CAAD 85/2015-T: VAT Exemption on Intra-Community Supply...

Process: 85/2015-T

Date: October 26, 2015

Tax Type: IVA

Summary

Process 85/2015-T concerns a VAT arbitration case filed by a luxury watch wholesaler challenging tax assessments totaling €227,499.99 plus €15,463.14 in compensatory interest for periods September and December 2010. The company, A... S.A., specialized in wholesale trade of high-end watch brands (Rolex, Patek Philippe, Chopard, Cartier) destined for Community and non-Community markets. The dispute centers on the proof requirements for VAT exemption on intra-community supplies of goods under Article 14(a) of the VAT Regime in Intra-Community Transactions (RITI). The Tax Authority initiated an internal inspection following analysis of responses to intra-Community administrative cooperation requests. The company claimed VAT exemptions on transfers to various EU clients and requested VAT refunds, as it did not charge VAT on exempt transfers but had the right to deduct input VAT on acquisitions from its supplier B... Lda. To verify the exemption conditions, the company provided transport documentation from carriers FedEx, EMS, and Portuguese Post (CTT) evidencing goods transport to other Member States. However, the Tax Authority found potential irregularities and requested administrative cooperation under Regulation (EC) 904/2010 from tax authorities in the United Kingdom, Italy, France, Spain, Latvia, and Cyprus. While some transfers were confirmed as legitimate, issues arose regarding certain clients, leading to VAT assessments. After both the gracious complaint and hierarchical appeal were rejected, the taxpayer exercised its right to tax arbitration under Decree-Law 10/2011, seeking declaration of illegality of the assessments and derivative acts. The case illustrates the burden of proof requirements for intra-Community supply exemptions and the verification mechanisms available to Portuguese tax authorities through EU administrative cooperation.

Full Decision

ARBITRAL AWARD

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Júlio Tormenta and Ana Moutinho Nascimento, appointed as arbitrators at the Administrative Arbitration Center, to constitute the Arbitral Tribunal, hereby decide as follows:

I – STATEMENT OF FACTS

On 10 February 2015, A… - …, S.A., with registered office at Avenue …, no. …, Lisbon, integrated in the Tax Office of Lisbon-…, registered at the Commercial Registry Office of Oporto under the sole registration number for Legal Entities no. …, filed a request for the constitution of an arbitral tribunal, under the combined provisions of Articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by Article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as LRATM), seeking the declaration of illegality of the following acts:

VAT assessments no. … and …, relating to VAT for periods 09 and 12 of the year 2010, totalling € 227,499.99;
assessments of compensatory interest no. … and …, totalling € 15,463.14;
dismissal of the administrative complaint filed in relation thereto; and
dismissal of the hierarchical appeal filed in relation to the decision on such complaint.

To support its request, the Applicant alleges, in summary, that the aforementioned assessments and, consequently, the second-instance acts that, taking them as their subject matter, confirmed them, suffer from errors in their respective presuppositions of law and fact.

On 11-02-2015, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

The Applicant did not appoint an arbitrator, whereby, under the provisions of paragraph a) of no. 2 of Article 6 and paragraph a) of no. 1 of Article 11 of the LRATM, the President of the Deontological Council of the Administrative Arbitration Center appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the appointment within the applicable period.

On 02-04-2015, the parties were notified of these appointments, having manifested no intention to refuse any of them.

In accordance with the provisions of paragraph c) of no. 1 of Article 11 of the LRATM, the collective Arbitral Tribunal was constituted on 24-04-2015.

On 01-06-2015, the Respondent, duly notified for this purpose, filed its reply in defence by objection.

On 10-07-2015, the meeting referred to in Article 18 of the LRATM took place.

The Applicant requested the use of witness evidence produced in case 753/2014T of the Administrative Arbitration Center, which was granted, and the production of the listed witness evidence was dispensed with.

Having been granted a period for the submission of written submissions, these were submitted by the parties, pronouncing themselves on the evidence produced and reiterating and developing their respective legal positions.

A period of 30 days was set for the delivery of the final award, following the submission of submissions by the Tax Authority.

The Arbitral Tribunal is materially competent and is duly constituted, in accordance with Articles 2, no. 1, paragraph a), 5 and 6, no. 1, of the LRATM.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10 of the LRATM and Article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings do not suffer from any nullities.

Having considered all the foregoing, it is necessary to deliver

II. AWARD

A. FACTUAL MATTERS

A.1. Established Facts

Under Internal Order no. OI2012…, an internal inspection procedure of the Applicant was initiated, with registered office at Street …, … - …, in Oporto, in the area of the Tax Office of Oporto-….
The reason for the inspection related to the need for internal analysis of the responses obtained to requests for intra-Community administrative cooperation, the procedure being of partial scope – VAT, covering temporally the periods 2010-09T and 2010-12T.
For purposes of Corporation Income Tax (IRC), the Applicant was included in the general taxation regime and, for purposes of VAT, in the normal regime of monthly periodicity from 01.01.2011.
The Applicant was obliged and possessed accounting properly organized in accordance with tax and commercial law, in conformity with the provisions of Article 123 of the Corporate Income Tax Code and had fulfilled its declarative obligations, under VAT and Corporate Income Tax.
The Directors of the Applicant are common to those of company B…, LDA, namely C, NIF …, D, NIF … and E, NIF ….
Originally, the Applicant was registered for the exercise of the activity of Purchase and Sale of Real Estate, however, as of 01.07.2010, the company's activity consisted essentially in the wholesale trade in watches of the brands ROLEX, PATEK PHILIPPE, CHOPARD, CARTIER, CHANEL, AUDEMARS PIGUET and VACHERON CONSTANTIN, destined for the Community and non-Community market.
The Applicant came to complement company B… in the economic circuit of selling watches abroad, whereby, until 30.06.2010, it was this company that formally proceeded to the acquisitions (mostly imports) of said articles and subsequent sale to the external market, and from that date onwards the Applicant, by virtue of the amendment to the articles of association, also began to carry out exports and intra-Community transfers having company B… as its sole supplier.
Having regard to the fact that the transfers of goods carried out were destined for the external market, being operations exempt from VAT, the Applicant requested VAT refunds, as it did not assess tax on the transfers and benefited from the right to deduct the VAT borne on the acquisitions, in this case, made from company B….
The activity of company A… related to the trade in watch articles in the year 2010 was destined for the external market, thus itemized:

[Details of transactions with external market clients]

The invoicing relating to extra-Community transfers of goods from A… is distributed in the year 2010 among the following clients:

[Client details]

The invoicing relating to intra-Community transfers of goods from A… is distributed in the year 2010 among the following clients:

[Client details]

In relation to the 3rd to 4th quarters of the year 2010, the intra-Community transfers of goods declared are distributed among the following clients:

[Client details]

The documents made available by the Applicant for purposes of proving the presuppositions of the exemption claimed, in accordance with paragraph a) of Article 14 of the VAT Regime in Intra-Community Transactions (VRIT), evidencing the transport of the goods in question destined for another Member State respect guides from carriers FedEx, EMS and records of Portuguese Post (CTT).
Considering that, as a result of the analysis of the aforementioned documents, as well as the collection of information regarding clients F… (United Kingdom), G… (Italy), H… (United Kingdom), I… (France), J… (Spain), K… (Latvia), L… (Cyprus) and M… (Italy), situations arose that seemed to indicate that the conditions required for the application of the exemption in question were not met, intra-Community administrative cooperation was requested from the tax authorities of the identified Member States, under Articles 5 and 19 of Regulation (EC) no. 904/2010, with a view to confirming the intra-Community transactions in question.
From the responses received, the Tax Information Services concluded that regarding transfers to clients G… (Italy), H… (United Kingdom) and I… (France), no facts were reported that could call into question the exemption applied by A… in the intra-Community transfers of goods respectively.
Regarding transfers destined for client F… (United Kingdom), the Tax Information Services ascertained that:

i. approximately 75% of the watch sales from A… to F… are of the ROLEX brand, which have their origin in imports from Switzerland made by company B…;

ii. for purposes of proving the presuppositions of the exemption claimed, in accordance with paragraph a) of Article 14 of the VAT Regime in Intra-Community Transactions (VRIT), evidencing the transport of the goods in question destined for another Member State, the Applicant exhibited documents evidencing transport by post;

iii. from the database of Portuguese Post (CTT), it appears that the respective shipments were delivered at their destination.

The tax authorities of the United Kingdom informed that:

"Goods were transported to the customer through N… from Portugal to the relevant customer.

The goods were not transferred to UK at any time. CMR for the movement of goods have been attached.

A list of the purchase invoices and sale invoices for the year 2010 has been attached. Both lists also include a column for the payment date and date of receipt for sales invoices issued.

The bank statement showing payment for goods supplied and income received from goods sold has also been attached.

The initial capital for the business was introduced by shareholders to set up the business, followed by advance or deposits received from customer for goods ordered. The company has had its director changed numerous times.

The current director is P.... Orders are now being placed by O"

The aforementioned text was translated by the Tax Authority as follows:

"We confirm that we were unable to locate both the company and its legal representatives at their respective tax addresses".

From the documentation attached to the request for information, the Tax Information Services also ascertained that:

i. Company F… has as managers O, of Italian nationality and who has the profession of chartered accountant, and Q, of Irish nationality and who has the profession of secretary;

ii. The watches were invoiced by F… to R… SA, a company based in Panama;

iii. The watches were transported to the client by N…, from …/Como, in Italy, where an export document was processed for Geneva, Switzerland.

iv. Company F…, in the year 2010, recorded acquisitions in the total amount of €3,440,101.27, of which €3,269,471.31 (95.04%) originated in Portugal, with companies B… and A… representing respectively €587,692.04 and €540,281.27 of that amount;

v. Invoices 20100004, of 23-07-2010 (€26,858.00), 20100005 of 23-07-2010 (€13,587.00), 20100006 of 23-07-2010 (€45,000.00), 20100013 of 06-08-2010 (€67,291.00) and 20100052 of 04-08-2010 (€66,354.00) issued by A…, were not recorded by F…;

vi. Regarding the sales recorded in 2010, F… invoiced a total of €2,435,439.00, of which €2,341,616 (96.14%) had as recipients the companies S… (Panama), R… SA (Panama), T… LTD (Hong Kong) and U… SA (Costa Rica), which, declaredly, belonged to V;

vii. The first payments of the 2010 invoices from A… to F… only began in February 2011, and in a partial and phased manner;

viii. From the bank statements of F…, relating to a bank account in Switzerland, evidence results of various bank transfers to accounts held by A…, at Banco Espírito Santo.

Regarding transfers destined for client J… (Spain), the Tax Information Services ascertained that:

i. for purposes of proving the presuppositions of the exemption claimed, in accordance with paragraph a) of Article 14 of the VAT Regime in Intra-Community Transactions (VRIT), evidencing the transport of the goods in question destined for another Member State, the Applicant exhibited documents evidencing transport by post;

ii. regarding invoices no. 20100026, of 20-09-2010 (€96,790.00) and no. 20100046, of 27-10-2010 (€108,780.00), the transport certificate is a record from Portuguese Post (CTT);

iii. from the database of Portuguese Post, it appears that the respective shipments were returned to the city of Oporto;

iv. A… made no record in its accounting of these returns;

v. regarding these invoices, their payment was recorded in the accounting as made on 16-09-2010 and 26-10-2010, respectively, by bank transfer from the Italian credit institution Cassa Cent. B. Cred Coop. Del Norte, Trento to the account of A… at BES (Account no. …);

vi. the evidence for invoice 201000040, of 18-10-2010, in the amount of €111,948.00, is guide no. … of FedEx carrier, and from consultation of the carrier's electronic page it appeared that the guide in question was registered as a confirmed delivery in Rome – Italy, to the person of X;

vii. In said guide, the contents of the shipment were described as documents ("Docs.");

viii. Payment was made by bank transfer from an account held by J… at the Italian credit institution Cassa Rurale di Lizzana, to the account of A… at BES (Account no. …).

ix. According to the elements known, company J… was registered for VAT in Spain from 06-06-2008 and was engaged in the trade in all types of metals, such as steel, iron, copper, aluminum and their derivatives, as well as their distribution, commercialization, export and import.

The tax authorities of the Kingdom of Spain informed that:

"Se comunica que tanto la sociedad como sus representantes legales han resultado ilocalizables en sus respectivos domicilios fiscales".

The aforementioned text was translated by the Tax Authority as follows:

"We inform you that we were unable to locate either the company or its legal representatives at their respective tax addresses".

Regarding transfers destined for client M… (Italy), the Tax Information Services ascertained that:

i. In the 4th quarter of 2010, for the aforementioned client, A… issued only invoice no. 20100066, of 28-12-2010, in the amount of € 6,444.00;

iii. from the database of Portuguese Post, it appears that the respective shipment was returned to the city of Oporto, where it arrived on 23-02-2011;

iv. from the database of Italian Post (Poste), it appears that the respective shipment was resent to the city of Oporto, on 16-02-2011;

v. A… made no record in its accounting of these returns;

vi. the Applicant received payment made on 29-12-2010 by bank transfer ordered by M… through Caixa D'Estal. Pens. (La Caixa) in Barcelona, to the account of A… at BES (Account no. …).

The Italian tax authorities, within the framework of information exchange under Articles 7 and 15 of Regulation (EC) no. 904/2010, requested information on suspicion of fraud in the transactions between A… and the Italian operator M…, based on the fact that the Italian operator had not declared any intra-Community acquisition made from A…, regarding operations covered by the following invoices:

[Invoice details]

Based on what was ascertained, the Tax Information Services concluded that "the transfers to operators F…, J… and M… in the periods under analysis are subject to VAT assessment, in accordance with the provisions of Articles 1, 7 and 16 of the VAT Code and at the VAT rate in accordance with Article 18 of said code, at the date of the facts, showing a lack of assessment and payment of the tax in the total amount of € 227,499.00, resulting from the application of VAT to all sales by A… to the aforementioned operators, thus itemized by tax periods" (cf. pages 22-23 of the Report):

[Itemization of assessments]

The corrections in question gave rise to additional VAT assessments nos. … and … and respective assessments of compensatory interest nos. … and …, relating to periods 09 and 12 of the year 2010.
As the assessments in question were not paid, tax execution proceedings no. …2013… were instituted, which are pending in the Tax Office Porto-…, within which a request for suspension was made by means of the submission of a bond.
The Applicant made voluntary payment of the proceedings on 2013/12/18, under Decree-Law 151-A/2013.
The guarantee provided in the proceedings, in the form of a bond, was returned to the taxpayer by official letter no. …/…- …, of 2014/06/12.
The Applicant filed an administrative complaint on 30-04-2013.
The aforementioned administrative complaint was dismissed, a fact that was notified to the Applicant on 03-10-2013.
The Applicant filed a hierarchical appeal on 30-10-2013.
The dismissal of the hierarchical appeal was notified to the Applicant by official letter no. … of 11-11-2014.
The Applicant submitted a statement, on paper with the letterhead of "F…", drafted in English language, dated 05-04-2013, with a signature affixed by Z, in the capacity of manager, with the authenticity of the signature and the capacity in which it was affixed recognized in accordance with the Hague Convention of 5 October 1961, and with the following tenor:

"F…, …, …, LONDON …, UNITED KINGDOM, VAT number …, hereby confirm that made the following intracommunity purchases to A…, SA, VAT number …:

[Invoice details]"

The Applicant submitted a statement, dated 17/01/2011, with an illegible signature under a stamp bearing the words "J….", with the following tenor:

"J…., AV …, …, …, …, … BARCELONA, ESPANA, VAT number …, hereby confirm that made the following purchase to A…, SA and it was declare as intracomunity purchase:

Invoice number Date Value

20100026 20-09-2010 96.790,00"

The Applicant submitted a statement, dated 16/02/2011, with an illegible signature under a stamp bearing the words "J…", with the following tenor:

"J…., AV …, …, …, …, … BARCELONA, ESPANA, VAT number …, hereby confirm that made the following purchase to A…, SA and it was declare as intracomunity purchase:

Date Invoice number Value

18.10.2010 201000240 111.948,00 €

27.10.2010 201000246 108.780,00 €"

The Applicant submitted a statement on paper with the letterhead of "M…", dated 16/02/2011, with an illegible signature under a stamp bearing the words "M…", followed by an address, telephone numbers and fax, and email, with the following tenor:

"M…, …, …, … MANOPELLO (PE) ITÀLIA taxpayer number IT…, declares that the goods referred to in the following invoices from A…, SA were transported in hand by our collaborators from Oporto to Manopello (Italy):

Date Invoice Amount

28 12 2010 20100066 6 444,00"

A.2. Facts deemed not established

The mention "Docs", referred to in point 20/vii of the established facts, was made by the Applicant because it was prohibited by the insurance institution to mention the watches.

A.3. Reasoning of the established and unestablished facts

With respect to the factual matters, the Tribunal is not required to pronounce itself on everything that was alleged by the parties, its duty being rather to select the facts that are material to the decision and to distinguish the established from the unestablished matters (cf. Art. 123, no. 2, of the Code of Tax and Administrative Procedure and Article 607, no. 3 of the Civil Procedure Code, applicable by virtue of Article 29, no. 1, paragraphs a) and e), of the LRATM).

Thus, the facts material to the judgment of the case are chosen and defined according to their legal relevance, which is established in light of the various plausible solutions of the question(s) of law (cf. previous Article 511, no. 1, of the Civil Procedure Code, corresponding to current Article 596, applicable by virtue of Article 29, no. 1, paragraph e), of the LRATM).

Thus, taking into account the positions assumed by the parties, in light of Article 110/7 of the Code of Tax and Administrative Procedure, the documentary evidence and the Administrative Procedure file attached to the case, the aforementioned facts were deemed established, with relevance to the decision.

Not included in these are the facts listed in the Applicant's written submissions, but not contained in its initial request, as they were not the subject of the evidence produced with contradiction, which was delimited by the factual matters contained in the initial request and indicated in the Applicant's request submitted on 15-06-2015.

The fact deemed not established is due to insufficiency of evidence regarding it. Indeed, the document from the Insurance Broker (Minutes), attached by the Applicant as document 22, even when combined with the deposition of witness AA, was insufficient to convince the Tribunal of the motivation indicated, all the more so as that document is dated from 2012 (and the corresponding policy (…), by all accounts, will be from the same year), while the facts now in question refer to 2010. Moreover, the witness was not a representative of the insurance company, but merely a broker.

B. ON THE LAW

i. On the request for preliminary ruling

In its Reply, the Tax Authority requests "the referral to the Court of Justice of the European Union, by means of a preliminary ruling (cf. Article 267 of the Treaty on the Functioning of the European Union), prior to pronouncing on the merits and by means of a stay of proceedings, of the following questions:

Can a Member State consider that the requirement for exemption of the operations provided for in no. 1 of Article 138 of Council Directive 2006/112/EC of 28 November 2006 is not satisfied when, through recourse to the mechanism of administrative cooperation, it obtained from the tax authorities of the Member State of destination of the goods, confirmation that, although the purchaser is validly registered as a taxable person for VAT purposes in that Member State, declared the operation as an intra-Community acquisition and made payment of the transaction, the goods did not enter the country of destination and will have been invoiced by the purchaser to a third party, not resident in any Member State?
Can a Member State consider that the requirement for exemption of the operations provided for in no. 1 of Article 138 of Council Directive 2006/112/EC of 28 November 2006 is not satisfied when, through recourse to the mechanism of administrative cooperation, it obtained from the tax authorities of the Member State of destination of the goods, confirmation that the purchaser, although validly registered as a taxable person for VAT purposes in that Member State and having made payment of the transaction, did not include in the VAT return, the operation as an intra-Community acquisition of goods?
Can it be considered that an administrative practice respects the principle of proportionality when it places on the seller the burden of proving the authenticity of the shipping and/or transport documents and the receipt of the goods when the transport documents presented do not identify the goods object of the transfer or when the seller only exhibits a statement that the goods were transported in hand?"

Let us examine this.

As mentioned in point 7 of the recommendations to national courts, relating to the submission of preliminary ruling cases (2012/C 338/01), of the Court of Justice of the European Union:

"the role of the Court in the context of a preliminary ruling case is to interpret the law of the Union or to rule on its validity, and not to apply that law to the factual situation underlying the main case. That role is the responsibility of the national court, and therefore it is not the responsibility of the Court to rule on factual questions raised in the context of the dispute in the main case nor on any disagreements regarding the interpretation or application of the rules of national law".

Moreover, it is recalled in point 12 of those same recommendations that a preliminary ruling to the aforementioned Court should not be made when:

i. there is already case-law on the matter (and when the possibly new framework does not raise any real doubt regarding the possibility of applying that case-law to the concrete case); or

ii. when the correct interpretation of the legal rule in question is unequivocal.

Consequently, it is stated in point 13: "a national court may, in particular when it considers itself sufficiently clarified by the case-law of the Court, decide itself on the correct interpretation of the law of the Union and its application to the factual situation of which it is aware".

Finally, as stated in point 18 of the same recommendations, "A national court may submit a request for a preliminary ruling to the Court from the moment it considers that a decision on the interpretation or validity is necessary to render its decision".

Naturally, there is agreement with the Tax Authority when it states, in its submissions, that "the decisions handed down by the arbitral tribunal are not susceptible to ordinary appeal", and therefore, where the respective conditions are met, "preliminary ruling proves to be mandatory", since "binding to arbitral jurisdiction cannot mean loss of rights constitutionally guaranteed beyond those consented to by binding to such type of jurisdiction", and the contrary understanding – that is, that the obligation of preliminary ruling does not apply to arbitral jurisdiction – would be, moreover, as the Tax Authority states, "a violation of the constitutional principle of access to law provided for in Art. 20 of the Constitution".

However, this is not the case when the preliminary ruling is dismissed, based not on its admissibility, but on the lack of its presuppositions and/or its lack of necessity. In these cases, there would be – it is believed – no violation of the indicated constitutional norms (or others), but merely a situation of application of law to facts, contained in the judicial reasoning of the Tribunal, possibly vitiated by error, whereby, as the Tax Authority itself acknowledges, "such grounds relate to defects (...) inherent to the decision itself".

The first question formulated by the Tax Authority relates, therefore, to whether "Can a Member State consider that the requirement for exemption of the operations provided for in no. 1 of Article 138 of Council Directive 2006/112/EC of 28 November 2006 is not satisfied when, through recourse to the mechanism of administrative cooperation, it obtained from the tax authorities of the Member State of destination of the goods, confirmation that, although the purchaser is validly registered as a taxable person for VAT purposes in that Member State, declared the operation as an intra-Community acquisition and made payment of the transaction, the goods did not enter the country of destination and will have been invoiced by the purchaser to a third party, not resident in any Member State?".

The first filtering criterion for the merit of the question formulated, from the perspective of its submission, as a preliminary ruling, to the Court of Justice of the European Union, relates to its utility for the decision of the case. That is, only if the answer to the question formulated is necessary to render a decision in the questions presented to the Tribunal for resolution, should that question be submitted to the Court of Justice of the European Union.

Now, with due respect to other opinions, it is understood that this is not the case with the question in question.

Indeed, and first and foremost, the question in question is based on facts that are not properly established in the proceedings, namely that "the goods did not enter the country of destination and will have been invoiced by the purchaser to a third party, not resident in any Member State". Indeed, from examination of the factual matters set out above, it is not ascertained that this corresponds to any of the situations at issue in the present proceedings, which, without more, removes any procedural utility from the question formulated.

The question formulated is directed to the situation relating to the corrections that concern the shipments to F…. Now, the fact is that, as will be seen below, it is not demonstrated in the proceedings that the goods did not enter the country of destination.

Thus, and for the reasons stated, it is understood that the requested referral for a preliminary ruling to the Court of Justice of the European Union is not justified regarding the first of the questions formulated by the Tax Authority in its reply, or any other related to it.

The second question formulated by the Tax Authority consists in asking whether:

"Can a Member State consider that the requirement for exemption of the operations provided for in no. 1 of Article 138 of Council Directive 2006/112/EC of 28 November 2006 is not satisfied when, through recourse to the mechanism of administrative cooperation, it obtained from the tax authorities of the Member State of destination of the goods, confirmation that the purchaser, although validly registered as a taxable person for VAT purposes in that Member State and having made payment of the transaction, did not include in the VAT return, the operation as an intra-Community acquisition of goods".

As stated above, the first filtering criterion for the merit of the question formulated, from the perspective of its submission as a preliminary ruling to the Court of Justice of the European Union, relates to its utility for the decision of the case. Now, and from the outset, with due respect to other opinions, it is understood that this is not the case with the question in question.

Indeed, whether the answer to the question posed is affirmative or negative, it will not be susceptible to conditioning the sense of the decision to be rendered.

Thus, if the answer were in the affirmative sense, acknowledging that a Member State can consider that the requirement for exemption is not satisfied when it has confirmation that the purchaser, although validly registered as a taxable person for VAT purposes in its respective Member State and having made payment of the transaction, did not include in the VAT return, the operation as an intra-Community acquisition of goods, it would not follow from the very semantics of the question, which conditions the answer, that it would be forbidden, in those cases, and specifically in the present case, to consider that the requirement for exemption is satisfied.

On the other hand, and symmetrically, also in the case of an answer in the opposite sense, acknowledging to Member States the possibility of considering that the requirement for exemption is satisfied, in cases where they have confirmation that the purchaser, although validly registered as a taxable person for VAT purposes in its respective Member State and having made payment of the transaction, did not include in the VAT return, the operation as an intra-Community acquisition of goods, it would not follow, in the same terms, that it would be forbidden, in those cases, and specifically in the present case, to consider that the requirement for exemption is not satisfied.

That is, and in sum: an answer that says that the Member State can or cannot consider the requirements for exemption as satisfied would not impose a determined sense to the decision to be rendered in the present case, since there would always be a need to ascertain, in light of national legislation, whether the Portuguese State used the power that would be recognized to it in the answer to the question posed.

For a question of scope analogous to that formulated by the Tax Authority, and which now occurs to us, to be useful, it should, from the outset, bear imperative content, whose answer translated an obligation, not merely a possibility.

Not being the Tribunal bound, in this matter, by the request of the party, and having the duty to, ex officio, present for resolution to the Court of Justice of the European Union the questions that prove necessary to the decision of the case, and that are within the competence of that court, in such a framework, two questions could be formulated, namely:

Is a Member State obliged to consider that the requirement for exemption of the operations provided for in no. 1 of Article 138 of Council Directive 2006/112/EC of 28 November 2006 is not satisfied when, through recourse to the mechanism of administrative cooperation, it obtained from the tax authorities of the Member State of destination of the goods, confirmation that the purchaser, although validly registered as a taxable person for VAT purposes in that Member State, and having made payment of the transaction, did not include in the VAT return, the operation as an intra-Community acquisition of goods?
Is a Member State prohibited from considering that the requirement for exemption of the operations provided for in no. 1 of Article 138 of Council Directive 2006/112/EC of 28 November 2006 is not satisfied when, through recourse to the mechanism of administrative cooperation, it obtained from the tax authorities of the Member State of destination of the goods, confirmation that the purchaser, although validly registered as a taxable person for VAT purposes in that Member State, and having made payment of the transaction, did not include in the VAT return, the operation as an intra-Community acquisition of goods?

However, and from the outset, the answer to these questions also would not be of a decisive character regarding the case sub iudice.

Indeed, in the present case, a series of additional circumstances both support and work against consideration of the satisfaction of the presuppositions of the exemption discussed, whose evaluation would always extend beyond the scope of the questions suggested, and respective possible answers, whereby it could always be considered that the presuppositions of the exemption were satisfied, taking into account other elements than the character of taxable person of the purchaser and the occurrence of payment, or that they were not satisfied, taking into account other elements than the mere circumstance of non-inclusion in the VAT return, of the operation as an intra-Community acquisition of goods.

On the other hand, and here we reach the crux of the question that is truly discussed in the present case, what is at issue is, essentially, a judgment of fact – which translates into knowing whether or not there was a dispatch of goods to the recipient of the intra-Community operation – and of application of rules of domestic law, in particular, relating to the burden of proof.

That is, we are, it is believed, in that domain to which the Court of Justice of the European Union refers as "apply (...) law to the factual situation underlying the main case". What is being discussed in the proceedings is not to ascertain the sense of a rule of European law, that sense being clear and assumed by the parties, who understand what the sense of the rule is and externalize that understanding, but to verify whether that rule is or is not applicable "to the factual situation underlying the main case", it being certain that in that judgment intervene the rules of national law relating to the burden of proof, and that the Court of Justice of the European Union does not delve "into any disagreements regarding the interpretation or application of the rules of national law".

As the Court of Justice of the European Union itself stated in the Mecsek-Gabona judgment, "in the context of the procedure established by Article 267 TFEU, the Court of Justice has no competence to verify or assess the factual circumstances relating to the main case", and it is for the national courts to assess whether the taxpayer of their State "fulfilled the obligations incumbent on it in terms of proof and diligence", regarding the presuppositions of the exemption it claims.

Finally, and in any case, it is always understood that the correct way to interpret the Community legal rule in question, from the perspective of the potential questions formulated, should be deemed unequivocal, in the sense that the answer would be negative to both. That is, a Member State will be neither obliged to, nor prohibited from, considering that the requirement for exemption is not satisfied when, through recourse to the mechanism of administrative cooperation, it obtained from the tax authorities of the Member State of destination of the goods, confirmation that the purchaser, although validly registered as a taxable person for VAT purposes in that Member State, and having made payment of the transaction, did not include in the VAT return, the operation as an intra-Community acquisition of goods. Rather, in light of what has been the jurisprudence of the Court of Justice of the European Union, essentially oriented towards the correct and simple application of exemptions, independent of those factors (non-declaration of the intra-Community acquisition by the purchaser, registration of the latter for VAT purposes in its State, and actual payment of the operation), may – without doubt – the Member State consider satisfied, or not, the presuppositions of the exemption, as the remaining factual elements collected point in one direction or another.

Furthermore, in the Teleos Judgment, cited by the Tax Authority itself, it was stated ipsis verbis that "it must be considered that, with the exception of the conditions relating to the capacity of taxable person, the transfer of the power of disposal of a good as owner and the physical movement of goods from one Member State to another, no other condition can be imposed for the purpose of qualifying an operation of intra-Community delivery or acquisition of goods", and that "even if the presentation by the purchaser of a tax declaration relating to the intra-Community acquisition may constitute evidence of the actual transfer of goods out of the territory of the Member State of supply, that declaration does not, however, assume a determining significance for the purpose of proof of an intra-Community delivery exempt from VAT".

Moreover, in the same judgment, it can be read that "the fact that the purchaser has presented a declaration to the tax authorities of the Member State of destination relating to the intra-Community acquisition, such as the one at issue in the main case, may constitute additional evidence to demonstrate that the goods effectively left the territory of the Member State of supply, but does not constitute determining proof for the purpose of VAT exemption of an intra-Community delivery".

Also in the Judgment of the Court of Justice of the European Union delivered in case C-587/10, it can be read that:

"55 Regarding the circumstance that the supplier presented the tax declaration of the purchaser relating to his intra-Community acquisition, it should be recalled that, as was decided in no. 30 of this judgment, with the exception of the conditions relating to the capacity of taxable persons, the transfer of the power of disposal of a good as owner and the physical movement of goods from one Member State to another, no other condition can be imposed for the purpose of qualifying an operation of intra-Community delivery or acquisition of goods. Thus, in order to benefit from the exemption under Article 28-C, A, paragraph a), first paragraph, of the Sixth Directive, it cannot be imposed on the supplier to provide evidence concerning the taxation of the intra-Community acquisition of the goods in question.

56 Furthermore, that declaration cannot be considered, on its own, determining proof of the capacity of taxable person of the purchaser, and can only constitute evidence (see, by analogy, Teleos judgment and others, already cited, no. 71, and of 27 September 2007, Twoh International, C-184/05, Reports, p. I-7897, no. 37).

57 Consequently, the circumstance that the supplier presented or did not present this declaration is also not such as to alter the answer to the questions submitted by the referring court."

Hence it is clear that, both in light of the Community normative enactment in question, and in light of the reading made of it by the jurisprudence of the Court of Justice of the European Union, that the declaration of intra-Community acquisition, or lack thereof, by the purchaser, in an intra-Community transfer of goods, may constitute additional evidence to demonstrate that the goods did or did not effectively leave the territory of the Member State of supply, but does not constitute determining proof for the purpose of VAT exemption of an intra-Community delivery.

Thus, and for all the reasons stated, it is understood that the requested referral for a preliminary ruling to the Court of Justice of the European Union is not justified regarding the second of the questions formulated by the Tax Authority in its reply, or any other related to it.

Finally, the Tax Authority formulates the question of whether "Can it be considered that an administrative practice respects the principle of proportionality when it places on the seller the burden of proving the authenticity of the transport documents and the receipt of goods when the transport documents presented do not identify the goods object of the transfer, nor the recipient?", seeking its assessment, also within the framework of a preliminary ruling, by the Court of Justice of the European Union.

This question too, however, will fail in the test of the necessity of the answer for the decision to be rendered, the passing of which is indispensable to the viability of the option for referral.

Indeed, even if the Court of Justice of the European Union can consider "that an administrative practice respects the principle of proportionality when it places on the seller the burden of proving the authenticity of the transport documents and the receipt of the goods when the transport documents presented do not identify the goods object of the transfer, nor the recipient", this would contribute nothing to the decision of the case, first of all because it would be in light of national law, whose application is forbidden to the Court of Justice of the European Union, that it would be necessary to determine whether:

the presumed proportionate administrative practice in light of Community law is imposed, or not, on the judicial body in charge of deciding the case; and
the same administrative practice is or is not legal, in light of national law.

Now, as was stated in the Decision of the Administrative Supreme Court of 12-03-2015, delivered in case 01560/05.5BEPRT, "Any adequate means of proof is admissible in the procedure and in the proceedings, in accordance with the provisions of Articles 50 and 115, no. 1, of the Code of Tax and Administrative Procedure. Any contrary understanding, in particular, the limitation through administrative circulars of the means of proof admitted in the elimination of that presumption is unacceptable as it restricts the right to proof that the constitutional principles of justice and effective judicial protection presuppose fully assured to the interested parties – cf. Art. 20 of the Fundamental Law."

Whereby, as the rules of distribution of the burden of proof are those deriving from law, and not those determined by administrative practice, the answer to the third question formulated would not be of utility for the decision to be rendered, in that, on the one hand, the administrative practice to which it refers, even if judged, in light of Community law, proportionate, would not be imposed on this Tribunal, which is obliged to judge in accordance with Portuguese law constituted, and, on the other, in light of this, the limitation through administrative circulars of the means of proof admitted for the demonstration of the satisfaction of the presuppositions of the right to exemption now being discussed will be unacceptable as it restricts the right to proof that the constitutional principles of justice and effective judicial protection presuppose fully assured to the interested parties, in accordance, furthermore, with Art. 20 of the Constitution.

Thus, and for the reasons stated, it is understood that the requested referral for a preliminary ruling to the Court of Justice of the European Union is not justified, also regarding the third of the questions formulated by the Tax Authority in its reply.

ii. On the merits of the case

The legal question that arises in the proceedings relates, essentially, to whether, in light of the factual matters deemed established, the presuppositions of Article 14/a) of the VAT Regime in Intra-Community Transactions (VRIT) are or are not satisfied, relatively to the three groups of situations at issue, which provides that:

"The following are exempt from the tax:

a) Transfers of goods, made by a taxable person referred to in paragraph a) of no. 1 of Article 2, despatched or transported by the seller, by the purchaser or on their behalf, from national territory to another Member State with destination to the purchaser, when the latter is a natural or legal person registered for VAT purposes in another Member State, who has used the respective identification number to make the acquisition and is covered there by a taxation regime of intra-Community acquisitions of goods;"

It not being controversial that the requirements for the application of the exemption in question are that:

the transferor is a VAT taxable person in his Member State of residence;
that the purchaser is also a VAT taxable person, resident in another Member State, and who uses the respective identification number to make the acquisition;
that the goods are effectively despatched or transported to another Member State with destination to the purchaser;

only the satisfaction of the last of those listed requirements is at issue in the present proceedings, whereby what needs to be determined is whether the goods in question were or were not effectively despatched or transported to another Member State, with destination to the purchaser.

Article 74 of the General Tax Law provides that "The burden of proof of the facts constitutive of the rights of the tax authority or of taxpayers falls on he who invokes them."

Applying this provision to the present case, and bearing in mind that at issue is a right of the taxpayer to a tax exemption, it will be unchallenged, it is believed, that the burden of proof of the presuppositions of the right he seeks to exercise falls upon him.

However, Article 350, no. 1 of the Civil Code, applicable in accordance with Article 2/d) of the General Tax Law, provides that "He who has a legal presumption in his favor is excused from proving the fact to which it leads."

In the case, and with interest for the question, Article 75, no. 1 of the General Tax Law provides that "The declarations of taxpayers submitted in the terms provided by law are presumed to be true and made in good faith, as well as the data and determinations recorded in their accounting or records, when these are organized in accordance with commercial and tax legislation, without prejudice to other requirements on which the deductibility of expenses depends."

The said presumption may be overcome by two means, namely:

by dismissing it – preventing it from operating – by demonstrating any of the circumstances listed in no. 2 of the same Article 75 of the General Tax Law;
by rebutting it, by proving the contrary of what is presumed, in accordance with no. 2 of the aforementioned Article 350 of the Civil Code.

In light of the provisions of the above-cited Article 75, no. 1 of the General Tax Law, it shall be presumed true and made in good faith, both the periodic VAT declarations submitted, in accordance with the law, by the Applicant, where it calculated the refund indicated, and the data described in its accounting, in which no discrepancies were identified by the Tax Authority, as could not otherwise be the case, since it would not be understood that, having the Applicant presented its periodic declaration in accordance with the law, and having properly organized accounting, it should be placed on the same footing as a negligent taxpayer.

The said presumption, moreover expressly invoked by the Applicant (cf. Article 87 of the initial request) may be overcome by two means, pointed out, respectively, by Article 75, no. 2 of the General Tax Law and by Article 350, no. 2 of the Civil Code.

Let us see whether this occurs.

The presumption in question will not apply if any of the (preventative) circumstances listed in no. 2 of Article 75 of the General Tax Law are verified, namely, and for what is now relevant, that:

The declarations, accounting or records reveal omissions, errors, inaccuracies or founded indications that they do not reflect or impede knowledge of the real taxable matter of the taxable person;
The taxpayer did not fulfill the duties incumbent upon him to clarify his tax situation;

As explained by Elisabete Louro Martins:

"The degree of proof required of the Tax Authority to remove the presumption of truth provided for in the General Tax Law in favor of the taxpayer will, in our opinion, depend on the nature of the defects found. Formal defects (...) must be the subject of actual proof based on the documents themselves presented by the Taxable Person (...). In fact, either the documents are formally correct or they are formally incorrect, being inadmissible that a decision be made based on mere indications of facts that can be grasped on the basis of available documents.

On the other hand, the same rule cannot be applied to material defects, since they are often based on external elements to the accounting, such as the fact that they do not record actual operations that may give the taxable person the right to deduction, which do not allow obtaining a reasonable degree of certainty regarding the existence of the tax fact. As results from the second part of paragraph a) of no. 2 of Art. 75 of the General Tax Law, in the case of material defects, it will suffice for the Tax Authority to present concrete objective facts, based on concrete evidence, which according to the rules of common experience are strongly indicative of the existence of the tax fact".

Examining the list of facts established in the present proceedings, it is verified that no fact relating to the second of the (preventative) circumstances of the operability of the presumption in question, which have just been listed, is evident. On the contrary, and as becomes clear from the fact deemed established in point 13 of the factual matters, the Applicant responded, to the extent it was possible, to the requests for cooperation formulated by the Tax Authority, with a view to clarifying its tax situation. Thus, quoting Jorge Manuel Santos Lopes de Sousa, "once the duty to clarify has been fulfilled, the presumption of truthfulness and good faith of the declarations of taxpayers provided for in no. 1 of Art. 75 of the General Tax Law is maintained, with the Tax Authority having the role of challenging the truthfulness, through the demonstration of 'serious indications' of non-correspondence with the truth, thus 'the burden of proof of the facts that are obstacles to the truth presumed as resulting from the declaration of taxpayers' falling on [the Tax Authority]".

Having, then, in account the first of those same circumstances, above referred to, it will be necessary, regarding each group of situations at issue in the present proceedings, to ascertain whether omissions, errors, inaccuracies of the declarations or accounting were detected, and/or whether founded indications were gathered that they do not reflect the real taxable matter of the taxable person.

If this is verified, then it must be determined whether, the presumption of truthfulness deriving from Article 75, no. 1 of the General Tax Law failing, the Applicant achieves, through another means of proof, to fulfill the burden of proof that, in the terms previously outlined, rests upon him.

Should this not occur, it will be necessary to verify whether the Tax Authority managed to provide proof to the contrary of the facts that, in the terms preceding, should be presumed, relating to the occurrence of the intra-Community transfer in question in the present proceedings, in the exercise of the power that, in accordance with Article 350, no. 2 of the Civil Code, is available to it.

Let us examine this then.

Regarding the operations with F…, the Tax Authority ascertained, with relevance and in summary, that:

i. The Applicant exhibited documents evidencing transport by post, with the records of Portuguese Post (CTT) database showing that the respective shipments were delivered at their destination;

ii. The tax authorities of the United Kingdom informed of what is contained in points 17 and 18 of the established facts;

iii. The watches were invoiced by F… to R…, a company based in Panama;

iv. The watches were transported to the client by N…, from …/Como, in Italy, where an export document was processed for Geneva, Switzerland;

vi. The amounts invoiced by the Applicant to F… were paid, with payments beginning in February 2011, and in a partial and phased manner.

As results both from the Report and from the decision on the administrative complaint, it is verified that the Tax Authority considered decisive the information provided by its British counterpart, which states that "The goods never entered the United Kingdom".

With all due respect, this circumstance cannot, however, be deemed established.

Thus, and first of all, the contention made by the Respondent in the arbitral proceedings lacks legal foundation, to the effect that "such mechanism of information exchange between the tax authorities of the Member States, being necessary and indispensable in situations of doubt, is also a unique means of proof and the most appropriate for purposes of control of intra-Community transfers of goods, which are as such declared by taxable persons." and that such mechanism must be attributed "full probative force".

The only legal foundation for any judgment regarding the probative value of the information in question, lies in Article 76, nos. 1 and 4, of the General Tax Law, which provide that:

"1 - Information provided by tax inspection is accepted as true, when substantiated and if based on objective criteria, in accordance with the law. (...)

4 - The provisions of no. 1 also apply to information provided by foreign tax administrations under international conventions on mutual assistance to which the Portuguese State is bound, without prejudice to proof to the contrary by the taxable person or interested party."

Regarding the normative in question, it should be noted, first of all, that it does not establish any full proof, that is, insusceptible of contrary proof.

On the other hand, one cannot fail to consider that the probative value conferred by the General Tax Law on information provided by the Tax Authority, or by foreign tax administrations, is limited to that which constitutes matters practiced or directly perceived by the author of the information, to the exclusion, thus, of mere personal judgments of the informant.

Now, the matter with which we are concerned, is included in this latter domain, that is, the entry, or not, in the United Kingdom, of the goods in question, is not a fact directly perceived by the tax authority of that country, but a mere judgment that it derived from the documents it examined and that it transmitted, whereby such a judgment cannot be accorded credence, in accordance with Article 76 of the General Tax Law.

Now, regarding the situation with F…, what is verified is that the Applicant invoiced, recorded in its accounting and declared the dispatch of the watches to that purchaser, presented proof of payment of the transaction in question, as well as documents relating to the dispatch of the goods.

Additionally, the Applicant also presented a statement, on paper with the letterhead of "F…", drafted in English language, dated 05-04-2013, with a signature affixed by Z, in the capacity of manager, with the authenticity of the signature and the capacity in which it was affixed recognized in accordance with the Hague Convention of 5 October 1961, whereby it is attested, on behalf of F…, that, indeed, the goods transacted were acquired by it.

From the documentation presented by the Tax Authority, only results that the same articles will have been re-sold by the purchaser to an extra-Community entity, and will have been sent from Italy to Switzerland.

It does not result, in any way, demonstrated which route the articles in question took from Portugal to Italy and, consequently, there is no indication whatsoever that the documentation evidencing the dispatch by the Applicant, of the goods sold to F…, does not correspond to reality.

On the other hand, the circumstance, also ascertained, and regarding which, there yes, the information of the British tax authorities will be accepted as true, in accordance with, whereby the purchaser F…, will not have declared the operations covered by invoices 20100004, of 23-07-2010 (€26,858.00), 20100005 of 23-07-2010 (€13,587.00), 20100006 of 23-07-2010 (€45,000.00), 20100013 of 06-08-2010 (€67,291.00) and 20100052 of 04-08-2010 (€66,354.00), will not, it is believed, be sufficient to undermine the presumption of truthfulness of the declarations of the Applicant in this proceeding, established by Article 75, no. 1 of the General Tax Law, because it cannot be understood as a "founded indication" that the accounting and declaration presented by it, at issue in the present proceeding, do not reflect its real taxable matter. Indeed, the decision to declare or not the intra-Community acquisition is exclusively determined by the purchaser, the Applicant being entirely unconnected to it, in that it cannot determine or control it.

However, even if this were not understood, it would always be necessary to conclude that, at the limit, this circumstance would only be susceptible of generating a situation of doubt. Indeed, and applying here the ratio of the answer of the Court of Justice of the European Union to the fourth question posed in the Teleos Judgment, cited by both parties, it should be understood that the fact that the purchaser has not presented a declaration to the tax authorities of the Member State of destination relating to the intra-Community acquisition, such as the one now in question, may constitute additional evidence to demonstrate that the goods did not effectively leave the territory of the Member State of dispatch, but does not constitute determining proof for the purpose of non-exemption of VAT of an intra-Community delivery.

Also, the aforementioned Judgment of the Court of Justice of the European Union, delivered in case C-587/10, stated, as was seen, that "with the exception of the conditions relating to the capacity of taxable persons, the transfer of the power of disposal of a good as owner and the physical movement of goods from one Member State to another, no other condition can be imposed for the purpose of qualifying an operation of intra-Community delivery or acquisition of goods."

It is not, thus and in sum, possible to validate the judgment that we are faced with concrete objective facts, based on concrete evidence, which according to the rules of common experience are strongly indicative of the existence of the tax fact.

Whereby, for all the reasons stated, it must be considered that, in this part, the Tax Authority did not fulfill the burden of demonstrating facts that are obstacles to the presumption of truthfulness of the declaration of the Applicant, established by Article 75, no. 1 of the General Tax Law.

In the same manner, it must be concluded that the elements brought by the Tax Authority are insufficient to overthrow the presumption of truthfulness formed in accordance with the mentioned norm, whereby, in the present part, the arbitral request must be judged granted.

Regarding the operations with J… (Spain), the Tax Authority ascertained, with relevance and in summary, that:

i. regarding invoices no. 20100026, of 20-09-2010 (€96,790.00) and no. 20100046, of 27-10-2010 (€108,780.00), the transport certificate is a record from Portuguese Post (CTT), with the records of Portuguese Post (CTT) database showing that the respective shipments were returned to the city of Oporto;

ii. The Applicant made no record in its accounting of these returns;

iii. Regarding these invoices, their payment was recorded in the accounting as made on 16-09-2010 and 26-10-2010, respectively, by bank transfer from the Italian credit institution Cassa Cent. B. Cred Coop. Del Norte, Trento to the account of A… at BES (Account no. …);

iv. Regarding invoice 201000040, of 18-10-2010, in the amount of €111,948.00, the evidence is guide no. … of FedEx carrier, and from consultation of the carrier's electronic page it appeared that the guide in question was registered as a confirmed delivery in Rome – Italy, to the person of X;

v. In said guide, the contents of the shipment were described as documents ("Docs.");

vi. Payment was made by bank transfer from an account held by J… at the Italian credit institution Cassa Rurale di Lizzana, to the account of A… at BES (Account no. …);

vii. According to the elements known, the company was registered for VAT in Spain from 06-06-2008 and was engaged in the trade in all types of metals, such as steel, iron, copper, aluminum and their derivatives, as well as their distribution, commercialization, export and import;

viii. The tax authorities of the Kingdom of Spain informed of what is contained in points 21 and 22 of the established facts.

Regarding the shipments to client J…, it is understood, in light of the criteria already enunciated, that founded indications have been gathered by the Tax Authority that, in this part, the accounting of the Applicant suffers from omissions, errors, and inaccuracies.

Indeed, it is demonstrated that the shipments to which invoices no. 20100026, of 20-09-2010, and no. 20100046, of 27-10-2010, refer, indicated by the Applicant as having been destined for the transport of the goods sold by it to the Member State of the purchaser, were returned to Portugal, a fact that is not reflected in the accounting of the Applicant.

Regarding invoice 201000040, of 18-10-2010, it is verified that, although it contains a Spanish address, and mentions as place of unloading the "customer's facilities", the transport document, which resulted in a confirmed delivery, is addressed to an Italian address.

It is considered, thus, that, in this part, and in accordance with paragraph a) of no. 2 of Article 75 of the General Tax Law, "founded indications" have been gathered that the accounting of the Applicant does not reflect, in this part, the real taxable matter of the taxable person, whereby the presumption to which no. 1 of that same Article 75 alludes should be considered ceased.

Given this, it is then necessary to ascertain whether, by other means, the Applicant manages to gather proof of the effective occurrence of the intra-Community transfers in question.

With due respect to contrary opinion, it is understood, regarding invoices no. 20100026, of 20-09-2010, and no. 20100046, of 27-10-2010, that this does not occur.

Indeed, as already stated above, it was incumbent upon the Applicant to demonstrate that:

the transferor was a VAT taxable person in his Member State of residence;
that the purchaser was also a VAT taxable person, resident in another Member State, and who used the respective identification number to make the acquisition;
that the goods were effectively despatched or transported to another Member State with destination to the purchaser.

Regarding the first requirement, there are no doubts whatsoever.

Regarding the second, although the Spanish Tax Authority informed that it could not contact its taxable person, the fact is that the latter was a VAT taxable person, nothing preventing the satisfaction of this requirement due to the circumstance that the acquiring taxable person was engaged in "the trade in all types of metals, such as steel, iron, copper, aluminum and their derivatives, as well as their distribution, commercialization, export and import"

Now, as regards the dispatch of the goods to which the invoices now in question refer to abroad, it is verified, however, that from the documentation presented by the Applicant it results that the same was returned to national territory, whereby the requirement in question cannot be considered satisfied, necessary for an intra-Community transfer to occur.

This conclusion will not be prevented by the circumstance that the Applicant presented a statement, on behalf of J…, stating that the goods in question were acquired by it.

This is because, examining the said statement, it is verified that not only does it contain an illegible signature, but it is not authenticated or certified in any way, in terms of, at minimum, being able to determine a concrete person who can be held responsible, unequivocally, for what is declared there.

Whereby no probative value can be attributed to the document in question.

Faced with the above, and regarding invoices no. 20100026, of 20-09-2010, and no. 20100046, of 27-10-2010, the arbitral request must be judged not granted.

Now, as regards invoice 201000040, of 18-10-2010, being, in the same terms as the previous ones, demonstrated the first two of the requirements listed as necessary for the verification of an intra-Community transfer, it is solely necessary to verify the occurrence of the last one.

As referred to by Clotilde Celorico Palma:

"Note that if the seller has the obligation to ensure that the purchaser of the goods is a taxable person properly identified for VAT purposes in another Member State and that the goods are despatched or transported outside national territory, it is not his responsibility, however, to control whether the goods were despatched or transported to the Member State that corresponds to the identification number communicated to him by the purchaser. It will only be possible for the seller to ensure such fact if the dispatch or transport of the goods is carried out by him or on his behalf, and a different Member State of destination is indicated to him than the one to which the identification number for the basis of which the acquisition was made corresponds. However, even in this situation, the application of the exemption for the intra-Community transfer of the goods in question will not be called into question. What will be in question, rather, is the information supplied by the taxable person to the respective tax administration, through the completion of the recapitulative statement of the respective intra-Community transfers of goods. It should be noted in this connection that it was precisely having in mind this type of situation that the Community legislator provided for a safety device within the framework of the new localization rules. According to these rules, notwithstanding the fact that the dispatch or transport of the goods occurs in another Member State (general rule of localization of intra-Community acquisitions of goods), the intra-Community acquisition of goods will be taxable in the Member State that issued the identification number on the basis of which the purchaser made the operation".

The purchaser must declare the intra-Community acquisition through the fulfillment of specific ancillary obligations, since the intra-Community acquisition is an operation taxed under VAT, as a corollary of the destination principle.

Thus, the important emphasis for being faced with an intra-Community transfer (ICT) from the point of view of the transferor is, in addition to ensuring that the purchaser is a VAT taxable person who carries out intra-Community operations, to ensure that the goods physically left the Member State of the transferor taxable person. If the goods physically entered the Member State of the purchaser (or at the address provided by the purchaser), that proof will no longer be the responsibility of the transferor, first of all because it does not result from the wording of Article 14, no. 1, paragraph a), of the VRIT.

Thus, we are faced with an intra-Community transfer provided that the requirements of Article 14, no. 1, paragraph a) of the VRIT are satisfied. The goods did not leave the Internal Market of the EU, the transferor providing proof that the goods physically left Portugal, with it falling to the purchaser to prove that it meets the requirements for the regime of Intra-Community Acquisitions of Goods to apply, litigating, if applicable, with the respective tax authorities the question of VAT.

This has, indeed, been the understanding of the Court of Justice of the European Union, which, in the Judgment delivered in case C-430/09, considered that "the application of the exemption to an intra-Community delivery is subject to the condition that the transport must be concluded in a Member State other than that of the delivery, it being irrelevant for the purpose, the address at which the transport ends."

Furthermore, it is ascertained that the transaction in question was indeed paid, from a bank account domiciled in Italy, in the name of the purchaser, which corroborates the circumstance that the declared recipient of the intra-Community transfer is established there.

This conclusion will not be prevented by the circumstance that in the transport document presented by the Applicant, the contents are described as "Documents".

Indeed, and not having been proven what the concrete cause of the notation in question is, no decisive relevance is given to such a fact, unaccompanied by any other facts that point in the direction that the shipment in question did not, in reality, occur, particularly since, as the Applicant suggests, if the sense of its action were to create a staging of dispatch, it would, surely, have made it appear in the documentation in question the mention "watches", and not "documents".

Faced with all the above, regarding operator J…, it is understood that the arbitral request must be judged not granted, as regards the VAT owed for the operations covered by invoices no. 20100026, of 20-09-2010, and no. 20100046, of 27-10-2010, and granted regarding invoice 201000040, of 18-10-2010.

Finally, regarding the operation covered by invoice no. 20100066, of 28-12-2010, in the amount of € 6,444.00, issued to M…, the Tax Authority ascertained, with relevance and in summary, that:

i. the transport certificate is a record from Portuguese Post (registration …PT), with the records of Portuguese Post showing that the respective shipment was returned to the city of Oporto, where it arrived on 23-02-2011, coming from Italy, where it was dispatched on 16-02-2011;

ii. A… made no record in its accounting of these returns;

iii. The Applicant received payment made on 29-12-2010 by bank transfer ordered by M… through Caixa D'Estal. Pens. (La Caixa) in Barcelona, to the account of A… at BES (Account no. …);

iv. The Italian tax authorities, within the framework of information exchange under Articles 7 and 15 of Regulation (EC) no. 904/2010, requested information on suspicion of fraud in the transactions between A… and the Italian operator M…, based on the fact that the Italian operator had not declared any intra-Community acquisition made from A…, regarding, in addition, the operation covered by the invoice in question.

The same considerations will be applied here, mutatis mutandis, made previously regarding the relationships of the Applicant with the other two operators in question in these proceedings.

Thus, and first of all, following what was stated above regarding the transaction with operator F…, the circumstance that purchaser M… did not declare before the respective Tax Authority the intra-Community acquisition of goods is deemed irrelevant.

On the other hand, and connecting already with what was stated regarding the operations with operator J…, it is considered that, it being demonstrated that the shipment made by the Applicant was returned to national territory, and no new dispatch being demonstrated, the formation of the presumption of truthfulness of the presumption established by Article 75, no. 1 of the General Tax Law was prevented, and the demonstration of one of the essential presuppositions for the verification of an intra-Community transfer that grants the right to VAT exemption, in accordance with Article 14, no. 1, paragraph a) of the VRIT, will fail.

Indeed, and as happened in the situation relating to the Spanish operator, the document presented by the Applicant is not recognized or certified, and it is not clear who, by signing it, assumes responsibility for what is declared, whereby no utility can be recognized to it in terms of proof.

Thus, in this part, the arbitral request must be judged not granted.

The Applicant further formulates a request for compensation for undue guarantee.

This matter has already been the subject of various decisions within the scope of arbitral jurisdiction, and can be seen, among others, in the arbitral proceedings of the Administrative Arbitration Center, no. 1/2013T, in terms that are hereby transcribed:

"In accordance with the provisions of paragraph b) of Article 24 of the LRATM, the arbitral award on the merits of the claim which is not susceptible to appeal or challenge binds the tax administration from the end of the period provided for appeal or challenge, and the latter must, in the exact terms of the granting of the arbitral award in favor of the taxable person and until the end of the period provided for the spontaneous execution of the sentences of the tax courts, 'restore the situation that would have existed if the tax act object of the arbitral award had not been carried out, adopting the acts and operations necessary for the purpose'.

In the legislative authorization on which the Government based itself to approve the LRATM, granted by Article 124 of Law no. 3-B/2010, of 28 April, it is proclaimed, as a primary directive of the institution of arbitration as an alternative form of judicial resolution of conflicts in tax matters, that 'the tax arbitral process must constitute an alternative procedural means to the judicial challenge process and to the action for the recognition of a right or legitimate interest in tax matters'.

Although Article 2, no. 1, paragraphs a) and b), of the LRATM uses the expression 'declaration of illegality' to define the competence of the arbitral tribunals operating in the Administrative Arbitration Center and makes no reference to constitutive (annulment) and condemning decisions, it should be understood, in harmony with the mentioned legislative authorization, that it includes in its competencies the powers that in judicial challenge proceedings are attributed to tax courts in relation to acts whose assessment of legality falls within its competencies.

Although the judicial challenge process is essentially a process of mere annulment (Arts. 99 and 124 of the Code of Tax and Administrative Procedure), a condemnation of the tax administration in payment of indemnificatory interest and compensation for undue guarantee can be delivered in it.

In truth, although there is no express rule to that effect, it has been peacefully understood in the tax courts, since the entry into force of the tax reform codes of 1958-1965, that the request for condemnation in payment of indemnificatory interest can be cumulated in a judicial challenge process with the request for annulment or declaration of nullity or non-existence of the act, for in those codes reference is made to the right to indemnificatory interest arising when, in an administrative complaint or judicial proceeding, the administration is convinced that there was an error of fact attributable to the services. This regime was subsequently generalized in the Code of Tax and Administrative Procedure, which established in no. 1 of its Article 24 that "there will be a right to indemnificatory interest in favor of the taxpayer when, in an administrative complaint or judicial proceeding, it is determined that there was an error attributable to the services", then, in the General Tax Law, in whose Article 43, no. 1, it is established that "indemnificatory interest is owed when it is determined, in an administrative complaint or judicial challenge, that there was an error attributable to the services from which results payment of the tax debt in an amount greater than legally owed" and finally, in the Code of Tax and Administrative Procedure in which it was established, in no. 2 of Article 61 (which corresponds to no. 4 in the version given by Law no. 55-A/2010, of 31 December), that "if the decision that recognized the right to indemnificatory interest is judicial, the period of payment is counted from the beginning of the period of its spontaneous execution".

Regarding the request for condemnation in payment of compensation for undue provision of guarantee, Article 171 of the Code of Tax and Administrative Procedure establishes that "compensation in case of bank guarantee or equivalent undeservedly provided shall be requested in the proceeding in which the legality of the enforceable debt is controversial" and that "the compensation should be claimed in the complaint, challenge or appeal or in case its ground is supervenient within 30 days after its occurrence".

Thus, it is unequivocal that the judicial challenge process encompasses the possibility of condemnation in payment of compensation for undue guarantee and is, in principle, the adequate procedural means to formulate such a request, which is justified by evident reasons of procedural economy, as the right to compensation for undue guarantee depends on what is decided regarding the legality or illegality of the tax assessment act.

The request for constitution of the arbitral tribunal has as a corollary to be in the arbitral proceedings that the 'legality of the enforceable debt' will be discussed, whereby, as results from the express tenor of that no. 1 of the mentioned Article 171 of the Code of Tax and Administrative Procedure, it is also the arbitral process that is adequate to assess the request for compensation for undue guarantee.

In fact, the cumulation of requests relating to the same tax act is implicitly presupposed in Article 3 of the LRATM, when speaking of 'cumulation of requests even relating to different acts', which permits understanding that the cumulation of requests is also possible regarding the same tax act and the requests for compensation in indemnificatory interest and for condemnation for undue guarantee are susceptible of being encompassed by that formula, whereby an interpretation in this sense has, at least, the minimum of verbal correspondence required by no. 2 of Article 9 of the Civil Code.

The regime of the right to compensation for undue guarantee is contained in Article 52 of the General Tax Law, which establishes the following:

Article 53

Guarantee in case of undue provision

The debtor who, in order to suspend execution, offers bank guarantee or equivalent, will be indemnified fully or in part for the damages resulting from its provision, should he have maintained it for a period of more than three years in proportion of the occurrence of administrative appeal [...]"

[Document truncated at this point due to length]

Frequently Asked Questions

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What evidence is required to prove an intra-community supply of goods for VAT exemption in Portugal?

To prove an intra-community supply of goods for VAT exemption in Portugal under Article 14(a) of the RITI (VAT Regime in Intra-Community Transactions), taxpayers must provide documentary evidence demonstrating that goods were physically transported to another EU Member State. Acceptable evidence includes transport guides from recognized carriers (such as FedEx, EMS), shipping records from postal services (CTT - Portuguese Post), and other documentation proving the destination and movement of goods. The Portuguese Tax Authority may verify this evidence through intra-Community administrative cooperation mechanisms under Regulation (EC) 904/2010, requesting confirmation from tax authorities in the destination Member States. The burden of proof rests on the taxpayer to substantiate that all conditions for the exemption are met, including valid VAT identification numbers of acquirers and actual cross-border transport of goods.

Can a taxpayer challenge VAT assessments on intra-community transactions through tax arbitration at CAAD?

Yes, taxpayers can challenge VAT assessments on intra-community transactions through tax arbitration at CAAD (Centro de Arbitragem Administrativa). Under Decree-Law 10/2011 (Legal Regime for Arbitration in Tax Matters - RJAT), taxpayers may file a request for constitution of an arbitral tribunal to contest VAT assessments and related acts. This includes challenging the legality of VAT liquidations, compensatory interest assessments, decisions dismissing gracious complaints, and decisions rejecting hierarchical appeals. Tax arbitration provides an alternative dispute resolution mechanism to judicial courts, offering specialized, faster resolution of tax disputes. The arbitral tribunal has jurisdiction to review both factual and legal grounds of the contested assessments and can declare them illegal if procedural or substantive errors are found.

How does the Portuguese Tax Authority verify the exemption of intra-community supplies under the IVA Code?

The Portuguese Tax Authority verifies intra-community supply exemptions through multiple mechanisms: (1) Documentary analysis - examining transport documents, invoices, and proof of goods dispatch to other Member States; (2) Intra-Community administrative cooperation - under Articles 5 and 19 of Regulation (EC) 904/2010, the Tax Authority requests information from tax authorities in other EU Member States to confirm transactions, verify the existence and VAT registration of acquirers, and validate the conditions for exemption; (3) Internal inspections - conducting partial or general scope audits focusing on specific periods and transaction types; (4) Cross-referencing with VIES (VAT Information Exchange System) data to verify intra-Community transactions declared by both suppliers and acquirers. When discrepancies or suspicious elements are identified, tax inspectors may deny the exemption and issue VAT assessments with compensatory interest.

What happens when a gracious complaint and hierarchical appeal against VAT assessments are both rejected?

When both a gracious complaint (reclamação graciosa) and hierarchical appeal (recurso hierárquico) against VAT assessments are rejected, the taxpayer has the right to seek judicial review through two main avenues: (1) Tax arbitration at CAAD - the taxpayer may file a request for constitution of an arbitral tribunal within the legally prescribed deadline under the RJAT (Decree-Law 10/2011), challenging the legality of the original assessments and the decisions dismissing the administrative remedies; or (2) Judicial appeal to administrative courts - alternatively, the taxpayer can file a judicial action in the administrative and tax courts. The exhaustion of administrative remedies does not prevent access to arbitration or judicial review. The contested acts remain enforceable unless suspension is granted, though payment guarantees may suspend enforcement during the arbitration or judicial proceedings.

What are the legal consequences of failing to provide sufficient proof of intra-community transfer of goods for IVA purposes?

Failing to provide sufficient proof of intra-community transfer of goods for VAT purposes results in several legal consequences: (1) Denial of VAT exemption - the Tax Authority will not recognize the operation as an exempt intra-Community supply under Article 14 of RITI, treating it instead as a taxable domestic supply; (2) VAT assessment - the Tax Authority issues a liquidation for the VAT that should have been charged on the transaction at the applicable Portuguese rate; (3) Compensatory interest - under Article 35 of the General Tax Law (LGT), interest is charged from the date the tax should have been paid until actual payment; (4) Loss of VAT deduction rights - the taxpayer may face adjustments to previously deducted input VAT if the output transactions are reclassified; (5) Potential penalties - if negligence or fraud is found, additional fines may be imposed under the Tax Infractions Regime (RGIT). The taxpayer bears the burden of proof and must maintain adequate documentation for the statutory limitation period.

CAAD 85/2015-T: VAT Exemption on Intra-Community Supply of Goods and Burden of Proof

Table of Contents

Summary

Full Decision

ARBITRAL AWARD

I – STATEMENT OF FACTS

II. AWARD

A. FACTUAL MATTERS

A.1. Established Facts

A.2. Facts deemed not established

A.3. Reasoning of the established and unestablished facts

B. ON THE LAW

i. On the request for preliminary ruling

ii. On the merits of the case

Frequently Asked Questions

Tags

FRESH Legal Group

Table of Contents

CAAD 85/2015-T: VAT Exemption on Intra-Community Supply of Goods and Burden of Proof

Table of Contents

Summary

Full Decision

ARBITRAL AWARD

I – STATEMENT OF FACTS

II. AWARD

A. FACTUAL MATTERS

A.1. Established Facts

A.2. Facts deemed not established

A.3. Reasoning of the established and unestablished facts

B. ON THE LAW

i. On the request for preliminary ruling

ii. On the merits of the case

Frequently Asked Questions

Tags

FRESH Legal Group

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Table of Contents