Summary
Full Decision
ARBITRAL DECISION
The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Paulo Lourenço and António Alberto Franco, appointed by the Deontological Council of the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby agree:
I – REPORT
On 29 December 2016, A…, Lda, NIPC…, with registered office in …, …, …, …-… Lisbon, filed a request for the constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, briefly referred to as RJAT), seeking the declaration of illegality of the following VAT and interest assessment acts, in the amount of € 117,002.79:
To support its request, the Applicant alleges, in summary, that there is error in the presuppositions, considering that the inspection services proceeded to correct improperly deducted VAT due to lack of verification of formal requirements in the invoices, disregarding the principle of neutrality.
It further alleges, with respect to the assessment for the period 1/2013, the failure to notify the same.
By request of 30-06-2017, the Applicant further alleged the expiration of the right to assess, due to failure to notify the same within the deadline referred to in Article 45(1) of the CPPT.
On 30-12-2016, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.
The Applicant did not appoint an arbitrator, wherefore, pursuant to the provisions of Article 6(2)(a) and Article 11(1)(a) of the RJAT, the President of the Deontological Council of the Administrative Arbitration Centre appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the appointment within the applicable period.
On 14-02-2017, the parties were notified of these appointments, and neither manifested any intention to refuse any of them.
In accordance with the provisions of Article 11(1)(c) of the RJAT, the collective Arbitral Tribunal was constituted on 28-03-2017.
On 11-05-2017, the Respondent, duly notified for this purpose, filed its defence, both by exception and by contestation.
Pursuant to Articles 16(c), (e) and 29(2) of the RJAT, the meeting referred to in Article 18 of the RJAT was dispensed with.
A deadline having been set for the submission of written submissions, the same were submitted by the parties, pronouncing themselves on the evidence produced and reiterating and developing their respective legal positions.
A deadline of 30 days was set for the issuance of final decision, following the submission of arguments by the Respondent.
In accordance with Article 21(2) of the RJAT, the deadline for issuance and notification of the final decision referred to in paragraph 1 of that article was extended by two months, and the deadline referred to in Article 18(2) of the RJAT was extended by 30 days.
The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with Articles 2(1)(a), 5 and 6(1) of the RJAT.
The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.
The proceedings do not suffer from any nullities.
Thus, there is no obstacle to the examination of the case.
All being considered, judgment should be rendered.
II. DECISION
A. FACTUAL MATTER
A.1. Facts Established as Proven
The Applicant is, and was in 2012 and 2013, classified, for VAT purposes, under the normal monthly periodicity regime, as a taxable person carrying out operations conferring the right to deduction, and which develops as its main activity "Other business and management consulting activities", with CAE 70220 and, as secondary activity, "Hairdressing Salons", with CAE 96021 and was subject to an Inspection Procedure carried out by the Finance Directorate of Lisbon, authorized by Service Order No. OI2014…, by dispatch of 03 February 2016, having as its objective the declarative control for Value Added Tax (VAT) purposes with reference to the tax period of 2012.
For the purposes of Article 49 of the Complementary Regime of Tax and Customs Inspection Procedure (RCPITA), the corresponding notice letter was sent (Office No.…, of 03-02-2016, with CTT registry No. RD …PT).
The inspection acts began on 15-04-2016 and were concluded on 07-07-2016, with the signature of the service order and the diligence note, respectively.
A… is, and was in 2012 and 2013, wholly held by company B… SGPS, S.A, NIPC … .
During the inspection procedure, discrepancies were detected between Annexes O and P submitted by the taxable person and the same annexes submitted by customers and suppliers.
The discrepancies detected in the completion of Annexes O and P by A… were the following:
In the part "III. Description of facts and grounds for corrections that are merely arithmetic in nature to the taxable amount", it was stated in the Inspection Report that no errors were detected regarding assessed VAT.
As regards deductible VAT, the Inspection Report contains the following:
"Accounts 24321132011 and 24321132121 are debited with amounts corresponding to VAT borne by the taxable person in the acquisition of goods and services provided to it. The amounts of VAT borne are declared in fields 22 and 24 of periodic tax declarations.
III.1.1. Requirements of Article 36(5)(a) of the CIVA (Annex, fls. 10)
The taxable person considered deductible the VAT indicated in the invoices itemized in the following table:
These documents do not contain the tax identification number and the registered office of the service provider, an obligation imposed by Article 36(5)(a) of the CIVA.
In debit note No. 2/2012, the elements relating to the company name and tax identification number of the provider were not entered electronically and the goods acquired were not itemized.
For the above reasons, pursuant to Article 19(2) of the CIVA, VAT in the amount of € 1,720.52 cannot be considered deductible, due to non-compliance with the provisions of Article 36(5)(a) of the CIVA.
III.1.2. Requirements of Article 36(5)(b) of the CIVA (Annex, fls. 11 to 22)
The documentary analysis shows that some of the documents supporting deductible VAT do not comply with the invoice issuance requirements provided in Article 36(5) of the CIVA, more specifically with those provided in paragraph (b).
The CIVA establishes, as a rule, the obligation of taxable persons to issue an invoice for the provision of services they perform, establishing in Article 36 the requirements that it must meet, compliance with which is determinative for considering documents thus issued processed in legal form.
The law establishes certain requirements relating to the issuance of invoices, namely, Article 36(5) of the CIVA, provides that invoices must contain the quantity and usual denomination of the goods transferred or the services provided, specifying the elements necessary for the determination of the applicable rate, that is, they must contain all the elements necessary for a correct identification of the goods sold or the services provided.
Administrative doctrine has already pronounced itself on the matter of invoices issued for the provision of services. Circular Notice No. 181 044 of 1991-12-06 states in paragraph 1.3 that "The invoicing of service provisions shall always quantify and specify the operations, and, for example, mere indication of 'services provided' cannot be accepted".
Also the doctrinal fact sheet relating to case No. 2976, with dispatch of the SDG of Taxes, on 2012-02-29, indicates that invoices issued must, in accordance with paragraph 6 of Article 226 of Directive 2006/112/EC, of the Council, of 28 November 2006, contain the "quantity and nature of goods delivered or the extent of services provided", so that they can be considered issued in legal form.
Case law has the same understanding on this matter, stating that invoices that do not meet all the legal requirements set out in Article 36 of the CIVA, namely by not itemizing the services that were actually provided, cannot be considered issued in legal form. This deficiency is not remedied by the addition of declarations that attest to the elements now omitted, since they do not constitute equivalent documents (Court of Audit Decision of 2004-11-11, case 00105/04).
The consequence of invoices not meeting all the legal requirements provided in Article 36 of the CIVA is that they are not valid support for tax deduction in accordance with Article 19(2) of the same statute.
Given the foregoing, the deduction made by A… of the tax reflected in the documents indicated in the following table cannot be accepted, and the amount of € 100,333.84 relating to deductible VAT must be corrected.
III.1.3. Non-deductible VAT, by period
Taking into account what is set out in sections III.1.1. and III.1.2., there is a deficit of tax in the amount of € 102,054.36.
"
Pursuant to Article 60 of the General Tax Law and Article 60 of the Complementary Tax Inspection Procedure Regime, by office No. … of 2016-07-25, with CTT registry No. RD…PT, the Applicant was notified of the proposed corrections contained in the Draft Inspection Report to exercise the Right of Hearing.
On 09 August, the Applicant submitted its hearing in response to the proposed corrections regarding deductible VAT, in the amount of € 102,054.36.
Regarding the allegations made by the Applicant in its hearing, the Tax Inspection Services considered in the Final Inspection Report the following:
"VIII.1. On the failure to affix Tax ID Number and company name by electronic means
The correction contested by A… refers to VAT of € 110.52 contained in debit note No. …/2012, issued on 29-02-2012, by certified invoicing software.
The State Budget Law of 2009 (Law No. 64-A/2008 of 31 December) introduced an amendment to Article 115 (currently Article 123) of the Personal Income Tax Code (CIRC), making prior certification of invoicing programs by the Tax Authority mandatory.
Taxable persons, not falling within any of the exceptions contained in Article 2(2) of Ordinance 363/2010 of 23 June, are obliged to use certified computer programs for the issuance of invoices.
In accordance with Article 3(d) of that Ordinance, the certification of computer programs is only granted, among other situations, when it can be verified that it is not possible to alter information of a fiscal nature, which implies that any of the mandatory fiscal elements that must be contained in invoices are entered electronically, so that they are not subject to alteration. The principle of the Ordinance is "[...] to define rules so that invoicing programs comply with requirements that guarantee the inviolability of the information initially provided [...]", in order to prevent situations of tax evasion.
The Respondent considers that the tax inspection services are incorrect in disregarding the right to deduction of VAT, since it considers that the obligation to enter electronically the company name and the Tax ID Number of the service provider is established in Article 36(14) of the CIVA, which was added by Decree-Law 197/2012 of 24/08, and the invoice whose supported VAT is being disregarded by these Services for deduction purposes was issued in February 2012.
Indeed, the Decree-Law that introduced Article 36(14) to the CIVA is subsequent to the issuance of the invoice. Because this situation was recognized, in the draft report this regulation was not invoked.
Moreover, this was not necessary, since, as already stated, the electronic entry of the Tax ID Number and company name was mandated in 2009, with the mandatory use of a certified invoicing program by A….
Decree-Law 197/2012 merely came to "[...] clarify that in invoices issued by electronic means all their content must be processed electronically [...], this measure aiming to combat informal economy, fraud and tax evasion (preamble to Decree-Law 197/2012, fourth paragraph).
For the foregoing reasons, given that the Tax ID Number and company name of the provider must appear in invoices, in accordance with Article 36(5)(a) of the CIVA and as these elements must be processed electronically, in accordance with Article 123 of the CIRC in conjunction with Ordinance 363/2010 of 23 June, the taxable person's claim cannot be accepted, and the correction to deductible VAT is maintained.
Regarding the supporting document, with internal number 2,144, attention is also drawn to the fact that the VAT borne and recorded in account 24321132011 is also not deductible due to lack of itemization of the goods acquired, in accordance with Article 36(5)(b) of the CIVA.
VIII.2. On the failure to itemize goods acquired and services provided
VIII.2.1. On goods acquired
The invoices supporting the corrected deductible VAT have "PRES/PT Goods" entered in the description of the item transacted.
The use of the term "goods" is generic, so it does not allow identification of the goods transacted and, thus, to verify whether the VAT rate applied was correct.
In accordance with Article 36(5)(b) of the CIVA, invoices must state the quantity, the usual denomination of the goods transferred or the services provided, the legislator further emphasizing that the elements necessary for the determination of the applicable rate must be specified.
In paragraph 6) of Article 226 of Directive 2006/112/EC, of the Council, of 28 November 2006, it is also indicated that "The quantity and nature of goods delivered or the extent and nature of services provided", "[...] must compulsorily appear, for VAT purposes, on invoices issued [...]".
The Respondent alleges that it normally details the various types and references of goods transacted in the documents accompanying the goods and in the documents supporting the acquisition operation of goods, but does not do so in the invoices, since they are goods with a high level of detail information.
In fact, it was verified that the invoices in question do not itemize the goods acquired by A…, nor is there an attached document that itemizes them.
The taxable person expresses that it does not understand the reason why the tax inspection services disregarded, in the assessment of deductible VAT, the elements contained in those documents (meaning transport documents and order notes), all the more so because regarding the documentation accompanying the circulation of goods, the rules established in Decree-Law No. 147/2013, of 11/07 must be complied with.
It is pointed out that the CIVA and the Regime of Goods in Circulation Subject to Transactions between VAT Taxable Persons are separate statutes and both have tax relevance, with Article 36 of the CIVA applying to invoices and Article 4 of Decree-Law No. 147/2013, of 11/07, applying to invoices when used as transport documents, to remittance notes or equivalent documents.
Supporting documents do not replace invoices, all the more so because they lack fewer elements (see Article 4(2) of Decree-Law No. 147/2013, of 11/07). Invoices may replace transport documents but, even so, they must contain all the elements referred to in Article 36(5) of the CIVA (see Article 4(1) of Decree-Law No. 147/2013, of 11/07).
It should also be noted that, to assess the right to deduction, the compliance with the formal condition provided in Article 19(2) of the CIVA must be verified, which determines that only tax mentioned in invoices issued in legal form, that is, in compliance with Article 36 of the CIVA, can be deducted (Article 19(6) of the CIVA). Article 19(2) of the CIVA expressly refers to invoices and not to transport documents or documents supporting the operation of acquisition of goods.
Since the usual denomination of goods acquired was not entered in the invoice, the VAT borne cannot be deductible, in accordance with Article 19(2) of the CIVA and Article 36(5)(b) of the CIVA, and therefore the taxable person's claim to consider the corrected tax deductible is not accepted.
VIII.2.2. On services provided
Also, the failure to enter in the invoice the usual denomination of services provided, with specification of the elements necessary for the determination of the applicable rate prevents, for tax purposes, the VAT borne from being deductible (Article 19(2) and (6) of the CIVA, in conjunction with Article 36(5)(b) of the CIVA).
The Respondent mentions that "the invoices in question merely reference 'service provision'. However, given the extent and diversity of services underlying the said invoices, a service provision contract was entered into between the service provider and the Respondent with the objective of including therein in detail the nature of the services, the terms and conditions of such service provision. And as this contract already contains the detail of the service provision operation between the parties, the invoice associated with these services no longer makes reference to all that detail, since it is already itemized in a legal document."
A… finds it strange that the service provision contracts made available were not considered for the purposes of assessing deductible VAT.
The contracts were not mentioned because they could not be used to assess VAT deductibility, since they were not invoices issued in legal form.
Thus, given the formality required by Article 19(2) and (6) of the CIVA, for tax deduction to occur, the reference to the service provision contract is not sufficient to consider the failure to itemize the services acquired as remedied and to consider the legal requirements of Article 36(5) of the CIVA as complied with.
As stated in the Court of Audit Decision of 2009-04-15, case 0951/08, VAT has a formalist character, "[...] in order namely to prevent, as much as possible, tax evasion, whereby the respective formalities are ad substantiam, not merely ad probationem". This means that the legislator, to prevent tax evasion and fraud, required various formalities in the documents that attest to the existence of tax facts.
Since the tax fact in question is the provision of services, the documents relevant for VAT assessment purposes are invoices.
The high degree of formalization required gives invoices evidentiary value for the purposes of VAT deduction.
Once again it is stated that case law has the same understanding on this matter, stating that invoices that do not meet all the legal requirements set out in Article 36 of the CIVA, namely by not itemizing the services that were actually provided, cannot be considered issued in legal form. This deficiency is not remedied by the addition of declarations that attest to the elements now omitted, since they do not constitute equivalent documents (Court of Audit Decision of 2004-11-11, case 00105/04).
Furthermore, as it is not possible to identify the service provided, it is not possible to confirm the deductibility of the VAT contained in the invoices, since it is unknown whether the service was acquired for the purpose of carrying out the operations listed in Article 20(1) of the CIVA.
For the foregoing reasons, the taxable person's claim cannot be accepted as regards the VAT borne on the acquisition of services.
The corrections proposed in the Draft Report are maintained.
1 Only contracts in which A… is the service provider were made available"
Following the Final Inspection Report, the above-identified assessments were issued, which are the object of the present arbitral action.
By means of personal service effected on 04-10-2016 in the fiscal enforcement proceedings No. …2016… and, likewise, by notification of default interest with No. 2016…, the Applicant became aware of the existence of the Assessment No.…, relating to the tax period 01/2013, of which the Applicant had not been notified.
The Applicant presented the goods entry guides and goods exit guides relating to the invoices listed in the Inspection Report, regarding which it was denied the right to deduction, containing the identification and quantities and value of the products transacted.
The Applicant also presented the following service provision contracts:
A contract between B… SGPS, SA and the Applicant, of 01 January 2011, whereby the first undertook to provide to the second technical administration and management services, for a period of one year, automatically renewable, being paid according to the number of hours dedicated to the provision of services in each year;
Contracts between the Applicant and D…, Ld.ª, H…, Ld.ª, F…, Ld.ª, T…, Ld.ª, all of 01 January 2011, whereby the first undertook to provide to the others staff training services, advisory services in the marketing and commercial field, and management support services, for a period of one year, automatically renewable, being paid according to the number of hours dedicated to the provision of services in each year;
A contract between R…, Ld.ª and the Applicant, of 12 January 2012, whereby the first undertook to provide to the second services for the conception of new projects in the beauty field, development and prospecting of national markets, development of marketing and advertising solutions and launching and support of national campaigns, until 31-12-2012, automatically renewable for periods of one year, being paid according to the number of hours for the provision of services, at the value of €125.00/hour, payable monthly.
A.2. Facts Established as Not Proven
There are no facts that should be considered as not proven that are relevant to the decision.
A.3. Basis for Factual Matter Proven and Not Proven
With respect to the factual matter, the Tribunal does not have to pronounce itself on everything that was alleged by the parties, rather, it has the duty to select the facts that are relevant for the decision and to distinguish the matter proven from the not proven (cf. Article 123(2) of the CPPT and Article 607(3) of the CPC, applicable ex vi Article 29(1)(a) and (e) of the RJAT).
Thus, the facts pertinent to the judgment of the case are chosen and determined according to their legal relevance, which is established in light of the various plausible solutions to the question(s) of Law (cf. former Article 511(1) of the CPC, corresponding to current Article 596, applicable ex vi Article 29(1)(e) of the RJAT).
Thus, taking into consideration the positions assumed by the parties, in light of Article 110(7) of the CPPT, the documentary evidence and the case file joined to the record, the facts above listed were considered proven as relevant to the decision, taking into account that, as stated in the Court of Administrative Appeal (Southern Panel) Decision of 26-06-2014, case 07148/13, "the evidentiary value of the tax inspection report (...) may have probative force if the assertions contained therein are not impugned".
Allegations made by the parties and presented as facts, consisting of strictly conclusory statements incapable of proof and whose truthfulness is to be assessed in relation to the concrete factual matter above established, were not considered as proven or not proven.
B. ON THE LAW
i. On exceptions
The Respondent first argues that with respect to the tax period 1/2013, the present procedural remedy is not only inadequate but there is no impugnable act within the meaning of Article 84(4)(i) of the CPTA, applicable "ex vi" Article 29(1)(a) of the RJAT, since the Applicant states that there is no assessment validly notified to it, and therefore without assessment, the present action would lack an object and, on the other hand, with respect to collection, it is through opposition to enforcement that the Applicant's procedural remedy would be adequate to exercise the right.
With all due respect, the Respondent is considered to be without reason.
Indeed, and first and foremost, the allegation of non-existence of an assessment, which is a matter of personal knowledge of the respondent itself, has no bearing, in addition to being documentally proven, and in any case, does not result from the Applicant having alleged such circumstance.
Moreover, the allegation actually formulated by the Applicant, and duly understood by the Respondent, of failure to notify the assessment in question, presupposes the existence of that same assessment, which is otherwise demonstrated by the Respondent.
As to the unsuitability of the procedural remedy, the Respondent is likewise without reason, since the suitability thereof is assessed, as is well known, by the request formulated, and what the Applicant petitions is the annulment of the assessment in question, an effect for which the present arbitral action is, obviously, a suitable remedy, and not, as the Respondent speculates, the dismissal of the fiscal enforcement proceedings.
The exceptions invoked by the Respondent are therefore dismissed.
ii. On the merits of the case
a. On failure of notification and expiration of the right to assess
With respect to the assessment relating to the tax period 1/2013, in its initial request, the Applicant invokes (Articles 15 to 22) its failure of notification and therefore its ineffectiveness, considering that it cannot be required to pay it.
As is well known, judicial impugnation, which shapes the tax arbitral proceeding, has as its object the (il)legality of an assessment act, not its ineffectiveness, which is not to be confused with that.
Indeed, as stated in the Court of Administrative Appeal (Southern Panel) Decision of 27-04-2017, case 1284/08.1BESNT, "In accordance with the case law of the Superior Courts, it has long been established that the lack of notification of the assessment, as an element integral to its external effectiveness, is a ground of opposition to be framed in Article 204(1)(i) of the Tax Procedure Code (cf. Article 286(1)(h) of the Tax Code), given that it does not collide with the assessment of the legality of the assessment itself".
The Court of Administrative Appeal (Northern Panel) also states that "Since notification is an act external and subsequent to the impugned tax act, the vices that affect the notification itself, although they may determine the ineffectiveness of the notified tax act, are incapable of generating the invalidity of the impugned act and determining its annulment."
All in consonance with the Court of Audit, which affirms that "The act of notification of a tax act is an act external and subsequent to it and the vices that affect the notification, though they may determine the ineffectiveness of the notified act, are incapable of producing its invalidity because they have nothing to do with the act itself or its presuppositions".
And, as Councilor Jorge Lopes de Sousa points out, "Facts that do not affect the validity of acts, but only concern their effectiveness, such as the failure or irregularity of their notification, cannot, as a rule, be used as a basis for judicial impugnation."
In consistency, all case law that gives relevance to the failure of notification of the assessment in judicial impugnation proceedings restricts itself to situations of failure of notification of the assessment within the period of expiration, which will generate, that same, the invalidity of the act, due to expiration of the right to assess.
This not being the case, as was seen, alleged in the initial request, that is, the failure of notification of the assessment within the period of expiration not being in question there, but rather the mere failure of notification, which is a cause of ineffectiveness, not of invalidity, the arbitral request cannot, in that part, proceed.
Only in its request of 10-07-2017 did the Applicant raise the failure of notification of the same, within the period of expiration, and not in its Initial Request, where it merely stated that "the payment of VAT relating to the tax period 01/2013 cannot be required of it, since it was not even notified of the assessment, thus affecting the legality of the tax act itself", it being proven in the case file that:
"By means of personal service effected on 04-10-2016 in the fiscal enforcement proceedings No. …2016… and, likewise, by notification of default interest with No. 2016…, the Applicant became aware of the existence of the Assessment No.…, relating to the tax period 01/2013, of which the Applicant had not been notified."
The Applicant only alleged the expiration of the right to assess through the request presented on 10-07-2017, and at the time of presentation of its initial request (presented on 29-12-2016) and at the time of presentation of that request, the period of expiration in question had not yet elapsed, and it still has not elapsed.
Indeed, for VAT relating to the period 1/2013, the period of expiration will not expire before 01/01/2018 in view of the provisions of Article 45(4) of the General Tax Law.
As the Court of Audit stated in its Decision of 25-02-2015, case 0871/13, "the period of expiration of the right to assess is counted in accordance with the special rule of Article 45(4) of the General Tax Law, that is, notwithstanding that VAT must be considered a tax of single obligation, it is counted from the beginning of the year following the one in which the tax became due".
Furthermore, as stated in the Court of Audit Decision of 14-09-2011, case 0559/11:
"...it was manifest that the period of expiration had not yet elapsed when it filed the initial petition of impugnation on 7/8/2000 (point 6 of the factual record).
And it is well to note that, even in the matter of facts alleged, strictly what the impugning party alleges is that until the date it filed the impugnation, it had never been notified of that assessment.
Wherefore, for the tribunal to conclude that expiration of the right to assess had occurred it would always have had to establish that the impugning party had not been effectively notified of the assessment in question, either until that date or subsequently until the date it considered the said expiration to have occurred, that is, it would always have had to extend the scope of the factual matter as being insufficient as alleged.
Thus (...) the facts alleged were not sufficient to substantiate a vice whose verification period had not yet elapsed."
Thus it is summarized, in the same decision, that:
"II – It is in the initial petition that the facts integral to the basis of the claim must be alleged and the request arising from it formulated, with the tribunal's powers being delimited thereby, except as to questions of ex officio knowledge."
This case law is, moreover, consistent with that which understands that "In the judicial impugnation proceeding the impugning party must invoke in the initial petition all the facts comprising the vices it attributes to the impugned act, unless they are supervenient or of ex officio knowledge."
Thus, and in compliance with the cited case law, the vice in question should be dismissed.
With respect to the remaining assessments, the corrections on which they are based are founded, in sum, on the following:
With respect to VAT evidenced by the documents referred to in Table V of the Inspection Report, it was considered that the provisions of Article 36(5)(a) of the CIVA were violated, in that they do not contain the tax identification number and the registered office of the service provider, and that in debit note No. …/2012, the elements relating to the company name and tax identification number of the provider were not entered electronically and the goods acquired were not itemized;
With respect to VAT evidenced by the documents referred to in Table VI of the Inspection Report, it was considered that the same do not comply with the invoice issuance requirements provided in Article 36(5)(b) of the CIVA.
Let us examine these then.
Articles 36(5)(a) and (b) of the applicable CIVA provide:
"5 - Invoices or equivalent documents must be dated, sequentially numbered and contain the following elements:
a) The names, company names or corporate designations and the registered office or domicile of the supplier of goods or service provider and the recipient or purchaser, as well as the corresponding tax identification numbers of the taxable persons;
b) The quantity and usual denomination of the goods transferred or the services provided, with specification of the elements necessary for the determination of the applicable rate; packaging not actually transacted must be the subject of separate indication and with express mention that its return was agreed;".
The Tax Authority understood, in sum, that "the consequence of invoices not meeting all the legal requirements provided in Article 36 of the CIVA is that they are not valid support for tax deduction in accordance with Article 19(2) of the same statute", therefore "to assess the right to deduction, the compliance with the formal condition provided in Article 19(2) of the CIVA must be verified, which determines that only tax mentioned in invoices issued in legal form, that is, in compliance with Article 36 of the CIVA, can be deducted (Article 19(6) of the CIVA)"
The understanding sustained in the Inspection Report is based on dated case law of the Court of Audit, which in a decision cited therein even stated that:
"I – The invoice or equivalent document issued in the legal form required by Article 19(2) of the CIVA for tax deduction is that which respects all the requirements of Article 35(5) of the same Code.
II – The requirement of this formalism constitutes a true substantive requirement of the right to deduct the tax, even if the taxable person is exempt from VAT."
This understanding, which considers that the invoice is a formality ad substantiam of the right to VAT deduction, should be considered currently superseded in light of what the case law of the CJEU has been on the matter, which understands "that the fundamental principle of VAT neutrality requires that deduction of this upstream-paid tax be granted if the material requirements are satisfied, even if taxable persons have neglected certain formal requirements."
As the CJEU states, in the same decision, "the purpose of the entries that must compulsorily appear on the invoice is to enable the tax administrations to carry out controls of the payment of the tax due and, if applicable, of the existence of the right to VAT deduction. It is therefore in light of this purpose that it is necessary to analyze whether invoices (...) comply with the requirements of Article 226(6) of Directive 2006/112."
Continuing, it is pointed out that "the Tax Administration cannot refuse the right to VAT deduction on the mere ground that the invoice does not meet the requirements laid down in Article 226(6) and (7) of Directive 2006/112, if it has all the data to verify whether the substantive requirements relating to this right are satisfied.
In this regard, the Tax Administration should not confine itself to examining the invoice itself. It must also take into account complementary information provided by the taxable person. This finding is confirmed by Article 219 of Directive 2006/112 which equates to an invoice any document or message that alters the initial invoice and refers to it specifically and unequivocally."
The CJEU also recalls that "Member States are competent to provide for sanctions in case of violation of formal requirements relating to the exercise of the right to VAT deduction. Under Article 273 of Directive 2006/112, Member States have the power to adopt measures to ensure the exact collection of tax and prevent fraud, provided that such measures do not go beyond what is necessary to achieve such objectives and do not jeopardize the neutrality of VAT (...).
In particular, Union law does not prevent Member States from applying, if appropriate, a fine or a proportionate pecuniary sanction to the severity of the infraction, in order to punish the violation of formal requirements"
That is, and first and foremost, contrary to what was understood in the Inspection Report, the consequence of invoices not meeting all the legal requirements provided in Article 36 of the CIVA is not that they are not valid support for tax deduction, with the CJEU being categorical in the sense that the Tax Administration cannot refuse the right to VAT deduction on the mere ground that the invoice does not meet the requirements.
This consequence will only be legitimate, therefore, if the Tax Authority does not have all the data to verify whether the substantive requirements relating to this right are satisfied, in such terms as not to allow it to carry out controls of the payment of tax due and, if applicable, of the existence of the right to VAT deduction, and the Tax Authority should not confine itself to examining the invoice itself, but must also take into account complementary information provided by the taxable person.
It is therefore in light of these criteria that the legality of the corrections made must be assessed.
Taking into account all that has been stated, with respect to the VAT evidenced by the documents referred to in Table V of the Inspection Report, it is considered that the formal deficiencies detected by the Tax Authority are not, in concrete terms, suitable to, of themselves, remove the Applicant's right to deduction of the tax mentioned therein, since, as results from the Inspection Report itself, the Tax Authority has all the data to verify whether the substantive requirements relating to this right are satisfied, in terms of allowing it to carry out controls of the payment of tax due and of the existence of the right to VAT deduction.
Indeed, Table V of the Inspection Report itself indicates the missing data, it being verified therefore that the Tax Authority easily ascertained both the tax identification number and the registered office and company name of the seller/service provider.
Thus, and without prejudice to any sanctions that may be appropriate in the case, for violation of the norms governing the formalism of invoices, the Tax Authority is in possession of the information necessary to ensure control of the verification of the substantive requirements of the Applicant's right to deduction, and it is not therefore permitted to remove such right on the basis of the said formal deficiencies.
As for the circumstance that the elements relating to the company name and tax identification number of the provider were not entered electronically, these are valid, by a greater reason, given that such requirement is based neither on the Community VAT regime nor on the national norms then in force relating to the mandatory elements of invoices.
Without prejudice, it will still be said, furthermore, regarding this matter, that the understanding conveyed in the Inspection Report is not accepted either, according to which it would be legitimate to draw consequences at the level of the right to VAT deduction from the regime of Article 115 (currently Article 123) of the Personal Income Tax Code (CIRC), rendering empty of content the introduction of Article 36(14) of the CIVA, which, at the outset, is contrary to the presumption of a reasonable legislator.
With respect to the circumstance that in debit note No. …/2012 there is no mention of the goods acquired not having been itemized, the same will be analyzed below.
The remaining corrections in question in the present arbitral action, relating to the documents contained in Table VI and to debit note No. …/2012, in the part not previously considered, are based on the absence of itemization, in the documents in question, of the goods or services acquired by the Applicant.
In the CJEU Decision cited above, it was concluded that "Article 226(6) of Directive 2006/112 requires that the invoice contain a statement of the extent and nature of the services provided. The wording of this provision thus indicates that it is mandatory to specify the extent and nature of the services provided, without however requiring that it is necessary to describe the specific services provided in an exhaustive manner."
Moreover, it was concluded, in the same place, that "although the invoices in question qualify the services provided as 'legal services', it remains true, as the Portuguese Government pointed out in its observations, that this concept encompasses a vast array of service provisions and, notably, provisions that do not necessarily assume a business scope. From this it follows that the mention 'legal services provided from a certain date to the present' or 'legal services provided to the present' does not appear to indicate, in a sufficiently detailed manner, the nature of the services in question. Furthermore, this mention is so generic that it does not allow to highlight the extent of the services provided, for the reasons referred to by the Advocate General in paragraphs 60 to 63 of its conclusions. Consequently, the said mention does not comply, in principle, with the requirements laid down in Article 226(6) of Directive 2006/112."
In this sense, there will be reason to consider that the Tax Authority is correct when it understands that the mentions "Goods" and "Provision of services" or "Provision of consulting services" do not comply with the formal requirements legally imposed for VAT purposes.
It is necessary, however, as indicated by the CJEU, not to limit the assessment of the existence of the presuppositions of the right to deduction that the Applicant seeks to invoke to the examination of the invoice itself, but to take into account the complementary information provided by the taxable person.
Thus, with respect to goods acquired, the Applicant presented the transport guides relating to all the invoices in question in the present arbitral proceedings.
Now, taking into account these elements, without a doubt, notwithstanding the non-compliance with the formal requirements legally imposed on VAT invoicing, the Tax Authority has the necessary data to verify whether the substantive requirements relating to the right to VAT deduction are satisfied, in terms of allowing it to carry out controls of the payment of tax due and, if applicable, of the existence of the right to VAT deduction.
As for the invoices relating to services provided, the same conclusion will not be possible, with the following invoices being at issue:
Indeed, in this regard, the Applicant confined itself to attaching the contracts referred to in paragraph 14 of the facts established as proven.
Now, and first and foremost, the contract with R…, Ld.ª, is absolutely irrelevant to the question, since no invoice issued by that entity is in issue.
As for the invoices issued by D…, H…, F… and T…, the contracts attached likewise advance nothing, in that in the same the Applicant appears as a service provider, and from which no obligation results from payment on its part.
Thus, the documentation presented by the Applicant is only of some relevance for the purposes of assessing the correctness of the corrections relating to the VAT contained in the invoices issued by B… SGPS, SA.
Such documentation, however, is to be considered insufficient for it to be affirmed that the substantive requirements relating to the right to VAT deduction are satisfied, in terms of permitting the Tax Authority to carry out controls of the payment of tax due and, if applicable, of the existence of the right to VAT deduction.
Indeed, even in light of the contract presented, one is left not knowing and unable to determine which specific services were invoiced, among the various ones provided for contractually, at what time they were provided, and what their quantification was, all elements essential to the pursuit of the purpose of the mentions that must compulsorily appear on the invoice, namely, and as has been concluded already, to permit the Tax Administration to carry out controls of the payment of tax due and, if applicable, of the existence of the right to VAT deduction.
Note, in particular, that, in accordance with the contract, the amount owed by the Applicant would be calculated based on the number of hours and not only in no part can one discern what number of hours would have been invoiced, but it also does not result from the contract, nor from any other available element, what the hourly rate would be incumbent on the Applicant to pay.
Thus, and given all that has been stated, the arbitral request should proceed with respect to the following corrections, in the total amount of tax of €2,923.66, which are affected by error in their respective legal presuppositions and must therefore be annulled:
[Table showing corrections to be annulled]
In the remaining part, also given all that has been stated, the corrections must, as being legal, be maintained, in the total amount of tax of € 99,130.00, which are the following:
[Table showing corrections to be maintained]
As for the request for compensatory interest formulated by the Applicant, Article 43(1) of the General Tax Law establishes that compensatory interest is due when it is determined that there was error attributable to the services from which results payment of the tax debt in an amount greater than the legally due.
In the case, the errors that affect the assessment, and which are indicated above, are attributable to the Tax Authority and Customs Administration, which performed the assessment act partially illegal by its own initiative.
The Applicant thus has the right to be reimbursed of the amount it paid unduly (pursuant to the provisions of Article 100 of the General Tax Law and Article 24(1) of the RJAT) and, furthermore, to be indemnified for the unduly paid amount through payment of compensatory interest by the Respondent, from the date of payment of the amount, until reimbursement, at the legal default rate, in accordance with Articles 43(1) and (4) and 35(10) of the General Tax Law, Article 559 of the Civil Code and Ordinance No. 291/2003, of 8 April.
C. DECISION
For these reasons, in this Arbitral Tribunal we decide to render partial judgment on the arbitral request formulated and, in consequence:
-
Annul the corrections identified above, in the total amount of tax of € 2,923.66, and respective compensatory interest;
-
Condemn the Respondent to the payment of compensatory interest, on the amounts unduly paid, in the terms indicated above;
-
Judge the remaining part of the arbitral request as not well-founded;
-
Condemn the parties to the costs of the proceedings in proportion to their respective default, fixing at € 2,972.00 the amount to be paid by the Applicant, and at €88.00 the amount to be paid by the Respondent.
D. Value of the Proceeding
The value of the proceeding is fixed at € 117,002.79, in accordance with Article 97-A(1)(a) of the Code of Tax Procedure and Process, applicable by virtue of Article 29(1)(a) and (b) of the RJAT and Article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings.
E. Costs
The amount of the arbitration fee is fixed at € 3,060.00, in accordance with Table I of the Regulation of Costs of Tax Arbitration Proceedings, to be paid by the parties in proportion to their respective default, as above fixed, since the request was partially well-founded, in accordance with Articles 12(2) and 22(4), both of the RJAT, and Article 4(4) of the said Regulation.
Notify.
Lisbon, 27 October 2017
The Presiding Arbitrator
(José Pedro Carvalho)
The Arbitrator Member
(Paulo Lourenço)
The Arbitrator Member
(António Alberto Franco – with concurring opinion)
CONCURRING OPINION:
I concur with the decision, but would have rendered judgment in favor of the request formulated in the initial request under the section "II. On the failure of notification of the VAT assessment for the tax period 01/2013", for the following reasons:
- The tribunal's powers are delimited by the initial petition, where the facts integral to the basis of the claim must be alleged and the request arising from it formulated.
In this framework, I understand that the applicant never raised the question of expiration of the right to assess in that petition. What the applicant invokes - Articles 15 to 22 - is the absence of notification of an assessment and, therefore, its ineffectiveness, and that payment cannot be required of it. That is, it invoked the fact that the assessment was made but was not validly notified to it, in the case, within the period of expiration – which is still ongoing, moreover – which would result in its ineffectiveness. A conclusion that appears to me to result, with clear evidence, from the text it presented.
The question and the vice are therefore properly identified in the initial request, as is the factual matter necessary for that purpose.
- It is true that the failure to notify the assessment act before the expiration of the right to assess configures ineffectiveness of that tax act and constitutes, therefore, a ground of opposition to fiscal enforcement. This understanding does not conflict with another one translated into the possibility of, with this same ground, judicial impugnation being deduced, as appears to result from the interpretation combined with the Court of Audit Plenary Decisions of 18-9-2013 – Case No. 0578/13, of 7-7-2010 - Case No. 545/09 and of 20-1-2010 - Case No. 832/08.
The Court of Audit pronounced itself in the same sense in more recent decisions – see Decisions of 18-06-2014 - Case 0344/13 and of 27-10-2016 – Case 09810 – saying in that of 18-06-2014 that: "Similarly to what occurs with abstract illegality and double assessment, the failure of notification of the assessment within the period of expiration also constitutes a vice invocable both in opposition to fiscal enforcement and in judicial impugnation, with no error therefore occurring in the form of the proceeding if invoked in impugnation".
- Thus, taking into consideration the arbitral request and the factual matter established as proven, I would have rendered judgment in favor of the point in question.
The Arbitrator Member
(António Alberto Franco)
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