CAAD Arbitral Tribunal Competence on VAT Self-Assessment Corrections for Small Value Gifts (Process 799/2014-T)

TRANSLATION: CAAD TAX ARBITRATION DECISION No. 799/2014-T

Case No. 799/2014-T

The arbitrators Dr. Jorge Lopes de Sousa (arbitrator-president), Dr. Ricardo Rodrigues Pereira and Dr. Emanuel Augusto Vidal Lima, appointed by the Deontological Board of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 13-02-2015, agree as follows:

1. Report

A... (PORTUGAL), ARTIGOS DOMÉSTICOS, LDA, NIPC ..., with registered office at Avenue …, … Lisbon, filed a request for constitution of a collective arbitral tribunal, articles 2 and 10 of Decree-Law No. 10/2011 of 20 January (hereinafter RJAT), in which the PORTUGUESE TAX AND CUSTOMS AUTHORITY is the Respondent.

The Claimant seeks:

(i) A declaration of illegality and annulment of the Decision Dismissing the Hierarchical Appeal, dated 08-08-2014;

(ii) A declaration of illegality and annulment of the Decisions of 30-10-2013 and 22-09-2014, which dismissed the request for official revision;

(iii) A determination that acceptance of the correction of the VAT self-assessment for November and December 2008, in the amount of €9,370.80, already recognized by the Respondent in response to the Official Revision Request;

(iv) A determination that acceptance of the correction of the VAT self-assessment for January to December 2009, January to December 2010 and January to November 2011, in the total amount of €186,704.16;

(v) The Tax Authority to be condemned to pay indemnity interest on the amount of €9,370.80, calculated from 28-12-2012, at the successive legal rates in force until full reimbursement; and

(vi) Also condemned to pay indemnity interest on the amount of €186,704.16, calculated from 30-12-2013, at the legal rates in force until full reimbursement; and

(vii) Finally, also condemned to reimburse the claimant for expenses, namely the amount of the initial arbitration fee.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the Portuguese Tax and Customs Authority on 04-12-2014.

Pursuant to the provisions of paragraph a) of Article 6, Section 2 and paragraph b) of Article 11, Section 1 of the RJAT, the Deontological Board appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the assignment within the applicable period.

On 28-01-2015 the parties were duly notified of this appointment, and did not express any wish to refuse the appointment of the arbitrators, in accordance with the combined provisions of Article 11, Section 1, paragraphs a) and b) of the RJAT and Articles 6 and 7 of the Deontological Code.

In accordance with the provisions of paragraph c) of Article 11, Section 1 of the RJAT, the collective arbitral tribunal was constituted on 13-02-2015.

The Portuguese Tax and Customs Authority responded, raising the exception of lack of jurisdiction of the arbitral tribunal as to subject matter and the exception of untimeliness and defending the inadmissibility of the request for arbitral decision.

By order of 18-03-2015, it was decided to dispense with the meeting provided for in Article 18 of the RJAT and that the proceedings continue with submissions.

The parties did not submit any submissions.

The Tribunal is competent and was regularly constituted.

The parties have legal personality and capacity, are properly parties to the dispute and are duly represented (arts. 4 and 10, section 2, of the RJAT and art. 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings do not suffer from nullities.

Exceptions are raised that must be considered as a priority [article 608, section 1, of the CPC subsidiarily applicable by virtue of the provisions of article 29, section 1, paragraph e), of the RJAT].

2. Exception of Lack of Material Jurisdiction

2.1. Question of lack of jurisdiction to review decisions issued in official revision proceedings.

The Portuguese Tax and Customs Authority argues, in summary, that article 2, paragraph a) of Ordinance No. 112-A/2011 literally excludes from the scope of the Tax Authority's binding to arbitral jurisdiction, "(…) claims relating to the declaration of illegality of self-assessment acts (…) that have not been preceded by recourse to the administrative procedure, in accordance with articles 131 to 133 of the CPPT", not referring to official revision provided for in article 78 of the LGT.

The jurisdiction of arbitral tribunals operating at CAAD is, first, limited to the matters indicated in art. 2, section 1, of Decree-Law No. 10/2011, of 20 January (RJAT).

In a second instance, the jurisdiction of arbitral tribunals operating at CAAD is also limited by the terms in which the Tax Administration was bound to that jurisdiction by Ordinance No. 112-A/2011, of 22 March, since art. 4 of the RJAT establishes that «the binding of the tax administration to the jurisdiction of tribunals constituted in accordance with the present law depends on an ordinance of the Government members responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of disputes covered».

In view of this second limitation of the jurisdiction of arbitral tribunals operating at CAAD, the resolution of the jurisdiction issue depends essentially on the terms of this binding, because, even if one is in a situation that falls within that art. 2 of the RJAT, if it is not covered by the binding, the possibility of the dispute being judicially decided by this Arbitral Tribunal will be excluded.

In paragraph a) of art. 2 of this Ordinance No. 112-A/2011, claims relating to the declaration of illegality of self-assessment acts, withholding tax and payment on account are expressly excluded from the scope of the Tax Administration's binding to the jurisdiction of arbitral tribunals operating at CAAD, «claims relating to the declaration of illegality of self-assessment acts, withholding tax and payment on account that have not been preceded by recourse to the administrative procedure in accordance with articles 131 to 133 of the Code of Procedure and Tax Process».

The express reference to the preceding «recourse to the administrative procedure in accordance with articles 131 to 133 of the Code of Procedure and Tax Process» must be interpreted as referring to cases where such recourse is mandatory, through a gracious complaint, which is the administrative means indicated in those arts. 131 to 133 of the CPPT, to whose terms reference is made. In fact, first of all, it would not be understood that, when prior administrative challenge is not necessary «when its basis is exclusively a matter of law and the self-assessment has been carried out in accordance with generic guidance issued by the tax administration» (art. 131, section 3, of the CPPT, applicable to withholding tax cases, by virtue of the provisions of section 6 of art. 132 of the same Code), the arbitral jurisdiction would be excluded by such administrative challenge, which is understood to be unnecessary, not having been made.

In the case at hand, annulment is sought of the decision of 30-10-2013 which dismissed the request for official revision relating to VAT self-assessments for the months of November and December 2008 (document No. 2, attached with the request for arbitral decision, whose content is reproduced) and annulment of the decision of 22-09-2014, which dismissed the request for official revision relating to VAT self-assessments for the months of January to December 2009, January to December 2010 and January to November 2011.

Thus, it is important, first of all, to clarify whether the declaration of illegality of acts dismissing requests for revision of the tax act, provided for in art. 78 of the LGT, is included in the jurisdiction attributed to arbitral tribunals operating at CAAD by art. 2 of the RJAT.

In fact, in this art. 2 no express reference is made to these acts, contrary to what occurs with the legislative authorization on which the Government based itself to approve the RJAT, which refers to «requests for revision of tax acts» and «administrative acts that entail the review of the legality of assessment acts».

However, the formula «declaration of illegality of acts of assessment of taxes, self-assessment, withholding tax and payment on account», used in paragraph a) of section 1 of art. 2 of the RJAT does not restrict, in a mere declarative interpretation, the scope of arbitral jurisdiction to cases where an act of one of those types is directly challenged. In fact, the illegality of assessment acts may be declared judicially as a corollary of the illegality of a second-instance act, which confirms an assessment act, incorporating its illegality.

The inclusion in the jurisdiction of arbitral tribunals operating at CAAD of cases where the declaration of illegality of the acts indicated there is made through the declaration of illegality of second-instance acts, which are the immediate object of the impugnatory claim, results with certainty from the reference that in that norm is made to self-assessment acts, withholding tax and payment on account, which are expressly referred to as included among the jurisdiction of arbitral tribunals. In fact, with respect to these acts, a gracious complaint is imposed as a rule, mandatory in arts. 131 to 133 of the CPPT, so that, in these cases, the immediate object of the impugnatory proceedings is, as a rule, the second-instance act that reviews the legality of the assessment act, which act, if it confirms it, must be annulled to obtain the declaration of illegality of the assessment act. The reference made in paragraph a) of section 1 of art. 10 of the RJAT to section 2 of art. 102 of the CPPT, in which the impugnation of acts dismissing gracious complaints is provided for, removes any doubt that the cases in which the declaration of illegality of the acts referred to in paragraph a) of that art. 2 of the RJAT must be obtained as a result of the declaration of the illegality of second-instance acts are covered within the jurisdiction of arbitral tribunals operating at CAAD.

Moreover, it was precisely in this sense that the Government, in Ordinance No. 112-A/2011, of 22 March, interpreted these competencies of arbitral tribunals operating at CAAD, when it excluded from the scope of those competencies the «claims relating to the declaration of illegality of self-assessment acts, withholding tax and payment on account that have not been preceded by recourse to the administrative procedure in accordance with articles 131 to 133 of the Code of Procedure and Tax Process», which has the effect of restricting its binding to cases where such recourse to the administrative procedure was used.

Having obtained the conclusion that the formula used in paragraph a) of section 1 of art. 2 of the RJAT does not exclude cases where the declaration of illegality results from the illegality of a second-instance act, it will also cover cases where the second-instance act is the dismissal of a request for revision of the tax act, because there is no reason to restrict, especially since, in cases where the revision request is filed within the period of the gracious complaint, it should be treated as equivalent to a gracious complaint.

The express reference to article 131 of the CPPT made in article 2 of Ordinance No. 112-A/2011 cannot have the decisive effect of excluding the possibility of reviewing claims of illegality of acts dismissing requests for official revision of self-assessment acts.

In fact, the interpretation exclusively based on the literal wording defended by the Portuguese Tax and Customs Authority in the present proceedings cannot be accepted, because in the interpretation of tax norms the general rules and principles of interpretation and application of laws are observed (article 11, section 1, of the LGT) and article 9, section 1, expressly prohibits interpretations exclusively based on the literal wording of norms, establishing that «interpretation must not be limited to the letter of the law», but should rather «reconstitute from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied».

As to the correspondence between interpretation and the letter of the law, «a minimum of verbal correspondence, even if imperfectly expressed» is sufficient (article 9, section 3, of the Civil Code) which will only prevent the adoption of interpretations that cannot absolutely be reconciled with the letter of the law, even recognizing in it imperfection in the expression of the legislative intention.

Therefore, the letter of the law is not an obstacle to declarative interpretation, which makes explicit the scope of the literal wording, nor even extensive interpretation, when it can be concluded that the legislator said less than what, in coherence, would have intended to say, that is, when it imperfectly said what it intended to say. In extensive interpretation «it is the very valuation of the norm (its "spirit") that leads to the discovery of the need to extend the text of it to the hypothesis that it does not cover», «the expansive force of the very legal valuation is capable of leading the provision of the norm to cover hypotheses of the same kind not covered by the text».

Extensive interpretation, therefore, is imposed by the coherent valuation and axiological character of the legal system, established by article 9, section 1, of the Civil Code as a fundamental interpretive criterion through the imposition of compliance with the principle of the unity of the legal system.

It is manifest that the scope of the requirement of prior gracious complaint, necessary to open the contentious route for impugning self-assessment acts, provided for in section 1 of article 131 of the CPPT, has as its only justification the fact that, with respect to this type of acts, there is no taking of position by the Tax Administration on the legality of the legal situation created by the act, a position that might even turn out to be favorable to the taxpayer, avoiding the need for recourse to the contentious route.

In fact, beyond not seeing any other justification for this requirement, the fact that an identical gracious complaint is required, necessary for contentious impugning of withholding tax and payment on account acts (in articles 132, section 3, and 133, section 2, of the CPPT), which have in common with self-assessment acts the circumstance that there is also no taking of position by the Tax Administration on the legality of the acts, confirms that this is the raison d'être of that gracious complaint requirement.

Another unequivocal confirmation that this is the raison d'être of the requirement of mandatory gracious complaint is found in section 3 of article 131 of the CPPT, when establishing that «without prejudice to the provisions of the preceding sections, when its basis is exclusively a matter of law and the self-assessment has been carried out in accordance with generic guidance issued by the tax administration, the period for impugning does not depend on prior complaint, the impugning being presented within the period of section 1 of article 102». In fact, in situations of this type, there was a prior generic pronouncement by the Tax Administration on the legality of the legal situation created by the self-assessment act and it is that fact that explains why the mandatory gracious complaint is no longer required.

Now, in cases where a request for official revision of a tax assessment act is formulated, the Tax Administration is provided, with this request, an opportunity to pronounce itself on the merit of the claim of the subject before this resort to the jurisdictional route, so that, in coherence with the solutions adopted in sections 1 and 3 of article 131 of the CPPT, it cannot be required that, cumulatively with the possibility of administrative review within the scope of that official revision procedure, a new administrative review be required through a gracious complaint.

On the other hand, it is unequivocal that the legislator did not intend to prevent taxpayers from formulating requests for official revision in the cases of self-assessment acts, because these are expressly referred to in section 2 of article 78 of the LGT.

In this context, allowing the law expressly that taxpayers choose between the gracious complaint or official revision of self-assessment acts and being the request for official revision filed within the period of the gracious complaint perfectly comparable to a gracious complaint, as referred to, there can be no reason that can explain that the arbitral route cannot be accessed by a taxpayer who has opted for revision of the tax act instead of the gracious complaint.

Therefore, it must be concluded that the Government members who issued Ordinance No. 112-A/2011, when making reference to article 131 of the CPPT with respect to requests for declaration of illegality of self-assessment acts, expressed imperfectly what they intended, because, intending to impose prior administrative review to the contentious impugning of self-assessment acts, they ended up including a reference to article 131 which does not exhaust the possibilities of administrative review of those acts.

Moreover, it should be noted that this interpretation not being limited to the literal wording is justified especially in the case of paragraph a) of article 2 of Ordinance No. 112-A/2011, because its imperfections are evident: one is to associate the comprehensive formula «recourse to the administrative procedure» (which references, besides the gracious complaint, the hierarchical appeal and the revision of the tax act) to the «expression in accordance with articles 131 to 133 of the Code of Procedure and Tax Process», which has potential restrictive scope to the gracious complaint; another is to use the formula «preceded» by recourse to the administrative procedure, referring to «claims relating to the declaration of illegality of acts», which, obviously, would be very much better coordinated with the feminine word «preceded».

Therefore, beyond the general prohibition of interpretations limited to the letter of the law that is in article 9, section 1, of the Civil Code, in the specific case of paragraph a) of article 2 of Ordinance No. 112-A/2011 there is a special reason for not justifying great enthusiasm for a literal interpretation, which is the fact that the wording of that norm is manifestly defective.

Furthermore, since the revision of the tax act ensures the possibility of review of the taxpayer's claim before access to the contentious route that is intended to be achieved with the necessary administrative impugning, the most correct solution, because it is most coherent with the legislative purpose of «strengthening effective and actual protection of the rights and interests legally protected of taxpayers» expressed in section 2 of article 124 of Law No. 3-B/2010, of 28 April, is the admissibility of the arbitral route to review the legality of assessment acts previously reviewed in official revision proceedings.

And, because it is the most correct solution, it must be presumed to have been normatively adopted (article 9, section 3, of the Civil Code).

On the other hand, containing that paragraph a) of article 2 of Ordinance No. 112-A/2011 an imperfect formula, but which contains a comprehensive expression «recourse to the administrative procedure», which potentially also references the revision of the tax act, the minimum verbal correspondence is found in the text, although imperfectly expressed, required by that section 3 of article 9 for the viability of adopting the interpretation that establishes the most correct solution.

It must be concluded, therefore, that article 2, paragraph a), of Ordinance No. 112-A/2011, properly interpreted on the basis of the criteria for interpretation of law provided for in article 9 of the Civil Code and applicable to substantive and adjective tax norms, by virtue of the provisions of article 11, section 1, of the LGT, enables the presentation of requests for arbitral decision regarding self-assessment acts that have been preceded by a request for official revision.

2.2. Question of lack of material jurisdiction arising from the circumstance that the decisions of official revision proceedings and hierarchical appeal did not review the legality of self-assessment acts

In art. 2 of the RJAT, which defines the «Jurisdiction of arbitral tribunals», is not expressly included the review of claims for declaration of illegality of acts dismissing requests for official revision of tax acts, because, in the wording introduced by Law No. 64-B/2011, of 30 December, only the jurisdiction of arbitral tribunals for «the declaration of illegality of acts of assessment of taxes, self-assessment, withholding tax and payment on account» and «the declaration of illegality of acts of determination of taxable matter when not giving rise to the assessment of any tax, acts of determination of taxable matter and acts of determination of patrimonial values» is indicated.

However, the fact that paragraph a) of section 1 of art. 10 of the RJAT makes reference to sections 1 and 2 of art. 102 of the CPPT, in which the various types of acts that give rise to the period for judicial impugning are indicated, including the gracious complaint, makes it clear that all types of acts that can be impugned through the process of judicial impugning will be covered within the jurisdiction of arbitral tribunals operating at CAAD, covered by those sections 1 and 2, provided they have as their object an act of one of the types indicated in that art. 2 of the RJAT.

Moreover, this interpretation in the sense of the identity of the fields of application of the process of judicial impugning and the arbitral process is the one that is in harmony with the aforementioned legislative authorization on which the Government based itself to approve the RJAT, granted by art. 124 of Law No. 3-B/2010, of 28 April, in which the intention is revealed that the tax arbitration process constitutes «an alternative procedural means to the process of judicial impugning and the action for recognition of a right or legitimate interest in tax matters» (section 2).

However, this same argument that is drawn from the legislative authorization leads to the conclusion that the possibility of using the arbitration process will be excluded when, in the tax judicial process, the judicial impugning or the action for recognition of a right or legitimate interest cannot be used.

In fact, being this the sense of the aforementioned legislative authorization law and being inserted within the relative reservation of legislative competence of the Assembly of the Republic to legislate on the «tax system», including the «guarantees of taxpayers» [arts. 103, section 2, and 165, section 1, paragraph i), of the CRP] and on the «organization and jurisdiction of courts» [art. 165, section 1, paragraph p), of the CRP], the aforementioned art. 2 of the RJAT, under penalty of unconstitutionality, for lack of coverage in the legislative authorization law that limits the power of the Government (art. 112, section 2, of the CRP), cannot be interpreted as attributing to arbitral tribunals operating at CAAD jurisdiction for the review of the legality of other types of acts, for whose impugning the process of judicial impugning and the action for recognition of a right or legitimate interest are not adequate.

Therefore, to resolve the question of the jurisdiction of this Arbitral Tribunal it becomes necessary to determine whether the legality of the act dismissing the request for official revision could or could not be reviewed, in a tax court, through the process of judicial impugning or action for recognition of a right or legitimate interest.

The act dismissing a request for official revision of the tax act constitutes an administrative act, in light of the definition provided by art. 120 of the CPA of 1991 [subsidiarily applicable in tax matters, by virtue of the provisions of art. 2, paragraph d), of the LGT, 2, paragraph d), of the CPPT, and 29, section 1, paragraph d), of the RJAT and in force at the time the request for arbitral decision was presented], because it constitutes a decision of a body of the Administration which, under public law norms, aimed to produce legal effects in an individual and concrete situation.

On the other hand, it is also unquestionable that it is an act in tax matters because the application of tax law norms is made in it.

Thus, that act dismissing the request for official revision constitutes an «administrative act in tax matters».

From paragraphs d) and p) of section 1 and section 2 of art. 97 of the CPPT, it is inferred that the rule of impugning administrative acts in tax matters is made, in the tax judicial process, through judicial impugning or special administrative action (which succeeded the contentious remedy, in accordance with art. 191 of the Code of Process in Administrative Courts) according to whether those acts do or do not entail the review of the legality of administrative assessment acts.

Eventually, as an exception to this rule may be considered the cases of impugning acts dismissing gracious complaints, due to the fact that there is a special norm, which is section 2 of art. 102 of the CPPT, from which it can be inferred that judicial impugning is always usable. Other exceptions to that rule may be found in special norms, later than the CPPT, which expressly provide the process of judicial impugning as a means to impugn a certain type of acts.

But, in cases where there are no special norms, that criterion for distribution of the fields of application of the process of judicial impugning and the special administrative action must be applied.

In light of this criterion for distribution of the fields of application of the process of judicial impugning and special administrative action, the acts issued in official revision proceedings of self-assessment acts can only be impugned through the process of judicial impugning when they entail the review of the legality of these self-assessment acts. If the act dismissing the request for official revision of a self-assessment act does not entail the review of the legality of this, the special administrative action will apply. This is a criterion for distinguishing the fields of application of the aforementioned procedural means of dubious justification, but the fact is that it is what results from the wording of paragraphs d) and p) of section 1 of article 97 of the CPPT and has been uniformly adopted by the Supreme Administrative Court.

This finding that there is always an adequate procedural impugnatory means to contentiously impugn the act dismissing the request for official revision of a self-assessment act leads, first of all, to the conclusion that we are not in a situation where in the tax judicial process the action for recognition of a right or legitimate interest could be used, because its application in tax contention has a residual nature, since these actions «can only be brought whenever that procedural means is the most adequate to ensure full, effective and actual protection of the right or legally protected interest» (art. 145, section 3, of the CPPT).

Another conclusion that allows the aforementioned delimitation of the fields of application of the process of judicial impugning and special administrative action is that, restricting the jurisdiction of arbitral tribunals operating at CAAD to the field of application of the process of judicial impugning, only requests for declaration of illegality of acts dismissing requests for official revision of self-assessment acts that entail the review of the legality of these acts are inserted in this jurisdiction.

The legislative concern to exclude from the jurisdiction of arbitral tribunals operating at CAAD the review of the legality of administrative acts that do not entail the review of the legality of assessment acts, in addition to resulting from the outset from the general directive of creating an alternative means to the process of judicial impugning and the action for recognition of a right or legitimate interest, results with clarity from paragraph a) of section 4 of art. 124 of Law No. 3-B/2010, of 28 April, in which the possible objects of the tax arbitration process are indicated as «the administrative acts that entail the review of the legality of assessment acts», because this specification can only be justified by a legislative intention to exclude from the possible objects of the arbitration process the review of the legality of acts that do not entail the review of the legality of assessment acts.

Therefore, the resolution of the question of the jurisdiction of this Arbitral Tribunal connected with the content of the acts dismissing the requests for official revision and hierarchical appeal depends on the analysis of these acts and the judgment that is made about whether or not they entail the review of the legality of self-assessment acts.

2.2.1. Content of the decision of 30-10-2013 dismissing the request for official revision No. RO … 2013 …, relating to «assessment and payment of VAT made in excess in the periods of November and December 2008 in the amount of €9,370.80» (document No. 1 attached with the request for arbitral decision, whose content is reproduced)

The decision of the Director-General of the Portuguese Tax and Customs Authority of 30-10-2013 merely manifested agreement with the proposal formulated in Information No. 2302, which is part of the administrative file and document No. 2 attached with the request for arbitral decision, whose contents are reproduced.

In that Information, among other things, the following appears:

In accordance with the provisions of sections 1 and 2 of article 78 of the LGT, the revision of tax acts at the initiative of the tax administration may take place within a period of four years from the assessment or at any time, if the tax has not yet been paid, and may occur when there is an error attributable to the services, being considered as such an error in self-assessment, whereas, at the initiative of the subjects, it can only be done within the period of the gracious complaint.

In section 7 of the same article, it states that "the period for official revision of the tax act or taxable matter is interrupted by the request of the taxpayer directed to the competent body of the tax administration for its realization".

In accordance with the provisions of section 1 of article 98 of the VAT Code, "when, for reasons attributable to the services, tax higher than due has been assessed, official revision is proceeded with in accordance with article 78 of the general tax law".

These legal provisions must be interpreted in the sense that they cannot harm the effective applicability of the provisions of the VAT Code that specially regulate the correction of material or calculation errors evidenced in records or in periodic declarations.

Otherwise, those legal provisions would lose all their effectiveness and reason for existing. The subjects could, even if the prerequisites provided for in them were not met, notably timeliness, obtain the same result that would result from them through recourse to the mechanism of revision of tax acts.

Admitting this possibility would mean that provisions of a general character of the LGT would prevail over special provisions contained in tax codes, which is not acceptable, especially in the case of VAT, which is a tax of Community matrix.

In this context, it has been understood that official revision of VAT self-assessment cannot be done by putting in question the legal prerequisites on which the exercise of the right to deduction depends, under penalty of them being deprived of effectiveness.

As to the moment and modalities of the exercise of the right to deduction, the provisions of article 22 must be observed, namely the following:

"1 - The right to deduction arises at the moment when the deductible tax becomes exigible, in accordance with what is established by articles 7 and 8, taking place by subtraction from the total amount of tax due for the taxable transactions of the subject, during a declaration period, of the amount of deductible tax, exigible during the same period.

2 - Without prejudice to the provisions of article 78, the deduction must be made in the declaration of the period or of a later period than that in which the receipt of invoices or receipt of VAT payment that is part of import declarations took place".

It is inferred from these legal provisions that the subject does not have absolute freedom as to the moment of tax deduction.

This freedom also does not result from the provisions of section 2 of article 98 of the VAT Code, since, by its general character, it is a norm only applicable to situations not covered by the provision of article 78 of the same Code, or in any other legal norm that establishes a special period for the same purpose.

Otherwise, the norms that established a shorter period than that of four years after the birth of the right to deduction or payment in excess of tax, as the case may be, to which the aforementioned section 2 of article 98 alludes, would have no useful effect.

As the Supreme Administrative Court wrote doctrinally (STA), in the Decision of 2011-05-18, in case 0966/10, which we reproduce:

"I - As a rule, established in art. 22, section 1, of the VAT Code, the deduction of tax should be made in the declaration of the period in which the receipt of invoices, equivalent documents or receipt of VAT payment that is part of import declarations took place, admitting, however, the possibility of corrections provided for in art. 71.

II - Thus, the deduction of tax cannot be made at any moment, at the choice of the subject, the useful scope of the aforementioned norms being precisely to exclude that this can be done at different moments, when not specially provided.

III - Section 2 of art. 92 of the VAT Code, when establishing that the right to deduction can only be exercised up to the limit of four years after the birth of the right to deduction, does not have the scope of giving the subject the freedom to choose any moment within that period to effect the deduction, but rather to fix a maximum limit that cannot be exceeded, even in cases where deduction can be made at different moments than those indicated in that art. 22.

IV - Beyond art. 71, section 6, of the VAT Code, there is no legal provision that can be interpreted as allowing the subject the exercise of the right to deduction at a moment after those indicated in this art. 22, in cases where, by oversight made in its accounting, it only detects that it had the right to deduction at a moment after that in which it should effect".

This jurisprudence, although established with respect to the right to deduction, should be considered as extended to other cases for which special periods are established in article 78 of the VAT Code.

The deduction of tax, in whole or in part, is the object of recording in the accounting of the subjects, serving such recording as the basis for completing the respective periodic declaration.

Considering that the deduction of VAT is made by the subject in its accounting (internally), it has been established that the self-assessment of VAT without that deduction embodies, as a rule, a calculation error in the determination of the tax and that this error is subject to the discipline of section 6 of article 78 of the VAT Code.

In a situation where it is not mandatory for VAT to be passed on, in accordance with section 3 of article 37 of the VAT Code, the subject must proceed to the assessment of tax in its accounting (internally).

Any errors that occur in that internal assessment of VAT are attributable exclusively to the subject and have no interference in the sphere of other entities, being, therefore, also to be qualified as calculation errors in the determination of the tax, with framework in the regime of section 6 of article 78 of the VAT Code.

Section 6 of article 78 tells us that "the correction of material or calculation errors in the record referred to in articles 44 to 51 and 65, in the declarations mentioned in article 41 and in the guides or declarations mentioned in paragraphs b) and c) of section 1 of article 67 is optional when it results in tax in favor of the subject, but can only be made within the period of two years, which, in the case of the exercise of the right to deduction, is counted from the birth of the respective right in accordance with section 1 of article 22, being mandatory when it results in tax in favor of the State".

According to administrative guidance conveyed by Circular Letter No. 30082/2005, of 17 November, of the VAT Services Division, it is the "(…) correction of material or calculation errors made in records or in periodic declarations", being considered "(…) material or calculation errors those that result from internal company errors and have no interference whatsoever in the sphere of third parties".

By virtue of the provisions of article 12 of Law No. 39-A/2005, of 29 July, which gave new wording to the provision of section 6 of article 78 in question, the period that subjects have to regularize, in their favor, the tax resulting from the correction of material or calculation errors evidenced in records or in periodic declarations was extended to two years.

In return, section 7 of the same article was eliminated, which allowed subjects to request authorization from the tax administration to regularize the tax, in their favor, in duly justified cases, within the period of four years.

This possibility was based on a discretionary power of the tax administration, which created the risk of different treatments. On the other hand, some subjects submitted the request almost at the end of the period of expiration of the right to assessment, which generated significant control difficulties. Being both situations undesirable, it was understood that the most appropriate would be to eliminate that possibility (cfr. point 11.5 of Circular Letter No. 30082/2005).

The period of two years for the regularization of material or calculation errors is considered sufficient, from the perspective of the guarantees of subjects, being noteworthy the approximation of that period to the one provided for in section 1 of article 131 of the Code of Procedure and Tax Process (CPPT), for the gracious complaint in case of self-assessment.

Such period is also compatible with Community jurisprudence that guarantees subjects the possibility of regularizing VAT in their favor, by virtue of errors in records or in periodic declarations.

Considering that Member States are not required to authorize subjects to proceed to the correction of such errors at any time or within the actual period of expiration of the right to assessment, the Court of Justice of the European Union (CJEU) admits the establishment of shorter special periods that are reasonable for this purpose.

As to the question of what should be understood as a reasonable period, the same Court has already decided that a peremptory period of two years does not, at the outset, make it impossible to exercise the right to deduction. Such period is, therefore, admissible.

In the present case, the Claimant alleges that, with reference to the products "KIT RECRUTA", delivered to the "Demonstrators", with a view to testing future customers, as a necessary prior phase to the acquisition of the products it commercializes, is excluded from taxation, in accordance with paragraph f) of section 3 of article 3 of the VAT Code, whereby it will have assessed and paid tax unduly to the State, in the total amount of €8,937.94.

On the other hand, it understands that, under the provisions of article 21 of the VAT Code, it can recover 50% of the VAT incurred in the costs of accommodation, food and beverages of the participants, as well as the rental of rooms, when organizing the "Rally South", "Rally North" and "Demonstrator Meetings" events, which it organized in 2008, and 100% of the VAT borne in the remaining acquisitions of goods and services for the organization of those events, in the total amount of €432.86.

In any case, there are alleged errors that resulted in excess payment of VAT, so any eventual regularization could only be done in accordance with the terms and periods provided for in article 78, section 6, of the VAT Code.

It is verified, however, that the two-year period legally established had already ended when this request for revision, relating to the periods of tax for November and December of the year 2008, was presented (on 2012-12-28).

In view of the above, the dismissal of this request for revision of tax acts is proposed.

3. Right to Prior Hearing

In accordance with the instructions conveyed in point 3 of Circular Letter No. 13/99, of 1999-07-08, of the Tax Justice Services Division, the hearing of interested parties may be dispensed with, namely when the tax administration only reviews the facts given to it by the taxpayer, limiting itself, in its decision, to making the interpretation of the applicable legal norms to the case. Accordingly, we are of the opinion that, in the present case, prior hearing of the Claimant should be dispensed with.

4. Conclusion

In view of the above, the dismissal of this request for revision of tax acts is proposed.

Examining this reasoning, no judgment, even if summary, is found on the legality of the acts of VAT self-assessment.

In fact, the Portuguese Tax and Customs Authority, after explaining the legal regime it understands to be applicable, merely manifests the understanding that «there are alleged errors that resulted in excess payment of VAT, so any eventual regularization could only be done in accordance with the terms and periods provided for in article 78, section 6, of the VAT Code».

Therefore, the decision dismissing the request of 30-10-2013 does not entail the review of the legality of any assessment or self-assessment act.

Therefore, the appropriate means to impugn it in tax courts is the special administrative action and not the process of judicial impugning.

Therefore, by what was referred to regarding the scope of jurisdiction of arbitral tribunals operating at CAAD, the review of the legality of that decision of 30-10-2013 is not included in that jurisdiction.

The exception of lack of material jurisdiction is thus warranted as to this request.

2.2.2. Content of the decision dismissing the request issued on 19-09-2014 notified to the Claimant by letter of 22-09-2014 which dismissed the Official Revision No. RO 29 2014 000 027, relating to «assessment and payment of VAT made in excess in the periods of January 2009 to December 2011 in the amount of €186,704.16» (document No. 5 attached with the request for arbitral decision, whose content is reproduced)

The decision dismissing the request for official revision No. RO… 2014 … was issued on 19-09-2014, manifesting agreement with Information No. ..., of 07-07-2014 of DSIVA.

In that Information No. ..., which is part of section 4 of the administrative file, the following is referred to, among other things:

2. Review of the Request, Reasoning and Timeliness

The Claimant comes to request that this request for official revision [or in the form to which it may be converted], presented under section 1 of article 78 of the LGT, be granted in the sense of authorizing the regularization of VAT in its favor, in the amount of €186,704.16, through inclusion of this amount in a future periodic declaration.

In accordance with the provisions of section 1 of article 98 of the VAT Code, "when, for reasons attributable to the services, tax higher than due has been assessed, official revision is proceeded with in accordance with article 78 of the general tax law".

The revision of tax acts at the initiative of the tax administration may take place within the period of four years from the assessment or at any time, if the tax has not yet been paid, on the basis of an error attributable to the services, being considered as such an error in (self-)assessment, whereas, at the initiative of subjects, it can only be done within the period of administrative complaint, on the basis of any illegality (cfr. sections 1 and 2 of article 78 of the LGT).

However, that norm must be interpreted in the sense that it cannot harm the effective applicability of the other provisions of the VAT Code, namely those that specially regulate the correction of material or calculation errors evidenced in records or in periodic declarations.

Otherwise, those legal provisions would lose their effectiveness and reason for existing, because subjects could, even if the prerequisites provided for in them were not met, namely timeliness, obtain the same result that would result from them through recourse to the mechanism of revision of tax acts.

On the other hand, to admit that possibility would mean that provisions of a general character of the LGT would prevail over special provisions contained in tax codes, which is not acceptable, especially in the case of VAT, which is a tax of Community matrix.

As Clotilde Celorico Palma writes, "VAT is a tax of Community matrix, that is, we have, at Community level, a common VAT system that is part of the 'Community acquis' ('acquis communautaire')".

In this sense, the Community principle of uniform interpretation requires that the jurisprudence of the Court of Justice of the European Union (CJEU) be accepted by the Member States, within the scope of the interpretation of the provisions of the VAT Code.

It is settled jurisprudence of the CJEU that "it is for Member States to define the procedure for regularization of Value Added Tax unduly invoiced, provided that this regularization does not depend on the discretionary power of the tax administration.

In the Portuguese case, the generic situations of correction or regularization of VAT are provided for in article 78 of the VAT Code, namely in the provision of section 6 of that article.

According to administrative guidance conveyed by Circular Letter No. 30082/2005, of 17 November, of the VAT Services Division, that norm refers to "(…) correction of material or calculation errors made in records or in periodic declarations", being considered "(…) material or calculation errors those that result from internal company errors and have no interference whatsoever in the sphere of third parties".

By virtue of the provisions of article 12 of Law No. 39-A/2005, of 29 July, which gave new wording to the provision of section 6 of article 78 of the VAT Code, the period that subjects have to regularize, in their favor, the tax resulting from the correction of material or calculation errors evidenced in records or in periodic declarations was extended to two years.

In return, section 7 of the same article was eliminated, which allowed subjects to request authorization from the tax administration to regularize the tax, in their favor, in duly justified cases, within the period of four years.

This possibility was based on a discretionary power of the tax administration, which created the risk of different treatments. Furthermore, some subjects submitted the request almost at the end of the period of expiration of the right to assessment, which generated significant control difficulties. Being both situations undesirable, it was understood that the most appropriate would be to eliminate that possibility (cfr. point 11.5 of Circular Letter No. 30082/2005)

The period of two years for the regularization of material or calculation errors is considered sufficient, from the perspective of the guarantees of subjects, being noteworthy the approximation of that period to the one provided for in section 1 of article 131 of the CPPT, for the gracious complaint in case of self-assessment.

Such period is also compatible with Community jurisprudence that guarantees subjects the possibility of regularizing VAT in their favor, by virtue of errors in records or in periodic declarations.

Considering that Member States are not required to authorize subjects to proceed to the correction of such errors at any time or within the actual period of expiration of the right to assessment, the Court of Justice admits the establishment of shorter special periods that are reasonable for this purpose.

As to the question of what should be understood as a reasonable period, the same Court has already decided that a peremptory period of two years does not, at the outset, make it impossible to exercise the right to deduction. That is to say that such period is admissible.

It has been established that, since the deduction of VAT is made by the subject in its accounting (internally), the (self-)assessment of VAT without that deduction embodies, as a rule, a calculation error in the determination of the tax.

It is also established that this error is subject to the discipline of section 6 of article 78 of the VAT Code.

It is, therefore, a calculation error in the determination of tax, whose regularization in favor of the subject is optional and does not depend on discretionary power of the tax administration, being able to be made only within the two-year period.

When it chooses not to pass on the VAT to the acquirers of goods or services, in accordance with section 3 of article 37 of the VAT Code, the subject must proceed to the assessment of tax in its accounting (internally).

Possible internal errors that occur in that assessment of VAT are attributable exclusively to the subject and have no interference in the sphere of other entities, being such errors to be qualified as calculation errors in the determination of the tax, with framework in the regime of section 6 of article 78 of the VAT Code.

The Claimant comes to argue that it is, in any case, an error of law and that this is not subsumed in the concept of tax calculation error, as it has been understood by the Tax Administration. However, it resorts, for this, to concepts of tax procedure law and of private law.

Being a tax of Community base, as we have already said, the concepts provided for in the VAT Code should not be understood in light of internal law, under penalty of putting in question the neutrality of the tax, at international level.

In view of the above, it is concluded that the two-year period, which is established in section 6 of article 78 of the VAT Code, is applicable with respect to any of the situations exposed by the Claimant, whether of (self-)assessment of VAT upon delivery of the "KIT RECRUTA" or of non-exercise of the right to deduction of tax borne in the organization of events.

That period, in the case of the exercise of the right to deduction, is counted from the birth of the respective right, in accordance with section 1 of article 22 of the VAT Code, and in the other cases, will be counted from the moment in which the tax was assessed.

According to the lists relating to acquisitions of goods/services relating to the organization of events for the years 2009 to 2011, which are attached to fls. 26-30 of this file, such acquisitions occurred up to 2011-11-23, so the correction of errors relating to the deduction of the corresponding tax borne can no longer be shown, on 2013-12-30 (date of submission of this request for revision).

On that date, more than two years had elapsed, from the moment the corresponding right to deduction was born, which coincides with the date of the exigibility of the tax borne, in accordance with articles 7 and 8 of the VAT Code (as a rule, the date of issue of the corresponding invoice).

Regarding the assessment of VAT in the allocation of "KIT RECRUTA", no concrete data are provided, but it also appears that the two-year legal period to which section 6 of article 78 of the VAT Code refers has expired.

If such period were still in progress, the request for revision of tax acts would not be admissible, because, in accordance with the provisions of section 2 of article 97 of the VAT Code, "Hierarchical appeals, complaints and impugnations are not admitted if the assessments are still susceptible to correction in accordance with article 78 of the same Code.

As noted by the VAT Nucleus, of the then Directorate-General for Contributions and Taxes, "the possibility of complaint or impugning is not granted when the assessments or deductions (which in turn affect the amount of tax to be paid) are still susceptible to correction, in accordance with article 71") It would not be understandable that the taxpayer could take administrative or judicial defense means, when the law grants it a direct and simple, accounting, process of correction".

As to the allegation that the VAT Services Division has already pronounced itself in the sense of admissibility of a request, in accordance with article 78 of the LGT, for the regularization of VAT in favor of the subject that has been (self-)assessed in excess more than two years ago, it seems to us that the same cannot be attended to.

The Claimant refers to the prior understanding of the VAT Services Division, which is contained in information No. 1568, of 2010-04-19, of the VAT Services Division, but which was altered, because it was considered not to correspond to a proper interpretation of the applicable tax legislation.

In accordance with settled jurisprudence of the STA, in the Decision of 1999-02-03, in case No. 023137, "the constitutional principle of protection of legitimate expectations imposes on the bodies of the Administration the observance of the principle of legality (art. 266, section 2), but does not confer on citizens any right to the maintenance of a practice of the Administration that it deems illegal" (point VIII of the summary).

The principle of equality "(…) requires that the tax administration does not carry out discriminatory action and not that it maintain indefinitely the same interpretation of tax norms. For that reason, if, after having uniformly maintained, for a certain period of time, the same interpretation of the law, in its application to concrete cases, the tax administration is convinced that another interpretation is correct, the principle of equality is not an obstacle to its adopting in its practice, only requiring, for there to be no discrimination, that the new interpretation be applied generally"

Notwithstanding the provisions of article 78 of the LGT, it has been established that, in the generality of corrections to VAT self-assessment that are attributable exclusively to the subject and that do not have interference in the sphere of other entities, we are faced with the existence of material or calculation errors in the determination of the tax and, thus, such corrections are subject to the regularization mechanism provided for in section 6 of article 78 of the VAT Code.

In light of the principle of neutrality, which characterizes the common VAT system, a more favorable treatment cannot be given to the subject that shows lack of knowledge of the law, for example, because it assessed VAT in excess, or deducted an amount less than it would have been entitled to deduct, granting authorization to regularize the VAT paid in excess beyond two years (within, however, the four-year period), than that which is granted to the subject that, although aware of the law and zealous in its compliance, made a mere lapse of writing in its accounting or in the periodic declarations submitted.

The broad right to information that is granted to subjects, especially when it is a company limited by quotas, which must have organized accounting and an Official Accountant, cannot be ignored.

Following a review of procedures, the Claimant detected the existence of errors in the calculation of the tax, as a result of the (self-)assessment of VAT that it considers not to be due and of the non-exercise of the right to deduction of tax borne upstream, so it seems to us that we are faced with errors with framework in the provision of section 6 of article 78 of the VAT Code.

With the elimination of the four-year period that, prior to the entry into force of Law No. 39-A/2005, of 29 July, was contained in section 7 of article 78 of the VAT Code, the now Claimant should have proceeded to the aforementioned review of procedures in time that would allow it to regularize in its favor the alleged excess payment of tax within the two-year period.

Having not done so, it cannot be allowed, under the pretext of alleged "errors of law", the extension of the current two-year period, when what is intended is no more than "correction of supposed errors in the determination of VAT to be paid to the State.

Without granting, even if it were considered that any of the situations under analysis would not have framework in the provisions of article 78 of the VAT Code, but rather that the general and supplementary period to which section 2 of article 98 of the same Code refers would apply to them, it would always have to be concluded by the timeliness of this request for revision, regarding the months of January to November of the year 2009, because more than four years had elapsed, after the birth of the right to deduction or the (self-)assessment in excess of the tax, as the case may be, given that that request was only submitted on 2013-12-30.

In such hypothesis, and regarding the months of December 2009 to December 2011, the facts alleged would still have to be analyzed and verified, namely whether VAT was indeed (self-)assessed in excess, whether there was indeed the right to the deduction of VAT incurred in the events and what the tax paid in excess resulting from that was.

3. Conclusion

Having considered the above, the dismissal of this request for revision of tax acts is proposed, and the Claimant should be notified, if it wishes, to come to exercise the right to hearing, in the terms and for the purposes of article 60 of the LGT.

As can be seen from this reasoning, in this case too there was no review of the legality of the acts of self-assessment, but only a taking of position on the timeliness of the Claimant's claim.

Therefore, the decision dismissing the request for official revision No. RO… 2014 …, of 19-09-2014, notified by letter of 22-09-2014, also does not entail the review of the legality of any of the self-assessment acts referred to by the Claimant.

Thus, as follows from article 97, sections 1, paragraphs d) and p), and 2, of the CPPT, and 191 of the Code of Process in Administrative Courts, the appropriate means to impugn it in tax courts is the special administrative action and not the process of judicial impugning.

Consequently, by what was referred to regarding the scope of jurisdiction of arbitral tribunals operating at CAAD, the review of the legality of that decision of 19-09-2014, which dismissed the request for official revision presented by the Claimant regarding VAT for the months of January 2009 to December 2011, does not fall within the jurisdiction of arbitral tribunals operating at CAAD.

The exception of lack of material jurisdiction is thus warranted as to this request for annulment of the decision dismissing the request for official revision No. RO 29… 2014 ….

2.3. Decision of 08-08-2014, which dismissed the hierarchical appeal No. .../2013-...

With the request for arbitral decision, the Claimant attached document No. 4, relating to the decision dismissing the hierarchical appeal No. .../2013-..., which is a decision of 08-08-2014, issued by the Director of VAT Services, by subdelegation.

The hierarchical appeal was filed against the decision dismissing the gracious complaint No. …/2013-….

The decision dismissing the claim merely manifests agreement with information No. 2157, of 08-08-2014, which is part of that document No. 4, whose content is reproduced, which contains, among other things, the following:

In accordance with the decision made in information No. ..., of 2014-06-12, of the VAT Services Division, the subject A... PORTUGAL DOMESTIC ARTICLES LTD, TIN ..., with registered office at Avenue …, … Lisbon, was notified to, within the period of 15 (fifteen) days, and in compliance with the provisions of article 60 d) of the General Tax Law (LGT), exercise, if it so understood, the right to prior hearing with respect to the draft decision contained in that information, drawn up following the hierarchical appeal filed by the aforementioned subject.

In Information No. ..., which is part of section 2 of the administrative file, whose content is reproduced, the following is referred to, among other things:

5.2.2. Analysis

In accordance with the elements contained in this file, there are additional VAT assessments, promoted by SIT, in the total amount of €9,957.97, and respective compensatory interest, in the amount of €1,475.42, relating to the year 2008.

The SIT determined VAT in arrears, based on an "Auxiliary Schedule", provided by the now Appellant, which made it possible to determine that it had assessed VAT on the amount of €182,873.50, when, in its accounting, the "Non-... Sales" and "... Sales" ("KIT RECRUTA") amounted to the total amount of €232,663.34, evidencing an untaxed difference in VAT, of €49,789.84.

When questioned, the now Appellant reported that this difference was not taxed because it was considered to relate to small-value gifts.

Noting that the value of legally untaxed gifts had already been exceeded, with the "Incentive Sales", "Activity Sales" and "Gifts" items, the SIT concluded that the amount of €49,789.84 was subject to VAT, at the normal rate, determining tax in arrears, in the amount of €9,957.97 (€49,789.84 * 20%), regarding the period 2008-12.

On the other hand, the Appellant, although confirming that the tax in question is related to the products sent to the "Demonstrators", as "KIT RECRUTA sales", comes to argue that such products are not intended for further commercialization, but rather to be used to promote the products commercialized to potential customers.

According to the Appellant, the products that make up the "KIT RECRUTA" do not have a size or format different from what constitutes the unit of sale, nor could they, because they would not allow for proper disclosure of the commercialized products.

Nevertheless, it understands that these "KIT RECRUTA", in light of their use, meet the requirements to be qualified as samples, in that they are intended solely and exclusively to present and promote the commercialized products.

In that sense, it argues that there is no reason to qualify the delivery of goods in question as gifts, nor for VAT to be assessed on the excess, in the amount of €9,957.97, which must be analyzed.

In accordance with the provisions of paragraph a) of section 1 of article 1 of the VAT Code, the following are subject to VAT: "the transfers of goods and the provision of services effected in the national territory, against payment, by a subject acting as such".

The concept of transfer of goods, for VAT purposes, is provided for in section 1 of article 3 of the VAT Code, as being, as a rule, "(…) the onerous transfer of tangible goods in a manner corresponding to the exercise of the right of ownership".

However, paragraph f) of section 3 of article 3 of the VAT Code establishes that the following are still considered a transfer of goods, ''(…) the permanent allocation of company assets, to the personal use of its owner, staff, or in general to purposes alien to it, as well as its free transfer, when, with respect to those assets or the elements that constitute them, there has been total or partial deduction of tax".

Nevertheless, in accordance with the provisions of section 7 of the same article, "the regime established in paragraph f) of section 3 is excluded, in the terms defined by ordinance of the Minister of Finance, from goods not intended for further commercialization that, by their characteristics, or by size or format different from the product that constitutes the unit of sale, aim, in the form of a sample, to present or promote goods produced or commercialized by the subject itself, as well as gifts of unit value equal to or less than (euro) 50 and whose global annual value does not exceed five per thousand of the turnover of the subject in the previous civil year, in accordance with commercial uses".

The regulation of the terms and conditions under which the exclusion from taxation of samples and small-value gifts occurs is, thus, remitted to ordinance.

In that sense, Ordinance No. 497/2008, of 24 June, came to regulate the terms and conditions delimiting the concept of sample and small-value gifts and define the procedures and accounting obligations to be fulfilled by subjects of the tax, for the purposes of application of the provisions of section 7 of article 3 of the VAT Code.

Pursuant to section 1 of article 2 of that ordinance, "samples are considered to be goods, not intended for further commercialization, of a format or size different from the product that constitutes the unit of sale or presented in quantity, capacity, weight or measure substantially lower than those that constitute the unit of sale that are intended to present or promote products produced or commercialized by the subject".

This requirement regarding the format and/or size of goods aims to prevent goods that are used as samples from being commercialized and/or entering consumption, violating the purposes of the VAT Directive, in particular the purpose of fiscal neutrality.

Although it is required that samples present a format that is not liable to replace products intended for final consumption, the nature of the products or their characteristics may not allow samples distinct from the commercialized products, as occurs in the case of compact discs (CDs), digital video discs (DVDs), records, cassettes, films, videos and other sound or image recordings transmitted free of charge by editors or producers to certain economic operators (see Ordinance No. 497/2008).

The Appellant argues that it is not possible for it to alter its production process solely to obtain products in accordance with the concept of sample, provided for in that Ordinance, and that the products included in the "KIT RECRUTA", despite being in the same format as the final product are intended exclusively for the promotion and demonstration of the commercialized products, and should be qualified as samples.

This question has already been the subject of analysis and clarification by the VAT Services Division, in response to the request for binding information No. 5677, submitted by the now Appellant on 2013-08-27, from which the following conclusions can be drawn:

"[…]

1. (…) Although the products used as samples and that make up the "Kit recruta" are not in accordance with the concept of sample established in section 1 of article 2 of Ordinance No. 497/2008, of 24 June, taking into account what was stated by the applicant and what is established in the Decision of the Court of Justice of the European Union, of 30 September 2010, issued in the course of Case C-581/08, it appears that they can be considered within the exclusion from taxation in VAT, in accordance with section 7 of article 3 of the VAT Code.

2. However, the applicant must observe the conditions established in Ordinance No. 497/2008, in particular, to account for samples in appropriate accounts, to separately record the goods that constitute own inventory and those that are acquired from third parties, as well as to have a non-accounting record that allows to know the tax identification of the beneficiaries of the samples and the number of copies transmitted.

3. With respect to the delivery of "Kit recruta" to "Demonstrators", the applicant states that it is not invoiced. Indeed, and although it mentions that when the "Demonstrator" makes his first order he incurs a markup on the value of the ordered products, it declares that such markup does not constitute a consideration for the allocation of the aforementioned Kit.

4. In this way, and considering that the applicant in this information request does not mention whether the "Kit recruta" allocated to "Demonstrators" remain, or not, its property, it is important to clarify that if there is a transfer of ownership of those goods from the applicant to the "Demonstrators", the same configures a transfer of goods, in accordance with article 3 of the VAT Code, subject to taxation at the normal rate provided for in article 18 of the same act"

In the present file, namely at fls. 49-51, the Appellant attaches copies of invoices Nos. 8036007, 8062317 and 8053626, with dates of, respectively, 2008-05-02, 2008-08-01 and 2008-07-02, in order to prove the allocation free of charge of the so-called "KIT RECRUTA",

Indeed, it appears from such documents the allocation of "DEMONSTRATION KIT FREE OF CHARGE", "to be delivered by the Coordinator", which also means that such KIT cease to be the property of the company.

Consequently, such documents make it possible to confirm that we are faced with transfers of goods, for VAT purposes, in accordance with the legal terms referred to above, with the tax assessment being in place.

If the Appellant proceeded to assess VAT on the amount of €182,813.50, when, in its accounting, the "Non-... Sales" and "... Sales" ("KIT RECRUTA") recorded a total amount of €232,663.34, evidencing an untaxed difference in VAT of €49,789.84, the assessment of tax, in the amount of €9,957.97, promoted by the SIT, is shown to be due.

On the other hand, establishing section 1 of article 96 of the VAT Code that, "whenever, by a fact attributable to the subject, the assessment or payment of the reimbursement higher than due is delayed, compensatory interest accrues to the amount of the tax in accordance with article 35 of the general tax law", the compensatory interest, which are claimed here, in the amount of €1,475.42, must also be had as equally due.

In view of the above, it is verified that the allegations of the Appellant cannot be attended to, reason why the dismissal of this hierarchical appeal is proposed.

As can be seen from the reasoning that precedes, the decision of the hierarchical appeal entails the review of the legality of the acts of assessment relating to the year 2008, in the amount of €9,957.97, and respective compensatory interest, in the amount of €1,475.42.

Therefore, by what was said regarding the criterion for defining the fields of application of the process of judicial impugning and special administrative action, the request formulated in this arbitration process for review of the legality of the decision of the hierarchical appeal, issued on 08-08-2014, falls within the jurisdiction of arbitral tribunals operating at CAAD.

Thus, the exception raised by the Portuguese Tax and Customs Authority is not warranted, as to this decision of the hierarchical appeal.

3. Exception of Untimeliness of the Request for Arbitral Decision, as Regards the Impugning of the Decision of 08-08-2014, which Dismissed the Hierarchical Appeal No. RHQ .../2013-...

The Portuguese Tax and Customs Authority also raises the exception of untimeliness of the request for arbitral decision as to the request for annulment of the decision of 08-08-2014, which dismissed the hierarchical appeal No. RHQ .../2013-....

The Claimant responded to this exception in its submissions saying, in summary, that it was notified of the decision by letter of 04-09-2014, which is proven by document No. 4 attached with the request for arbitral decision, whose content is reproduced.

The request for arbitral decision was submitted on 03-12-2014, as confirmed by the CAAD computer application.

Being 90 days counted from notification of the decision the period for impugning decisions dismissing hierarchical appeals [articles 10, section 1, of the RJAT and 76, section 1, 102, section 1, paragraph e), of the CPPT], it is manifest that the request for arbitral decision was submitted in a timely manner, in light of the decision that is being impugned.

The Portuguese Tax and Customs Authority argues that the hierarchical appeal No. RHQ .../2013-... did not have as its object a decision dismissing a request for official revision, but rather dismissing a gracious complaint, and that the decision of the hierarchical appeal filed against the dismissal of the request for official revision was notified on 13-05-2014.

However, as regards the hierarchical appeal, it is the decision that was notified on 08-08-2014 that is being impugned and, in relation to it, the request for arbitral decision was filed in a timely manner.

The exception of untimeliness raised by the Portuguese Tax and Customs Authority is thus not warranted.

4. Factual Matter Relevant for Review of the Request for Arbitral Decision as Regards the Decision of the Hierarchical Appeal Notified on 08-08-2014

By what was referred to, only the decision of the hierarchical appeal that was notified on 08-08-2014 can be the object of review by this Arbitral Tribunal.

4.1. Established Facts

The following facts are considered established, with relevance to the decision:

a) Following the external tax inspection conducted on the Claimant regarding the year 2008, corrections were made that led to the issuance of VAT assessment No. … and compensatory interest assessment No. … (section 2 of the administrative file, pages 26 and 52);

b) In the Report of the Tax Inspection conducted on the Claimant, the following is stated about its activity:

The activity of the Claimant consists of the commercialization of domestic articles, essentially plastic articles, of the brand "A…", under a commission agreement concluded with the entity A... Products, SA, with registered office in Switzerland;

Based on the aforementioned commission agreement, A... Portugal receives a commission (62%) for all products sold on account of A... Products, SA, the owner of the products until their delivery to the resellers;

The sale of A... products is made to external resellers, called "Demonstrators", who sell the products to private customers, acting in their own name and on their own behalf before customers;

The Demonstrators carry out the sale and promotion of products in meetings held in homes designated by "Party A..." that they hold in the homes of people invited for that purpose, called "Hostesses";

There are situations in which the "Demonstrator" may carry out the sale of products in Points of Sale through "Show cases" exposure in a commercial area.

The A... products consist of a sales catalog subordinated to tables of recommended retail selling prices (PVPR).

The earnings of the Demonstrators consist of the difference between the recommended retail selling price and the selling price made by the subject to them;

The resellers are organized in a hierarchical structure - Demonstrators, Group Leaders and Coordinators, the latter being responsible for holding weekly sales meetings, as well as recruiting, training, motivating and informing the Demonstrators of new products, promotion programs and any other activities related to sales, as well as respecting and monitoring compliance with the sales system followed by A..., caring for the image of the quality and prestige of its products, according to information provided by A... Portugal.

The Group Leaders, in addition to being remunerated for the sales they make, can add to this amount a value of 3.5% arising from the commission received on the effective receipts of order notes made by the Demonstrators belonging to their team.

The earnings of the Coordinators, given that they do not conduct sales, consist of a commission that may vary between 3.5% and 5.5% on effective receipts arising from order notes made by the people under their supervision (Group Leaders + Demonstrators).

c) The Claimant accepted part of the corrections, disagreeing only with a correction in the amount of €9,957.97 relating to "KIT RECRUTA" gifts;

d) On 21-01-2013, the Claimant filed a gracious complaint that was processed at the Lisbon Finance Division, with No. ...-2013-..., which had as its object the partial annulment of the assessments referred to as regards the amount of €9,954.97 of VAT and €1,475.42 of compensatory interest (section 2 of the administrative file, whose content is reproduced);

e) The aforementioned gracious complaint was dismissed by decision dated 30-04-2013, which was notified to the Claimant by registered letter with receipt confirmation that was received on 07-05-2013 (section 2 of the administrative file, pages 3 to 10);

f) That decision dismissing the gracious complaint manifested agreement with the Final Information issued in that proceeding with the date of 29-04-2013, which is contained in pages 89, 90 and 91 of the 2nd section of the administrative file, whose content is reproduced, in which the following is referred to, among other things:

An external tax inspection of the Complainant was conducted by the inspection services of this finance division regarding the year 2008 from which the assessments now in complaint result. It follows from the report that because the limit value allowed for registration of untaxed gifts was exceeded, VAT was corrected in the amount of €16,925.71. Regarding the kit recruta, composed of A... articles and not A... that are delivered to future demonstrators, a discrepancy was verified between the value subject to taxation (€182,873.50) and that recorded in accounting (€39,780.18 + €192,883.16) being the latter higher than the former in €49,789.84. In this regard, even though the subject argues that the value was exempt as it was gifts, given that the value of untaxed gifts allowed by art. 3 of the VAT Code had already been exceeded in the items of incentive sales, activity sales and gifts, the correction was made in the amount of €9,957.97 (49,789.84·20%).

At the hearing of the right to prior hearing, the Complainant comes to argue that they are samples and not gifts, so VAT did not have to be assessed and that the VAT assessed was assessed unduly. Let us see. Having acquired the goods by the Complainant under the commission agreement, the referred kits are distributed to the "demonstrators" for use in the "party A...". From what is alleged it appears that these kits are not invoiced to the demonstrators, being, however, a markup made to the products ordered by the kit delivered at the time of registration.

Paragraph f) of section 3 of art. 3 of the VAT Code determines that the free transfer of goods with respect to which there has been total or partial deduction of tax is still considered a transfer of goods for the purpose of the provision of section 1 of the same article. In turn, section 7 of that art. 3 excludes from the regime established in that paragraph goods not intended for further commercialization and whose global annual value does not exceed five per thousand of the turnover of the subject in the previous civil year. Now, from the inspection report it results, and the Complainant does not contest, that the turnover was €14,833,555.97 so the limit established by law amounted to €74,167.78. On the other hand, the Complainant does not contest either that this value was exceeded with the gifts relating to incentive sales, product activity sales and gift sales (note that the complainant recognizes the legitimacy of the correction of €16,925.71, as better appears from art. 3 of its plea).

Thus, regarding the kits recruta that gave rise to the claimed assessment, the fact of being a gift or a sample does not matter given that the limit of five per thousand of turnover stipulated by law was already exceeded, so VAT would always have had to be assessed.

By the conformity exposed, being proven that the legal limit of five per thousand of turnover up to which VAT is not assessed for free transfers of goods was exceeded, verifying itself that there were transfers regarding which VAT was not assessed, a fact also not contested, it is inevitable to conclude...

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