Process: 772/2015-T

Date: August 20, 2018

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 772/2015-T) addresses a critical VAT deduction dispute involving a German company's Portuguese branch and its parent entity. The case centers on whether Portuguese tax authorities can treat a foreign company and its Portuguese branch as distinct taxable persons for VAT purposes, thereby denying the branch's right to deduct VAT charged on services provided by an Economic Interest Grouping (GEI) of which only the parent company was a member. The Tax and Customs Authority issued additional VAT assessments totaling €393,248.15 for 2010-2011, which the taxpayer challenged through hierarchical appeal and subsequently CAAD arbitration. The arbitral tribunal made a preliminary ruling referral to the Court of Justice of the European Union under Article 267 TFEU, questioning whether Articles 167 and 168 of the VAT Directive permit such treatment. The CJEU ruled on August 7, 2018, that EU VAT law and the principle of neutrality preclude tax administrations from treating a parent company and its branch as separate taxable persons merely because each holds different tax identification numbers. This landmark decision reinforces that branches and parent companies constitute a single taxable person for VAT purposes, ensuring the branch's right to deduct VAT on expenses incurred for its economic activity, regardless of which entity formally contracted the services. The ruling has significant implications for multinational corporations operating through branches in Portugal, clarifying that administrative distinctions cannot override substantive VAT principles.

Full Decision

ARBITRAL DECISION

The Arbitrators Counselor Jorge Lopes de Sousa, Dr. Raquel Franco and Dr. Luís Manuel Pereira da Silva, appointed by the Deontological Council of CAAD to form the Arbitral Tribunal, constituted on 02-03-2016, agree as follows:

1. Report

A... – BRANCH IN PORTUGAL, hereinafter referred to as "Claimant", with the collective identification number ... and tax address at ... no. ..., ..., ... - ... Lisbon, has requested, pursuant to articles 2, no. 1, paragraph a), and 10, nos. 1 and 2, both of Decree-Law no. 10/2011, of 20 January ("RJAT") and articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, the constitution of a Collective Arbitral Tribunal.

The Claimant intends that the following be declared:

– the illegality of the dismissal of the hierarchical appeal and, likewise, the illegality of the corrections in the scope of VAT and the acts of additional VAT assessment and the corresponding compensatory interest relating to the years 2010 (VAT assessment no. ... and compensatory interest assessments nos. ... and ...) and 2011 (VAT assessments nos. ..., ... and ..., and compensatory interest assessments nos. ..., ... and ...), with their consequent annulment, with all legal consequences, namely the condemnation of the Tax and Customs Authority to refund € 393,248.15 and to pay compensatory interest, calculated on this amount at a rate identical to that of compensatory interest in favor of the state, counted from the date the undue amount was paid, that is, 29-01-2014, until full refund;

– subsidiarily, and insofar as it is not clear to the arbitral tribunal, notwithstanding the case law already produced on the matter, the scope of articles 167, 168, 169 and 179 of the VAT Directive, or any other provision of the VAT Directive that may in its judgment interfere with the proper resolution of this case, this Arbitral Tribunal should then proceed with a preliminary ruling referral, of the questions it considers should be raised, to the Court of Justice of the European Union, as provided for in article 19, no. 3, paragraph b) and in article 267 of the Treaty on the Functioning of the European Union.

The respondent is the TAX AND CUSTOMS AUTHORITY (AT).

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 04-01-2016.

Pursuant to paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the RJAT, the Deontological Council of CAAD appointed as arbitrators of the collective arbitral tribunal the undersigned, who communicated acceptance of the assignment within the applicable period.

Pursuant to and for the purposes of no. 7 of article 11 of the RJAT, the President of CAAD informed the Parties of this appointment on 16-02-2016.

Thus, in accordance with what is prescribed in no. 7 of article 11 of the RJAT, after the period provided for in no. 1 of article 13 of the RJAT elapsed without the Parties saying anything, the Collective Arbitral Tribunal was constituted on 02-03-2016.

The Tax and Customs Authority presented an Answer, in which it defended the inadmissibility of the claim.

By order of 12-04-2016, the holding of the meeting provided for in article 18 of the RJAT was dispensed with and it was decided that the proceedings continue with successive written submissions.

The Parties presented submissions.

The parties were notified to pronounce themselves on the preliminary ruling referral to the CJEU. Only the Claimant pronounced itself saying, in summary, that it is not possible to find case law on the specific obstacle that the Portuguese tax inspection raised in the concrete case to the deduction of VAT in question here, that the position of the Tax and Customs Authority has no legal support and that preliminary ruling referral is not justified. However, the Claimant presented suggestions on the questions to be raised to the CJEU.

By judgment of 29-06-2016 it was decided to proceed with a preliminary ruling referral to the CJEU which, by judgment of 07-08-2018, decided that

Articles 167° and 168° of Council Directive 2006/112/EC of 28 November 2006, on the common system of value added tax, as amended by Council Directive 2010/45/EU of 13 July 2010, as well as the principle of neutrality must be interpreted to mean that they preclude the tax administration of a Member State from considering that a company which has its registered office in another Member State and the branch which it has in the first of those States constitute two distinct taxable persons by virtue of each of those entities having a tax identification number and, for that reason, refuse the branch the right to deduct the value added tax (VAT) charged in the debit notes issued by a grouping of economic interest of which the said company, and not its branch, is a member.

The Arbitral Tribunal was duly constituted and is competent and no obstacles were raised to the examination of the merits of the case.

The parties have legal personality and capacity and are legitimate (articles 4 and 10, no. 2, of the same instrument and article 1 of Ordinance no. 112-A/2011, of 22 March) and are duly represented.

The proceedings do not suffer from defects.

2. Factual Matter

2.1. Proven Facts

  • The German law company B..., whose tax identification is DE..., hereinafter referred to as B..., obtained in Portugal, on 03-03-2009, the NIPC ..., corresponding to a non-resident entity without permanent establishment, for carrying out an isolated transaction (acquisition of equity interests) (document no. 6 attached to the request for arbitral decision, whose content is reproduced as stated);

  • The Claimant is a branch of the said company B... and was registered in Portugal with the NIPC ..., obtained on 07-04-2009 (document no. 8 attached to the request for arbitral decision, whose content is reproduced as stated);

  • B... established, on 17-04-2009, a Grouping of Economic Interest, together with C... SA, in the proportions of generic contribution to its charges of 15% and 85%, respectively, designated as "D..., GEI", with the NIPC ..., hereinafter referred to as D... (document no. 7 attached to the request for arbitral decision, whose content is reproduced as stated);

  • The subject matter of the constitutive contract of D... GEI is as follows: "Improvement of the conditions of exercise and results of the economic activities of the grouped companies, through the joint performance of the engineering, supply and construction contract 'Engineering-Procurement-Construction' designated 'Implementation of the Expansion Project of ...', in the form of revisable global price and turnkey", for the expansion project of ..., as well as any other work, services and supplies for which the grouping is requested and directly or indirectly relate to the aforementioned subject matter, being able to have as an ancillary purpose the realization and sharing of profits." (document no. 7 attached to the request for arbitral decision, whose content is reproduced as stated);

  • For the establishment of D..., B... used the NIPC ..., corresponding to a non-resident entity without permanent establishment;

  • On 04-05-2009, the Claimant, A... Branch in Portugal, entered into a sub-contracting agreement with D... for the work owned by E... in question (document no. 9 attached to the request for arbitral decision, whose content is reproduced as stated);

  • For tax purposes, the Claimant declared the start of activity on 13-04-2009, as a non-resident taxable person with permanent establishment, engaging in "engineering and related technical activities", corresponding to CAE 71120 (article 29 of the request for arbitral decision and Tax Inspection Report);

  • The corporate purpose of the Claimant consists of: advice, planning, delivery and construction, as well as the exchange of and with installations for the production, separation, liquefaction, compression, storage and transport of gases of all types (document no. 8 attached to the request for arbitral decision, whose content is reproduced as stated);

  • For VAT purposes, the Claimant is subject to the normal regime, with quarterly frequency in the years 2009 and 2010, and monthly frequency from 2011 onwards, inclusive (Tax Inspection Report);

  • The Tax and Customs Authority conducted a tax inspection of the Claimant, which began on 12-03-2013, under Service Orders nos. OI2013..., OI2013... and OI2013..., for the years 2009, 2010 and 2011;

  • In that inspection, the Tax Inspection Report was prepared, a copy of which is attached as document no. 10 to the request for arbitral decision, whose content is reproduced as stated, which refers, among other things, to the following:

III.1.1.1.1. CHARGES DEBITED BY D...

In the analysis of the accounting documentation, it was found that debit notes issued by D..., relating to expenses borne by it and charged to the taxable person, under the heading "allocation of common costs of the GEI", in the proportion of 64.29%, were recorded.

It is important to note that GEIs are subject to the special tax transparency regime provided for in no. 2 of article 6 of the Corporate Income Tax Code (CIRC), whereby the profit or loss determined by them in each fiscal year is allocated to its members in the proportion stipulated in their constitutive act, integrating into the taxable income of these, for Corporate Income Tax purposes. Therefore, charges borne by the GEI should not be directly debited to its members, but should be recorded for the purpose of determining the respective fiscal profit or loss, to be allocated to its members in the proportions established in their constitutive contract.

In the case under analysis, it is found that the GEI contract was filed with the Commercial Registry Office on 2009.04.17, as already mentioned, and provides for generic contribution to the charges of D... of 15% by B... and 85% by the other member (cf. annex II). And, on the other hand, the "shareholders agreement and internal regulation" of that entity stipulates the distribution of obligations/liabilities among its members in the proportion of 64.29% for B... and 35.71% for the other member (cf. annex VI). Therefore, it is always a matter of distribution of results or charges among the members of the GEI.

However, in the concrete case, another particularity should be noted: the taxable person under analysis does not correspond to any of the members of the GEI in question – D... –. It is the German law entity itself, with registration in national territory as a non-resident entity without permanent establishment - NIPC ... – that is part of the GEI in question (annex II). It is also noted that at the time of the establishment of the GEI - 2009-04-17 - the German law company B... had already established a branch (permanent representation) in this territory, without however using its respective NIPC for the constitution of the GEI in question. Therefore, it may be concluded that it was B...'s choice to use the NIPC of a non-resident entity without permanent establishment.

In this regard, it is noted that in the course of this inspection procedure, and given the insistence by the taxable person that it is a matter of the existence of two NIPCs for the same entity - one assigned when the GEI was established as a "non-resident entity without permanent establishment", and another assigned with the award of the performance of the work as a "non-resident entity with permanent establishment" - the taxable person requested, from the Tax Registry Services Directorate (DSRC), how it would be possible to overcome this impasse and associate the two NIPCs, allegedly because they refer to the same entity (cf annex VII).

This Services Directorate informed that the desired association of those two NIPCs was not possible, given that they refer to two autonomous and distinct entities, and that only the National Registry of Collective Persons (RNPC) could resolve the matter.

Thus, knowing the information from the DSRC, a visit was made to the RNPC facilities for clarification of the situation, and later the same information was requested via e-mail. And these services also consider it to be two autonomous entities, whose NIPCs cannot be associated (cf. annex VIII).

Therefore, being considered by those entities, and even by the DIFAE itself, when it conducted the analysis of the taxable person under analysis, that it is a matter of two independent and autonomous collective person records, namely:

– one corresponding to the mere registration of the non-resident entity without permanent establishment B..., for carrying out an isolated transaction - acquisition of equity interest – NIPC ...,

– and another registration, NIPC ..., that of a branch - permanent establishment of that non-resident entity, for the purpose of developing an activity in national territory, the charges allocated to that other entity (parent company) while a member of the GEI cannot be fiscally accepted as expenses of the fiscal year of the permanent establishment of the non-resident entity, whose purpose is to carry out a work, even if under its direction.

Emphasis is placed on the fact that, although D... is considering the NIPC of the taxable person under analysis (...) for the purpose of allocating GEI profit/loss and withholding taxes effected, this situation was not recognized by the latter itself in its tax returns. And it could not have been, given that the taxable person under analysis is not a member of that GEI, that is, its NIPC was not used for the constitution of the same and nor is any change in its composition known in that sense.

Considering thus that the taxable person is not legally authorized to bear those charges debited by D... (copies of the respective debit notes are attached as annex IX), under the heading of common costs, and which are the responsibility of third parties, the same are not fiscally accepted pursuant to article 45 of the CIRC, in the amounts of € 1,820,188.39 and € 450,923.71, respectively in the years 2010 and 2011, as is subsequently determined. Due to the fact, as previously mentioned, not only that the taxable person under analysis is not a member of the GEI, but also due to the fact that, being the GEI an entity with registered office or effective management in national territory, which was established and operates in accordance with legal terms, and with organized accounting, the expenses and revenues of the same should, pursuant to article 17 of the CIRC, permit the determination of the profit or loss of the fiscal year, and this yes, allocable to its respective members in proportion to their participation, pursuant to what is provided for in no. 2 of article 6 of the CIRC.

It is noted that with respect to the charges debited by D... to the taxable person under analysis, we only accept as deductible to the net result of the period thereof, those relating to insurance with assembly, works, civil liability and counter-terrorism, due to the fact that the same is one of the insured of the respective policy, and has not recorded any charges of this nature invoiced/debited by other entities, and constitute mandatory charges for this type of construction/work, as the work contract itself provides, in the amounts indicated below:

Emphasis is placed on the fact that given the voluntary regularization effected by the taxable person, by submitting amended corporate income tax return declarations model 22, as described in chapter VI, it subjected to autonomous taxation expenses that we now propose to disallow. Therefore, this autonomous taxation will be analyzed/adjusted in its own section.

(...)

III.2. ANALYSIS IN THE SCOPE OF VALUE ADDED TAX

In the scope of this tax, the periodic declarations submitted by the taxable person were verified and their respective values declared were compared with those contained in the accounting records, and by sampling the documentary support for the same was analyzed. From the analysis conducted we emphasize the facts described below.

III.2.1. IMPROPERLY DEDUCTED VAT

III.2.1.1. VAT BORNE WITH CHARGES DEBITED BY GEI D...

Given the foregoing and as substantiated in section III.1.1.1.1, more precisely, given the debit of common costs by D... to the taxable person under analysis, since it is not the costs but the fiscal result of the GEI that should be allocated to members in proportion to their participation (article 6 no. 2 CIRC), and the taxable person is not one of the members of that GEI, they are not fiscally deductible, and consequently the respective VAT charged in those debit notes, deducted by the taxable person, is also not fiscally deductible (cf. annex IX).

Thus, the amounts of improperly deducted VAT were determined, whose distribution by periods is as follows:

III.2.1.2. VAT RELATING TO CIVIL CONSTRUCTION SERVICES

As mentioned in section II.3.1, the taxable person, in the periods under analysis, performed services within the scope of the expansion work contract for the terminal at ... . This work is covered by the reverse charge rule provided for in paragraph j) of no. 1 of article 2 of the VAT Code (CIVA), combined with what was informed/clarified by circular letter no. 30101 of 2007.05.24. Therefore, in the active operations carried out by the taxable person under analysis, the latter does not charge the respective VAT, with the obligation to charge (and consequent deduction) falling to the purchaser.

Similarly, when the taxable person acquires services that fall within that rule, it is to the taxable person under analysis that the obligation to charge (and deduct) the respective tax falls. In fact, this is what occurred with its suppliers F..., G... GEI, H... and I..., citing some by way of example.

It should be noted that the CIVA itself, in its article 19, no. 8, added by the State Budget Law for 2013, reinforces this obligation, and aligns with the case law that has been developing and limits the deduction of VAT borne on services covered by the reverse charge rule to the condition that it has been charged by the purchaser of the services in question. This means that, even if the service provider improperly charges VAT in those operations, this tax does not give rise to a right to deduction.

In the course of the inspection acts, when validating the records relating to VAT accounts, it was found that the taxable person under analysis acquired services that fall within the aforementioned reverse charge rule, without having charged the respective tax, and even deducting the tax that the respective providers improperly charged it, as is the case with the providers identified below:

Given the foregoing, particularly to article 2, no. 1, paragraph j) of the CIVA, the obligation to charge the tax in the economic operations documented by the aforementioned documents is that of the purchaser of those services, that is, the taxable person under analysis, regardless of whether the respective provider has improperly proceeded to charge it and has delivered it to the State.

Thus, the VAT improperly charged by the respective providers in the aforementioned operations cannot be fiscally deductible due to violation of the reverse charge rule provided for in article 2, no. 1, paragraph j) of the CIVA, combined with what was informed/clarified by circular letter no. 30101 of 2007.05.24.

However, although it falls to the taxable person under analysis to charge the VAT relating to the invoices issued by those providers and deducted by it, it was found that the VAT improperly charged in the respective invoices by the providers in question was delivered into the state's coffers.

Thus, with no prejudice to the VAT system being verified, the corresponding corrections to the VAT deducted by the taxable person under analysis will not be made, without prejudice to the application of penalties for non-compliance with the reverse charge rule provided for in the CIVA, in accordance with what was informed by the Office of the Deputy Director-General of Tax Inspection (information no. 11/2009, of 2009.04.02).

III.2.1.3. VAT RELATING TO IMPROPERLY DOCUMENTED CHARGES

Given what was set out in section III.1.1.2, and due to violation of article 19, no. 2 combined with article 36, no. 4, both of the CIVA, the accounting of charges not properly documented was detected, which are listed below and whose improperly deducted VAT is quantified:

III.2.3. SUMMARY OF VAT CORRECTIONS

FISCAL YEAR 2010

FISCAL YEAR 2011

(...)

IX - RIGHT OF HEARING - SUBSTANTIATION

The taxable person was notified, via letter no. ..., of 2013.08.13, to the address of its registered office, and also via letter no. ... of the same date, to the address of the offices of the representative appointed pursuant to article 52 of the Complementary Tax Inspection Procedure Regime (RCPIT), to exercise the prior right of hearing on the draft conclusions of the report, pursuant to articles 60 of the General Tax Law (LGT) and the Complementary Tax Inspection Procedure Regime (RCPIT) (cf. annex XXVI).

On 2013.08.20 the taxable person exercised that right that is available to it, in writing, by means of a request which was filed with these services on 2013.08.21, under no. 078121 (cf. annex XXVII).

(...)

III) VAT - improperly documented charges: € 629,766.60

As mentioned in section III.2.1.3, VAT relating to charges was recorded and deducted which, in the course of the inspection acts, proved not to be properly documented, either because the taxable person did not have the respective original documents in its possession, or because it did not have the respective customs documents, in the case of VAT relating to imports invoiced by customs agents, in violation of what is provided for in article 19, no. 2 and article 36, no. 4, both of the CIVA, in the amounts of € 197.51 and € 629,587.09, for the fiscal periods of 2010 and 2011, respectively.

In exercising the right of hearing the taxable person attached declarations issued by the Tax and Customs Authority, by electronic means, in its name (cf. documents nos. 2 to 8), relating to the months in which VAT payment occurred due on imports, and which it attaches to the exercise of the right of hearing as documents nos. 2 to 8.

From the analysis of these declarations as well as their combination with the other justifying elements of the amounts of VAT invoiced by the customs agents submitted - screenshots of cash movements and single administrative documents issued by the respective customs authority - it is concluded that the following amounts were justified:

Thus, with respect to the documents presented in the exercise of the right of hearing, the VAT invoiced by the customs agents in question was not justified in the amount of € 3,621.31 in the year 2011.

Given the fact that it was found that the single administrative document which is part of document no. 3 of the exercise of the right of hearing, issued by the Maritime Customs ... , coincides with that which is part of document no. 4, and given what is mentioned in the elements contained herein - invoice, screenshots of cash movements and declaration issued by AT - the Certified Public Accountant of the taxable person under analysis was questioned.

In response to the question posed, presented the single administrative document relating to the elements contained in document no. 3 which was missing, as well as clarified that the difference verified between the amount invoiced by the customs agent and that contained in the cash movements, the single administrative document and the AT declaration (approximately € 3,607.31), was subject to cancellation by means of the issuance of a credit note by that customs agent, not recorded because only now has the same been exhibited by the respective customs agent. From the analysis of the referred credit note presented (cf. annex XXVIII) it appears that it is a second copy of the credit note dated 2011.02.07.

Therefore, it is proposed to maintain the correction to the VAT deducted in the amount above determined of € 3,621.31.

IX.2. CONCLUSION - PROPOSAL

Given the elements and substantiation presented by the taxable person in the exercise of the right of hearing, particularly given what is set out in the previous section of this chapter, we propose to alter the corrections initially proposed as quantified below, and maintain the corrections that were not subject to challenge at this stage by the same, as quantified below, and whose summary is presented in the opening pages of the report.

(...)

C. SUMMARY OF VAT CORRECTIONS

  • The Claimant accepted the adjustment recommended by AT with respect to the improper deduction of VAT relating to improperly documented charges (additional VAT assessment no. ..., in the amount of € 3,621.31 and corresponding compensatory interest assessment no. ... in the amount of € 357.96) and proceeded to its payment;

  • As a result of the remaining corrections, the Tax and Customs Authority issued the following VAT and compensatory interest assessments, in the total value of € 390,158.08:

  • On 28-03-2014, the Claimant filed a Gracious Complaint against the referred official VAT and compensatory interest assessments relating to the years 2010 and 2011, which was dismissed (document no. 2 attached to the request for arbitral decision, whose content is reproduced as stated);

  • On 19-09-2014, the Claimant presented the Hierarchical Appeal against the referred dismissal decision, which was dismissed by order notified to the Claimant on 25-09-2015 (document no. 3 attached to the request for arbitral decision, whose content is reproduced as stated);

  • The Shareholders Agreement and Internal Regulation Regarding the Operation of D... is reproduced as stated, a copy of which is attached as document no. 11 to the request for arbitral decision;

  • Document no. 11 attached to the request for arbitral decision is reproduced as stated;

  • On 29-01-2014, the Claimant made the payment of the amounts assessed above (document no. 4 attached to the request for arbitral decision, whose content is reproduced as stated);

  • On 22-12-2015, the Claimant presented the request for arbitral decision which gave rise to the present proceedings.

2.2. Unproven Facts

a) It was not proven that the National Registry of Collective Persons informed the Claimant that the NIPC ..., issued on 3 March 2009, would be officially annulled in order to avoid duplication.

The Claimant alleges in article 28 of the request for arbitral decision that such information occurred, but presents no proof.

b) It was not proven that the Claimant requested the conversion of the NIPC initially attributed and relating to a non-resident entity without permanent establishment.

This allegation is made in article 26 of the request for arbitral decision, but no proof was presented.

c) It was not proven that the difference between the total amount of the sums assessed by the contested assessments (€ 390,158.08) and the value paid in tax enforcement proceedings by the Claimant of € 393,606.11 (document no. 4 attached to the request for arbitral decision) relates wholly or partly to VAT or compensatory interest.

2.3. Substantiation of the Decision on Factual Matter

The facts were given as proven on the basis of the documents attached to the request for arbitral decision and in the administrative file, with no controversy over them.

3. Legal Matter

The German law company B..., hereinafter referred to as "B...", with tax identification DE..., has in Portugal, in the National Registry of Collective Persons (RNPC), two registrations:

i) as a non-resident entity without permanent establishment, to which the NIPC ... corresponds, obtained on 03-03-2009 for carrying out an isolated transaction (acquisition of equity interests);

ii) as a non-resident entity with permanent establishment, to which the NIPC ... corresponds, obtained on 07-04-2009 – the Claimant, in the form of a branch.

On 17-04-2009, said German law company established with the company C..., S.A., a Grouping of Economic Interest (GEI) ([1]), designated as "D..., GEI", with the NIPC ..., hereinafter called D..., intended to carry out the expansion work contract of ..., owned by J....

For the establishment of the GEI, B... used the NIPC ..., already having the NIPC ... on that date.

The Tax and Customs Authority understood that, "given the debit of common costs by GEI D... to the taxable person under analysis, since it is not the costs but the fiscal result of the GEI that should be allocated to members in proportion to their participation (article 6 no. 2 CIRC), and the taxable person is not one of the members of that GEI, they are not fiscally deductible, and consequently the respective VAT charged in those debit notes, deducted by the taxable person, is also not fiscally deductible".

3.1. Positions of the Parties

The Claimant argues, in summary, as follows:

– it is completely irrelevant for the purposes sought by AT the use of the NIPC ..., attributed to B..., instead of the NIPC ..., attributed to the Claimant, for the formalization of the GEI;

– the Claimant did not establish any legal entity with autonomy vis-à-vis itself, instead aiming to act in Portugal solely and exclusively in the development of "K..." and through a legal extension of itself created for tax purposes, that is, a Branch/permanent establishment that is required by tax law under the circumstances of the Claimant's activity (work/sub-contracting with duration much greater than 6 months) in Portugal;

– the use of one NIPC or another in no way can represent a distinct entity, split from B..., according to the AT's thesis, which in fact does not exist;

– these costs and associated VAT were related to the work in Portugal, including the establishment of the GEI that served it, of the claimant/B...;

– in Clause 2 of the sub-contracting agreement, it was agreed that the services to be provided by the Claimant should be subject to the "full back-to-back general principle", in relation to the main contract established between the GEI-D... and E...;

– in light of said principle, all obligations, risks and responsibilities that directly or indirectly result from the implementation of "K...", as well as all and any costs, regardless of their nature and/or origin, necessary for the execution and completion of the project, including those relating to workers, equipment and materials and also other tasks and services necessary or appropriate for the execution and completion of the project, would be the responsibility of the Claimant and should be borne by it;

– pursuant to Clause 5 of this sub-contracting agreement– "Remuneration regime, Price and Payments" of the contract, and also under the full back-to-back principle, it was defined that the work to be invoiced (to the GEI D...) would be of the type and amount meanwhile agreed between the GEI and E..., with the same depending on approval by that entity;

– pursuant to the Shareholders Agreement executed between the Claimant and C..., it was defined that the common costs incurred within the scope of the work and invoiced to the GEI should be allocated in accordance with the percentage of services to be provided to E... (within the scope of the work contract), in the proportion of 64.29% re-debited to the Claimant and 35.71% to C... (cf. Clause 8 – "Distribution of Liabilities" of the contract attached as document no. 11 with the request for arbitral decision);

– within the scope of "K...", D... GEI re-debited to the Claimant and to C... the common costs incurred with the provision of services in the project in question in the aforementioned proportion;

– the GEI was contractually transparent for its members, namely (but not only) in the sense that all charges it incurred relating to the work for which it was established were assumed by its members, which materialized, insofar as it matters here, via debits of those charges that the GEI made to them;

– debits for which the NIPC of B... corresponding to the Branch in Portugal was indicated and used, that is, its registration as an entity with permanent establishment in Portugal, namely the NIPC...;

– in return for this assumption of charges and other charges borne directly by the claimant or by C... with the execution of the work/sub-contracting, the GEI delivered to the claimant and to C... the entire work price received from the work owner (J...);

– there is no legal or contractual requirement that GEIs determine profits, or that this particular GEI determine profits, or that they have patrimonial structure or other in sufficient dose to enable them to be more than a transparent intermediary that unifies, in the relationship with third parties, two independent cooperators;

– the substantiation used by the Tax and Customs Authority says absolutely nothing about the substantiation of the corrections, nor could it say, since it is not possible by way of these parameters (the relevant ones for VAT) to make the correction to the VAT deduction in question here: VAT in the debits of the GEI established for the purposes of a work in Portugal, debits to the sub-contractors (and members of the GEI), among which the claimant (together with C...), who in turn invoiced that GEI for the price of that work (an operation subject to VAT with a right to deduction);

– we are therefore, without need for further analysis, faced with failed substantiation (which does not stand) for the corrections in the scope of VAT, without need for further considerations;

– the Tax and Customs Authority understood that the NIPC of a non-resident entity without permanent establishment – provided for solely and exclusively in the constitutive context of the GEI – has true substance and own legal personality, assuming the same autonomy vis-à-vis the Claimant, German law company;

– the branch does not have legal personality and therefore does not constitute an autonomous legal entity, despite having tax personality;

– even less autonomy will the mere registration of the Claimant of a non-resident entity without permanent establishment have;

– for VAT purposes, the Claimant (B...) is the sole taxable person of this tax, operating in Portugal through a permanent establishment for VAT and Corporate Income Tax purposes;

– the Claimant always acted in Portugal through its permanent establishment and the NIPC ... of the Branch, as is evident from the invoices issued within the scope of the GEI and, for that matter, all relevant documents for tax purposes;

– even if the Claimant had acted within the scope of "K..." through its registration number as a non-resident entity without permanent establishment (as AT seems to intend), the truth is that the prevalence of its permanent establishment (Branch) would in any case be verified with respect to the allocation of income (and, with greater reason, of costs) deriving from activities identical or similar to those carried out through that permanent establishment;

– it is not the obtaining of a VAT registration in Portugal that gives the Claimant the nature of a taxable person under article 2, no. 1, paragraph a) of the VAT Code. The quality of taxable person of the Claimant is pre-existing to its VAT registration in Portugal, since for that purpose it is sufficient to be an entity that develops an economic activity (which it is, under the terms of the cited article 2, no. 1 of the VAT Code";

– the criteria of registered office or permanent establishment and simple registration for VAT purposes establish the type of connection that VAT taxable persons have with national territory, but are not constitutive of new VAT taxable persons" so that "[i]n summary, there exists a single VAT taxable person";

– the entity that is part of the GEI, apart from C..., is solely the company A..., now Claimant, being the same considered as the relevant taxable person for VAT purposes, as far as the relationships maintained with the grouping are concerned, with its permanent establishment (NIPC...) being relevant for the purposes of locating the operations and invoicing the debits of common costs incurred by the GEI, and the right to deduction cannot therefore be limited in the arbitrary and disproportionate manner as AT intends to do so, since it complied with all requirements;

– as regards subjective or substantive requirements, it is evident that the VAT included in the debits made by D... GEI to the Claimant (cf. 2nd flow described in the illustration contained in article 44 above) appears deductible in its sphere because it relates to charges borne by it within the scope of the project in question, which enables it to provide the services it invoices to the GEI within the scope of the same project;

– the costs in question would be directly borne by the Claimant in the case of developing "K..." without the participation of D... GEI. However, given the business model adopted, the costs are borne by the GEI, at a first stage, which subsequently debits them to the Claimant, constituting the same essential elements of the taxed activity that the latter develops, i.e., civil construction services;

– the civil construction services that the Claimant provides to the GEI, and which in turn are debited by the latter to E..., incorporate in their price the common costs incurred by the GEI and debited to the Claimant, such costs having a direct and immediate relationship with the Claimant's taxed operations;

– the AT's understanding that the referred debit notes should have been issued to a supposed member of the GEI that would assume legal autonomy vis-à-vis the Claimant does not merit acceptance, since even if by absurdity the existence of that alleged member were accepted (fictitious member, supposedly materializing itself, according to AT, in the NIPC obtained by B... admittedly for the purposes of an isolated transaction of acquisition of an equity interest, it did not use such resources for its taxed activities (in fact, that NIPC never had any activity, never even registered for tax purposes, as was seen), having rather such resources been used by the Claimant through its permanent establishment in Portugal (and corresponding NIPC);

– should the AT's understanding be accepted in the present case (which disregards outright the existence of a permanent establishment in Portugal), such a solution would result in the need for the referred common charges to be invoiced by the GEI to the VAT number of the Claimant in Germany and, consequently, to the location of the referred services in that territory, being owed German VAT;

– in the case of a VAT taxable person having a permanent establishment for VAT purposes in another country in addition to the State of registered office, it being evident that it is that permanent establishment that receives a certain service and uses it for its own needs, the operation in question should be located, by legal imperative, in the country where the permanent establishment is located (Portugal, in the case) and not at the registered office;

– the services debited by D... GEI to the Claimant here (and to C...) had the nature of common costs incurred by the grouping in the implementation of the civil construction work relating to "K..." and, as resulted from the contract executed by the parties, the same should be invoiced to the Claimant, specifically to its Portuguese permanent establishment, since it was this that used the referred inputs for the pursuit of its taxed activity, consisting of the referred expansion work of ... (sub-contracting from the claimant's perspective).

The Tax and Customs Authority defends in this proceedings the position assumed in the Tax Inspection Report, saying, without summary, the following:

– the corrections made in the scope of VAT in question here, relating to improperly deducted tax, concern the legitimacy of the Claimant to deduct the VAT borne with charges debited by GEI D...;

– in the decision of the gracious complaint it is concluded that the Claimant has no right to deduction, pursuant to articles 19 and 20 of the CIVA since:

a) It constitutes a permanent establishment with personality and distinct tax capacity from the parent company, being unable to assume charges and deduct VAT that are the responsibility of the parent company;

b) It is not part of the GEI, since the GEI was established using the NIPC assigned to B... as a non-resident entity without permanent establishment, and consequently the results determined within the scope of the GEI should be allocated to that entity and not to the Claimant;

c) The invoices were issued taking into account and making reference to a cost-sharing agreement (shareholders agreement) executed between the members of the GEI, that is, C... and B... without permanent establishment, with the then Claimant not being an intervening party to that contract;

d) The invoices document charges developed on behalf of the GEI, relating to the active operations of the GEI and not to the active operations of the Claimant, a condition necessary for the VAT charged in those invoices to be considered deductible in the sphere of the Claimant pursuant to paragraph a) of no. 1 of article 20 of the CIVA;

– in the decision of the hierarchical appeal it is mentioned that

  • Debit notes issued by GEI D... were recorded, relating to expenses borne by it and allocated to the Claimant under the heading "allocation of common costs of the GEI" in the proportion of 64.29%;

  • The GEI contract provides for generic contribution to its charges in the proportion of 15% by B... and 85% by the other member. On the other hand, the "shareholders agreement and internal regulation" of that entity stipulates the distribution of obligations/liabilities among its members in the proportion of 64.29% for B... and 35.71% for the other member;

  • Therefore it is a matter of distribution of results or charges among the members of the GEI.

– the Claimant does not correspond to any of the members of GEI D...;

– it is the German law company itself, with registration in national territory as a non-resident entity without permanent establishment, that is part of the GEI in question – and not the Claimant;

– in the scope of VAT, the GEI is considered a taxable person by virtue of what is provided for in article 2, no. 1, paragraph a) of the CIVA and the provision of services between the GEI and its members are, as a rule, subject to VAT pursuant to article 1, no. 1, paragraph a), article 4, no. 1 and article 6, no. 6, paragraph a) of the CIVA;

– if the non-resident entity with permanent establishment and the non-resident entity without permanent establishment configure, on the civil plane, the same collective person, already on the tax plane, the conclusion is different: they are distinct taxable persons;

– branches of a company with registered office in a foreign country with permanent establishment in Portugal, although they do not have legal personality, have tax personality and tax capacity as regards income generated in Portugal;

– pursuant to no. 2 of article 16 of the LGT, permanent establishments are active and passive entities in tax relationships and sole holders of the corresponding tax rights and obligations;

– branches can constitute VAT taxable persons, differentiated and endowed with their own and distinct tax personality, in the scope of the development of their respective activities;

– the concept of permanent establishment for VAT purposes is autonomous and independent from others that may appear alongside it in matters of taxes, particularly in income taxes;

– article 7, no. 2, of the OECD Model Convention confirms this thesis;

– in the scope of VAT there are significant differences depending on whether it is a non-resident entity with or without permanent establishment;

– the invoices document charges developed in GEI activity, relating to its active operations and not to the active operations of the Claimant, a condition necessary for the VAT charged in those invoices to be considered deductible in the sphere of the Claimant pursuant to paragraph a) of no. 1 of article 20 of the CIVA;

– the VAT charged in the debit notes issued by the GEI, because it relates to common costs that should be allocated to its members, is not deductible in the sphere of the Claimant, since the latter is not a member of the GEI;

– if the allocation of the results of the GEI to the permanent establishment in Portugal is intended, the German law company should have established the GEI with the permanent establishment indicated as a member – which it did not do;

– there is, with such understanding, no violation of the principle of neutrality since in the case in question there are distinct taxable persons involved, VAT being able to be deducted by B... as a taxable person of tax in Portugal in the capacity of non-resident entity without permanent establishment.

3.2. Judgment of the CJEU Delivered in Preliminary Ruling

As mentioned, a preliminary ruling was made to the CJEU, which decided that "articles 167° and 168° of Council Directive 2006/112/EC of 28 November 2006, on the common system of value added tax, as amended by Council Directive 2010/45/EU of 13 July 2010, as well as the principle of neutrality must be interpreted to mean that they preclude the tax administration of a Member State from considering that a company which has its registered office in another Member State and the branch which it has in the first of those States constitute two distinct taxable persons by virtue of each of those entities having a tax identification number and, for that reason, refuse the branch the right to deduct value added tax (VAT) charged in the debit notes issued by a grouping of economic interest of which the said company, and not its branch, is a member".

As has been peacefully understood by case law and is a corollary of the obligation of preliminary ruling provided for in article 267 of the TFEU (which replaced article 234 of the Rome Treaty, former article 177), CJEU case law is binding on national courts when it concerns questions connected with the Law of the European Union (in this sense, reference may be made to the following Judgments of the Supreme Administrative Court: of 25-10-2000, case no. 25128, published in Appendix to the Official Journal of 31-1-2003, p. 3757; of 7-11-2001, case no. 26432, published in Appendix to the Official Journal of 13-10-2003, p. 2602; of 7-11-2001, case no. 26404, published in Appendix to the Official Journal of 13-10-2003, p. 2593).

In light of what was decided by the CJEU, it is manifest that the thesis defended by the Tax and Customs Authority, which is based on the premise that the branch and the respective parent company should be considered as distinct entities for VAT purposes by having distinct tax identification numbers, is not compatible with European Union law.

As stated in the CJEU's judgment, that thesis is incompatible with articles 167 and 168 of Council Directive 2006/112/EC of 28-11-2006 and with the principle of neutrality, since "the right to deduction provided for in articles 167° and 168° of the VAT Directive is an integral part of the VAT mechanism and cannot, in principle, be limited" and should be considered "that B... and A... Branch in Portugal constitute one and the same legal entity and therefore a single taxable person".

For this reason, the Tax and Customs Authority "cannot refuse a taxable person the deduction of VAT paid upstream merely because this taxable person used a tax identification number as a non-resident entity without permanent establishment when establishing a GEI and used the tax identification number of its branch resident in that same State to re-invoice the costs of that grouping".

The norms of European Union law prevail over norms of ordinary national law by virtue of what is provided for in article 8, no. 4, of the CRP, which establishes that "the provisions of the treaties governing the European Union and the norms emanating from its institutions, in the exercise of their respective competencies, are applicable in the internal order according to the terms defined by European Union law, with respect for the fundamental principles of the democratic rule of law".

By the foregoing, it is concluded that the VAT assessments challenged are based on an error regarding the legal presuppositions, which justifies their annulment, under article 134 of the Code of Administrative Procedure of 1991, subsidiarily applicable by virtue of what is provided for in article 2, paragraph c), of the LGT.

The assessments of compensatory interest are integrated in the tax debt itself to which they are a prerequisite (article 35, no. 8, of the LGT) so they suffer from the same defect.

The decision of the hierarchical appeal, which maintained the assessments, also suffers from the same defect.

4. Refund of the Amount Paid and Compensatory Interest

On 29-01-2014, the Claimant paid the assessed amounts, in the total amount of € 390,158.08, plus € 3,090.07 relating to a tax enforcement proceedings with the no. ...2013... and other amounts, referred to in document no. 4 attached to the request for arbitral decision.

The Claimant requests the refund of the amount of € 393,248.15, plus compensatory interest calculated on this.

However, as mentioned, the total amount of VAT and compensatory interest improperly paid was € 390,158.08.

In accordance with what is provided for in paragraph b) of article 24 of the RJAT, the arbitral decision on the merits of the claim for which no appeal or challenge is available binds the Administration from the end of the period provided for appeal or challenge, with the latter obligated, 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 spontaneous execution of sentences of the tax courts, to "restore the situation that would have existed if the tax act which is the subject of the arbitral decision had not been performed, adopting the acts and operations necessary for that purpose", which is in harmony with what is provided for in article 100 of the LGT [applicable by virtue of what is provided for in paragraph a) of no. 1 of article 29 of the RJAT] which establishes that "the tax administration is obliged, in the event of total or partial success of a complaint, judicial challenge or appeal in favor of the taxable person, to immediately and fully restore the legality of the act or situation which is the subject of the dispute, including the payment of compensatory interest, if applicable, from the end of the period of execution of the decision".

Although article 2, no. 1, paragraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals operating at CAAD, making no reference to condemnatory decisions, it should be understood that this includes the powers which in judicial challenge proceedings are attributed to the tax courts, this being the interpretation that aligns with the sense of the legislative authorization on which the Government based itself to approve the RJAT, in which it proclaims as a first guideline that "the tax arbitral process should constitute an alternative procedural means to the judicial challenge process and to the action for the recognition of a right or legitimate interest in tax matters".

The judicial challenge process, although essentially an annulment process for tax acts, allows for the condemnation of the Tax Administration in payment of compensatory interest, as is inferred from article 43, no. 1, of the LGT, in which it is established that "compensatory interest is due when it is determined, in a gracious complaint or judicial challenge, that there was an error attributable to the services which resulted in payment of the tax debt in an amount exceeding that legally due" and from article 61, no. 4 of the CPPT (in the form given by Law no. 55-A/2010 of 31 December, to which corresponds no. 2 in the original form), which states that "if the decision which recognized the right to compensatory interest is judicial, the period for payment is counted from the beginning of the period for its spontaneous execution".

Thus, no. 5 of article 24 of the RJAT, when saying that "payment of interest is due, regardless of its nature, according to the terms provided for in the general tax law and the Code of Tax Procedure and Process", should be understood as allowing for recognition of the right to compensatory interest in arbitral proceedings, as well as the refund of the amount paid, which is the basis for calculating interest.

The refund and interest that can be examined in challenge proceedings relates only to "tax debt", as results from the referred no. 1 of article 43 of the LGT, without prejudice to it being possible in execution of judgment to understand that the taxpayer is entitled to other amounts.

It is therefore necessary to examine the request for refund of the amount improperly paid, which was € 390,158.08, plus compensatory interest.

In the case in question, following the illegality of the assessment acts, there is entitlement to refund of the tax paid by virtue of the referred articles 24, no. 1, paragraph b), of the RJAT and 100 of the LGT, since this is essential to "restore the situation that would have existed if the tax act which is the subject of the arbitral decision had not been performed".

As regards compensatory interest, it is also clear that the illegality of the assessment acts is attributable to the Tax Administration, which by its own initiative performed them without legal support.

Consequently, the Claimant is entitled to refund of the amount of € 390,158.08 of VAT and compensatory interest improperly paid and to compensatory interest calculated on this amount, pursuant to article 43, no. 1, of the LGT and 61 of the CPPT.

With respect to the difference between this amount and that which the Claimant refers to, the examination should be made in execution of judgment.

The compensatory interest shall be paid from the date on which the Claimant made the payment (29-01-2014) until full refund of the amount paid, at the legal default rate, pursuant to articles 43, no. 4, and 35, no. 10, of the LGT, article 61 of the CPPT, article 559 of the Civil Code and Ordinance no. 291/2003 of 8 April.

5. Decision

In these terms, this Arbitral Tribunal agrees to:

a) Decide the request for arbitral decision is well-founded;

b) Annul the VAT assessment relating to the year 2010 with the no. ... and the corresponding compensatory interest assessments nos. ... and ...;

c) Annul the VAT assessments relating to the year 2013 with the nos. ..., ... and ..., and the respective compensatory interest assessments nos. ..., ... and ...;

d) Annul the order of 09-09-2015, which dismissed the hierarchical appeal referred to in document no. 3 attached to the request for arbitral decision;

e) Condemn the Tax and Customs Authority to refund the Claimant the amount of € 390,158.08, plus compensatory interest calculated thereon from 29-01-2014 until the date on which the refund is made.

6. Value of the Case

In accordance with what is provided for in article 306, no. 2, of the CPC and 97-A, no. 1, paragraph a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 390,158.08.

7. Costs

Pursuant to article 22, no. 4, of the RJAT, the amount of costs is fixed at € 6,426.00, pursuant to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 20-08-2018

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(Raquel Franco)

(Luís Manuel Pereira da Silva)

Frequently Asked Questions

Automatically Created

What are the VAT deduction rights of a branch (sucursal) in relation to its parent company under Portuguese tax law?
Under Portuguese tax law, as clarified by CJEU jurisprudence in this case, a branch (sucursal) and its parent company constitute a single taxable person for VAT purposes, despite having separate tax identification numbers (NIPCs). The branch enjoys full VAT deduction rights on expenses related to its taxable activities, including those invoiced to the parent company, provided the requirements of Articles 167-168 of the VAT Directive are met. The Tax and Customs Authority cannot deny deduction rights based solely on the formal distinction between the branch and parent entity. This principle derives from the VAT neutrality principle, ensuring that the organizational structure chosen by a company does not affect its VAT treatment. The branch can deduct input VAT on services provided by entities contracting with the parent company, when those services are used for the branch's economic activity in Portugal.
How does the CAAD arbitral tribunal interpret Articles 167, 168, 169 and 179 of the EU VAT Directive regarding branch operations?
The CAAD arbitral tribunal referred questions to the CJEU regarding the interpretation of Articles 167, 168, 169, and 179 of the VAT Directive in the context of branch operations. The CJEU clarified that these provisions, together with the principle of neutrality, preclude Member State tax administrations from treating a parent company and its branch as distinct taxable persons merely because each has separate tax identification numbers. Articles 167-168 establish the right to deduct input VAT for taxable persons, which applies uniformly to a company operating through a branch. The tribunal's interpretation emphasizes substance over form: despite administrative distinctions, the economic reality is that the branch and parent constitute one taxable person. This means VAT charged on services used by the branch for its taxable activities must be deductible, regardless of whether invoices are addressed to the parent company or the branch itself, provided the necessary conditions for deduction are satisfied.
Can a foreign company's branch in Portugal claim VAT refunds on additional VAT assessments and compensatory interest?
Yes, a foreign company's branch in Portugal can claim VAT refunds on additional assessments and compensatory interest through CAAD arbitration. In this case, the Claimant sought annulment of VAT assessments totaling €393,248.15 for tax years 2010-2011, plus compensatory interest calculated at the statutory rate from the payment date (January 29, 2014) until full refund. The procedure involves: (1) challenging the assessment through hierarchical appeal to the Tax and Customs Authority; (2) if denied, filing a request for arbitration with CAAD under Decree-Law 10/2011 and Ordinance 112-A/2011; (3) constitution of an arbitral tribunal; and (4) if successful, the AT must refund the undue amounts with compensatory interest. The CJEU's favorable ruling in this case supports the branch's right to reclaim VAT wrongly denied based on the erroneous distinction between branch and parent company, establishing important precedent for similar refund claims by branches of foreign entities operating in Portugal.
What is the procedure for challenging VAT additional assessments through hierarchical appeal and CAAD arbitration in Portugal?
The procedure for challenging VAT additional assessments in Portugal involves a two-tier process. First, taxpayers must file a hierarchical appeal (reclamação graciosa) with the Tax and Customs Authority challenging the assessment decision. If the hierarchical appeal is dismissed or denied, taxpayers can escalate to arbitration by requesting constitution of an arbitral tribunal with CAAD (Centro de Arbitragem Administrativa) under Decree-Law 10/2011 and Ordinance 112-A/2011. The request must be filed within the statutory deadline, identifying the contested acts and legal grounds. The CAAD President appoints arbitrators, and upon constitution, the tribunal follows procedures outlined in the RJAT (Regime Jurídico da Arbitragem Tributária), including the Tax Authority's answer, optional hearings, and written submissions. The tribunal examines both procedural and substantive legality of the assessments. If successful, taxpayers obtain annulment of illegal assessments and refund of amounts paid, plus compensatory interest. CAAD arbitration offers a faster alternative to tax courts, with specialized arbitrators and streamlined procedures particularly suited for complex VAT disputes involving EU law questions.
When can a CAAD arbitral tribunal refer questions to the Court of Justice of the European Union (CJEU) under Article 267 TFEU in VAT disputes?
A CAAD arbitral tribunal can refer preliminary questions to the Court of Justice of the European Union under Article 267 TFEU when the correct application of EU law, particularly the VAT Directive, is necessary to resolve the dispute and uncertainty exists regarding interpretation. In this case, the tribunal referred questions on June 29, 2016, because: (1) the dispute involved interpretation of Articles 167-168 of the VAT Directive regarding VAT deduction rights; (2) no clear CJEU case law existed on whether tax authorities could treat branches and parent companies as distinct taxable persons based solely on separate tax identification numbers; (3) the Tax Authority's position lacked support in established EU jurisprudence; and (4) the outcome depended fundamentally on clarifying EU law principles. The tribunal initially notified parties to comment on the referral's necessity. Though the Claimant argued referral was unnecessary, it provided suggested questions. Article 19(3)(b) of the RJAT and Article 267 TFEU authorize such referrals when EU law interpretation is essential and genuinely uncertain, ensuring uniform application of VAT rules across Member States and protecting taxpayer rights under EU law.