Process: 840/2014-T

Date: November 30, 2015

Tax Type: IVA

Source: Original CAAD Decision

Summary

In Process 840/2014-T, the Portuguese CAAD arbitral tribunal addressed a VAT dispute involving €34,242.46 concerning the denial of VAT deductions based on simulated invoices. The taxpayer challenged the Tax Authority's additional VAT assessment and compensatory interest, arguing improper denial of deduction rights. The central legal issue revolved around Article 19(3) of the Portuguese VAT Code, which explicitly prohibits deduction of VAT resulting from simulated transactions or invoices with simulated prices. The tribunal examined the burden of proof requirements and the credibility of the taxpayer's accounting records under Article 75 of the General Tax Law. After analyzing the evidence presented, the arbitral tribunal concluded that the Tax Authority successfully demonstrated the invoices related to simulated operations, undermining the taxpayer's right to deduct the corresponding VAT. The decision emphasized that when simulation is proven, VAT deduction is categorically improper under Portuguese tax law. The tribunal judged both the procedural exception and the substantive claim as completely unfounded, upholding the validity of the Tax Authority's assessment. As legal consequences, the taxpayer was required to pay the assessed VAT amount plus compensatory interest for delayed assessment. Additionally, procedural costs of €1,836.00 were entirely charged to the claimant, calculated according to Table I of the Regulation of Costs in Tax Arbitration Proceedings. This case reinforces the Portuguese Tax Authority's power to deny VAT deductions when invoices lack substance and establishes important precedent regarding evidentiary standards in simulation cases, demonstrating that taxpayers bear significant risks when the credibility of their accounting documentation is successfully challenged.

Full Decision

acity of the taxpayer's accounts (Article 75 of the General Tax Law), such that the tax act in question does not merit criticism.

4.7 CONCLUSION

In accordance with paragraph 3 of Article 19 of the VAT Code, "VAT resulting from a simulated transaction or in which the price shown in the invoice is simulated may not be deducted," which is the case in the present proceedings. It is therefore improper for that reason that the deduction was made, and compensatory interest is additionally due for the delay in assessment.

Thus and for the reasons set forth, the exception raised should be judged unfounded, as well as the claim unfounded, as not proven, and the claim should instead be dismissed, with the tax act in question remaining valid in the legal order.

5. OPERATIVE PART

In accordance with the foregoing, it is decided to judge completely unfounded both the exception and the claim, all with the legal consequences.

6. VALUE OF THE CASE

In accordance with the provisions of Article 306, paragraphs 1 and 2, of the CPC and 97-A, paragraph 1, paragraph (a) of the CPPT and 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at € 34,242.46 (thirty-four thousand, two hundred and forty-two euros and forty-six cents).

7. COSTS

Pursuant to Article 22, paragraph 4, of the RJAT, the amount of costs is set at € 1,836.00 (one thousand, eight hundred and thirty-six euros), pursuant to Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, entirely to the charge of the Claimant.

Document prepared by computer, in accordance with the Code of Civil Procedure (CPC), applicable by referral from Article 29, paragraph 1, paragraph (e) of the RJAT, with blank lines.

Lisbon, 30-11-2015

The Sole Arbitrator

(Jaime Carvalho Esteves)

Frequently Asked Questions

Automatically Created

Can the Portuguese Tax Authority deny VAT deductions based on allegations of simulated invoices?
Yes, the Portuguese Tax Authority can deny VAT deductions based on simulated invoices. Article 19(3) of the Portuguese VAT Code explicitly provides that VAT resulting from a simulated transaction or in which the price shown in the invoice is simulated may not be deducted. When the Tax Authority proves that invoices relate to simulated operations—transactions that did not actually occur as documented or lack economic substance—it has legal grounds to reject the corresponding VAT deduction claims and issue additional assessments for improperly deducted amounts.
Who bears the burden of proof in VAT simulation cases before the CAAD arbitral tribunal?
In VAT simulation cases before the CAAD arbitral tribunal, the burden of proof generally rests on the Portuguese Tax Authority to demonstrate that the transactions were simulated and the invoices lack validity. However, Article 75 of the General Tax Law plays a crucial role: when the credibility of the taxpayer's accounts is successfully undermined or called into question, this significantly affects the evidentiary evaluation. In Process 840/2014-T, the tribunal found that the Tax Authority met its burden of proof by establishing the simulation, while the taxpayer's accounting lacked sufficient credibility to support their right to deduction.
What are the legal consequences of issuing or using simulated invoices for VAT deduction purposes in Portugal?
The legal consequences of issuing or using simulated invoices for VAT deduction purposes in Portugal are severe and multifaceted. First, the taxpayer loses the right to deduct the VAT shown on such invoices, as prohibited by Article 19(3) of the VAT Code. Second, the Tax Authority issues additional VAT assessments to recover improperly deducted amounts. Third, compensatory interest becomes due for the delay in assessment, calculated from when the VAT should have been paid. Fourth, if the taxpayer unsuccessfully challenges the assessment through arbitration, they must bear procedural costs, which can be substantial depending on the case value.
How does the CAAD arbitration process work for disputes involving additional VAT assessments and compensatory interest?
The CAAD arbitration process for VAT assessment disputes provides taxpayers with an alternative to judicial courts for contesting Tax Authority decisions. Taxpayers file a request for arbitration, which can include procedural exceptions and substantive claims challenging the assessment's legality. The arbitral tribunal examines the evidence, applies burden of proof rules, and evaluates whether the Tax Authority's decision complies with legal requirements. The process includes determination of case value (based on the amount in dispute), issuance of a binding decision with detailed reasoning, and allocation of costs according to the Regulation of Costs in Tax Arbitration Proceedings. In Process 840/2014-T, with a case value of €34,242.46, the costs were set at €1,836.00, entirely charged to the unsuccessful claimant.
What criteria does the Portuguese Tax Authority use to classify supplier invoices as relating to simulated operations?
The Portuguese Tax Authority uses several criteria to classify supplier invoices as relating to simulated operations, primarily focusing on the substance-over-form principle. Key criteria include examining whether the transactions actually occurred as documented, analyzing the economic reality behind the invoicing, and assessing the overall credibility of the taxpayer's accounting records under Article 75 of the General Tax Law. The Authority investigates whether goods or services were genuinely supplied, whether prices reflect market values, and whether the documented operations have genuine business purpose. When taxpayer accounts lack credibility or consistency, this strengthens the Authority's position that invoices represent simulated rather than real transactions. The evaluation is comprehensive, considering all available documentation and commercial substance of the purported operations.