the perspective of internal law, as formal requirements of the exercise of the right to deduction of the tax, article 19 of the VATC (in the wording at the time of the facts) determines the following (as relevant to the present case):

"1 - For the determination of the tax due, taxable persons deduct, in accordance with the following articles, from the tax levied on the taxable operations they performed:

a) The tax due or paid by the acquisition of goods and services to other taxable persons;

(...)

2 - Only the tax mentioned in the following documents confers the right to deduction, in the name and possession of the taxable person:

a) In invoices and equivalent documents issued in legal form;

(...)

3 - Tax resulting from a simulated operation or in which the price contained in the invoice or equivalent document is simulated cannot be deducted.

(...)

6 - For the purposes of exercising the right to deduction, invoices or equivalent documents that contain the elements provided for in article 36 are considered issued in legal form.

(...)"

For its part, and as relevant to us, no. 5 of article 36 of the VATC provides the following:

"5 - Invoices or equivalent documents must be dated, numbered sequentially and contain the following elements:

a) The names, firm names or corporate designations and the domicile or residence of the supplier of goods or service provider and the recipient or purchaser, as well as the corresponding tax identification numbers of taxable persons;

b) The quantity and usual denomination of goods transmitted or services provided, with specification of the elements necessary to determine the applicable rate; packages not effectively transacted must be the subject of separate indication and with express mention that it was agreed that their return was accepted;

c) The price, net of tax, and the other elements included in the taxable value;

d) The applicable rates and the amount of tax due;

e) The justification for the non-application of the tax, if applicable;

f) The date on which the goods were placed at the disposal of the purchaser, on which the services were provided or on which payments prior to the performance of the operations were made, if that date does not coincide with that of the issuance of the invoice.

In the case where the operation or operations to which the invoice relates comprise goods or services subject to different tax rates, the elements mentioned in paragraphs b), c) and d) must be indicated separately, according to the applicable rate."

From the foregoing, it follows that, to exercise the right to deduction of assessed tax, the taxable person must have in its possession an invoice, issued in its name, on which the tax is mentioned and which is issued in legal form, that is, which contains the mentions listed in the aforementioned article 36 of the VATC.

As has been peacefully recognized and affirmed by Portuguese jurisprudence, namely as decided in the judgment of the Supreme Administrative Court, issued on 2007-10-10, in case no. 0487 (available at www.dgsi.pt), in whose abstract it can be read:

"I - The invoice or equivalent document issued in the legal form required by article 19, no. 2 of the VATC for the deduction of tax is the one that respects all the requirements of article 35, no. 5 of the same Code.

II - The requirement of such formalism constitutes a true substantial requirement of the right to deduction of tax."

Indeed, given the VAT mechanism, the invoice (or in the wording in force at the time of the facts) constitutes a fundamental element, since it will be that document which allows the taxable person to deduct the tax it supported, with such formal requirements intended to prevent fraud and tax evasion, thus making it possible to ensure accurate collection and respective supervision of the tax, without overlooking the principle of fiscal neutrality.

As was written in the Decision of the Supreme Administrative Court, issued on 17-02-1999, in appeal no. 20593, "the invoice is not intended, only for the use of the buyer, but constitutes an essential element, also, for the tax administration, since it is the document demonstrating the operations on which the tax is levied. Thus, it is easy to understand that the invoice valid for VAT purposes will have to identify in the most complete manner possible the buyer and seller, the goods, the price, and the date of the transaction. These are all elements relevant to enable identification of the operation in a manner sufficient so that the due consequences regarding the tax can be drawn (its applicability, subjects, rate, collection, refunds, etc.). The lack of any of these elements can jeopardize the mechanism designed with the objective of collecting the tax.

It is natural, therefore, that the legislator understood that, for the complex VAT system to function, to facilitate the control of subject and exempt operations, and to prevent tax evasion, it became necessary, not only the issuance of invoices or equivalent documents in the form that each of the parties understood, but its issuance with content and rigor defined by law. Hence the requirement of legal form. (...)"

As referred to in the decision of this Arbitral Tribunal, rendered in case no. 411/2014-T,

"(...) the requirement of invoice form at the VAT level, relating to the "designation of the quantity and usual denomination of merchandise transmitted or services provided", is aimed at, as pointed out in the cited decisions, ensuring "that the Administration can effectively monitor tax obligations", making it possible to "identify the operation in a manner sufficient so that the due consequences regarding the tax can be drawn (its applicability, subjects, rate, collection, refunds, etc.)".

This functionality of the formality now in question cannot, in any case, justify the total omission of it, given its ad substantiam nature, already mentioned.

A different case, however, will be that of assessing the sufficiency of the mentions placed on invoices or equivalent documents, in compliance with the obligation in question.

That is: while the omission of the mention relating to "The quantity and usual denomination of goods transmitted or services provided" cannot, in any case, be justified on the basis of the purpose thereof, the assessment of the suitability of the mentions placed to comply with that formal requirement should not, or better, cannot, be divorced from that purpose.

Thus, it should be, in the opinion of this Tribunal, at the light of the purposes recognized as applying to the formal requirement in question, confronted with the specificities of the concrete case, that one should formulate the judgment of sufficiency or not of a given mention used for its compliance. (...)"

For the purpose of exercising the right to deduction, the VAT Directive itself ("VATD") requires possession of an invoice (articles 178 and 220), and with respect to the elements that must necessarily appear in it, article 226 (as relevant to the present decision) provides the following:

"1) The date of issue of the invoice;

The sequential number, based on one or more series, which uniquely identifies the invoice;
The VAT identification number, referred to in article 214, under which the taxable person effected the delivery of goods or provision of services;
The VAT identification number of the purchaser or recipient, referred to in article 214, under which a delivery of goods or provision of services was made by which the latter is a debtor of the tax or a delivery of goods referred to in article 138;
The name and full address of the taxable person and of the purchaser or recipient;
The quantity and nature of the goods delivered or the scope and nature of the services provided;
The date on which the delivery of goods or the provision of services was effected or completed, or the date on which the payment on account, referred to in points 4) and 5) of article 220, was made, insofar as that date is determined and is different from the date of issuance of the invoice;"

In accordance with the provisions of the aforementioned VATD provision and CJEU jurisprudence, only the mentions contained in the aforementioned article 226 of the VAT Directive must appear in invoices, and Member States cannot require other elements beyond those, nor make the exercise of the right to VAT deduction dependent on mentions or requirements (as to invoice content) that are not expressly provided for in the VATD (Pannon Jeep Decision of 2009-07-15, Case C-368/09, Evita-K EOOD Decision of 2013-07-18).

However, "according to that Court's jurisprudence, the principle of neutrality requires that VAT deduction be granted if the substantive requirements have been met, even if taxable persons have neglected certain formal requirements" (Cidália Lança, VAT Code and TSPMC, Notes and Comments, Coordination and Organization Clotilde Celorico de Palma and António Carlos dos Santos), namely as decided in the Kopalnia Decision of 2012-03-01.

With respect to the jurisprudence that has been issued by the CJEU regarding formal requirements of invoices for the purposes of tax deduction, we can conclude as written by Authors Miguel Durham Agrellos and Paulo Pichel (in VAT Notebooks 2015, Almedina Publishing House, pages 210 and 211):

"The formal requirements established in the VAT Directive, or which it allows Member States to establish, should be aimed at the accurate collection and correct supervision of the application of the tax;

Formal defects cannot, by themselves, jeopardize the right to deduction given its importance in the mechanics of the tax, and can at most give rise to the application of sanctions;

If a given invoice, although containing formal defects, makes it possible to ensure accurate collection and respective supervision of the application of the tax, it should be accepted for the purposes of exercising the right to deduction;

If, on the other hand, such invoice is not capable of ensuring accurate collection and respective supervision of the application of the tax, it should be corrected during the inspection procedure, being added the elements necessary for accurate collection and respective supervision. Should this not occur during this period, the tax administration should not be obliged to consider the new elements, having only as reference the invoice initially issued, for the purposes of admission of the exercise of the right to deduction, and may refuse it".

From the comparison of the aforementioned EU provision (article 226, no. 6) with the internal regime [article 36, no. 5, paragraph b)] it results immediately that the latter does not distinguish, as referred to in the aforementioned arbitral decision rendered in case no. 411/2014-T, whose understanding we follow here "regarding the type of mention to be placed on the invoice or equivalent document, between goods and services.

Indeed, while the EU provision states that the goods involved in the invoiced transaction must be mentioned, in addition to their nature, by their quantity, and that services must be mentioned by their scope, the national provision states that both goods and services must be mentioned by their usual denomination and quantity.

This distinction, however, should be considered sufficient to conclude that, at least, the concept of quantity used by the provision of paragraph b) of no. 5 of article 36 of the VATC cannot assume the same meaning when goods are at issue and when services are at issue.

In fact, while the former, by their material nature, will always be, by definition, directly measurable, services will not always be. Hence the VATD has used different terms with respect to one and the other subject of VAT transactions.

Finally, and still with respect to the interpretive factors to be taken into account in the legal operation now in question, it should also be noted that both the EU provision and the national provision do not state that the descriptive mention of goods or services must be precise or specific. On the contrary; the terms used ("nature", "usual denomination") directly refer to generic expressions that, encompassing the concrete operations carried out, apply to a diversity of related operations, which share the "nature" or are susceptible to being covered by the same usual denomination.

One cannot fail to take into account here, on one hand, the specificity of VAT, which leads to it intervening in practically all economic transactions that take place in the European space, and therefore naturally, in the conception of the respective legal regime, there would have been the concern not to create formalities, beyond those strictly necessary, that hinder the operability and capacity of action of economic agents. For what now matters, this concern will be reflected, in addition, in the admissibility that such agents use in the descriptive of their respective invoices, expressions that, identifying in a generic manner the goods or services supplied, are susceptible of being used repeatedly, in order to minimize the bureaucratic work (and, necessarily, hindering economic activity) necessary to comply with the ancillary tax obligation now in question.

On the other hand, and still in the sense of the deliberate acceptance of the genericity of the descriptive terms to be used in the mandatory mention relating to goods or services provided in VAT-subject operations, one should also consider the already detected functionality of the formal requirement in question, to the needs of supervision and control by the TA.

This circumstance should be properly combined, by way of the systematic element, with the level of abstraction used by the regulation of the tax in question itself. Indeed, throughout the VATC itself and its respective annexes, the various types of services are always described in a more or less abstract manner, taking into account, precisely, their "nature" or "usual denomination", depending on the relevance they have for the respective legal regime.

Should, in sum and for all that has been said, be this the "touchstone" for assessing the sufficiency or not of the mentions placed on invoices or equivalent documents, for the purpose of compliance with the provision of paragraph b) of no. 5 of article 36 of the VATC.

Given this, it is now important to verify whether the invoices whose VAT was disregarded by the TCA comply with the aforementioned formal requirements, since in accordance with the grounds that motivated the assessment, object of the present case, the other requirements for the exercise of the right to deduction, namely the substantive ones, were not placed in question, nor the existence of any indication of fraudulent conduct on the part of the Claimant.

Thus, with respect to the invoices issued by F…, S.A., B…, LDA., E…, UNIPESSOAL, the TA did not accept the deduction of VAT because it considered that the usual denomination of the services, the quantity and date on which services were provided were not mentioned.

Let us examine this.

With respect to the above-mentioned invoice issued by F…, S.A., according to the established facts, it contains the mention "Merchandising Service/Product Display in Stores… pax month of Oct/12" - PO…", indicating that the quantity is 1, followed by the unit price of € 4,583.02, indicating the respective VAT rate (23%).

In describing "merchandising service/Product display in stores" one cannot fail to consider that such designation sufficiently allows identification of the nature of the services provided, without it being necessary to specify which techniques are used.

As the Claimant alleges, "it results from the definition enshrined in the Portuguese Language Dictionary by Porto Editora "merchandising is the set of techniques for promoting the sale of a product, based on the study of consumer behavior and expectations and seeking to maximize and profitably the sales", and therefore the designation described therein is sufficient for the purposes of complying with paragraph b) of no. 5 of art. 36 of the VATC.

With respect to quantity, as stated above, although this is a provision of services, which by its own nature is not measurable, the invoice does not fail to indicate a quantity of 1. As to the date, as alleged by the Claimant, the mention appearing in the invoice in question states "the services were completed on the date of issuance of this document, article 36 of the VATC", and therefore it is understood that the date was indicated contrary to what was alleged by the TA.

Thus, it is considered that the mentions contained in the aforementioned invoice comply minimally with the requirements contained in the VATD and no. 5 of article 36 of the VATC, making it possible for the TA to ensure control of tax determination and supervision thereof, and therefore the correction should be annulled and the tax deduction accepted in the amount of 1,054.09 euros.

With respect to the invoice issued by B…, LDA ("B"), on 13-11-2012, according to the established facts, it contains the following mention of the description "Sound equipment C2T, portal and presenter", further specifying that the quantity is 1, followed by the unit price of € 4,181.00, the VAT rate (23%), the total net of tax, as well as the levy and the total VAT value. The descriptive further contains the mention of "PO…, of 12/11/2012".

It also results from the established facts that invoice no. …/2012-A, issued by H…, whose tax was not disregarded, contains in its description the mention of "provision of C2T Fair Hallway H0'12 services". This mention is also contained in the invoice no. A-…, issued by "D…", Lda. Therefore, one can conclude that the reference "C2T" is the usual denomination of the event in question.

Being a single invoice, given the designation of the issuing entity and the type of service provided by it, it is considered that the services and their nature are minimally identified, and it is perceivable that it is related to a sporting event-race, rental of sound equipment, a portal and the services of a presenter/announcer.

With respect to quantity, as stated above, although this is a provision of services and a single one, the invoice does not fail to indicate a quantity of 1. With respect to the date, in accordance with the provisions of paragraph f) of no. 5 of article 36 of the VATC, invoices must contain the date on which services were provided, if that date does not coincide with that of the issuance of the invoice, and therefore it is considered that the services were provided on the date of invoice issuance.

It is considered that the mentions contained in the aforementioned invoice comply minimally with the requirements contained in the VATD and no. 5 of article 36 of the VATC, making it possible for the TA to ensure control of tax determination and supervision thereof, including the applicable rate, and therefore the correction should be annulled and the tax deduction accepted in the amount of 1,647.26 euros.

With respect to the invoice no. …, issued by E…, UNIPESSOAL LDA., according to the established facts, it contains the mention "…–…– HO AF Initiative – Service provided at our facilities - PO…", specifying that the quantity is 1 for each of those services, followed by the unit price of € 480.00 and € 4,520.00, further mentioning that "the articles/services contained in this document were made available/provided on this date.

Although it is considered that the requirements relating to quantity and date are met, given the aforementioned explanation, however, based on its descriptive, it cannot be considered that the nature of the services is indicated therein, and therefore it is not possible for the TA to control and supervise the tax, and therefore the invoice in question does not satisfy minimally the legal requirements as to the mandatory mentions that must appear in invoices, imposed both by the VATD and by no. 5 of article 36 of the VATC, combined with nos. 2 and 6 of article 19 of the VATC, and therefore the tax cannot be deducted by the Claimant.

With respect to the invoices issued by service providers C…, S.A. and D…, the TA did not accept the deduction of VAT because it considered that the description is insufficient, alleging that the services are not itemized nor their unit or total quantity.

Let us examine this.

With respect to the invoice no. …/2012, issued by C…, S.A., on 2012-10-31, according to the established facts, it contains the mention "Remuneration for October 2012 relating to the set of services provided at Building…, in accordance with the Service Provision Contract signed on 09/09/2009", indicating € 27,951.29 as the value, followed by the VAT rate of 23%, specifying the VAT value of € 6,428.80.

Given the mentions inserted in the text of the invoice in question, it cannot be failed to conclude that, this being a provision of ongoing services, on a monthly basis, resulting from a contract, not being thus quantifiable by nature, the requirement to indicate the scope (time) is considered met, since therein it is indicated that the services relate to the month of October 2012.

With respect to the usual denomination of the services provided, it is stated in the aforementioned text that this is "a set of services provided at Building…, in accordance with the Service Provision Contract signed on 09/09/2009". It cannot fail to be considered that therein a reference is made to the nature of the services, albeit in an incipient manner, since the service provider, in issuing the invoice, referring in the body of its description to "the set of services provided at Building…", by express reference to the service provision contract with indication of the respective date, it can be assumed that it incorporates in the document (invoice) the set of services indicated and itemized in the identified contract (the itemization of which comprises 4 pages), and that mention is the denomination usually designated in the contractual relationship established between the Claimant and C… for a set of services – "composite service provision" (see arbitral decision rendered in case 61/2013-T, according to which it is considered that the indication of services can be made in a document attached to the invoice, provided that the existence thereof is properly referenced in the invoice). Additionally, it is not without merit, as results from the established facts, that the Claimant has its facilities in the aforementioned Building….

Thus, it is made possible for the TA to ensure supervision and collection of the tax, and therefore the invoice in question satisfies minimally the legal requirements as to the mandatory mentions of invoices required both by the VATD and by no. 5 of article 36 of the VATC, combined with nos. 2 and 6 of article 19 of the VATC, and therefore the respective tax should be deducted by the Claimant.

Regarding the invoices issued by D…, Lda., it results from the established facts that they contain the following mentions:

"a) invoice no. A-…: "…– Campaign… ESS – Promo Labels and various…–…, as per v/PO Number…", quantity 1;

b) invoice no. A-…: "Campaign… in ..., ... and ..., as per v/PO Number…", quantity 1;

c) invoice no. A-…: "Campaign…, …, Camp. Action Sports …, as per v/PO Number…", quantity 1;

d) invoice no. A-…: ""Campaign…, …, Production and Assembly, as per v/PO Number…", quantity 1;

e) invoice no. A-…: "Campaign…, …, Production and Assembly as per v/PO Number…", quantity 1; and,

f) invoice no. A-…: "Campaign… in ..., ... and ..., Production and Assembly, as per v/PO Number…", "quantity 1;"

Considering the content of the description in each of the invoices above identified and the comparison between them, as well as the designation of the service provider, it is clear that these are services of production and assembly of advertising campaigns for the Claimant's products, whose campaigns are identified in the text of the aforementioned invoices, using a usual denomination for the set of services provided therein, and with respect to quantity, as stated above, although this is a provision of services, which by its own nature is not measurable, the invoice does not fail to indicate a quantity of "1", and therefore it is considered that the mandatory mentions are sufficiently met in light of the provision of paragraph b) of no. 5 of art. 36 of the VATC and the VATD, making it possible for the TA to ensure accurate collection and supervision thereof, and therefore the correction should be annulled and the tax deduction accepted in the total amount of 16,934.28 euros.

In summary, it is considered that the invoice issued by service providers E…, UNIPESSOAL (invoice no. …) does not comply with the legally required mentions, and it cannot be considered that the same was issued in legal form, in accordance with the terms stated in article 19, nos. 2 and 6, combined with paragraph b) of no. 5 of article 36 of the VAT Code.

As to the other invoices, it is considered that they comply minimally with the mentions required in accordance with the terms stated in article 19, nos. 2 and 6, combined with paragraph b) of no. 5 of article 36 of the VAT Code, and therefore the VAT assessment act, object of this arbitral decision proceedings, should be partially annulled, for suffering from the defect of violation of the provisions of those rules, due to error in its presuppositions.

Consequently, the annulment of the aforementioned VAT assessment act also determines the annulment of the act of assessment of compensatory interest, since if such tax is not due, in accordance with the terms stated, compensatory interest cannot be required for the part corresponding to the corrections that should be annulled.

IV. RESTITUTION OF TAX PAID AND INDEMNITY INTEREST

The Claimant further requests the restitution of the tax already paid, plus the payment of indemnity interest.

Let us examine this.

Article 24, paragraph b) of no. 1 of the LFATM provides that the TA must "re-establish the situation that would have existed had the tax act subject to the arbitral decision not been performed, adopting the acts and operations necessary for such purpose", in the exact terms of the success of the arbitral decision in favor of the taxable person and until the end of the period provided for the voluntary execution of sentences of tax courts, in the event that no appeal has been filed or the arbitral decision on the merits of the claim has not been challenged.

Moreover, article 100 of the General Tax Act (GTA) - under the heading "effects of decisions favorable to the taxable person" - determines that the "tax administration is obliged, in case of total or partial success of administrative appeals or judicial proceedings in favor of the taxable person, to the immediate and full re-establishment of the situation that would have existed had the illegality not been committed, including the payment of indemnity interest, in the terms and conditions provided for by law".

Therefore, in light of the provisions of art. 100 of the GTA and of paragraph b) of no. 1 of art. 24 of the LFATM, it is unequivocal that in this case the Claimant has the right to restitution of the tax paid following the declaration of illegality of the assessment act, object of the decision in the present case, in the part corresponding to the annulled portion.

Let us examine the request for payment of indemnity interest.

No. 5 of the aforementioned art. 24 of the LFATM also stipulates that "interest is due, regardless of its nature, in the terms provided by general tax law and the Code of Tax Procedure and Process". It results from the aforementioned legal provision that in case of success of an arbitral decision in favor of the taxable person there will be place to the payment of indemnity interest, in accordance with nos. 1 and 2 of art. 43 and art. 100 of the GTA.

No. 1 of art. 43 of the GTA establishes that "indemnity interest is due when it is determined, in a gracious appeal or judicial challenge, that there was an error attributable to the services from which it resulted in the payment of the tax debt in an amount greater than legally due". Thus, as Jorge Lopes de Sousa tells us, in "Guide to Tax Arbitration", Almedina, March 2013, page 223, the right to indemnity interest depends on the verification of the following requirements:

"- that there is an error in a tax assessment act;

that it be attributable to the services (directly or by way of generic guidance);
that the existence of that error be determined in a process of gracious appeal or judicial challenge;
that from such error resulted the payment of a tax debt in an amount greater than legally due".

In the case at hand, there is no doubt that the tax assessment act of VAT, object of the present arbitral decision, resulted from an error attributable to the services, that is, an error regarding the presuppositions, in light of the considerations described above, and for which we refer to. From that error resulted the payment of the tax, as established in the facts.

Therefore, given that all requirements are met, the Claimant has the right to indemnity interest.

V. DECISION

For all the foregoing reasons, the Arbitral Tribunal decides:

1st - To uphold the exception of absolute material incompetence of this Tribunal to rule on the request for "recognition of the Claimant's right to reimbursement requested in the periodic declaration for the period of November 2012, in the amount of EUR 13,680.28" and dismiss the Respondent from the instance as to this request.

2nd - To accept the arbitral request with respect to the request for declaration of illegality of the VAT assessment act and to declare the illegality and partially annul the assessment act no. 2013 ..., issued on 2013-07-02, maintaining the correction referring to the invoice issued by E…, UNIPESSOAL (VAT amount of € 1,150.00) and annulling the corrections relating to:

a) The invoice issued by B…, Lda. (VAT amount of € 961.63);

b) The invoices issued by F…, S.A. (VAT amount of € 1,054.09);

c) The invoices issued by C…, S.A. (VAT amount of € 6,428.80); and

d) The invoices issued by D…, Lda. (VAT amount of € 16,934.28).

Total amount to be annulled: € 25,378.80.

3rd - To partially annul the assessment of compensatory interest relating to the annulled portion of the tax, as established in point 2 above, in proportion to the annulled amount.

4th - To determine that the Respondent must:

a) Restore the Claimant to the status quo ante, adopting all necessary acts and operations, including:

i. Restoring to the Claimant's VAT running account the tax deducted relating to the annulled portion;

ii. Refunding the tax unduly paid in the amount corresponding to the annulled corrections;

iii. Paying indemnity interest on the refunded amount, calculated from the date of payment by the Claimant until the date of full execution of this decision, at the rate set forth in article 43, no. 2 of the General Tax Act in force at the time of the facts, and in accordance with the conditions established therein.

5th - To reject as moot the request for reimbursement of the VAT amount in the request (second part of the Claimant's final request concerning the €13,680.32), given the dismissal from the instance of the request on the basis of lack of jurisdiction.

6th - To waive the adjudication of costs, pursuant to the provisions of article 30, no. 1 of the LFATM.

Lisbon, [date]

[Arbitrator Signature]

Frequently Asked Questions

Automatically Created

What are the formal requirements for VAT invoices under Article 36 of the Portuguese VAT Code (CIVA)?

Under Article 36 of the Portuguese VAT Code (CIVA), invoices must contain specific mandatory elements set out in paragraph 5, including: (a) specification and quantification of the goods delivered or services provided; (b) the price, excluding tax, and other elements included in the taxable base; and the applicable VAT rate and amount. These requirements are considered substantive (ad substantiam) rather than merely probative (ad probationem), meaning they cannot be substituted by other evidence according to the Tax Authority's interpretation. Vague or generic descriptions such as 'services provided' or 'work performed' are insufficient—invoices must clearly identify the specific nature and quantity of services rendered to allow verification of the correct VAT rate application and deduction legitimacy.

Can the right to deduct VAT be denied solely due to formal deficiencies in invoices?

Portuguese tax law traditionally treats invoice formal requirements as substantive conditions for VAT deduction, meaning strict compliance with Article 36 CIVA is required. However, CJEU case law establishes that the right to deduct VAT is a fundamental principle that cannot be denied solely due to formal deficiencies if: (1) the material requirements for deduction are satisfied (genuine taxable transactions, VAT actually charged, connection to taxable output operations); (2) there is no indication of tax fraud or abuse; and (3) the tax administration has the necessary information to verify the right to deduction. Portuguese arbitral tribunals and courts increasingly apply this CJEU principle, recognizing that while formal compliance is important, substantive compliance with VAT deduction conditions should prevail when supporting documentation demonstrates the transaction's legitimacy and no fiscal fraud exists.

How does CJEU case law influence VAT deduction rights regarding invoice requirements in Portugal?

CJEU jurisprudence significantly influences Portuguese VAT law through the primacy of EU law. Key CJEU principles include: the right to deduct VAT is fundamental to the VAT system's functioning and must be exercised immediately for all tax charged on input transactions; formal requirements cannot undermine this substantive right; member states may impose invoice requirements but cannot make deduction impossible or excessively difficult; where tax authorities possess necessary information to verify a transaction's legitimacy (even through means other than invoices), denial of deduction based solely on formal defects violates EU law; and the principle of neutrality requires that similar genuine transactions receive similar treatment. Portuguese tax authorities and courts must apply these principles, though tension exists between traditional formalist approaches and CJEU's substance-over-form doctrine, as evidenced in this case where the taxpayer invoked CJEU case law to defend deduction rights despite alleged formal invoice deficiencies.

What is the procedure to challenge a VAT assessment through tax arbitration (CAAD) in Portugal?

To challenge a VAT assessment through tax arbitration (CAAD - Centro de Arbitragem Administrativa) in Portugal: (1) First, file a gracious appeal (reclamação graciosa) with the Tax Authority within 120 days of notification of the assessment; (2) If the gracious appeal is dismissed or there is no response within the legal deadline, file an arbitration request with CAAD within 90 days, pursuant to Articles 2 and 10 of Decree-Law 10/2011 (RJAT - Legal Framework for Tax Arbitration); (3) The arbitration request must identify the contested act, state the factual and legal grounds, and include supporting documentation; (4) CAAD's jurisdiction covers declaration of illegality of tax assessment acts, self-assessment acts, withholding acts, and payment on account acts; (5) An arbitral tribunal is constituted within specific timeframes; (6) The Tax Authority submits a response; (7) A hearing may be held under Article 18 RJAT; (8) Parties submit written allegations; (9) The tribunal issues a binding decision. This arbitral route offers a faster, specialized alternative to judicial tax courts, with decisions typically required within six months (subject to extension).

Are supporting documents sufficient to validate VAT deduction when invoice descriptions are disputed by the Tax Authority?

Supporting documents can validate VAT deduction when invoice descriptions are disputed, but their sufficiency depends on legal interpretation. The Tax Authority's position is that the invoice itself must independently contain all Article 36 CIVA requirements—supporting documentation cannot cure substantive invoice defects because the invoice is the legal document evidencing the tax credit and deduction right, with requirements being ad substantiam (essential to validity) not ad probationem (merely evidentiary). However, the taxpayer's position, grounded in CJEU case law, argues that supporting documentation attached during inspection procedures can clarify service nature and demonstrate compliance with material VAT deduction requirements. Under CJEU principles, if supporting documents enable the Tax Authority to verify: (1) services were actually provided; (2) VAT was properly charged; (3) transactions relate to the taxpayer's taxable activities; and (4) no fraud exists—then deduction should not be denied for formal invoice deficiencies. The outcome depends on whether Portuguese arbitral tribunals adopt a strict formalist approach emphasizing invoice self-sufficiency or a substantive approach recognizing that combined documentation can establish deduction legitimacy when material conditions are satisfied.

VAT Deduction and Formal Invoice Requirements Under Article 36 CIVA – CAAD 759/2015-T

Table of Contents

Summary

Full Decision

ARBITRAL DECISION

Frequently Asked Questions

Tags

FRESH Legal Group

Table of Contents

VAT Deduction and Formal Invoice Requirements Under Article 36 CIVA – CAAD 759/2015-T

Table of Contents

Summary

Full Decision

ARBITRAL DECISION

Frequently Asked Questions

Tags

FRESH Legal Group

Related Articles

Table of Contents