Summary
Full Decision
ARBITRAL DECISION
The arbitrators Professor Dr. Clotilde Celorico Palma, in her capacity as Presiding Arbitrator, Dr. Alexandra Coelho Martins, appointed by A…, Lda., and Professor Dr. António Carlos dos Santos, appointed by the Tax and Customs Authority for the formation of the Collective Arbitral Tribunal, constituted on 19 April 2017, agree as follows:
REPORT
A…, Lda., legal entity number…, with registered office at … n.º…, …, …-… …, hereinafter "Applicant", has requested the constitution of an Arbitral Tribunal, pursuant to the provisions of articles 2.º, n.º 1, paragraph a) and 10.º et seq. of the Legal Regime for Tax Arbitration ("RJAT"), approved by Decree-Law n.º 10/2011, of 20 January.
The request for arbitral pronouncement was submitted following notification of the decision to reject the Gracious Complaint filed against the tax acts for additional assessment of Value Added Tax ("VAT") [n.º 2015…] and compensatory interest [n.º 2015…], in the amounts of € 100,781.76 and € 6,306.45, respectively, by reference to the period of December 2013, and seeks the declaration of illegality and consequent annulment thereof, the reimbursement of the amounts paid and the payment of compensation interest at the statutory rate[1].
Pursuant to the power of arbitrator appointment provided in article 6.º, number 2, paragraph b) of the RJAT, the Applicant, in accordance with article 10.º, n.º 2, paragraph g) of the aforementioned regime, expressed its intention to appoint Alexandra Coelho Martins as arbitrator, with the Tax and Customs Authority ("TA" or "Respondent"), observing the provision of article 11.º, n.º 2 of the RJAT, appointing António Carlos dos Santos.
Both arbitrators appointed, as Presiding Arbitrator, Clotilde Celorico Palma (cf. article 11.º, n.º 6 of the RJAT). The parties, duly notified of the appointments, did not express any intention to recuse them.
In conformity with the provision of article 11.º, n.º 7 of the RJAT, the Collective Arbitral Tribunal was constituted on 19 April 2014.
The Applicant alleges in support of its claim formal defects of lack of reasoning, incompetence of the author of the act and improper practice of a single (annualized) assessment act.
It also invokes, on substantive grounds, defect(s) of error in factual and legal assumptions. In this regard, it contends that there is no operation or taxable fact within the scope of VAT incidence, as the professional training actions carried out by it in its capacity as external training entity ("EFE"), financed by the Human Potential Operational Programme ("POPH"), by means of application to the Institute of Employment and Professional Training, IP, ("IEFP"), form an integral part of public and social policies for employment promotion and skills development, without commercial or lucrative objectives.
It emphasizes that in the learning courses financed by IEFP there is merely a reimbursement of expenses, whereby there is no price, in its view. It further contends, without conceding, that if a subsidy exists, this does not have as its backdrop an operation or taxable fact and that, additionally, there is no nexus whatsoever between the incentive and the price, which, it adds, is not previously fixed. This would, therefore, be a subsidy for operating purposes, that is, for covering deficits, not subject to VAT. It argues, on the other hand, that the costs are borne by it on behalf and for the account of IEFP.
With regard to compensatory interest, it raises the preterition of the right to hearing before the assessment and the absence of demonstration of the taxpayer's culpability in the delay of the VAT assessment, if the tax were due.
It attached 7 documents, 6 with the petition, and listed two witnesses.
The Respondent presented a response, in which it contested in detailed manner the defects alleged by the Applicant, and attached the administrative file ("PA"). It considers that the Applicant carries out taxable operations materialized in professional training service provisions, the consideration for which is a complete subsidy of its price, subject to VAT insofar as the prerequisites set out in article 16.º, n.º 5, paragraph c) of the VAT Code are met and the power to opt out of exemption was exercised.
It adds that the Applicant's activity is private and of an economic nature and that profit is not a condition for VAT subjection, being precisely the economic nature upon which the Applicant bases itself to exercise the right to full deduction of VAT incurred in its activity, including the tax relating to expenses of these professional training courses financed by IEFP. It states that the Applicant does not exercise public powers, but rather IEFP does, and that the expenses of the courses are not, contrary to what it alleges, incurred on behalf of IEFP. The Respondent concludes, therefore, for the dismissal of the claim for lack of merit.
On 29 June 2017, the meeting referred to in article 18.º of the RJAT was held and, with the objective of discovering the material truth, contradictory questioning of the two witnesses listed by the Applicant was conducted. At that meeting the parties were notified for written submissions and the deadline of 30 September 2017 was fixed for delivery of the award.
The parties presented successive submissions.
HOUSEKEEPING
The Tribunal was regularly constituted and is competent ratione materiae, in accordance with articles 2.º, 5.º and 6.º of the RJAT.
The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented (cf. articles 4.º and 10.º, n.º 2 of the RJAT and article 1.º of Ordinance n.º 112-A/2011, of 22 March), whereby there is no obstacle to the consideration of the merits of the case.
SUBJECT MATTER (QUESTIONS TO BE DECIDED)
The present action discusses the illegality of the tax acts relating to VAT and compensatory interest for the year 2013.
There are three formal defects to be clarified, relating to lack of reasoning, incompetence of the author of the act and improper aggregation in a single tax act – annual – of the VAT assessment.
The substantive question in dispute, to be examined in the event of lack of merit of those defects, is that concerning whether the professional training actions relating to the "Learning Courses" of IEFP, carried out by the Applicant, constitute service provisions executed within the scope of an economic activity subject to VAT and, on that premise, whether the payment of the respective real costs, i.e. without margin, made by IEFP within the framework of POPH, can be characterized as a subsidy directly related to the price, in accordance with the provision of articles 4.º, n.º 1 and 16.º, n.º 5, paragraph c) of the VAT Code. It also falls to examine whether these costs are borne by the Applicant, or merely incurred by it on behalf and for the account of IEFP, in which case the application of the regime set out in article 16.º, n.º 6, paragraph c) of the aforementioned Code is invoked.
Finally, regarding compensatory interest, it is necessary to assess the alleged preterition of the right to hearing and the prerequisites for its assessment.
REASONING
OF THE PROVEN FACTS
With relevance to the decision, it is important to consider the following established facts:
A…, Lda., here the Applicant, is a commercial company, VAT taxpayer, which has been engaged in professional training activity since 1 July 1994, under CAE[2] 8559 – cf. Tax Inspection Report ("RIT"), pp. 5, 6, 8 and 10, contained in the administrative file ("PA").
The Applicant is subject to the normal quarterly VAT regime, by virtue of having, on 3 October 2011, exercised the option to opt out of exemption from this tax with respect to professional training services, in accordance with article 12.º, n.º 1, paragraph a) of the VAT Code – cf. RIT, pp. 5, 6, 8 and 10.
For more than 15 years the Applicant has worked on dual certification training projects within the Apprenticeship System in an alternating regime and develops, in outsourcing to IEFP, Apprenticeship System courses, holding the status of external training entity of this system. It is also accredited by INOFOR, IQF and by the Directorate-General for Employment and Labour Relations ("DGERT"), with Certificate n.º 0791/2013 – cf. RIT pp. 6 and 7.
The professional training activity is developed by the Applicant in two distinct strands. A first, which it designates as "private sector", in which it provides training to individuals and legal entities without receiving any funding for such. The professional training services provided within this scope are invoiced to the recipients and the corresponding VAT is assessed thereon – cf. RIT pp. 6 to 8 and witness testimony.
In another strand, which it designates as "public sector", the Applicant executes professional training actions in its capacity as external training entity of IEFP, activity financed within the framework of POPH/QREN[3], where the activity developed in "Learning Courses" stands out, which are initial professional training courses, in an alternating regime, aimed at young people, privileging their integration into the labour market and allowing the continuation of studies – cf. RIT pp. 6 to 8 and witness testimony.
The implementation of these actions or learning courses financed depends on the prior submission and subsequent approval of application processes with IEFP, which include a detailed project of the number of training actions and trainees involved, as well as the estimated costs, calculated and itemized by categories – cf. Specific Regulation for IEFP Learning Courses attached as document 4, RIT pp. 6 to 8 and witness testimony.
The approval of projects and payments by IEFP imply, and depend on, compliance with ancillary obligations of accounting control and pedagogical-technical aspects of Learning Courses, including the maintenance of management information by specific cost centres for each financing request/course – cf. Specific Regulation for IEFP Learning Courses attached as document 4, RIT pp. 6 to 8 and witness testimony.
The Applicant is reimbursed for all (eligible) expenses it demonstrably incurs and which are directly related to training, without the addition of any margin and net of the VAT amount or, in other words, with the amount of the tax incurred excluded – cf. Specific Regulation for IEFP Learning Courses attached as document 4, RIT pp. 6 to 8 and witness testimony.
To obtain payments within the scope of projects financed by IEFP, the Applicant needs to submit a documentary collection, as provided for in the Specific Regulation for IEFP Learning Courses, which comprises specific forms for interim reimbursement requests and final balance payment requests; expense lists, incurred and paid by the Applicant; documentary sample of expenses and proofs of bank transfers made to trainees and trainers – cf. RIT pp. 8 to 10, Specific Regulation for IEFP Learning Courses attached as document 4, document 5 and witness testimony.
Upon approval of applications and after the start of the first training action, the Applicant, upon request, obtains an advance corresponding to a percentage (15%) of the total value approved for the calendar year. To this are added, in the course of project execution, interim payments, with, finally, a balance adjustment to the maximum limit of the approved amount – cf. RIT p. 8, Specific Regulation for IEFP Learning Courses attached as document 4 and witness testimony.
The following expenses by nature are eligible for IEFP apprenticeship courses:
R1 – Trainee expenses: study material allowances, professionalization allowances, food expenses, transport expenses, personal accident insurance and other expenses (e.g.: childcare support);
R2 – Trainer expenses: remuneration, permanent internal trainers, occasional internal trainers, external trainers and other expenses (food, accommodation and transport);
R3 – Expenses with other personnel assigned to the project: remuneration expenses, personnel assigned to project internal, personnel assigned to project external, food, accommodation and transport expenses;
R4 – Rents, leases and amortizations: rents and amortizations of facilities, leases and amortizations of equipment;
R5 – Direct expenses with preparation, development, follow-up and evaluation of actions: dissemination of actions, selection of trainees and trainers, acquisition, preparation and reproduction of teaching resources, study visits as part of training, expenses for exam juries and other expenses inherent to the conduct of tests, other expenses;
R6 – General project expenses: non-durable materials and goods, work clothes and safety and protection equipment, tools and other implements, current expenses with consumable teaching materials, energy, water and communications, general maintenance expenses of equipment and facilities (e.g.: security services, cleaning and insurance of equipment and facilities assigned to training, as well as minor repairs and equipment maintenance contracts);
whereby the beneficiary entities (here the Applicant) may manage with flexibility the allocation approved for the aggregate of categories 3 and following, respecting the total approved cost – cf. Specific Regulation for IEFP Learning Courses attached as document 4 and witness testimony.
Applications and approval of projects by IEFP segregate the detailed cost structure of training by categories and are based on an estimate or forecast of expenses to be incurred. In this context, the approved amounts constitute a maximum ceiling that may vary depending on the verification of expenses and the execution of training, particularly the number of trainees, their absences and withdrawals, number of training sessions, in addition to transfers and allocations between categories – cf. Specific Regulation for IEFP Learning Courses attached as document 4 and witness testimony.
The receipts from the actions financed and paid by IEFP are accounted for by the Applicant under item 75 – operating subsidies – cf. RIT p. 9 and document 6 attached as supervenient.
With respect to these training actions financed and paid by IEFP, the Applicant does not issue invoices for the receipts, whether as initial advance, interim payment or final balance adjustment (up to the limit of the approved), nor does it proceed to assess any VAT – cf. RIT p. 7 to 10 and witness testimony.
The Applicant deducts in full the VAT incurred in the acquisition of goods and services it makes, based on invoices issued in its name, whether these [goods and services acquired] are intended for the conduct of training sessions in the "private sector", in which it assesses VAT, or from courses in the "public sector", in which it does not assess VAT, or indistinctly to both sectors of activity – cf. RIT pp. 8 and 9 and witness testimony.
The training actions in the "private sector" and "public sector" take place in distinct facilities, with the Applicant having a specific space, located at…, where it conducts exclusively the financed training, with the others occurring in its facilities at… or those of its client companies – cf. witness testimony.
The Applicant's activity in the year 2013 resulted in income in the amount of € 190,289.21 from the "non-financed private sector", invoiced with VAT, and € 495,395.71 relating to training funding financed by IEFP, on which VAT was not charged – cf. RIT pp. 9 and 10.
The gain or advantage to the Applicant in the co-financed projects relates to the possibility of diluting fixed costs with salaries of its personnel, by allocating some company employees to co-financed programmes, testing and maintaining a set of trainers that can be used in services provided to clients and, also, with its projection and prestige as a reference training entity in the region in which it operates – cf. RIT p. 9 and witness testimony.
On 13 February 2015, the Applicant requested a VAT reimbursement request through the periodic declaration, in the amount of € 36,846.48, having for this reason been selected for analysis and subject to partial scope inspection action (VAT), for the years 2013 and 2014, in accordance with service orders OI2015… and OI2015…, respectively – cf. RIT, p. 5.
As justification for the emergence of the tax credit and consequent reimbursement request, the Applicant cited the progressive reduction in billing to individuals and companies in recent years, combined with the deduction of tax borne on inputs relating to other goods and services assigned to all training activity, including the financed activity – cf. RIT, p. 9 and witness testimony.
As a result of the inspection action, VAT corrections were proposed to the Applicant for alleged failure to assess this tax on receipts from IEFP, qualified as subsidies for the price of professional training service provisions, with the Draft Report, nor the final Tax Inspection Report making no reference to compensatory interest – cf. RIT, pp. 12 to 14.
The Applicant was notified by official letter (n.º…), dated 13 August 2015, of the Draft Report for the exercise of the right to hearing – cf. RIT, pp. 12 to 14.
The Applicant exercised the right to hearing, on 9 September 2015, advocating the non-subjection to VAT of said receipts on the grounds that they do not constitute taxable operations nor subsidies for the price – cf. RIT, pp. 12 to 14.
Subsequently, the Applicant was notified of the Final Tax Inspection Report ("RIT") which maintained the corrections proposed in the amount of € 113,941.01 relating to VAT, based on the grounds transcribed below:
"1. Characterization of the company and activity of the SP
In response to the clarification request made to the SP, the latter informed the following:
The entity A…, Lda. (holder of the registered trademark A…), with tax number…, has as its sole corporate purpose "Business and professional training".
It is a training entity with 20 years of experience, with over 15 working in dual certification training projects within the Apprenticeship System in an alternating regime. It notes that the experience of all these years has always been directed to the employment and business market (employment demand and supply) and, from a continuous improvement perspective, leading to constant and adequate evolution of training work.
It is intrinsically involved in the socioeconomic fabric of the region, in continuous partnership with employer entities and socioeconomic development promoters, developing inter-company training (open courses) in which participants are, on the one hand, individuals, and on the other, from companies, as well as intra-company training (tailor-made training) that leads to the adaptation of work by the same to the needs and process of the client entity.
Parallel to continuous training work for active individuals, it develops in outsourcing to IEFP, Apprenticeship System courses, having seen renewed the status of external training entity of this system by IEFP.
Located in the north region of Lisbon, the entity has its own facilities consisting of 11 training rooms rigorously dimensioned and equipped for the purpose of capital importance to local influence work.
With respect to intra-company training, they normally use the client's facilities ranging from the Algarve to Minho, moving trainers and materials to the professional residences of the trainees. Clients are private and public entities, among which prominent companies in the Portuguese business fabric are identified.
The A… also invests in innovation, through the qualification of human resources, with its projects directed to the reality of the business market, following management guidelines and concepts that lead traditional companies to competitive companies, with the capacity to respond to the demands of a globalized market.
The SP further notes that the A… has dedicated itself unequivocally to professional training since its foundation in 1994, and since 1998 has been accredited by INOFOR, IQF and subsequently by DGERT (Directorate-General for Employment and Labour Relations) with Certificate n.º…/2013. This accreditation was subject to renewal in 2002, 2005, 2008 and 2013.
It further states in the statement submitted in response to the notification for provision of clarifications, that in co-financed training, there is no invoicing properly speaking, at least not directly for training, but rather payment by IEFP of the expenses incurred by the SP with training, VAT excluded.
[…]
2. Analysis of the reimbursement
[…]
From consultation of the TA's Taxpayer Management and Registration System, it was possible to verify that on 03/10/2011, the A… exercised the right to opt out of VAT exemption by submitting the respective amendment declaration to the Finance Service of… having opted for the application of the normal quarterly VAT regime, starting from that date, to assess VAT on its service provisions and to deduct the tax borne on its inputs.
The documents submitted were analyzed and it was verified that IEFP, IP, in addition to conducting Learning Courses within the scope of its network of Professional Training Centres, is also the competent body for, annually, defining the areas of education and training to be prioritized according to the dynamics of the employment market and establishing the period for submission of applications by other training entities, deciding on the approval thereof.
In this manner, it is incumbent upon the SP to submit application processes for the development of professional training actions, whereby acceptance by IEFP of the approval decision of the application confers, as soon as the training action begins, the right to receive an initial advance of 15% of the amount approved for the calendar year, in the same way that the sum of the advance with interim reimbursements cannot exceed 85% of the amount approved for each calendar year.
The entity has the right to receive the difference between the amount approved in the final balance payment request and the sum of the advance and reimbursements already made.
It is thus verified that, in this type of project, the SP has the right to full reimbursement of expenses made and demonstrably paid, provided they prove that such expenses are directly related to training, being reimbursed subsequently for those same expenses, without regard to the value of the tax borne.
To attest to the receipt of these amounts, the SP submitted a copy of 2 invoices issued to IEFP – Professional Training Centre of Alverca, relating to what it designated as, payment of the final balance request and payment of the final balance request reopening, with nos 1 and 2 and dated 17/07/2014 and 30/12/2014 respectively (annex I), whereby it was found that the same, do not comply with the provisions of paragraphs d), e) and f) of art.36º of CIVA.
Further it was established through contacts with its accounting technician and according to explanations from the same, that the gain in co-financed projects, is limited to the possibility of diluting, by the company, fixed costs with salaries of its personnel, that is, there is the possibility that by allocating some company employees to co-financed programmes, allocate a percentage to the project which is subsequently paid by IEFP and which is calculated through the lists sent with employee salaries and confirmed through remuneration declarations.
The SP justifies, therefore, the origin of the tax credit and consequent reimbursement request, the fact of the existence of the reduction in billing in recent years to individuals and companies combined with the deduction of tax borne on inputs relating to other goods and services assigned to all training activity, including co-financed training, where, as stated above and according to the same, there is not properly invoicing, but rather payment by IEFP of the expenses incurred with said training and accounted for under item 75 – operating subsidies.
From the analysis made to the documentation submitted and to the evolution of the VAT declarations submitted in the three-year period 2012-2014, it is verified that the amount of service provisions where tax was assessed at the normal rate, has been declining since the year 2012 through 2014, by approximately 42%, having recorded amounts in field 3 of € 265,107.91 in 2012, € 190,289.21 in 2013 and € 110,605.81 in 2014.
To be highlighted in these active operations and documents consulted that were submitted by the SP, are the training in the areas of pedagogical training for trainers, project management, IT tools, marketing for pharmacists, management and administrative techniques, among others.
Regarding passive operations, there was coherence throughout the years in the amounts entered in fields 20 to 24 with inputs related to trainers, rental of computer equipment, repairs and maintenance of tangible fixed assets, consumables, accounting services, etc.
It could therefore be concluded that the determining factor for the generation of the tax credit and consequent reimbursement request, would be the decrease in the activity of training taxed at the normal tax rate, coupled with the maintenance of the cost structure associated with inputs for the so-called normal training activity, as well as in the co-financed activity, which would cause the deductible tax to exceed the assessed tax and consequently, create accumulated tax credit.
III. DESCRIPTION OF FACTS AND GROUNDS OF PURELY ARITHMETIC CORRECTIONS TO THE TAXABLE MATTER
As already mentioned, we found through consultation of the TA's computer applications that the SP is an SP referred to in paragraph a) of n.º 1 of art.2º of CIVA having as its main activity training. Being so, and since accredited by DGERT, the training activity exercised by the same is exempt under n.º 10 of art.9º of CIVA, regardless of whether the training is co-financed or not, encompassing all operations it carries out, insofar as the same provide for the development of its accredited training activity.
It was found that, notwithstanding its classification, the SP opted out of this exemption in accordance with paragraph a) of n.º 1 of art.12º of CIVA on 03/10/2011, by submitting the respective amendment declaration to the Finance Service of… having opted for the normal quarterly VAT regime, starting from that date, to be able to use the power to deduct the tax borne on its inputs, but simultaneously becoming obligated to, have to assess VAT on all taxable operations.
Further it was found through analysis of simplified business statements (IES), namely on their pages 4 where the income statements of the years 2013 (the year from which the SP is in tax credit) and 2014, attached to this report (annex II) are found, that the SP recorded as operating subsidies, the amounts of € 495,395.71 and € 732,423.14 and it was concluded that these were amounts earned by the SP as co-financed training funding.
It was further found that the SP did not assess the respective tax on these active operations, as it considered that such subsidies were not qualified as price subsidies, as defined in accordance with paragraph c) of n.º 5 of art.16º of CIVA.
Faced with the subsidies in question, as well as the content of the specific apprenticeship regulation for co-financed apprenticeship courses and still the final lists of reimbursement requests submitted by the SP, it is therefore important to assess whether such subsidies or subventions constitute or do not constitute price subsidies, that is, whether they fall within the conceptual limits established in paragraph c) of n.º 5 of art.16º of CIVA and as such, whether they are exempted from assessment of the respective tax.
It is in this legal provision that the subsidies considered for price are defined, encompassing those that "are established as a function of the number of units transferred or the volume of services provided and are fixed prior to the carrying out of the operations".
To support such legal provision, it is appropriate to assess, as has been the understanding of the CJEU in several judgments delivered, the various conditions for the said subsidies/subventions to constitute or not the character of price subsidies, with the same being so, if they are verified cumulatively in the following prerequisites:
1. The financing source of the subsidies not being the recipient of the taxable operations carried out by the financed (SP);
2. The subsidy being paid to the subsidized, in the measure of the service provisions transmitted by it, with the right to receive that same subsidy being conferred to it, only insofar as such services are by it performed;
3. The practice by the subsidized, of prices lower than those possible to be charged by the same, in the absence of that same subsidy and that;
4. The consideration for the reduction of the price by force of the subsidy, is already determined or capable of determination, not however requiring that that subsidy be in the exact measure of that reduction, sufficing for such that it be in a significant manner.
Thus, it is clear that only the cumulation of these prerequisites allows in an unequivocal manner the inclusion of the subsidy, in accordance with paragraph c) of n.º 5 of art.16º of CIVA.
From consultation of the specific regulation for apprenticeship courses, we find that the courses taught and subsidized by IEFP, are intended for young people with ages under 25 years and who possess the 9th grade of schooling, without completion of secondary education, with other candidates being able to be admitted in exceptional situations to be defined by IEFP's Regional Delegation that meet some requisites specified therein.
It is further verified that in the approval of the project by POPH (European Social Fund – Human Potential Operational Programme) all detailed information relating to the structure of training expenses, as well as the amount requested by the SP and respective approved amounts is included. It is further mentioned in the acceptance certificate that the granting of financing to the SP is dependent on full compliance by the same, of the project approved in the meantime.
It further appears in the specific apprenticeship regulation that trainees have the right to receive, through a request to be submitted at the beginning of each training period, certain social supports, such supports being eligible for the SP's financing application, with the following standing out: professionalization allowances, allowances for study materials, food subsidies, transport expense or subsidy, accommodation subsidy and a housing allowance.
From analysis of the financing applications submitted by the SP, it is further verified that the same are submitted through presentations of detailed projects, containing the same, the number of training actions to be taught, the number of trainees included to whom the apprenticeship courses are directed, as well as the calculated and itemized expenses by categories, as is shown in annex III, by way of example.
In light of the foregoing, we consider it demonstrated the existence of the prior performance of analysis of control and verification by the one financing, of the purpose to which the attributed subsidy is destined, as well as of the training actions and trainees involved, concluding in an unequivocal manner that the subsidy accounted for as operating subsidies, is attributed according to the volume of services provided and as such qualified as a price subsidy, in accordance with paragraph c) of n.º 5 of art.16º of CIVA, as these are no more than the consideration for the taxable operations, whereby the SP should have, assessed tax on these amounts, for the years 2013 and 2014, as is shown in the table below.
In this manner the following corrections are to be made, attributing the same to the last period of each year for being more favorable to the SP:
Accordingly, it is proposed to effect corrections to the tax for periods 1312T and 1412T, in the global amount of € 282,398.34 and the consequent complete dismissal of the reimbursement request made, for the period 1412T in the amount of € 36,846.47.
[…]
IX. RIGHT TO HEARING
The taxpayer was notified by official letter n.º… dated 13/08/2015, in accordance with article n.º 60.º of the General Tax Law, approved by Decree-Law n.º 398/98, of 17 December and article n.º 60.º of the Supplementary Regime for Tax Inspection Procedure, approved by Decree Law n.º 413/98, of 31 December, to exercise the right to hearing, within the period of 15 (fifteen) days with respect to the corrections proposed and contained in the draft report.
The SP received notification on 2015/08/19 as attested by the "print" (annex II) taken from the CTT website.
In the course of the period for exercising the right to hearing and after submission of the draft report by these services, the SP exercised the right to hearing by sending on 02/09/2015 an official letter with the ref… -…- …-…, which was received by these services, being assigned n.º 2015…, and from its analysis and the documentation previously analyzed, it was possible to summarize and analyze the following points:
The SP states in its statement that the opt-out of exemption made on 03/10/2011 and referred to in the draft corrections, was assumed by the management of A… with the intention that expenses relating to co-financed training, could be allocated in the respective expense lists without the cited tax, by reason of the same when deductible, not being eligible;
The opt-out of exemption is a power that the VAT code establishes for the opt-out by SP's that perform, for example, operations of service provisions referred to in n.º 10 of art.9º duly recognized, enabling them in this manner to deduct the tax borne on the acquisition of goods and services assigned to their operations, obligating however, to assess VAT on taxable operations downstream.
Thus, it does not seem to us at all logical that a company that is classified under the exemption regime of art.9º of CIVA, (which as an incomplete exemption that it is, does not allow it to deduct tax borne with its acquisitions, nor on the other hand, sees itself obligated to assess tax on its transfers of goods and/or services) opts out of exemption, with the pretext that in this manner, it may allocate expenses in the expense lists without VAT, when that fact in its sphere would be innocuous, that is, by reason of being classified under art.9º of CIVA, at the time of submission of applications, the tax once as it would not be recoverable (deductible) would have to be accepted within the scope thereof and as such added to the subsidies received.
The SP further describes in its right to hearing that the A…, took the decision to opt out of exemption in function of the pretensions/insistences of IEFP and POPH institutions; Regarding this point it only appears to us to note that the management of the company, concerns only its administrators, it not appearing to us therefore that valid argument that the same were by any reason forced to take any decision.
In its statement, the SP further states that the trainees to whom the co-financed courses are directed, are "clients" of IEFP and not of A….
Also here, we are forced to not agree with such statement, since the trainees, as appears in the Specific Apprenticeship Regulation (REA), are admitted by External Training Entities (EFE), albeit attending to the standards defined on whom the same courses are intended. It is to the EFE, that all organization of the different components of training, organization and submission of application processes, among others, falls, as defined in the REA.
It further reinforces in its right to hearing that the subsidies received are not price subsidies, as the activity it designates as commercial (and therefore where it assesses tax on its service provisions) in no way benefits from them; The question raised here is once again irrelevant to the change of the facts presented in the draft corrections as at no point was it questioned the tax assessed on the service provisions that the SP designates as commercial, never being referred at any moment in the said report that the subsidies influenced that component. The SP assesses tax on this type of operations (said commercial), not by force of receipt of subsidies, but by force of its opt-out of exemption in accordance with paragraph a) of n.º 1 of art.12º of CIVA.
It further concludes that such subsidies are not considered price subsidies in accordance with paragraph c) of n.º 1 of art.16º of CIVA, given the fact that the value that A… receives, after the approval of each project and respective signing of acceptance terms, is unpredictable, as according to the same, such receipts vary depending on the attendance of trainees for example.
In accordance with the REA, EFE have the right to full reimbursement of expenses made and demonstrably paid, provided they prove that such expenses are directly related to training. The training project must, besides this, be considered as a whole, comprising not only the training activity in the strict sense but also all coordination and support activities that are inherent to it.
The argument mentioned of attendance, does not appear to us to be a relevant factor for the consideration or not of the amounts received being considered as price, since even if the SP considers that the total amount to be earned by the entity is not defined, it is indubitable the percentage that the same will earn with the expenses incurred, that percentage being well defined in the REA itself.
It was thus concluded that the consideration represented by the subsidy, is well determined, that question also essential for the subsidy to be considered as price, whereby we also do not agree with the pretension to see the subsidy removed as not being for price.
It further states that it does not consider such subsidies as price subsidies in accordance with paragraph c) of n.º 1 of art.16º of CIVA, as the prices practiced do not translate into "lower prices", as the trainees have no expenses in attending the courses, and may even receive allowances, meal subsidies and transport subsidies;
Also here, it does not assist us to give reason to the pretension of the SP, as it is only possible for the entity to conduct the said courses in these terms, in function of the subsidy/subsidies received, allowing in this manner that trainees do not spend any amounts for attendance thereof, having even the right to receive some social supports. If not, all training would fall into what the SP itself defines as "commercial" training.
In conclusion, the SP has not demonstrated to us that in the draft corrections, the essential requisites were not demonstrated for the subsidies received to be considered as price subsidies, as has also been the understanding both of the Tax Authority namely in its binding information n.º 2827, delivered by order of the SDG of taxes, legal substitute of the Director-General on 03-01-2012 and also through the various judgments delivered by the CJEU, given the cumulation of the following prerequisites:
1. The financing source of the subsidies not being the recipient of the taxable operations carried out by the financed (SP);
2. The subsidy being paid to the subsidized, in the measure of the service provisions transmitted by it, with the right to receive that same subsidy being conferred to it, only insofar as such services are by it performed;
3. The practice by the subsidized, of prices lower than those possible to be charged by the same, in the absence of that same subsidy and that;
4. The consideration for the reduction of the price by force of the subsidy, is already determined or capable of determination, not however requiring that that subsidy be in the exact measure of that reduction, sufficing for such that it be in a significant manner.
In this manner and from analysis of the right to hearing exercised by the SP with respect to the corrections proposed in the draft report, the SP has not brought to the process new facts that place in question that ascertained in the scope of inspection, whereby the proposal of the corrections therein listed is maintained, by reason of considering that the subsidies earned by the entity are price subsidies, and as such, subject to taxation in the scope of VAT." – cf. RIT, pp. 6 to 15, attached by the Applicant as document 5 and contained in the PA.
The Applicant came to be notified of the additional VAT assessment n.º 2015…, dated 23 September 2015, in the amount of € 100,781.76, and the corresponding compensatory interest, under assessment n.º 2015…, in the amount of € 6,306.45. Both the VAT and interest assessments are signed by the Director-General of Taxes and have a payment deadline of 23 November 2015 – as per copies attached to the arbitral petition as Document 1.
The VAT assessment contains the following statement: "REASONING Assessment made on the basis of correction made by the Tax Inspection Services". The compensatory interest assessment states "REASONING Interest calculated in accordance with article 96.º of CIVA and articles 35.º and 44.º of the General Tax Law, due to the delay in the assessment of part or all of the tax or due to delay or insufficiency of payment, by fact attributable to the taxpayer. Its calculation took into account the date on which payments were sent and or, in the absence or insufficiency thereof, the date of availability of other credits" and contains the base value, the calculation period and the applicable rate – as per copies attached to the arbitral petition as Document 1.
On 25 January 2016, the Applicant proceeded to pay the additional assessments in question – as per Document 6 attached with the arbitral petition.
Not conforming to the tax acts for VAT assessment and compensatory interest, the Applicant filed a Gracious Complaint, with entry at the Finance Service of… on 16 March 2016 – as per PA attached to the record.
After notification of the Applicant for exercise of the right to hearing on the draft decision complaint, which it chose not to use, the Complaint came to be dismissed by Order of the Head of Division (in Substitution), dated 17 October 2016, which was issued based on reasoned Information from the Administrative Justice Division of the Finance Directorate of Lisbon – as per PA and Document 2 attached with the arbitral petition.
The decision to dismiss the Complaint was notified to the Applicant on 31 October 2016 – as per PA.
On 24 January 2017, the Applicant filed a request for constitution of a Collective Arbitral Tribunal with CAAD – cf. electronic request in the CAAD system.
UNPROVEN FACTS
No other facts with relevance to the decision of the case were proven.
MOTIVATION OF THE DECISION: PROVEN AND UNPROVEN FACTS
The decision on the factual matters was made on the basis of examination and critical analysis of documents and information attached to the process above discriminated regarding each one of the items of the evidence, which were supplemented by the testimonies of witnesses B…, employee of the Applicant, and C…, Official Court Accountant of the Applicant, who, notwithstanding their professional relationship with the Applicant, proved to be suitable and confirmed the context and circumstances of the exercise of activity by the Applicant.
It should be noted that the Tribunal does not have to pronounce on everything that is alleged by the parties, with it falling to its duty to select the facts that are relevant to the decision and discriminate the proven from the unproven matters – cf. article 123.º of the Code of Tax Procedure and Process ("CPPT") and article 607.º, n.sº 2 and 3 of the Code of Civil Procedure ("CPC"), applicable ex vi article 29.º, n.º 1, paragraphs a), c) and e), of the RJAT.
In this manner, the facts pertinent to the judgment of the case were chosen and carved out according to their legal relevance, established according to the object of the dispute (cf. article 596.º of the CPC, applicable ex vi article 29.º, n.º 1, paragraph e), of the RJAT). They appear, notably, irrelevant for the questions to be decided the allegations that the opt-out of exemption resulted from communications with IEFP and POPH (45 of the p.i.); or the characterization of the IEFP's mission and the public functions pursued by it (what is at issue in the record is the activity of the Applicant as an entity (sub)contracted by IEFP and not the activity and operations of IEFP itself - 53 to 58 of the p.i.); or the classification that IEFP decided to give to the amounts paid in 2015.
The allegations presented as facts consisting of conclusive statements were not given as proven or unproven.
ON THE LAW
OF THE LACK OF REASONING
The Applicant alleges the annullability of the acts of VAT assessment and compensatory interest, supported by articles 77.º, n.º 2 of the General Tax Law ("LGT") and 135.º of the Code of Administrative Procedure ("CPA", current article 163.º of the "new CPA").
To this end, it alleges that the acts of assessment sub iudice do not explicate all the grounds that determined their issuance, do not identify, even, the concrete legal provisions on which they are based, nor make the explicit reference to any other external document that contains that same reasoning. It considers, furthermore, that even if the tax acts referred to the report this would not be sufficient to comply with the requirements of a contemporaneous and contextual reasoning that the taxpayer should not have to presume, but rather result clear and unequivocally from the act.
The principle of reasoning of injurious acts assumes increased importance in the Fiscal State, whose action is increasingly aggressive, and now benefits from the constitutional protection granted by article 268.º, n.º 3 of the Constitution of the Portuguese Republic ("CRP"). It constitutes a specific guarantee of taxpayers and a general duty of all administrative activity (cf. articles 124.º to 126.º of the CPA and 152.º to 154.º of the new CPA, in development of what was already provided by Decree-Law n.º 256-A/77 in this matter).
Such duty is imposed - even if performed in summary form - with respect to all injurious acts, imposing and constitutive of duties or charges in which, naturally, tax acts are included, and performs primary functions in a State based on the rule of law sustained by the legality of administrative action. Indeed, reasoning allows the recipient of the act to become aware of the reasons underlying the decision, enabling control of its validity, promotes compliance with the principle of impartiality, in its aspect of necessary weighing of the interests at stake and, not less relevantly, makes contention guarantee accessible.
The duty of reasoning of tax acts is specifically regulated in article 77.º of the LGT, which provides in its numbers 1 and 2:
"1 - The decision of procedure is always reasoned by means of a succinct exposition of the reasons of fact and law that motivated it, the reasoning being able to consist of mere declaration of agreement with the grounds of previous opinions, information or proposals, including those that are part of the tax inspection report.
2 - The reasoning of tax acts may be performed in summary form, and must always contain the applicable legal provisions, the qualification and quantification of the taxable facts and the operations for ascertainment of the taxable matter and the tax."
With regard to compensatory interest, article 35.º, n.º 9 of the LGT provides that "[t]he assessment must always clearly evidence the principal amount of the obligation and the compensatory interest, explaining clearly its calculation and distinguishing it from other obligations due."
The jurisprudence of the Supreme Administrative Court ("STA") advocates that reasoning is a relative concept that varies according to the legal type of act, aiming to meet the needs of clarification of the taxpayer, allowing it to know the reasons, of fact and law, that determined its practice and why the decision was made in one way and not another (cf. Judgment of the STA, case n.º 01114/05, of 2 February 2006).
The reasoning may be succinct and per relationem, provided that the primary function of making known the cognitive and evaluative iter of the act is guaranteed. It is thus considered that an act is sufficiently reasoned whenever a normal recipient, placed before the act in question, may become aware of the reasons supporting the decision rendered therein (cf. Judgment of the STA, case n.º 42180, of 20 November 2002). And furthermore that an act is duly reasoned which, directly and by reference, contains the contextual indication of the reasons of fact and law that allow its normal recipient, to apprehend the decision-making reasoning, the causes and the sense of the decision (cf. Judgment of the STA, case n.º 46796, of 14 March 2001).
In the specific situation it is found that the VAT assessment act (subsequently the compensatory interest assessment will be addressed) contains the express reference that the same [VAT assessment] was performed on the basis of the corrections of the Tax Inspection Services, in a clear allusion to the inspection activity performed on the Applicant.
In traversing the chain of events it becomes perceptible, without noteworthy effort, that it was the Applicant itself that triggered an inspection action on the VAT of the years 2013 and 2014[4], by reason of the submission of a reimbursement request on 13 February 2015. That inspection action gave rise to a Draft Report, on which the Applicant exercised the right to hearing.
In September 2015, the (final) Tax Inspection Report (or RIT) was issued which maintains the VAT corrections advocated in the previous Draft. The Applicant was, equally, notified of this Report. A few days later, on 23 September 2015 the corresponding VAT assessment (and likewise the compensatory interest assessment) is issued and notified to the Applicant, mentioning that it was made on the basis of the corrections of the Tax Inspection Services.
It is found that there is, at minimum, reasonably explicit reference to the RIT, i.e., that the VAT assessment was issued for the reasons contained in the RIT, which fits within the normative permission of article 77.º, n.º 1 of the LGT which provides that the reasoning consists of "mere declaration of agreement with the grounds of previous opinions, information or proposals, including those that are part of the tax inspection report."
For its part, the reasoning contained in the RIT, to which the tax act of VAT assessment refers, is not summary or succinct. It is a reasoning, of fact and law, extensive, sufficiently detailed and perceptible, making express reference to the applicable legal norms.
So much so that it is perceptible that the Applicant understood it, as the allegations articulated in the p.i., performed on the (correct, moreover) assumption that that was the reasoning of the act, evidence that the Applicant exemplarily followed the cognitive and evaluative iter of the RIT, understood the facts and the technical framework advocated by the TA, understood its sense and reach.
An independent question, as the Respondent emphasizes, is whether the Applicant disagrees with the reasoning because it does not consider the essential prerequisites for taxation retracted therein to be verified or demonstrated. In this case it is not about examining the formal defect of lack of reasoning, but the substantive validity of the tax act[5], which is examined below.
With respect to compensatory interest, unlike VAT, the RIT is silent. However, it is the very act of compensatory interest assessment that contains expressly the respective grounds, indicating that it is interest calculated in accordance with articles 96.º of the VAT Code and 35.º and 44.º of the LGT, due to the delay in the assessment of part or all of the tax or due to delay or insufficiency of payment by fact attributable to the taxpayer. Furthermore, it mentions with clarity the elements required by article 35.º, n.º 9 of the LGT, the base value, interest, the calculation period and the applicable rate.
However, if doubts were raised for the Applicant, this could always resort to the mechanism provided for in article 37.º of the CPPT and, within the period provided therein, request its notification or the passage of a certificate containing the omitted requirements. It is emphasized in this context, by António Lima Guerreiro, in his annotation to article 77.º, that "[i]t has been uniform jurisprudence of the Supreme Administrative Court (followed from the Judgment of 11 December 1991, Appeal number 11.897), that failure to notify the reasoning does not affect the legality of the act. […] Failure to notify the reasoning leads only to the consequence provided for in article 22º of C.P.T. (37º of C.P.P.T.), in accordance with which, if the notification does not contain all the requirements provided for by law, the interested party may request notification of those that have been omitted or the passage of a certificate containing them free of any payment, counting the period of complaint, appeal or judicial challenge only from the notification of the omitted grounds or the passage of the certificate containing them" – cf. Annotated General Tax Law, Ed. Rei dos Livros, 2000, p. 341.
In our system, the eventual deficiencies that notification presents affect the effectiveness of the notified act and not its perfection or validity, since, as clearly results from article 132.º of the CPA (in the wording in force at the date of facts, current article 160.º) and article 77.º, n.º 6 of the LGT, the communication of the imposing act or constitutive of duties and charges is only a condition of effectiveness.
Therefore, the problems existing regarding non-compliance or defective compliance with the duty to communicate the grounds cannot be reflected in the validity of the communicating act, as referred to by the jurisprudence of the STA (cf. Judgment n.º 0872/11, of 15 February 2012).
In this manner, the invocation of the defect of lack of reasoning of the tax acts raised by the Applicant fails.
OF THE INCOMPETENCE OF THE AUTHOR OF THE ACT – VIOLATION OF ARTICLE 82.º OF THE VAT CODE
According to the Applicant, the assessment acts subject of the request for arbitral pronouncement are illegal due to violation of article 82.º of the VAT Code, as they were signed, and are taken to have been practiced, by the Director-General of Taxes when, in its view, they should have been by the Head of the Finance Service or the Director of Collection Services.
First of all, it should be noted that, when examining the provision invoked – article 82.º of the VAT Code –, it is found that the same deals with notifications, a matter totally unrelated to the Applicant's arguments. It further remains incomprehensible the reference of the Applicant to the fact that the assessment acts do not contain the mention of the existence of delegation or subdelegation of powers, given that we are not before the act of a subordinate body, but of the Director-General of the Tax and Customs Authority, regarding whose finality no doubts are raised[6].
In an effort to give meaning to the Applicant's allegations this Tribunal inquired earlier redactions of the VAT Code and identified as pertinent article 87.º of the VAT Code which results from the renumbering that this diploma was subject in the year 2008 (cf. article 6.º of Decree-law n.º 102/2008, of 20 June).
The Applicant invokes the unconstitutionality of the diploma that attributed the power of issuance of the assessment act to the Directorate-General of Taxes (cf. Decree-law n.º 102/2008, of 20 June, in particular its article 2.º), on the grounds that it has as its basis a legislative authorization already expired, that contained in the State Budget Law for 2008 (cf. article 91.º, n.º 1, paragraph a), of Law n.º 67-A/2007, of 31 December[7]), in violation of the provision of articles 112.º and 165.º of the Constitution of the Portuguese Republic ("CRP"), which would prefigure, if verified, an organic unconstitutionality.
The legislative authorization in question was valid for a period of 90 days[8] and the Applicant proceeds to count the period from the date of publication of the authorization law – 31 December 2007 – to the moment of promulgation, by His Excellency the President of the Republic, of the Decree-law "authorized", on 5 June 2008. If, effectively, the period were counted in this manner, that is, until the moment of promulgation of Decree-law n.º 102/2008 by the President of the Republic, the Government would have legislated, as the Applicant affirms, without a valid legislative authorization, as this would have expired.
However, the Constitutional Court has understood, in uniform jurisprudence, that the relevant moment is that of approval of the authorized diploma in the Council of Ministers, with no need to attend to the circumstance that promulgation, countersignature and subsequent publication of the diploma occur after the period of expiry – or dies ad quem – of the legislative authorization, as, by way of illustration, judged the Judgments n.ºs 461/99, of 13 July; 507/96, of 21 March; 672/95, of 23 November; 265/93, of 30 March and 150/92, of 8 April, all of the Constitutional Court, accessible online on the page http://www.tribunalconstitucional.pt/tc/acordaos. In this sense also manifests Gomes Canotilho confirming the prevailing thesis – cf. Constitutional Law and Theory of the Constitution, 7th Edition (4th reprint), Almedina, Coimbra, 2003, p. 769.
In the case at hand, Decree-law n.º 102/2008 was approved by the Council of Ministers on 27 March 2008. From 31 December 2007 to 27 March 2008 the 90 days duration of the legislative authorization had not yet elapsed, whereby the allegation of organic unconstitutionality of the Applicant fails.
In matters of unconstitutionality, the Applicant further understands that the Government was not authorized to introduce changes with the scope of Decree-law n.º 102/2008, notably with respect to the rules of competence for the practice of additional assessment acts, exceeding the material limits of the legislative authorization law[9], that is, disposing on matters of reserved competence without being provided with enabling diploma and norm.
In the situation of the record, the legislative authorization granted to the Government provided that the revision and publication of the VAT Code endow this diploma "with better systematization and internal coherence, through the alteration, merger, elimination and organization of chapters, sections and subsections, the transfer of numbers or the merger between articles, without alteration of the substantial meaning of the existing provisions", correct referential inconsistencies and proceed with renumberings (cf. article 91.º, n.º 2 of the LOE 2008). It is thus recognized that the tenor of the legislative authorization does not comprise the determination of the body or service which, within the TA, has competence to issue assessments.
However, the legislative authorization did not provide for, nor could provide for that determination, under penalty of invalidity of the authorization law itself, since this is not a matter of reserved competence of the Assembly of the Republic which is circumscribed, according to article 165.º, n.º 1, paragraph i) of the CRP, to the creation of taxes and tax system and the general regime of rates and other financial contributions in favor of public entities, in articulation with the principle of tax legality of article 103.º of the CRP which stipulates that "taxes are created by law, which determines the incidence, the rate, the tax benefits and the guarantees of taxpayers".
The internal organization of the TA and the definition of the competence of its bodies falls to the Government as superior body of the Public Administration (article 182.º of the CRP) and within the scope of its concurrent legislative competence, as provided by article 198.º n.º 1, transcribed below:
"It is incumbent upon the Government, in the exercise of legislative functions: a) to make decree-laws on matters not reserved to the Assembly of the Republic"
The Government thus has competence to legislate on the matter in question, reason why the same does not appear, nor could appear, in the legislative authorization law coming from the parliamentary assembly.
It should be noted, moreover, that even if the defect invoked (of unconstitutionality) proceeded (which it does not), with the Director-General of Taxes being the hierarchical superior of all bodies of the TA and, consequently, of the Heads of Finance Services and of the Director of Collection Services, the assessment acts would only suffer from relative incompetence if we were before a (primary or discretionary) exclusive competence and not a concurrent competence of the subordinate body.
However, the understanding that appears correct is that at the date (2013) for a long time competence to proceed with the correction of the declarations of VAT taxpayers was not exclusive competence of the Head of the Finance Service, being also competence of the Director-General of Taxes, as results from the reiterated jurisprudence of the STA – cf. notably, the Judgments n.º 76/16, of 6 April 2016, and n.º 087/12, of 27 June 2012.
In this manner, Decree-law n.º 102/2008, of 20 June does not suffer from the unconstitutionalities raised, being valid the wording of article 87.º of the VAT Code that attributes to the Directorate-General of Taxes the competence to issue additional assessments, as introduced by Decree-law n.º 102/2008, of 20 June. Whereby, being the assessment acts in question signed by the Director-General of the TA, there is no occurrence of the defect of relative incompetence of the author of the act.
Finally, regarding the nullity to which the Applicant refers anchored in the provision of article 39.º, n.º 9 of the CPPT, it should be noted that at the date of the facts this norm dealt with electronic notifications, whereby the reach of its invocation is not understood. If, perchance, the Applicant intended to refer to n.º 11 (current n.º 12), we are before the sanction of nullity of the notification act and not of the assessment acts. In this manner, not only is the normative provision not filled, as no "lack of indication of the author of the act and, in case this has practiced it in the use of delegation or subdelegation of powers, the quality in which it decided, its sense and date" has occurred, as if this had occurred the invalidity would affect the notification and not the assessment.
IMPROPER PRACTICE OF A SINGLE ANNUALIZED TAX ACT – VIOLATION OF ARTICLE 95.º OF THE VAT CODE
According to the Applicant, the issuance of a single VAT assessment act covering the entirety of the year 2013 constitutes cause for annullability for not respecting the monthly or quarterly periodicity of VAT.
In this respect, article 95.º provides, under the heading "Annualization of assessments" that: "[t]he assessments referred to in articles 87.º and 88.º may be aggregated by calendar years in a single collection document." Thus, it appears that, without prejudice to, for VAT taxpayers, periodic declarations and the corresponding ascertainment of this tax having, in principle[10], monthly or quarterly periodicity, article 95.º contains express permission for annualization of assessment acts, contrary to what is advocated by the Applicant which in it seeks to see what does not appear therein.
Moreover, there are various VAT obligations whose compliance is annual and not monthly or quarterly, such as the definitive ascertainment of deductible VAT, regarding taxpayers that have a regime of right to partial deduction (calculation of pro rata or real assignment contained in article 23.º, n.º 6 of the VAT Code); or the VAT regularizations contemplated in article 24.º of the Code of this tax.
Given the foregoing it is not clear support is found for obliging the TA to make an assessment by monthly or quarterly period, and if assessments had been issued in such manner, the Applicant would even be harmed in the compensatory interest counting period. Thus, not only is the legal duty invoked by the Applicant not found provided, as, if it existed, before the absence of injury to the interests of the Applicant, in principle, would constitute the preterition of a non-essential formality that should not lead to invalidity.
OF THE PRETERITION OF THE RIGHT TO HEARING REGARDING COMPENSATORY INTEREST
The Applicant was not called upon to pronounce itself on the formation of the tax act regarding the compensatory interest. Indeed, neither the Draft Report, nor even the final Report makes any mention of the intention of the TA to promote the assessment of compensatory interest. These appear for the first time in the final decision act materialized in the assessment, whereby the Applicant invokes the illegality of the assessment for preterition of the essential legal formality provided for in article 60.º of the LGT.
Article 60.º, n.º 1 provides for the participation of taxpayers in the formation of decisions that concern them, through the right to hearing before the conclusion of the tax inspection report (paragraph e)) and of the assessment (paragraph a))[11]. However, as noted above, at neither of these moments was the Applicant notified to exercise such right, which expressly results from the Constitution. Article 267.º, n.º 5 of the CRP, which frames the processing of the administrative activity of the State, imposes the participation of citizens in the formation of decisions that concern them. And, on the other hand, the situations of dispensation of this right, contemplated in n.ºs 2 and 3 of the cited article 60.º of the LGT, do not occur.
According to the Judgment of the STA n.º 01524, of 2 December 2015, of the Plenary of the Tax Contentious Section, the "consideration of any other elements beyond the taxpayer's declaration or a different legal framework will already oblige its hearing". In the same sense pronounces itself Judgment 049/16, of 10 May 2017, according to which: "when a decision is made in a sense divergent from the position of the taxpayer and in a sense unfavorable in relation to this position, as occurs in the case at hand, hearing, in principle, cannot be dispensed (cf. in this sense, Annotated General Tax Law, Diogo Leite Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, 4th edition, Encontro da Escrita, pag. 508 and Judgment of this Section of 16.06.2004, appeal 1877/03.)."
The same judgment continues with the statement that: "[a]s results from article 60.º, n.º 5 of the LGT, in any of the circumstances referred to in n.º 1, for purposes of exercise of the right to hearing, the tax administration must communicate to the taxpayer the draft of the decision and its reasoning. Indeed, the law intends that taxpayers know in advance the reasons for the unfavorable acts of which they are to become recipients in order that they may present an early defense of their interests, drawing the Administration's attention to eventual errors or omissions and that, by this way, disputes between the Administration and taxpayers are prevented (In this sense, Pedro Machete, ob. cited, pag. 323.[12])".
The Applicant is thus correct in invoking the invalidity of the compensatory interest assessment for preterition of the right to hearing which, in our understanding, cannot fail to be qualified as violation of an essential formality, as the interest protected by the constitutional and infraconstitutional norms and the reason therefor is to guarantee the participation of the interested party in the decision that will affect it and the adequate weighing, by the Administration (in casu, the TA), of the relevant elements, factual and evaluative.
The Applicant, effectively, did not participate in the formation of the decision, as prior hearing did not take place. Moreover, in the specific case of compensatory interest assessment, it offers no doubt that the preterition of that right [to hearing] is capable of influencing the final decision of the procedure, as in accordance with article 35.º of the LGT, it depends on the attribution to the agent – on grounds of culpability – of the delay in the assessment.
In these terms, there is annulment of the tax act of compensatory interest assessment, for preterition of the right to hearing, in accordance with article 135.º of the CPA, in force at the date of the facts, which implies the annulment of all its effects "ex tunc", everything happening as if it had not been practiced. As article 173.º, n.º 1, of the CPTA states "without prejudice to the possible power to practice a new administrative act, within the limits dictated by the authority of the case decided, the annulment of an administrative act constitutes the Administration in the duty to reconstruct the situation that would exist if the annulled act had not been practiced". Thus, regardless of whether the TA may or may not practice a new tax act, expurgated of the mentioned defect, the annulment determines the restitution of the amount eventually paid as title of compensatory interest.
Regarding the substantive argument that the TA did not succeed in demonstrating the prerequisites for the exigibility of compensatory interest, its examination is prejudiced by the success of the defect of preterition of the right to hearing (cf. article 95.º, n.º 1 of the CPTA and article 608.º, n.º 2 of the CPC, applicable ex vi article 29.º, n.º 1, paragraphs c) and e) of the RJAT).
OF THE MERITS – ERROR IN PREMISES
Preliminary framework
The taxation of a given legal-economic reality depends on the gathering of a set of prerequisites of objective, subjective, spatial and temporal incidence which, in the VAT domain, assume particular characteristics, adjusted to the community model of tax on consumption – multi-stage and non-cumulative –, currently enshrined in Directive 2006/112/EC, of the Council, of 28 November 2006 ("VAT Directive")[13], of which the VAT Code constitutes transposition.
In the perspective of the Applicant, the TA not only failed to meet the burden of demonstrating the prerequisites of VAT incidence, as such prerequisites are non-existent, due to not being verified. It bases this position on the fact that the professional training actions carried out by it and financed by the POPH/QREN Programme form an integral part of public and social policies, without commercial or lucrative objectives. I.e., it appears that the Applicant frames its intervention as an activity of public service. Conclusion which it reinforces with the fact that this activity, which it designates as "public sector", does not entail the receipt of any margin of profit. The financing of Learning Courses corresponds only to the strict reimbursement of eligible expenses and depends on compliance with demanding requirements for documentary verification. According to the Applicant, these expenses are, moreover, incurred on behalf and for the account of IEFP.
From this the Applicant extracts that there is no:
An operation or taxable fact;
A price; and
Any nexus between the incentive and a price, that is, a subsidy for price which, if existing, could not have been previously fixed. On this point it invokes the understanding of IEFP itself which understands that the amounts received by the Applicant should be qualified as "operating subsidies".
On the other hand, the Respondent contends that the Applicant does not exercise any public powers. These powers are found in the sphere of IEFP and not of the Applicant, whose activity is private and of an economic nature, profit not being a condition of VAT subjection.
For the Respondent, it is precisely the economic nature of the Applicant the basis for the exercise of the right to deduction of VAT incurred in the activity thereof, including the tax relating to expenses of these professional training courses financed by IEFP, which are not incurred on behalf of IEFP, but of the Applicant.
From which it results that, in this line of reasoning, the Applicant carries out taxable operations materialized in professional training service provisions, the consideration for which is a complete subsidy of its price, subject to VAT insofar as the prerequisites set out in article 16.º, n.º 5, paragraph c) of the VAT Code are met, taking into account that the power to opt out of exemption was exercised.
Operations of the Applicant. Objective incidence
Examining the problems outlined, it begins by noting that VAT is levied on economic operations defined broadly by resort to two concepts, that of transfer of goods (corporeal[14]) and that of service provision. The delimitation of the latter is performed on a residual basis, considering as such all operations performed for consideration that do not constitute transfers of goods or cross-border operations on goods (intra-community acquisitions and imports).
The economic nature of operations refers to any activity, whether of production, commercialization or service provision, including extractive activities, agricultural activities and those of liberal professions or equivalent and the exploitation of a corporeal or incorporeal good for the purpose of obtaining income with a character of permanence – cf. articles 1.º, n.º 1, 3.º, n.ºs 1 and 2, and 4.º, n.º 1 of the VAT Code and 2.º, 14.º and 24.º of the VAT Directive. The jurisprudence of the CJEU has been constant in asserting that economic activities are encompassed by the scope of VAT incidence irrespective of the aims (e.g. public or private) or results (e.g. lucrative or deficit-generating) of those activities.
The same is to say that all service provisions, including those that assume a public nature, are, at the outset, captured by the field of objective incidence of VAT. The examples of public services taxed in VAT punctuate, as occurs with the public service of radio and television broadcasting, the remuneration of which, the "contribution for the audio-visual", is subject to VAT at a reduced rate, as provided in item 2.2 of List 1 annexed to the Code of this tax.
The public nature is in no way incompatible or antithetical to the economic nature of the activities pursued, whereby the fact that training actions are a public service or are integrated in the pursuit of social and public policies does not collide with, nor compromises, per se, taxation in VAT.
In this manner, professional training service provisions are operations that fall within the field of objective incidence of VAT, in accordance with the provision of articles 1.º, n.º 1 and 4.º, n.º 1 of the VAT Code[15].
Moreover, it should be noted that professional training services are not provided by the Applicant on a gratuitous basis, nor is any animus donandi achieved. Its execution implies the duty, which falls upon IEFP, of making payments to the Applicant which, besides reimbursing itself for expenses incurred (even if without profit margin), dilutes fixed costs and obtains competitive advantages in the sector and market of its region. It is emphasized that more than 70% of the volume of activity of the Applicant in the year 2013 concerned professional training actions entirely financed by IEFP.
Equally, it is important to establish that the circumstance that the consideration for an activity does not contain a profit margin, or may even entail a loss, does not have as consequence the removal of taxation in VAT. This tax is levied on the amount received or receivable in consideration for the operations performed, irrespective of whether that amount corresponds to the exact value of the expenses borne, or is higher or lower than those expenses[16].
For VAT purposes, the connection between expenses and the economic activity exercised is not a value connection as this tax does not aim to tax profit or the net result of economic activity, in contrast, for example, to corporate income tax, but rather the gross value of operations performed, irrespective of whether they generate losses. Indeed, if the philosophy were not that, the situations of absence of VAT assessment would be justified for all companies that recorded losses, which is manifestly not the case and would be absurd.
There is no need to confuse the economic nature of an activity with the lucrative nature thereof. Non-profit organizations, whether public or private, develop in the majority of cases economic activities that, objectively, are subject to VAT and, however, do not aim at profit or profitability, frequently being deficit-generating. Indeed, article 10.º of the VAT Code is devoted exclusively to these entities which, we can state with complete certainty, generally constitute VAT taxpayers.
The scenario described does not prevent, on the contrary it postulates, that a "mere" reimbursement of expenses constitutes a service provision that falls within the scope of VAT incidence, in the normative formula residual contained in article 4.º, n.º 1 of the Code of this tax[17].
An distinct question resides in knowing whether entities of public law, or organisms without profit objective, categories in which the Applicant does not fall (which is a private law commercial company by quotas), are subjectively subject to VAT and in what manner.
Or, further, whether (some of) the service provisions of a public nature, or in which the pursuit of the public interest is a preponderant factor, benefit from the application of exemption norms. Of course, to ask this question, that of knowing whether the exemption regime is applicable, it is necessary that the operation has already entered the field of VAT incidence.
Operations of the Applicant. Subjective incidence
Any "person"[18] who exercises, in an independent manner and in any place, an economic activity, whatever the aim or result of that activity, constitutes a VAT taxpayer. There are excluded, due to lack of independence, employees and other persons who are bound to the employing entity by an employment contract or by any other legal relationship that establishes links of subordination regarding working conditions and remuneration and the responsibility of the employing entity – cf. article 2.º, n.º 1 of the VAT Code and article 9.º, n.º 1 of the VAT Directive.
The exclusion of the State and of other persons of public law from
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