Process: 805/2014-T

Date: May 29, 2015

Tax Type: IT

Source: Original CAAD Decision

Summary

This CAAD arbitral decision addresses the excise tax (IEC) treatment of tax stamps lost during tobacco manufacturing processes. The claimant, a tobacco importer and distributor operating a fiscal warehouse in Portugal, contested an additional IEC assessment of €2,909.81 related to 1,066 missing tax stamps from 2010. The stamps were sent to production warehouses in other EU Member States and destroyed during normal tobacco production and packaging operations, representing only 0.0005% of the 211,453,000 stamps ordered that year. The company argued that Portuguese legislation provides a 2% franchise allowance for tobacco stamp losses (Article 24 of Ordinance 1295/2007), recognizing that destruction during production is inevitable given the small dimensions of stamps (43.54mm x 18mm) and machinery operation. The claimant sought justification through two alternative grounds: (i) the simplified justification procedure under Ordinance 1295/2007, and (ii) documentary proof under Article 110(5) of the Excise Tax Code. The Tax Authority rejected both requests, asserting that conditions for the simplified procedure were not met and that documents from business partners were not authentic proof. A key issue was the SIC-ES system blocking between 2008-2014, which prevented operators with production warehouses in other EU Member States from reporting stamp losses through the 'Abatements' submenu, while domestic producers faced no such restrictions. This raised potential EU law compliance concerns regarding discriminatory treatment of cross-border operators versus domestic manufacturers in accessing the franchise system for production-related stamp losses.

Full Decision

PROCESS 805/2014

ARBITRAL DECISION

I. REPORT

  1. On 09-12-2014, the company "A…, S.A. – BRANCH IN PORTUGAL", Tax Identification Number …, filed a petition for the constitution of a single arbitral tribunal, in accordance with the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as LRAT), in which the Tax and Customs Authority is the Respondent, with a view to annulling the additional assessment of Excise Tax (ET) determined by order of the Director of the Customs House of Jardim do Tabaco (JT), in the amount of € 2,909.81, Assessment Record no. 2014/….

  2. In accordance with the provisions of paragraph (a) of article 2, subsection 2 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council appointed the arbiter now signing, notifying the parties.

  3. The tribunal is properly constituted to consider and decide on the subject matter of the case.

  4. The arguments supporting the Claimant's petition for arbitral pronouncement are, in summary, as follows:

4.1 The Claimant, hereinafter referred to as A…, is a company engaged in the importation and distribution of tobacco in the national territory, being the holder of fiscal warehouse no. PT …, maintaining for this purpose a running account of special tax stamps with the National Printing House (INCM).

4.2. The special tax stamps are requested by A… from the INCM and sent by the latter to the production warehouses of the tobacco manufacturers commercialized by the Claimant, as provided for in Chapter II of Ordinance no. 1295/2007.

4.3. By letter no. … ET of 17.07.2014, the Claimant was notified of the closure of the running account of special tax stamps for the year 2010, with the notification containing a request for the Claimant to justify 1,066 missing stamps (282 type 1 stamps, 252 type 2 stamps and 532 type 3 stamps).

4.4. The 1,066 missing stamps in the year 2010 were sent by the Claimant to production warehouses located outside Portugal (in the territory of Member States of the European Union), one of which is owned by one of the tobacco manufacturers commercialized by the Claimant in Portugal.

4.5 The 1,066 missing stamps in the year 2010 were sent by the Claimant to production warehouses located outside Portugal (in the territory of Member States of the European Union), one of which is owned by one of the tobacco manufacturers commercialized by the Claimant in Portugal.

4.6 The 1,066 missing stamps were all destroyed in the course of the tobacco production process, the destruction having been caused by the operation and functioning of the tobacco production and packaging machinery itself.

4.7. This is a situation that is common and recognized by the legislator, since it is the legislator itself who grants manufacturers a loss allowance, that is, a margin of error for handling and manipulation of such stamps (2% for special tax stamps for tobacco and 4% for alcohol stamps – see article 24 of Ordinance 1295/2007 and article 20 of Ordinance 1631/2007).

4.8. Each special tax stamp affixed to tobacco has a dimension of 18mm width by 43.54mm length (see Annex to Ordinance no. 1295/2007).

4.9. Given the reduced dimension of the stamps – 43.54mm by 18mm – it was not possible to collect the damaged remnants thereof to present them to the customs authorities for control in the countries where each of the production warehouses of the tobacco manufacturers are located.

4.10. The 1,066 stamps rendered unusable in the year 2010 during the production process correspond to 0.0005% of the total stamps received during the year by A….

4.11. In fact, 195,280,000 type 1 stamps were ordered from the INCM and 282 stamps were destroyed, which corresponds to 0.00014%. 4,146,500 type 2 stamps were ordered from the INCM and 252 stamps were destroyed, which corresponds to 0.00608%. And 12,026,500 type 3 stamps were ordered from the INCM and 532 stamps were destroyed, which corresponds to 0.00442%.

4.12. In summary, 211,453,000 stamps with a dimension of 1.8 x 4.3 cm were ordered and consumed, and the factories destroyed, by accident, 1,066, which means that 0.0005% of the total stamps sent and correctly used were accidentally destroyed.

4.13. On 29 July 2014, the Claimant presented documentary proof of the destruction during the production process of the 1,066 stamps and indicated the percentages of stamps destroyed for the purpose of applying the simplified justification procedure.

4.14. On 02 September 2014 the Claimant was notified of the draft rejection of the request to justify the stamps by documentary proof and by application of the simplified justification procedure.

4.15. On 09.09.2014, the Claimant submitted prior hearing on the draft rejection.

4.16. The Tax Authority did not admit the documentary proof presented by the Claimant and decided not to consider the simplified stamp justification procedure provided for in Ordinance no. 1295/2007 as applicable.

4.17. Since the entry into force of the SIC-ES system (SPECIAL STAMPS CONTROL SYSTEM FOR MANUFACTURED TOBACCOS), on 01 January 2008 until February 2014, the access to the "abatements" submenu that would have allowed the Claimant to report the quantities of stamps rendered unusable in the production process as required by section 19 of Ordinance no. 1295/2007, was blocked for A….

4.18. This blocking of the system between 2008 and 2010 is beyond the will and procedures of the Claimant, being the sole responsibility of the customs entities managing the SIC-ES system.

4.19. Having resulted from the fact that to operators with production warehouses in other EU Member States, the Tax Authority required a prior request so that they could benefit from the simplified system, having made access to the SIC-ES system impossible by blocking the "Abatements" submenu between 2008 and 2014 and not permitting the application of the simplified justification procedure to the periods in which the order provided for in article 2 of Ordinance no. 53/2012 of 5 March had not yet been issued.

4.20. The Claimant paid the amount of € 2,909.81 relating to the assessment that is the subject of the present proceedings.

4.21. The Claimant requested from the Tax Authority the justification of the stamps detected as missing in the stamp reconciliation process for the year 2010 based on two alternative grounds – (i) application of the simplified justification procedure provided for in section 23 of Ordinance no. 1295/2007 or (ii) admission of the means of proof permitted by article 110, section 5 of the Excise Tax Code.

4.22. The Tax Authority rejected the request for justification by considering that the conditions were not met for the Claimant to be able to benefit from the simplified justification procedure, on the one hand, and, with regard to the second request, by understanding that the documents presented are not authentic documents, being "documents issued by entities with whom A… maintains close business relations".

4.23. Thus, the challenged assessment is illegal because it stems from: (i) the non-admission of the application, in the specific case, of the simplified justification procedure and (ii) the non-admission of the documentary proof provided for in article 110, section 5 of the Excise Tax Code to prove the destruction of the stamps that occurred during the production process.

4.24. Portuguese legislation between 1 January 2008 and February 2014 (when the Letter … 2014-02-28 was issued) is contrary to European Union law, since it permitted operators producing tobacco in production fiscal warehouses in the national territory to benefit from a simplified justification procedure without any conditionalities or legal obstacles (articles 23 and 24 of Ordinance no. 1295/2007), while operators producing tobacco in production fiscal warehouses in another EU Member State territory could not benefit from the simplified justification procedure (although this possibility was juridically created through Ordinance no. 53/2012, of 5 March, the order of the Director-General of the Tax Authority establishing the respective conditions of access was not published).

4.25. The Claimant requests, in the first place, that in the stamp running account reconciliation process for the year 2010 the 1,066 missing stamps be considered justified, under the simplified justification procedure, by interpretation in accordance with European Union law of Ordinance no. 1295/2007.

4.26. The non-recognition of the Claimant's claim would involve disrespect of European Union Law by violation of the principle of equality and non-discrimination between operators whose tobacco production warehouse is located in the national territory and operators whose tobacco production warehouse is located in the territory of another EU Member State, violating articles 49 and 56 of the Treaty on the Functioning of the EU (TFEU), respectively on the freedom of establishment and the free provision of services.

4.27. The discrimination on grounds of nationality is further evident in the circumstance that the Tax Authority seeks to refuse to grant the benefit of the simplified justification procedure to the Claimant by allegedly not having, in accordance with article 19 of Ordinance no. 1295/2007, communicated monthly the quantities of stamps rendered unusable, when it is certain and manifest that the Claimant was prevented from making this communication because it was the Tax Authority itself that blocked the Claimant's access to the abatements submenu (this blocking having resulted solely from the fact that the Claimant had production warehouses located in other EU Member States).

4.28. Because this is a matter of interpretation of primary European Union Law, if there is no immediate interpretation in accordance with European law of articles 23 and 24 of Ordinance no. 1295/2007, it is advisable to suspend proceedings and raise, in accordance with article 267 of the TFEU, a preliminary reference to the CJEU, as requested finally.

4.29. The Claimant understands that the challenged assessment which is based on an illegal order of the Director-General of the Tax Authority is thus vitiated by violation of law (by violation of articles 87 and 56 of the Administrative Procedural Code and 104 of the General Administrative Code), and must therefore be annulled.

4.30. As the challenged assessment is illegal and unconstitutional, due to gross error by the entity competent for the assessment, the Claimant's right to reimbursement of amounts already paid should be recognized, increased by the corresponding compensatory interest, in accordance with articles 43 and 100 of the General Tax Law and article 61 of the Tax Procedure Code.

  1. For its part, the Respondent Tax and Customs Authority presented a response, in which it defended itself in the following terms:

5.1 A…, now the Claimant, filed, on 22.10.2014, before the Tax Court of Lisbon, an administrative special action (ASA), Case no. .../14.1BELRS, Organizational Unit …, seeking the annulment of the order of the Director-General of the Tax Authority which rejected the request for justification of missing stamps relating to the year 2010, following which the assessment of Tobacco Tax (TT) that is the subject of the present proceedings was effected.

5.2 Now, from the comparison between the request formulated in the present arbitral action and the one identified above, both seek, in essence, to discuss the legality of the act of assessment of TT concerning the failure to justify the use of special stamps requisitioned for the year 2010.

5.3 That is, notwithstanding that in the ASA identified above A… requests the annulment of the order that determined the rejection of the request for justification of special tax stamps in the year 2010, and the process of counting and verification of the running account of stamps is independent and autonomous from the process of assessment of excise taxes and has other implications for the taxpayer beyond the mere assessment of excise tax on tobacco, it should be considered that in both actions brought by the Claimant there is identity of subjects because the parties are the same from the point of view of their legal capacity.

5.4 On the other hand, there being identity of claim when in both cases the same legal effect is sought to be obtained, and identity of cause of action when the claim made in the two actions proceeds from the same legal act or fact, it must be concluded that such identity, as regards claim and cause of action, occurs in these two actions (article 581, sections 3 and 4, of the Code of Civil Procedure).

5.5 The Respondent therefore considers that, in accordance with article 580, section 1, of the Code of Civil Procedure, there is litispendence by the occurrence of the repetition of a cause, the earlier one still being in course, which constitutes a dilatory exception in accordance with article 577, paragraph i), leading to dismissal of the action in accordance with articles 576, section 2, 278, section 1 paragraph e) and 578 of the same code.

5.6 On the other hand, it must be taken into account that the issue relating to the assessment of the legality of the order rejecting justification of missing stamps of the Director-General, of 18.09.2014, would always have to be considered prejudicial to the assessment of the legality of the assessment to which it gave rise, which would prevent the assessment of the case sub judice.

5.7 A… is an operator in the field of Excise Taxes (ET), specifically Tobacco Tax, who holds the status of authorized depositary (PT …), being the holder of the fiscal storage warehouse located in the fiscal space of the Continent, no. PT …, under the jurisdiction of the Customs House of Jardim do Tabaco, which also carries out, in this venue, the control of the running account of special tax stamps for tobacco.

5.8 In accordance with Information no. …/…/2014 (TT) of the Customs House of Jardim do Tabaco, dated 17.07.2014, within the scope of the process of closing the running account of special tax stamps for manufactured tobacco of A…, now Claimant, in the computerized stamp control system, designated SIC-ES, relating to the year 2010, balances were determined relating to different types of tobacco, cigarettes (type 01), cigars and cigarillos (type 02) and fine cut tobacco and rolling tobacco and other smoking tobaccos (type 03) whose use is not justified.

5.9 Indeed, taking into account the quantity of special stamps requisitioned by A… from the National Printing House - Casa da Moeda (INCM), with reference to the year 2010, for the fiscal space of the Continent, and the justified uses, the SIC-ES system determined that 282 special stamps intended for cigarettes, 252 stamps for cigars and cigarillos, and 532 stamps relating to rolling tobacco and other smoking tobacco were not regularly used, as per copy of the running account extracted from the computerized system.

5.10 In light of the foregoing, the special stamps in question not being regularly used, which, in accordance with the Excise Tax Code, should have been affixed to packages for sale to the public, the Customs House of Jardim do Tabaco, by letter (no. … ET) dated 17.07.2014, notified the operator, granting it a period of 30 days to present the missing stamps for purposes of control and destruction.

5.11 In response dated 29.07.2014, A… came to state that the stamps in question, requisitioned from the INCM, were all sent to production fiscal warehouses located in Nottingham and Cantabria, having been rendered unusable during the production process, the destruction of which was witnessed by the representatives of the manufacturer who signed declarations, requesting the hearing of a witness with professional domicile in Hamburg, Germany, concluding that, being the total of losses less than 2% and given the proof presented, either the non-presentation be considered justified in accordance with article 110, section 5 of the Excise Tax Code or, alternatively, in light of articles 23 and 24 of Ordinance 1295/2007, of 1 October, be considered automatically justified.

5.12 Thus, in light of the provisions of section 5, second part, of article 110 of the Excise Tax Code, the operator's claim was submitted to the assessment of the Excise Tax Division which ruled in accordance with Information no. …/…, of 25.08.2014, in that, as A… had not presented the declaration provided for in section 19 of Ordinance no. 1295/2007, it cannot invoke the application of the simplified procedure, being obliged to comply with the provisions of section 22 of the Ordinance, which did not occur.

5.13 By letter no. …, of 27.08.2014, the operator was notified of the draft rejection of the request for justification presented to exercise the right of prior hearing provided for in article 60 of the General Tax Law.

5.14 In response during prior hearing, the operator stated its complete disagreement with the Tax Authority's interpretation, arguing, in summary, that the proof presented should be analyzed and the determined losses justified.

5.15 The Tax Authority, through the Excise Tax Division, ruled again on the response presented within prior hearing, as appears from Information no. …/…/2014, dated 10.09.2014, and, specifically, points 4 to 10 which analyze the operator's arguments, deciding to maintain the sense of the projected decision.

5.16 On 02.10.2014, A… was notified of the final decision rejecting the request formulated for justification of missing special stamps relating to 2010, and its grounds, issued by order, of 18.09.2014, of the Director-General of the Tax Authority.

5.17 As results from the content of Information no. …/…/2014, of 07.10.2014, of the Customs House of Jardim do Tabaco, having been rejected A…'s claim as to the validity of the manufacturer's declaration and application of the simplified justification regime provided for in Ordinance no. 1295/2007, that customs house decided to initiate the process of collection of the tax, having notified the operator, now Claimant, of the decision to proceed with the assessment of the amount of € 2,909.81 of TT and to exercise, in this context, the right of prior hearing in accordance with the provisions of article 60 of the General Tax Law.

5.18 With the assessment being maintained, on 29.10.2014 A… was notified of the same to proceed with the payment of the assessed TT amount, having also been indicated the means of reaction to the assessment act and their respective time limits, in accordance with the law, coming from this act, as referred to above, now, to present the present arbitral petition.

5.19 The Claimant is a holder of an ET status that was granted to it under the Excise Tax Code (ETC) and, being at issue in the present case, special stamps relating to the year 2010, the Code approved by Decree-Law no. 566/99, of 22 December, applies, and also the current ETC, approved by Decree-Law no. 73/2010, of 21 June, from its entry into force which occurred on 21 July 2010.

5.20 Following Community Directive no. 92/12/EEC, of the Council, of 25 February, the former ETC transposed into national law the legal regime relating to the general regime, possession, circulation and controls of products subject to excise taxes.

5.21 With the repeal of that Directive by Directive no. 2008/118/EC, of the Council, of 16 December, this came to be transposed, internally, through Decree-Law no. 73/2010, of 21 June, which approved the Excise Tax Code currently in force and which repealed Decree-Law no. 566/99, of 22 December.

5.22 The rules relating to the tobacco sealing system, which in the former ETC were contained in article 93, are now found in the new Code in article 110, which maintains the same heading "Sealing system", falling within Chapter III, relating to Tobacco Tax.

5.23 The creation and use of special stamps are generically provided for, for products subject to ET, in article 21 of Directive 92/12/EEC and in article 39 of Directive 2008/118/EC, constituting instruments for control of tax payment, marks of fiscal nature, being incumbent on Member States to define the respective regime, creating appropriate measures with a view to preventing fraud and tax evasion.

5.24 Following community legislation, the regime relating to tobacco sealing is defined, at the national level, by the rules contained in the ETC and in various Ordinances, being in force, at the date of the facts, Ordinance no. 1295/2007, of 1 October, which came to establish "the rules relating to the formalities to be observed for the requisition, supply and control of special stamps for manufactured tobacco", applicable to the case sub judice, by force of article 5 (Transitional norm) of Decree-Law no. 73/2010, of 21 June. The said Ordinance was amended by Ordinance no. 53/2012, of 5 March, which entered into force on 06.03.2012.

5.25 And, given the facts in dispute, the rules provided for in sections 8 and 9 of article 93 of the ETC approved by Decree-Law no. 566/99, as referred to, in force until 21 July 2010, are relevant.

5.26 The wording of article 110, relating to the sealing system contained in the current ETC, which entered into force on 21 July 2010, however presents a difference as to the letter of section 5, which is relevant for the case in question.

5.27 Ordinance no. 1295/2007, of 1 October, alludes, in its preamble, with reference to sections 1 and 6 of article 93 (section 1 and section 2 of the current article 110) of the ETC to the need to guarantee the legal provenance of products which requires a reinforcement of control and security mechanisms, for this purpose particular relevance being assumed by the stamp model that includes high security elements.

5.28 The same Ordinance expressly states that it applies to manufactured tobacco products intended to be introduced into consumption in the national territory, duly packaged in packages for sale to the public, in accordance with the terms and conditions of commercialization established by the Excise Tax Code and other applicable legislation (section 1 of Ordinance no. 1295/2007).

5.29 And, in accordance with section 12 of the Ordinance, in the case of sealing at the source the requisitioners must declare, by electronic data transmission, the location of the manufacturing installations to which the stamps are intended.

5.30 Section 19 of the Ordinance further establishes that requisitioners of special stamps must declare, by the 8th day of each month, by electronic data transmission, the quantities consumed and rendered unusable in the course of the production process referred to in section 23, discriminated by product type and reported to the previous month.

5.31 On the other hand, as regards the destruction of stamps that occurs in another country, section 22 of Ordinance 1295/2007 clarifies that in the case where destruction occurs outside the national territory, the failure to present special stamps must be justified by means of an appropriate declaration, issued by the competent authorities of the country to which the stamps were sent, which will identify the product type and the economic year to which the stamps relate.

5.32 Adding further, section 26 of Ordinance 1295/2007, with regard to the destruction or loss of stamps, that when due to act of God or force majeure, they can only be justified in light of proof recognized in an order issued by ministerial dispatch in administrative proceedings, and must be communicated to the competent customs authority, for purposes of confirmation, by the 2nd working day immediately following its occurrence.

5.33 Only through Ordinance no. 53/2012, of 5 March 2012, the simplified justification procedure, which was previously provided for only for national production fiscal warehouses, came to be admitted for the same type of warehouses located in other Member States, this possibility being dependent on the conditions to be fixed by order of the Director-General of the Tax Authority.

5.34 An order that came to be issued on 19 February 2013 (Order no. 2658/2013) and which fixes the conditions that operators must comply with in the case of wishing to benefit from the simplified justification regime for destructions that occurred outside the national territory.

5.35 With regard to the justification of the lack of special stamps, section 9 of article 93 of the ETC, as well as now section 5 of article 110, as transcribed above, consider justified the failure to present stamps by means of the delivery of an appropriate declaration issued by the competent customs services of the country to which the stamps were sent or in light of proof recognized in an administrative proceeding conducted within an administrative process, (or in light of proof admitted by the Director-General of Customs and Excise Tax).

5.36. And, notwithstanding the sealing having taken place at the source, that is, in production fiscal warehouses (PFW) located in other Member States, in the case in Spain and the United Kingdom, the PFW are under the jurisdiction and control of the fiscal and customs authorities of those countries, whose legislation, relating to ET, also results, as referred to, from community legislation.

5.37. Adding further that, at the level of the European Union, measures to combat fraud and tax evasion are, moreover, defined, through the European Anti-Fraud Office (OLAF), intended to be applied in all Member States.

5.38. For which reasons, the law requires that proof be made by the presentation of a declaration issued by the competent customs services that control the operator's warehouse in the place where the production, packaging and sealing operations of the product found in the regime of suspension of tax are carried out.

5.39. In the case at hand, it is clear that, besides there not having been a situation that could be framed within the scope of act of God or force majeure to which section 26 of Ordinance no. 1295/2007 alludes, in light of the provisions of the cited section 9 of article 93 of the former ETC, and section 5 of article 110 of the current ETC, the operator did not present the declaration required by law that would allow justifying the differences in stamps determined, in light of the requisitioned quantities.

5.40. As regards the reference to European Union Law, it is important to recall that, constituting production and importation the taxable events, the European legislation applicable to ET - which, with the exception of rates, is harmonized at the EU level - imposes restrictions on the circulation of products subject to it, through, in particular, the control of movements under suspension and the affixing of tax marks.

5.41. And, in the case of tobacco, being a product highly permeable to fraud, national legislation, resulting from the transposition of Directives, follows the European guidelines issued in this field, consequently respecting the principles enshrined in the Treaty on the Functioning of the European Union (TFEU).

5.42. Indeed, the principle of non-discrimination on grounds of nationality, which is enshrined in article 18 of the TFEU, is a general clause of prohibition of discrimination, applying subsidiarily to the specific rules of the Treaty, aiming at equality before the law, with no type of discrimination occurring here on grounds of nationality, especially since the Ordinance in question has only, as recipients, citizens/holders of fiscal warehouses (production or storage) nationals.

5.43. And as regards the invoked articles 49 and 56 of the TFEU, the fact that a certain type of proof of the destruction of stamps is required does not constitute a restriction on the exercise of freedom of establishment, since, by virtue of applicable European legislation, fiscal warehouses are subject to the control of the respective customs authorities, whether established in Portugal or in another Member State.

5.44 The ETC expressly requires that proof of the destruction of stamps, when it occurs at the source, be made through the presentation of an appropriate declaration, issued by the competent customs services of the country to which the stamps were sent.

5.45. But the Claimant insists on wanting to prove the destruction of stamps with documents or declarations of representatives of the manufacturing company, holder of the PFW, including a declaration made by someone who, in principle, having professional domicile in Germany, would hardly have witnessed destruction of stamps that occurred in the United Kingdom and Spain.

5.46. Even if the 2nd part of section 5 of article 110 of the ETC, or article 2 of Ordinance no. 53/2012, which, from its entry into force, already admits the possibility of there being a simplified justification procedure for destructions that occur in the PFW located in other Member States, were to be applied, such admissibility would always be dependent on a prior request of the interested operator and the fixing of conditions by order of the Director-General of the Tax Authority.

5.47. The request for preliminary reference to the CJEU should not be granted, under the provisions of article 267 of the Treaty on the Functioning of the European Union, since only courts that judge in last instance are obliged to submit to the CJEU questions of interpretation of European Union law that are raised in the proceedings, remaining, however, exempt from making the reference when there is European case law on the matter, the question is irrelevant or the interpretation of community law is clear.

  1. In light of the exception raised by the Tax Authority in its response, relating to litispendence between the present arbitral proceedings, and in order to better ensure the exercise of the right to be heard, the Tribunal invited the Claimant to pronounce itself in writing on the same within a period of 10 days, having presented on 30-03-2015 a response to the exception, in which it states in summary:

6.1. Case .../14.1 BELRS has as its subject matter "the order of 26 September 2014, made by the Director of Services of the Division of Alcohol Tax and Alcoholic Beverages of the Excise Tax Services and Vehicle Tax, which determined the rejection of the request for justification of tax stamps presented by A…".

6.2. Being the claim of the action that runs under no. .../14.1 BELRS the one that "the order rejecting the justification of stamps destroyed in the course of the production process during the year 2010 be annulled".

6.3. The Claimant therefore argues that between the present case (in which the annulment of the assessment of special tax on the consumption of tobacco relating to the reconciliation of the running account for the year 2010 in the amount of € 2,909.81 is sought) and the judicial action running under no. .../14.1BELRS there is no identity of claims.

6.4. This is because in the case of case no. .../14.1BELRS what is intended is only the annulment of the order that determined the rejection of the request for justification of tax stamps in the year 2010, the process of counting and verification of the running account of tax stamps being independent and autonomous from the process of assessment of excise taxes and having other implications for the taxpayer beyond the mere assessment of excise tax on tobacco.

6.5. In fact, the process of stamp control that culminates with the order that admits or rejects the request for justification of the determined stamps does not have as its ultimate and necessary purpose the assessment of excise tax on consumption and may, instead, have repercussions (i) in the context of a request for reimbursement due to destruction of tobacco in the course of the production process (or other grounds) as provided for in article 20 ETC, (ii) in the context of defining the limits of introduction into consumption as provided for in article 106, sections 1 and 2 ETC and (iii) in the context of maintenance of the status of fiscal warehouse as provided for in article 33 ETC, inasmuch as repeated non-compliance with the obligations established in the ETC can lead to loss of status and non-justification of requisitioned stamps can be understood as such and further (iv) in the context of reputation and contractual obligations with third parties, namely tobacco manufacturers, since the credibility and competence of the operator are assessed also by reference to the diligent, serious and absolutely precise use of tax stamps.

6.6. The decision to be issued in both actions would never be contradictory as the result of one and the other are distinct (annulment of the order rejecting justification of stamps and annulment of TT assessment).

6.7. Nor is there any prejudiciality between the two actions as it has been demonstrated that the claims and effects of each of the actions are completely distinct, being certain that prejudiciality of a matter never led to "vitiating the assessment of the case sub judice" but only to a suspension of proceedings until the decision of the prejudicial case (article 276, section 1 c) CPC).

  1. On 13 April 2015, the Arbitral Tribunal issued, under article 16 c) of the LRAT, an order dispensing with the meeting provided for in article 18 of the same instrument because the subject matter of the dispute relates fundamentally to matters of law, the Claimant had already had the opportunity to pronounce itself in writing on the exception, and the relevant documents are contained in the file.

  2. The parties did not request that the meeting provided for in article 18 of the LRAT be held.

  3. On 21-05-2015, the Claimant presented a petition, attaching a copy of the document proving the date on which the Tax Authority was cited to respond to the administrative action no. .../14.1BELRS (06-03-2015).

II - FINDINGS OF FACT

  1. Before proceeding to the assessment of the issues that must be resolved, beginning with the dilatory exception and proceeding, in the hypothesis that none of them comes to be accepted by the Tribunal, to the consideration of the merits, it is necessary to present the factual matter relevant to its understanding and decision, which, having examined the documentary evidence and the administrative tax proceedings attached, and in light of the alleged facts, is established as follows:

8.1. A… is a company engaged in the importation and distribution of tobacco in the national territory, being the holder of fiscal warehouse no. PT …, and maintaining a running account of special tax stamps with the INCM.

8.2. Special tax stamps are requested by A… from the INCM and sent by the latter to the production warehouses of the tobacco manufacturers commercialized by the Claimant, as provided for in Chapter II of Ordinance no. 1295/2007.

8.3. By letter no. … ET of 17.07.2014, the Claimant was notified of the closure of the running account of special tax stamps for the year 2010, with the notification containing a request for the Claimant to justify 1,066 missing stamps (282 type 1 stamps, 252 type 2 stamps and 532 type 3 stamps).

8.4. The 1,066 missing stamps in the year 2010 were sent by the Claimant to production warehouses located outside Portugal (in the territory of Member States of the European Union), held by one of the tobacco manufacturers commercialized by the Claimant in Portugal.

8.5. The 1,066 stamps rendered unusable in the year 2010 during the production process correspond to 0.0005% of the total stamps received during the year by A….

8.6. The 1,066 stamps rendered unusable in the year 2010 during the production process correspond to 0.0005% of the total stamps received during the year by A….

8.7. 195,280,000 type 1 stamps were ordered from the INCM and 282 stamps were destroyed, which corresponds to 0.00014%.

8.8. 4,146,500 type 2 stamps were ordered from the INCM and 252 stamps were destroyed, which corresponds to 0.00608%.

8.9. 12,026,500 type 3 stamps were ordered from the INCM and 532 stamps were destroyed, which corresponds to 0.00442%.

8.10. On 29.07.2014, the Claimant presented a document relating to the production process of the 1,066 stamps and indicated the percentages of stamps that would have been destroyed.

8.11. On 02 September 2014 the Claimant was notified of the draft rejection of the request to justify the stamps by documentary proof and by application of the simplified justification procedure.

8.12. On 09.09.2014, the Claimant submitted prior hearing on the draft rejection.

8.13. From the entry into force of the SIC-ES system (SPECIAL STAMPS CONTROL SYSTEM FOR MANUFACTURED TOBACCOS), on 01 January 2008 until February 2014, access to the "abatements" submenu that would have allowed the Claimant to report the quantities of stamps rendered unusable in the production process was blocked for A….

8.14. On 06.01.2012, the Director of Services of the Customs House of Jardim do Tabaco confirmed that between the entry into force of the SIC-ES system (on 01.01.2008) and January 2012 none of the market operators requested any authorization for the application of the simplified justification procedure.

III - FACTS NOT PROVEN

  1. There are no facts not proven, with relevance to the decision of the case.

IV. LAW

  1. It is therefore necessary to assess and decide. It is necessary to first assess the exception relating to litispendence and the pendency of a prejudicial matter invoked by the Respondent. Only if these are judged to be without merit will the illegality of the act of assessment of additional excise tax determined by order of the Director of the Customs House of Jardim do Tabaco (JT), in the amount of € 2,909.81, and the recognition of the right to restitution of tax, as well as any right to compensatory interest, be assessed.

Let us analyze these matters:

A) EXCEPTION OF LITISPENDENCE.

  1. In accordance with article 581, section 1, CPC, "a cause is repeated when an action identical to another is brought as regards subjects, claim and cause of action", adding section 3, that "there is identity of claim when in both cases the same legal effect is sought to be obtained".

  2. Now, it is manifest that, in the present case, the claim is not the same, since the claim of the action running under no. .../14.1 BELRS is that "the order rejecting the justification of stamps destroyed in the course of the production process during the year 2010 be annulled", while in the present proceedings the annulment of the excise tax assessment act, issued as a consequence of this non-justification, is sought.

  3. It cannot therefore be considered that litispendence exists, in accordance with article 580 of the Code of Civil Procedure.

  4. But even if such were to be raised, the exception of litispendence would have to be pleaded in the action brought in second place (article 582, section 1, CPC), adding section 2 that the action is considered brought in second place the one for which the Defendant was cited subsequently.

  5. In the present case, the Respondent was cited for the special administrative action on 6/3/2015, while it was notified of the constitution of this Arbitral Tribunal on 17/2/2015, so it would be in that action that litispendence would have to be pleaded.

  6. In these terms, the alleged exception of litispendence is judged to be without merit.

B) EXCEPTION OF THE EXISTENCE OF A PREJUDICIAL MATTER.

  1. Nor does it appear to us that there is prejudiciality between the two actions, since it becomes absolutely unnecessary to bring judicial challenge of autonomous acts allegedly injurious to the rights of the taxpayer, from the moment when such acts give rise to an assessment of tax.

  2. Indeed, and as stated in Judgment of the Higher Administrative Court of 15/5/2013 (FRANCISCO ROTHES), case 0449/12, "the possibility of autonomous judicial challenge of that act only makes sense when the act of assessment has not yet been performed, for, if this has already been done, the other was consumed by it and the right to effective judicial protection (article 20 of the Constitution) is fully assured by the possibility of challenging the assessment".

  3. One could therefore never consider prejudicial the challenge of an order rejecting a justification procedure in relation to the challenge of the assessment of the tax.

  4. But, even if there were prejudiciality, neither could it be sustained that the proceedings in the present arbitral case should be suspended, since, with these proceedings so advanced, the disadvantages of their suspension far outweigh any advantage that might result therefrom (article 272, section 2, CPC).

  5. In these terms, the invocation of the pendency of a prejudicial matter is also disregarded.

C) LEGALITY OF THE EXCISE TAX ASSESSMENT ACT.

  1. Given that the tax facts provided for here relate to the year 2010, the rules in force at that date must be applied, in particular the rules provided for in sections 8 and 9 of article 93 of the ETC approved by Decree-Law no. 566/99, in force until 21 July 2010, and Ordinance no. 1295/2007, of 1 October, applicable to the case by force of article 5 of Decree-Law no. 73/2010, of 21 June.

  2. Sections 8 and 9 of article 93 ETC then provided as follows:

"8. In addition to the provisions of article 9, it is also considered that manufactured tobacco corresponding to the special stamps supplied to economic agents has been introduced into consumption if such stamps are not shown to be regularly used by affixing them to packages for sale to the public leaving fiscal warehouses, or regularly introduced into consumption, or are not presented to the supervisory service at the request thereof.

  1. The failure to present special stamps to the supervisory service is considered justified if an appropriate declaration is delivered, issued by the competent services of the country to which the stamps were sent, or in light of proof recognized in an order issued by ministerial dispatch in administrative proceedings".

  2. Articles 21 to 24 of Ordinance 1295/2007 provide as follows:

"Article 21

The destruction of stamps must be requested from the customs authorities, with indication of place, date and justifying reasons, being mandatorily carried out under direct control by those, with the respective minutes being drawn up, which will identify, in particular, the product type, the fiscal space and the economic year to which the stamps relate, with registration also being made in the running account.

Article 22

In the case where destruction occurs outside the national territory, the failure to present special stamps must be justified by means of an appropriate declaration, issued by the competent authorities of the country to which the stamps were sent, which will identify the product type and the economic year to which the stamps relate.

Article 23

The destruction of stamps, occurring during the manufacturing process in production warehouses located in the national territory, may be the subject of a simplified justification procedure.

Article 24

For purposes of the preceding article, destructions of stamps up to the limit of 2% of stamps consumed annually, in the course of the productive process, are considered automatically justified".

  1. The Claimant argues that the destruction of stamps should have been automatically justified under articles 23 and 24 of Ordinance 1295/2007, but it is manifest that these provisions apply only to production warehouses located in the national territory, whereas for foreign production warehouses articles 21 and 22 of such instrument apply instead, which require a declaration from the authorities of the country where production took place or another type of proof authorized by ministerial order.

  2. It is true that subsequently the situation came to be changed, since the new article 110, section 5, ETC, established that "the failure to present special stamps to the customs authority is considered justified if an appropriate declaration is delivered, issued by the competent services of the country to which the stamps were sent, or in light of proof admitted by the Director-General of Customs and Excise Tax".

  3. Whereby, through Ordinance no. 53/2012, of 5 March 2012, the simplified justification procedure came to be admitted for the same type of warehouses located in other Member States, this possibility being dependent however on the conditions to be fixed by order of the Director-General of the Tax Authority.

  4. In consequence, order no. 2658/2013, of 19 February 2013, fixed the conditions that operators must comply with in the case of wishing to benefit from the simplified justification regime for destructions occurring outside the national territory.

  5. It happens that these new rules are subsequent to the facts of the case, so they cannot be retroactively applied to it, and justification cannot be accepted if the Claimant did not obtain the official declaration from the country of the warehouse, as legally required at the date.

  6. Nor can it be considered that this situation violates European Union Law, having full justification both in article 21 of Directive 92/12/EEC and in article 39 of Directive 2008/118/EC, this one having replaced the former from 1 April 2010.

  7. Indeed, the requirement of a certain type of proof of the destruction of stamps does not constitute a restriction on the exercise of freedom of establishment, since, by virtue of applicable European legislation, fiscal warehouses are subject to the control of the respective customs authorities, whether established in Portugal or another Member State, so it cannot be considered that articles 49 and 56 of the TFEU were violated.

  8. As stated in the Judgment of 15.06.2006, issued in Case no. C-494/04 ("Heintz van Landewijck SARL vs Staatssecretaris van Financiën" of the Court of Justice of the European Union: "Article 21, section 1, of the Directive on excise taxes gives Member States the possibility of placing tax marks on products intended for consumption in their territory. Similarly, article 10, section 1, of the Directive on manufactured tobacco provides that, during the phases prior to the harmonization of the methods of collection of excise tax, the latter will be charged, in principle, by means of tax marks. Furthermore, article 22, section 2, point d), of the Directive on excise taxes provides for the possibility of obtaining reimbursement of the excise tax from the fiscal authorities of the Member State that issued the tax marks, in the particular hypothesis of destruction of those marks having been verified by the fiscal authorities of the Member State that issued them. On the other hand, the directive on excise taxes contains no provision relating to the hypothesis of disappearance of those marks. Consequently, it must be considered that this directive leaves to the Member States the task of determining the consequences of such disappearance. Accordingly, the said directive cannot be interpreted as precluding Member States from adopting national rules which, in case of disappearance of special stamps, place the financial responsibility for the loss of these stamps on their purchaser. National rules of this nature also cannot be considered contrary to the principle of proportionality. Indeed, a national regulation that would allow the purchaser of special stamps to obtain reimbursement by simply alleging their loss would be liable to facilitate abuses and frauds. Now, the prevention of these abuses and frauds is precisely one of the objectives pursued by the Community regulation. Accordingly, national rules such as those at issue in the main proceedings which, in case of disappearance of special stamps, place the financial responsibility for their loss on their purchaser contribute to the achievement of the objective of preventing fraudulent use of them. Furthermore, these national rules do not exceed what is necessary to pursue this objective, since they do not, on the other hand, exclude any possibility of reimbursement or compensation in other hypotheses, such as loss of stamps due to accident or force majeure. In this respect, the argument that the risk of abusive use of disappeared stamps is minimal in the particular circumstances at issue in the main proceedings has no bearing on the direction of the answer that must be given to the referring court, since this risk of abusive use is not non-existent. Accordingly, the answer to the first question should be that neither the Directive on excise taxes nor the principle of proportionality preclude Member States from adopting a regulation that does not provide for reimbursement of the amount of excise tax paid in circumstances such as those at issue in the main proceedings, thus placing the financial responsibility for the loss of special stamps on their purchaser."

  9. This position was moreover corroborated by the Judgment of the CJEU of 13 December 2007, issued in case C-374/06 ("BATIG Gesellschaft für Beteiligungen GmbH v Hauptzollamt Bielefeld") where the Court of Justice stated that "Council Directive 92/12/EEC of 25 February 1992 on the general arrangements for the products subject to excise duty and on the holding and movement of such products, as amended by Council Regulation (EC) no. 807/2003 of 14 April 2003 adapting to Decision 1999/468/EC the provisions relating to committees assisting the Commission in the exercise of its implementing powers provided for in acts of the Council adopted under the consultative procedure (unanimity), does not preclude the legislation of a Member State which excludes reimbursement of the amount paid for the acquisition of tax marks issued by that Member State, where those marks were affixed to products subject to excise tax before their introduction into consumption in that Member State, where those products were stolen in another Member State, determining payment of the excise tax in that other Member State, and where it is not proved that the stolen products were not disposed of in the Member State of issuance of said marks".

  10. In accordance with Article 267 of the TFEU (former article 234 of the Treaty establishing the European Community), whenever a question concerning the interpretation of this Treaty is raised before any court or tribunal of a Member State, that court or tribunal may, if it considers that a decision on that question is necessary to enable it to give judgment, request the Court of Justice to give a ruling thereon. Whenever a question of this nature is raised in proceedings pending before a court or tribunal of a Member State whose decisions are not subject to a remedy of appeal provided for in national law, that court or tribunal is obliged to submit the question to the Court of Justice.

  11. But, as in the present case, we are faced with a question on which the Court of Justice of the European Union has already pronounced, there is no reason to request the Court to pronounce again on the same matter.

  12. And having regard to the case law of the CJEU, we cannot consider that there has been any violation of Community Law.

  13. For this reason, no flaw can be seen in the act of excise tax assessment.

VI – DECISION

In light of the foregoing, the petition for annulment of the additional assessment of excise tax determined by order of the Director of the Customs House of Jardim do Tabaco (JT), in the amount of € 2,909.81, Assessment Record no. 2014/…, is judged to be without merit, with the consequent dismissal of the Tax and Customs Authority from the petition for restitution of tax and compensatory interest.

VALUE OF THE CASE

The value of the case is set at € 2,909.81 (amount indicated and not contested).

COSTS

In accordance with article 22, section 4, of the LRAT, the amount of costs is set at € 612.00, in accordance with the Table I attached to the Regulation on Costs in Tax Arbitration Proceedings, to be borne by the Claimant.

Lisbon, 29 May 2015

The Arbiter

(Luís Menezes Leitão)

Frequently Asked Questions

Automatically Created

What is the IEC excise tax treatment of lost or destroyed tax stamps in tobacco manufacturing?
The IEC excise tax treatment of lost or destroyed tax stamps in tobacco manufacturing is governed by Ordinance 1295/2007, which requires operators to justify missing stamps through proper documentation and system reporting. When stamps are destroyed during the production process, manufacturers must report these losses through the SIC-ES system (Special Stamps Control System) using the 'Abatements' submenu as provided in Article 19 of Ordinance 1295/2007. The Tax Authority conducts annual reconciliations of stamp accounts with the National Printing House (INCM) and may issue additional IEC assessments when stamps cannot be justified. The legal framework recognizes that some stamp destruction is inevitable in industrial production processes, particularly given the small physical dimensions of stamps (43.54mm x 18mm) and the high-speed machinery involved in tobacco packaging. However, operators must comply with specific procedural requirements to demonstrate that losses occurred during legitimate production activities rather than through diversion or improper handling.
Are tobacco manufacturers entitled to a franchise allowance for tax stamp losses during the production process?
Yes, tobacco manufacturers are entitled to a franchise allowance of 2% for tax stamp losses during the production process, as established in Article 24 of Ordinance 1295/2007. This franchise system recognizes that a certain margin of error is inherent in the handling and manipulation of special tax stamps during industrial manufacturing operations. The 2% allowance for tobacco stamps (compared to 4% for alcohol stamps under Ordinance 1631/2007) reflects the legislator's acknowledgment that mechanical damage, misalignment, and destruction of stamps are common occurrences in high-volume production environments. To benefit from this simplified justification procedure under Article 23 of Ordinance 1295/2007, operators must meet specific conditions and follow proper reporting protocols. However, disputes arise regarding eligibility requirements, particularly for operators whose production facilities are located in other EU Member States rather than in Portugal. The franchise allowance applies when stamps are rendered unusable through normal production activities and the operator can demonstrate compliance with reporting obligations through the appropriate control systems.
How does the CAAD arbitral tribunal handle disputes over additional IEC tax assessments on missing tax stamps?
The CAAD arbitral tribunal handles disputes over additional IEC tax assessments on missing tax stamps by examining whether the Tax Authority properly applied the legal framework for stamp justification. The tribunal evaluates: (1) whether conditions were met for the simplified justification procedure under Ordinance 1295/2007, including the franchise allowance; (2) whether documentary proof meets the requirements of Article 110(5) of the Excise Tax Code, assessing the authenticity and probative value of documents from production facilities and business partners; (3) whether system failures or blockages in the SIC-ES platform prevented operators from complying with reporting obligations through no fault of their own; (4) whether administrative practices create discriminatory treatment between domestic producers and operators with facilities in other EU Member States, raising potential EU law compliance issues; and (5) the proportionality of assessments in relation to the actual volume of missing stamps as a percentage of total stamps handled. The tribunal must determine whether the Tax Authority's rejection of justification requests was legally supported or constituted an abuse of administrative discretion, considering both procedural compliance and substantive fairness in applying excise tax regulations to cross-border tobacco operations.
What are the obligations of tobacco importers regarding the annual tax stamp current account reconciliation with INCM?
Tobacco importers maintaining a fiscal warehouse have several obligations regarding the annual tax stamp current account reconciliation with INCM (National Printing House). They must maintain a running account of special tax stamps requested from INCM and track their use throughout the year. Operators must report stamp movements through the SIC-ES system, including stamps sent to production warehouses (whether domestic or in other EU Member States). Article 19 of Ordinance 1295/2007 requires operators to register abatements for stamps rendered unusable during the production process using the system's 'Abatements' submenu. When INCM conducts the annual closure of stamp accounts, operators must respond to notifications identifying missing stamps by providing justification within specified deadlines. This justification can take the form of: (i) application of the simplified procedure with franchise allowances if eligible, or (ii) documentary proof of destruction or loss as permitted by Article 110(5) of the Excise Tax Code. Operators must submit prior hearing responses if the Tax Authority drafts a rejection of their justification requests. Failure to properly justify missing stamps results in additional IEC assessments calculated based on the tax value of the unaccounted stamps.
Can tax stamps destroyed during the tobacco packaging process in EU member state warehouses be exempt from additional IEC liquidation?
Tax stamps destroyed during the tobacco packaging process in EU member state warehouses can potentially be exempt from additional IEC liquidation if the operator meets specific legal requirements. The key considerations include: (1) demonstrating that destruction occurred during legitimate production activities through machinery operation and normal handling, not through diversion or improper use; (2) providing documentary proof from the foreign production facilities certifying the destruction, though the Tax Authority may scrutinize documents from business partners for authenticity; (3) meeting the conditions for the simplified justification procedure under Ordinance 1295/2007, which historically created controversies regarding whether operators with foreign production facilities had equal access to the 2% franchise allowance; (4) showing that the loss percentage falls within reasonable parameters (in this case, 0.0005% of total stamps was argued as de minimis); and (5) demonstrating compliance with reporting obligations, or proving that system blockages (such as the SIC-ES 'Abatements' submenu restriction from 2008-2014) prevented proper reporting through no fault of the operator. Between 2008 and February 2014, operators with production warehouses in other EU Member States faced additional barriers, as the system blocked their access to the abatements reporting function, potentially creating discriminatory treatment contrary to EU law principles of free movement and non-discrimination in cross-border trade.