CAAD 96/2018-T: VAT Deduction Rights and Invoice Formal Requirements Under Articles 19 and 36 CIVA

ARBITRAL DECISION

The arbitrators Dr. Alexandra Coelho Martins (arbitrator-president), Dr. Raquel Franco and Dr. José Nunes Barata (arbitrator-members), appointed by the Ethics Council of the Centre for Administrative Arbitration ("CAAD") to form the present Arbitral Tribunal, constituted on 24 May 2018, agree as follows:

REPORT

A..., S.A., taxpayer number..., with registered office at..., hereinafter referred to as the "Applicant", filed a request for constitution of a Collective Arbitral Tribunal and for an arbitral ruling, under Articles 2, No. 1, subparagraph a) and 10, No. 1, subparagraph a), both of the Legal Regime for Tax Arbitration ("RJAT"), approved by Decree-Law No. 10/2011, of 20 January, seeking the annulment of Value Added Tax ("VAT") assessments and compensatory and default interest thereon, hereinafter identified, relating to the years 2013 and 2014, in the total amount of € 190,212.93 (one hundred and ninety thousand two hundred and twelve euros and ninety-three cents).

As grounds for the annulment request, the Applicant alleges, in summary, the following substantive defects:

• The position of the Tax Authority ("AT") is flawed by error in its assumptions in considering that invoices issued to the Applicant by the company B..., S.A., both belonging to the same corporate group, with descriptions of "administrative services" and "marketing services", do not meet the formal requirements of Articles 19, No. 2 and 36, No. 5, both of the VAT Code, and, consequently, are excluded from the right to deduct the VAT incurred, by being insufficient regarding the specific identification of the services invoiced, the determination of the amounts debited for each service and regarding the connection of the VAT paid with the obtaining of income by the Applicant;

• From the Applicant's perspective, the formal requirements were satisfied to the extent reasonably required, since, in addition to the description, all invoices contain a summary note providing greater detail on the services, which are formally provided for in service provision contracts executed between the entities involved, containing a list of the services specifically provided, the manner of price stipulation and the method of allocation and imputation of costs among the various Group companies. Added to these elements are cost maps for the reference period of each invoice;

• According to the Applicant, the invoices whose right to deduction was questioned by the AT equally satisfy the requirements of Directive 2006/112/EC, of 28 November 2006 ("VAT Directive") regarding the exercise of the right to deduction (Articles 167 to 192), in the interpretation that the case law of the Court of Justice ("ECJ") makes thereof;

• The Applicant draws from the case law of the ECJ that the rationale of the elements that must appear on invoices is to enable the AT to control the tax and support the exercise of the right to deduction, objectives which it considers are safeguarded in the concrete situation;

• It alleges a discrepancy between the VAT Code (Article 36, No. 5, subparagraph b)) and the VAT Directive (Article 226, No. 6), relating to the content and mandatory particulars of invoices), since the former establishes as mandatory elements "The quantity and usual denomination of goods transmitted or services provided (...)" and the latter "The quantity and nature of goods delivered or the extent and nature of services provided", which constitutes deficient transposition of the Community text;

• The Applicant also notes that neither the Community norm nor the national norm state that the descriptive reference to goods or services must be precise or specific, and that services, by their nature, are not always directly measurable. Exhaustive detail of all administrative and marketing services provided would be impractical and disproportionate and would not correspond to an invoice, but to a work report;

• All services were effectively provided by B..., S.A., a point that was not questioned by the AT. It is also noted that the invoices were paid by the Applicant and the VAT was timely remitted by B..., S.A. to the State;

• All invoices specify the extent of the services which relate to monthly periods;

• Notwithstanding, the Applicant emphasizes that, as the ECJ case law has repeatedly stated, even if it were considered that not all formal requirements were met, the AT could not prevent the deduction, since the substantive prerequisites for the exercise of that right are verified;

• The AT failed to comply with the duty to discover material truth by omitting from the Tax Inspection Report (RIT) all supporting documentation that the Applicant held together with each invoice, in particular the cost maps, which allowed understanding the criteria for allocation and distribution of the expenses incurred by the service provider.

The Applicant concludes by requesting the annulment of the VAT assessments, compensatory and default interest on the grounds of illegality due to error of law in the application of Articles 19, No. 2 and 36, No. 5, subparagraphs a) to e) of the VAT Code, and of Articles 226, No. 178, subparagraph a) and 168, subparagraph a) of the VAT Directive, and by violation of the principle of material truth in inspection activity, inherent in Articles 5 and 6 of the Supplementary Regime for Tax and Customs Inspection Procedures ("RCPITA").

The Applicant attached 13 (thirteen) documents and requested proof by witnesses.

The request for constitution of the Arbitral Tribunal was accepted by the President of the CAAD and followed its normal course, namely with notification to the AT.

In accordance with Articles 5, No. 3, subparagraph a), 6, No. 2, subparagraph a) and 11, No. 1, subparagraph a), all of the RJAT, the Ethics Council of the Centre for Administrative Arbitration ("CAAD") appointed as arbitrators of the Collective Arbitral Tribunal the signatories, who communicated their acceptance of the assignment within the applicable deadline, under the provisions of Article 6, No. 2, subparagraph a) and Article 11, No. 1, subparagraph a), both of the RJAT.

The parties, duly notified of this appointment, did not lodge any objection in accordance with Articles 11, No. 1, subparagraphs b) and c) and Article 8 of the RJAT and Articles 6 and 7 of the CAAD Code of Ethics.

The Collective Arbitral Tribunal was constituted on 24 May 2018, as communicated by the President of the Ethics Council of the CAAD.

The Respondent filed its reply and attached the administrative file ("PA"). It argues, in turn, that the description of the services appearing in the invoices for administrative and marketing services acquired by the Applicant from B..., S.A., although not necessarily exhaustive in light of Article 226, No. 6 of the VAT Directive, must be so to the extent that it permits the AT to control the payment of the tax due and the substantive requirements of the right to deduct VAT, which it understands does not occur in the situation in question.

According to the Respondent, the description in the invoices is so general that it does not permit determination of the extent of the services, being always the same, regardless of the month and however significant the variation in the corresponding invoiced amounts. Such invoices do not therefore comply with the formal requirements provided for in Article 226, No. 6 of the VAT Directive, nor with Article 36, No. 5, subparagraph b) of the VAT Code, due to insufficiency of the mandatory elements of invoice content: designation/extent of the service concretely provided.

Although it is admissible that the description of services be complemented by informative annexes, in this case the documents do not make reference to the invoices in a specific and unequivocal manner such that they could be considered documents equivalent to an invoice. Moreover, neither from the documents (contracts) nor from the cost analysis maps of B..., S.A. results the itemization of services that permits ascertainment of their concrete nature, with sufficient detail or specification.

The Respondent further argues that the Applicant has not demonstrated the substantive conditions required for the exercise of the right to deduction, the burden of proof of which falls on the taxable person, in accordance with Article 74, No. 1 of the General Tax Law ("LGT"), and therefore, in line with the judgment of the Supreme Administrative Court ("STA"), in case 1141/16, of 4 October 2017, concludes that the insufficiency of the itemization of services provided prevents control of the substantive requirements of the right to deduct VAT, under Articles 19 and 20 of the VAT Code.

Finally, it considers that the request for witness testimony should be dismissed since only a matter of law is in dispute, there being no disagreement about the facts in issue and it does not accept that the Applicant come forward with witness testimony in order to prove the facts which the law requires.

It argues for the dismissal of the request for arbitral ruling, as not proved, and requests the grant of all relief sought, with the consequential legal effects.

By order of 28 June 2018, the Tribunal dismissed the Respondent's request for non-production of witness testimony, since, as the Respondent itself argues, the lack of proof of the substantive conditions required for the exercise of the right to deduction constitutes grounds for not permitting (the exercise of) such right, and therefore the central question is precisely one of proof, reinforced by the conclusion of the AT that the request for arbitral ruling should "be dismissed, as not proved".

The rationale and even less the legal basis for the Respondent's assertion that "the Applicant cannot therefore be permitted to present witness testimony" is not understood. This would mean preventing the Applicant from exercising an elementary guarantee of defence and would constrain the tribunal in its primary function of achieving material truth as a (ideal) prerequisite of a substantive decision, which cannot be supported.

On 11 July 2018, the meeting referred to in Article 18 of the RJAT took place, at which C... and D... (initially listed as witnesses) were heard as party witnesses, and one of the witnesses presented by the Applicant, E..., was heard. Seven (7) witnesses were dispensed with, to which the Respondent did not object.

The Tribunal notified the parties to submit successive written submissions and designated 23 November 2018 as the deadline for pronouncement of the decision. Finally, the Applicant was warned to, by that date, proceed to payment of the subsequent arbitration fee, in accordance with the provisions of Article 4, No. 3 of the Regulation of Costs in Tax Arbitration Proceedings and to communicate such payment to the CAAD.

The Applicant and Respondent submitted submissions maintaining, in essence, the arguments contained in the request for arbitral ruling and the reply, respectively. The Applicant considers it to have proved the materiality of the operations and services provided. The Respondent reiterates the insufficiency of the itemization of services in the invoices, which it considers an obstacle to the control of the substantive requirements of the right to deduct VAT, by making it impossible to determine the quantity of services provided and the tax underlying them.

CASE MANAGEMENT

The Tribunal was regularly constituted and is competent ratione materiae, given the configuration of the object of the proceedings (see Articles 2, No. 1, subparagraph a) and 5 of the RJAT).

The request for arbitral ruling is timely, being filed within the deadline provided in subparagraph a), No. 1, of Article 10 of the RJAT.

The parties have legal personality and capacity, have standing and are regularly represented (see Articles 4 and 10, No. 2 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March).

The joinder of claims is admissible, since the granting of the claims depends essentially on the assessment of the same factual circumstances (grounds) and the interpretation and application of the same principles or rules of law, which relate to the requirements for the exercise of the right to deduct VAT in service provision invoices issued by B..., S.A. to the Applicant, with the descriptions "Administrative Services" and "Marketing Services", in the years 2013 and 2014.

The proceedings are not affected by nullities, no exceptions having been raised.

GROUNDS

FACTUAL MATTERS

With relevance to the decision, it is important to pay attention to the following facts which are deemed proved:

A. A..., S.A., the Applicant herein, is a commercial company registered, since 2008, for the carrying on of activities of production of common and fortified wines (main CAE 11021), as well as production of prepared spirits (secondary CAE), and is covered by the normal regime of monthly VAT periodicity – see Tax Inspection Report ("RIT") attached with the request for arbitral ruling ("ppa") as document 3 and contained in PA1.

B. For purposes of corporate income tax (IRC), the Applicant opted, in the year 2013, for a tax period not coinciding with the calendar year, which became 1 May to 30 April. Accordingly, in the periods covered by the inspection action to which the Applicant was subject – years 2013 to 2015 – the fiscal years were divided as follows:

Year 2013 – A. from 1 January 2013 to 30 April 2013; B. from 1 May 2013 to 30 April 2014;

Year 2014 – from 1 May 2014 to 30 April 2015;

Year 2015 – from 1 May 2015 to 30 April 2016.

– see RIT (document 3 and PA1).

C. On 29 December 2011, the company B..., S.A., entered into a Service Provision Contract with the Applicant and with eight companies, all integrated in the same corporate group (including B...), namely: F..., S.A.; G..., S.A.; H..., S.A.; I..., S.A.; J..., S.A.; K..., SGPS, S.A.; L..., S.A.; and M..., Lda. – see document 9.

D. Under the Service Provision Contract referred to in point C above, concluded for a period of one year, from 1 January 2012, and automatically renewable for equal periods, B..., S.A. undertook to organize, ensure and provide to the Applicant and the other contracting companies services of:

(a) Accounting;

(b) Financial services;

(c) Reporting and management control;

(d) Computing and information technologies;

(e) Collections and credit management;

(f) Human resources;

(g) Customer service;

(h) Logistics management;

(i) Project management;

(j) Administration;

(k) Public relations and representation;

(l) Rental and technical support of various equipment;

(m) Mobile, fixed, postal and data communications;

(n) Fleet management, comprising rental and provision, repair, insurance, tolls, parking and other similar services;

(o) Credit insurance management and other;

(p) Marketing and advertising management;

(q) Fuel and lubricant management;

(r) Other necessary services developed within the framework of the activity, not included in the preceding subparagraphs;

(s) Organization and management of events.

– see document 9.

E. The Service Provision Contract in question provided that prices be determined and reviewed on a semi-annual basis in accordance with Annex I, which formed an integral part thereof, and could be altered based on variations in the allocation of pre-defined time slots at the date of contract execution – see document 9.

F. For each type of service, Annex I of the contract enumerated the recipient companies and the percentages of allocation of expenses that B..., S.A. would charge to the various service-acquiring companies, as consideration or remuneration therefor – see document 9.

G. On 27 December 2012, a new Annex I was added to the Service Provision Contract, according to which the price of services to be charged to the Applicant would correspond to the following percentages of allocation to be applied to the expenses (that would come to be) incurred and determined by B..., S.A. in the respective areas, which applied until March 2013:

– 25% of the total expenses determined in relation to accounting services, financial services, reporting and management control, computing and information technologies, collection services, credit management and project management;

– 35% of expenses incurred in the human resources area;

– 2.5% of marketing and advertising expenses incurred in each operation;

– 5% of public relations and representation expenses incurred in each operation;

– The price of services under subparagraphs l) to s) of point C above would be determined in accordance with expenses incurred in each operation, which could be increased by a margin to cover operating costs – see document 10.

H. On 22 March 2013, a new Annex I was added to the Service Provision Contract, according to which the price of services to be charged to the Applicant would correspond to the following percentages of allocation, which applied until April 2014:

– 67.5% of the total expenses determined in relation to accounting services, financial services, reporting and management control, computing and information technologies, collection services and credit management;

– 67.5% of expenses incurred in the human resources area;

– 90% of expenses incurred in project management;

– 60% of marketing and advertising expenses incurred in each operation;

– 40% of public relations and representation expenses incurred in each operation;

– The price of services under subparagraphs l) to s) of point C above would be determined in accordance with expenses incurred in each operation, which could be increased by a margin to cover operating costs – see document 11.

I. On 31 October 2013, a restructuring of the corporate group to which the Applicant and B..., S.A. belonged occurred, with the former incorporating, by merger, the companies F..., S.A., J..., S.A. and M..., Lda. – see RIT contained in PA1.

J. On 23 April 2014, a new Service Provision Contract was executed between, on one hand, B..., S.A., and, on the other hand, the Applicant, G..., S.A., H..., S.A. and N..., S.A.. The contractual terms are identical to those of the prior Service Provision Contract (points C to F above), with differences in the subjective scope, removal of three categories of services from the contractual object – logistics management services, customer service and administration (which ceased to be part of the list of services) – with the word "Portfolio" added to the public relations and representation category. Prices came to be determined and reviewed on a quarterly basis, rather than the previous semi-annual basis – see document 12.

K. In accordance with Annex I of this new Service Provision Contract, the price of services to be charged to the Applicant was set as follows, in effect from 1 May 2014:

– 50% of the total expenses determined in relation to accounting services, financial services, reporting and management control, computing and information technologies, collection services, credit management and project management;

– 60% of expenses incurred in the human resources area;

– 15% of marketing and advertising expenses incurred in each operation;

– 15% of portfolio, public relations and representation expenses incurred in each operation;

– The price of the remaining services would be determined in accordance with expenses incurred in each operation, which could be increased by a margin to cover operating costs – see document 12.

L. At the time of the facts, the company B..., S.A. was an integral part of the corporate group to which the Applicant belonged and performed the function of shared services unit of that group. In this context, B..., S.A., for reasons of rationality and economic efficiency, centralized the main support, auxiliary and business-support functions of the Group companies, focused on the production, distribution, commercialization and export of wine products. For this purpose, that entity (B...) had the necessary human resources to provide those services, some of which were transferred or ceded by other Group companies – see documents 9 to 12 and witness testimony.

M. The Applicant, from a specialization perspective, was exclusively focused on wine production and other Group beverages and needed substantial support in administrative and marketing functions, for which it did not have the necessary personnel, functions which, if not centralized, would have resulted in structural inefficiency due to the inherent multiplication of functions in the various Group companies. Regarding marketing, there were also reasons of consistency in the work of creating and disseminating the image of the group as a whole – see witness testimony and statements of party representatives.

N. In 2013 and 2014, B..., S.A. provided support services to the Applicant for its activity, which can be traced back to two major areas: (i) administrative area, including accounting, financial reporting, computing services, human resources management and group supplier management; and (ii) marketing area, encompassing the registration and management of trademarks and products (design and updating of labels for various markets, packaging and catalogues) – see documents 9 to 12 and witness testimony.

O. In this context, the Applicant's accounting, periodic reports and preparation of financial information, invoice issuance, computing support, collections, design and creation of wine bottle labels and other beverages produced, necessary preparation for presentation in competitions in order to obtain classifications and distinctions for products, applications for investment projects, among others, were carried out by B..., S.A. for the benefit of the Applicant – see document 13, witness testimony and statements of party representatives.

P. The main scope of B..., S.A. within the group was to achieve efficiency gains in the provision of intra-group services, optimizing resources with personnel, and not to directly obtain profits by the company, so the pricing policy reflected in the Contracts was to pass on the expenses incurred with service provision. In the tax periods 2013 to 2014 the net result of the fiscal year was negative or reduced (€ 1,640.46, in 2013) – see documents 9 to 12, documents attached with the Applicant's submissions (IRC forms 22) and witness testimony.

Q. The vast majority of expenses incurred by B..., S.A. (more than 90%) corresponded to employee salary costs or costs associated with the position of employees providing intra-group services, including corresponding bonuses, tax costs, travel expenses (e.g., vehicle expenses), with direct expenses, for example for marketing, incurred directly by the companies to which they related – see witness testimony.

R. The allocation keys for costs among the various companies result from a decision by the board of B..., S.A., based on economic and commercial criteria according to the nature of the services to be provided. In the case of accounting, financial services, reporting and similar services, they depended on the turnover volume of the service-acquiring companies. If it were human resources services, the allocation criterion weighed the number of persons (employees) in the service of the service-acquiring companies. In the case of investment projects, the allocation was made to the entities benefiting from the projects. All with a view to quantifying the approximate labor burden that each company would have in the services provided by B..., S.A. – see statements by C... .

S. The concrete determination of the price of services provided by B..., S.A. to the Applicant was made with reference to monthly periods, taking into account the first company's management information, namely the actual or estimated (provisional) expenses determined by the cost centers of the various areas, to which was applied the percentage that had been pre-defined in the Contract as the charge of the Applicant, generally without addition of any margin. These expenses are contained in the computer maps extracted from the system each month by B..., S.A., the distribution of which is carried out in spreadsheets using the excel program in a dynamic table that distributes the expenses in the measure of the said percentages – see documents 9 to 12 and witness testimony.

T. The amount thus determined was invoiced monthly, by B..., S.A. to the Applicant, as consideration or remuneration for the service provision made to the corresponding period/month, with the said documents being kept in the Applicant's filing folders with the originals of the invoices (i.e., the maps of expenses for the period by cost center extracted from B..., S.A.'s computing system and the excel sheets with the allocation of such (expenses), in the applicable proportion, to the Applicant, i.e., cost analysis maps and summary tables of those maps) – see document 13 corroborated by witness testimony.

U. When accounting delays and month-end closing occurred, B..., S.A. used the previous month's expense base for invoicing purposes, which was later corrected, through credit or debit note, according to the direction of the adjustment, so that it corresponded to the amount of final expenses, actually incurred and recorded – see document 13 corroborated by witness testimony.

V. In the calendar years 2013 and 2014, three billing adjustments were made after the fiscal year-end closing of the Applicant's accounts, or after the closing of B..., S.A.'s accounts – see document 13 and RIT contained in PA1.

X. The invoices issued by B..., S.A. to the Applicant were issued with reference to the period coinciding with the calendar month and contain, among others, the following elements of information:

a) Identification of B..., S.A., address and taxpayer number, in the capacity of issuer and provider of the invoiced services;

b) Identification of the Applicant, address and taxpayer number, in the capacity of recipient of the invoiced services;

c) The net price of tax, the applicable rate, the amount of VAT due and the total value (base and VAT);

d) The date of provision or placing of services at the disposal of the acquirer;

e) The description "Administrative Services" and "Marketing Services" and, in some cases, "As per Contract";

f) In an autonomous field:

(ii) "Administrative Services: preparation of accounting, computing services, financial management, collections control, supplier management and human resources management"; and

(iii) "Marketing Services: trademark registration and management, label design, packaging and catalogues, fair preparation, competition communications [or institutional communication]" – see document 13.

Z. The price of service provision made by B..., S.A. to the Applicant was invoiced with VAT at the standard rate, the tax being deducted by the latter under the general rules – see document 13 and RIT contained in PA1.

AA. In the year 2013, B..., S.A. issued to the Applicant the following invoices:

[Invoice Table for 2013 with details of invoice numbers, dates, descriptions, bases, VAT at 23%, periods, and extract dates - totaling € 291,886.57 in base and € 67,133.91 in VAT]

– see document 13 and RIT contained in PA1.

BB. In the year 2014, B..., S.A. issued to the Applicant the following invoices:

[Invoice Table for 2014 with details of invoice numbers, dates, descriptions, bases, VAT at 23%, periods, and extract dates - totaling € 529,603.69 in base and € 121,808.85 in VAT]

– see document 13 and RIT contained in PA1.

CC. The Applicant was subject to external inspection actions, on the part of the AT, for the years 2013, 2014 and 2015, initially only for VAT purposes and later changed to "General", under Service Orders Nos. OI2016.../.../..., dated 16 February 2016 – see RIT (document 3 and PA1).

DD. The inspection actions began on 14 March 2017, with reference to the year 2013, and on 30 March 2017, regarding the fiscal years 2014 and 2015, and were extended by three months, under Article 36, No. 3, subparagraph a) of the Supplementary Regime for Tax and Customs Inspection Procedures ("RCPITA"), with respective notification to the Applicant on 24 August 2017 – see RIT (document 3 and PA1).

EE. The Applicant was notified of the Draft Tax Inspection Report, to exercise its right to be heard. This draft proposed, among other things, corrections to VAT deducted in the years 2013 and 2014, on the grounds of improper exercise of the right to deduct by the Applicant of the VAT invoiced in the invoices issued by B..., S.A. in those years, for non-compliance with formal requirements, specifically, description of the nature and quantity of services provided. In this matter, the Applicant did not exercise that right – see Draft RIT contained in PA3.

FF. Subsequently, the Applicant was notified of the Tax Inspection Report ("RIT") which maintained the correction to VAT deducted, in the amount of € 67,133.91, for the year 2013, and € 121,808.85, for the year 2014, totaling € 188,942.76, with an approving order by the Division Chief, by delegation of the Finance Director, dated 24 November 2017, on the grounds of which are partially transcribed:

"2 – REGARDING VAT

2.1 – Improper Deduction of VAT (Invoices issued by B..., SA)

In the course of the analysis of account # 2432313 VAT Deductible OBS (field 24 of VAT periodic statements), various documents were selected for analysis and some documents were detected that do not comply with the indispensable requirements for the taxable person to exercise the right to deduct the VAT borne.

It is found that A... deducted the VAT recorded in invoices issued by B..., SA (hereinafter referred to as B...), with NIPC:..., which contain as a generic description "administrative services and marketing".

Article 19, No. 2 of the VAT Code establishes that "only tax contained in invoices issued in legal form confers the right to deduction".

It further states in No. 6 of the same article, which I quote:

"For purposes of exercising the right to deduction, invoices are considered issued in legal form if they contain the elements provided for in Articles 36 or 40, as the case may be"

Now Article 36 of the VAT Code is quite clear regarding the elements that an invoice must necessarily possess so that the tax borne therein can be deducted by the taxable person acquiring the goods and/or services.

In the tables below, the invoices in question are identified for each year and the date on which VAT was deducted:

Table 1: Identification of invoices issued by B... II, in the year 2013, to A...

[...]

TOTAL VAT DEDUCTED, YEAR 2013 (INVOICES B...) – (# 2432313): 67,133.91

Table 2: Identification of invoices issued by B..., in the year 2014, to A...

[...]

TOTAL VAT DEDUCTED, YEAR 2014 (INVOICES B...) – (# 2432313): 121,808.85

Upon analyzing each of the documents listed in the above tables, it is found that they do not comply with all the requirements required in No. 5 of Article 36 of the VAT Code, namely regarding the qualification and quantification of each service ("per se") that is invoiced.

Indeed, it is verified that in the description the invoices only mention "administrative services" and "marketing services", and in a summary note, the following is stated, and I quote:

Administrative services: preparation of accounting, computing services, financial management, collections control, supplier management and human resources management.

Marketing services: trademark registration management, label design, packaging and catalogues, fair preparation, competitions and institutional communication.

Now, as we can see, these descriptions only mention generic operations, descriptions which are identical in all invoices, which is surprising since each invoice has a specific and different value, i.e., similar amounts are not invoiced every month.

With this type of description, clearly insufficient in terms of what is required by the VAT Code, there is no possibility of any control of the operations by the Tax Authority, since it is unknown, specifically the services invoiced and determination of the amounts debited for each service, not identifying sufficient elements to prove the connection of this VAT with the obtaining of income by the taxable person under analysis.

By way of example, the services typified as marketing services – it seems to us that trademark registration, label design and fair preparation will not be carried out every month, and that if they are, the same costs will not be associated, for example in preparing a fair in Lisbon or China for example, therefore, such services would necessarily have to be itemized and quantified "per se".

[...]

In view of the above, and regarding this point, a correction is proposed that is merely arithmetic to tax (VAT) for non-compliance with No. 2 of Article 19 and No. 5 of Article 36, both of the VAT Code, in the amount of € 67,133.91 (year 2013) and € 121,808.85 (year 2014)." – see RIT contained in PA1.

GG. The Applicant was notified of the VAT assessments, statements of VAT assessments, of Compensatory and Default Interest and, as well, of statements of account adjustments, identified in the table below, relating to monthly periods of the years 2013 and 2014, from which results the total amount payable of € 190,212.93 – see Document 2.

[Table showing periods, assessment/act numbers, document numbers and amounts payable for each monthly period, with a total of € 190,212.93]

HH. In disagreement with the above-identified tax assessments (VAT) and interest, the Applicant filed in the CAAD computing system, on 28 February 2018, the request for constitution of the Collective Arbitral Tribunal that gave rise to the present proceedings.

CLARIFICATIONS AND FACTS NOT PROVED

The relevant facts for the decision of the cause were chosen and selected according to their legal relevance, in light of the plausible solutions of the legal questions, in accordance with the application of Articles 123, No. 2, of the Code of Tax Procedure and Process ("CPPT"), 596, No. 1 and 607, No. 3 of the Civil Procedure Code ("CPC"), applicable by virtue of Article 29, No. 1, subparagraphs a) and e) of the RJAT.

Regarding the proved facts, the arbitrators' conviction was based essentially on the positions taken by the parties, on the critical analysis of the documentary evidence attached to the proceedings and on the testimony of the witness examined. Only as a supplement were the statements of party representatives by two administrators of the Applicant at the time of the facts, C... and D..., considered.

Witness testimony was especially relevant for confirmation of the actual realization of service provision, its nature and explanation of the procedures for determining the monthly invoiced amounts contained in the documents (invoices and supporting maps). Indeed, the witness E..., Official Certified Public Accountant of the corporate group to which both the Applicant and B..., S.A. belonged, demonstrated direct and profound knowledge of the reality of the Group companies and their manner of operation, presenting objectively, consistently and credibly. The witness explained the facts with spontaneity and a high degree of detail, characteristic of someone having direct, day-to-day contact with the situations and realities inquired about, clarifying the various questions and doubts posed to them by the representatives of the parties and by the Tribunal itself.

The facts alleged by the Applicant regarding the exact number of employees of itself and of B..., S.A. (which would have to be the subject of externalized documentary proof, for example, through monthly salary statements and not through mere documents), and of the division between personnel with administrative, marketing and other functions (Articles 69, 71, 72, 73, 74 and 75 of the ppa) were not proved. However, it does not appear that these are essential or determinative facts, since it was clearly established that B..., S.A. had human resources to provide the services it rendered and that the Applicant needed support in administrative and marketing functions.

With relevance to the decision, there are no other alleged facts that should be considered not proved.

ON THE LAW

2.1. Delimitation of the issues to be decided

The principal substantive issue that matters to be examined and resolved concerns the prerequisites for the exercise of the right to deduction.

In a first aspect, it is discussed whether the content of the descriptions of the invoices issued by B..., S.A. to the Applicant satisfies the formal requirements provided in Article 36, No. 5, subparagraph b) of the VAT Code, regarding the denomination and quantity of services provided, erected as a condition for the exercise of the right to deduction by Article 19, No. 2, subparagraph a) of the same act.

In the second place, should it be concluded that the descriptions in the invoices in question are insufficient and, therefore, that the (minimum) content required of invoices is not observed, it must be ascertained whether the same constitutes an obstacle to the control of the substantive requirements of the right to deduction and, if not, whether such requirements are found to exist in the situation under analysis.

Finally, the alleged violation of the principle of material truth in inspection activity, inherent in Articles 5 and 6 of the RCPITA, was submitted for consideration by this Tribunal, of which it is proper to take cognizance, except insofar as its decision is rendered moot by the solution given to the foregoing.

2.2. The right to deduct VAT. Regulatory framework

The exercise of the right to deduct VAT by VAT taxable persons is conditional upon compliance with formal and material requirements. The former relate to the set of formalities to which invoice issuance must conform and the latter to the effectiveness of the operations and their connection with activities carried out by taxable persons that confer such right.

The formal requirements for invoices are those enumerated by Article 36, No. 5 of the VAT Code, which provides:

"Article 36

Deadline for issuance and formalities of invoices

[...]

5 - Invoices must be dated, numbered sequentially and contain the following elements:

a) The names, company names or corporate designations and the place of business or domicile of the supplier of goods or provider of services and of the recipient or purchaser, as well as the corresponding tax identification numbers of the taxable persons;

b) The quantity and usual denomination of goods transmitted or services provided, with specification of the elements necessary to determine the applicable rate; packaging not actually transacted must be subject to separate indication and with express mention that its return was agreed;

c) The price, net of tax, and the other elements included in the taxable value;

d) The applicable rates and the amount of tax due;

e) The reason justifying the non-application of tax, if applicable;

f) The date on which the goods were placed at the disposal of the purchaser, when the services were provided or when payments prior to the performance of the operations were made, if that date does not coincide with the date of invoice issuance.

In the case where the operation or operations to which the invoice relates comprise goods or services subject to different tax rates, the elements mentioned in subparagraphs b), c) and d) must be indicated separately, according to the applicable rate.

[...]" (emphasis added)

In similar manner, the Directive establishing the common European VAT system provides, in its Article 226:

"Section 4

Content of Invoices

Article 226

"Without prejudice to the specific provisions laid down in this directive, the only mandatory particulars for VAT purposes in invoices issued in application of Articles 220 and 221 are the following:

1. The date of issue of the invoice;

2. A sequential number, based on one or more series, which identifies the invoice uniquely;

3. The VAT identification number, as referred to in Article 214, under which the taxable person made the supply of goods or provision of services;

4. The VAT identification number of the customer or recipient, as referred to in Article 214, under which a supply of goods or a provision of services was made for which the latter is liable to pay the tax or a supply of goods as referred to in Article 138;

5. The name and full address of the taxable person and the customer or recipient;

6. The quantity and nature of the goods supplied or the extent and nature of the services provided;

7. The date on which the supply of goods or the provision of services was made, or completed, or the date on which the payment on account was received as referred to in points 4) and 5) of Article 220, insofar as that date is determined and is different from the date of issue of the invoice;

7-A) When VAT becomes payable at the moment when payment is received in accordance with Article 66(b) and the right to deduct arises at the moment when deductible tax becomes payable, the mention 'Cash accounting';

1. The taxable amount for each rate or exemption, the unit price net of VAT, and any reductions and other bonuses granted, if not included in the unit price;

2. The VAT rate applicable;

3. The amount of VAT payable, unless a special scheme applies in respect of which this directive excludes such a mention;

10-A) Where the invoice is issued by the customer or recipient of the supply of goods or provision of services and not by the supplier or provider, the mention 'Self-invoice';

1. In the case of an exemption, a reference to the applicable provision of this directive, or to the corresponding national provision, or any other indication showing that the supply of goods or provision of services is exempt;

11-A) Where the customer or recipient is liable to pay the tax, the mention 'Reverse charge';

[...]". (emphasis added)

The VAT Directive further equates with an invoice "any document or message that modifies the original invoice and refers to it specifically and unequivocally", in accordance with its Article 219.

Additionally, with relevance to the situation sub iudice, Articles 19, Nos. 2 and 6 of the VAT Code prescribe:

"Article 19

Right to deduction

[...]

2 – Only tax mentioned in the following documents, in the name and possession of the taxable person, confers the right to deduction:

a) In invoices issued in legal form;

[...]

6 – For purposes of exercising the right to deduction, invoices are considered issued in legal form if they contain the elements provided for in Articles 36 or 40, as the case may be.

[...]".

This framework is coordinated with the provision of Article 178, subparagraph a) of the VAT Directive, according to which:

"CHAPTER 4

Provisions concerning the exercise of the right to deduction

Article 178

In order to be able to exercise the right to deduction, the taxable person must satisfy the following conditions:

• In respect of the deduction referred to in Article 168(a), in relation to supplies of goods and provision of services, to have an invoice issued in accordance with Sections 3 to 6 of Chapter 3 of Title XI;

[...]".

On the other hand, from the perspective of material requirements, Article 20, No. 1 of the VAT Code governs, as follows:

"Article 20

Operations conferring the right to deduction

1 - Only tax incurred on goods or services acquired, imported or used by the taxable person for the performance of the following operations may be deducted:

a) Supplies of goods and provision of services subject to tax and not exempt therefrom;

b) Supplies of goods and provision of services consisting of:

I) Exports and exempt operations under Article 14;

II) Operations performed abroad that would be taxable if performed in national territory;

III) Provision of services the value of which is included in the taxable base of goods imported, under Article 17, No. 2, subparagraph b);

IV) Supplies of goods and provision of services covered by subparagraphs b), c), d) and e) of No. 1 and by Nos. 8 and 10 of Article 15;

V) Exempt operations under Article 9, Nos. 27) and 28), when the recipient is established or domiciled outside the European Community or that are directly connected to goods intended to be exported to countries not belonging to the same Community;

VI) Exempt operations under Article 7 of Decree-Law No. 394-B/84, of 26 December."

This norm has correspondence in Article 168 of the VAT Directive, inserted in Chapter 1, under the heading "Origin and scope of the right to deduction", according to which:

"Article 168

Where goods and services are used for the purposes of the taxed transactions of an undertaking, the taxable person shall have the right, in the Member State in which he carries out those transactions, to deduct the following from the amount of VAT for which he is liable:

a) VAT due or paid in that Member State in respect of goods or services supplied or to be supplied to him by another taxable person;

b) VAT due in respect of transactions treated as supplies of goods and provision of services in accordance with Article 18(a) and Article 27;

c) VAT due in respect of intra-Community acquisitions of goods in accordance with Article 2, No. 1, subparagraph b), sub-subparagraph i);

d) VAT due in respect of transactions treated as intra-Community acquisitions in accordance with Articles 21 and 22;

e) VAT due or paid in respect of goods imported into that Member State."

It is important to note that the ECJ, through the collaborative mechanism of preliminary ruling, has been continuously asked to interpret and further develop the above-transcribed rules and the principles of European law regarding VAT concerning the conditions for exercising the right to deduct this tax and the consequences of failure to comply with (some) formal requirements in issuing the invoices supporting it.

Given the Community harmonization that governs this field, based on Article 113 of the Treaty on the Functioning of the European Union ("TFEU"), and in light of the applicability of European law, as enshrined in Article 8, No. 4 of the Constitution of the Portuguese Republic ("CRP"), governed by the parameters of primacy and uniform application, the reading of the national norms cannot fail to take into account the interpretation of the European Tribunal described in the following point.

2.3. On the relevance of formal requirements in ECJ case law and consequences of their non-compliance

The first issue that arises relates to the sufficiency of the description contained in the invoices issued to the Applicant, whose deduction was rejected by the AT, more specifically to know whether it observes the minimum requirements of detail established by Article 226, No. 6 of the VAT Directive, above transcribed, according to which invoices must necessarily mention "the extent and nature of the services provided".

On this question, the ECJ, in a relatively recent case, considered insufficient a description containing only the indication of "legal services provided from a given date to the present", being too generic to identify the concrete nature of the services in question and their extent, without prejudice to not considering exhaustive description of services provided mandatory. For the ECJ "the purpose of the particulars which must necessarily appear on the invoice is to enable the tax administrations to carry out checks on the payment of the tax due and, if applicable, the existence of the right to deduct VAT" and it is in light of this purpose that it matters to analyze whether the invoices comply with the requirements of Article 226, No. 6 of the VAT Directive – see Judgment of the ECJ, of 15 September 2016, Barlis, C-516/14, Nos. 26, 27 and 28. It should be noted that these requirements may be supplemented through documents connected with the invoices, which may be equated thereto, under Article 219 of the said directive, as documents that modify the original invoice and refer to it specifically and unequivocally (Barlis Judgment, No. 34).

However, the ECJ does not consider that it is inevitable that the right to deduction be excluded, as a consequence of a violation of Article 226, No. 6 of the VAT Directive.

For the European Court, "the fundamental principle of VAT neutrality requires that the deduction of this tax paid upstream be granted if the material requirements are met, even if taxable persons have neglected certain formal requirements. Accordingly, when the tax administration has at its disposal the data necessary to know that the material requirements were met, it cannot impose supplementary conditions on the taxable person's right to deduct tax that might have the effect of eliminating that right (see, to that effect, Judgments of 21 October 2010, Nidera Handelscompagnie, C-385/09, EU:C:2010:627, No. 42; of 1 March 2012, Kopalnia Odkrywkowa Polski Trawertyn P. Granatowicz, M. Wąsiewicz, C-280/10, EU:C:2012:107, No. 43; and of 9 July 2015, Salomie and Oltean, C-183/14, EU:C:2015:454, Nos. 58, 59 and case law cited therein)." – see Barlis Judgment, No. 42.

Accordingly, the ECJ concludes that Article 178(a) of the VAT Directive must be interpreted to the effect that it opposes national tax authorities being able to refuse the right to deduct VAT merely because the taxable person possesses an invoice that does not comply with the requirements stipulated by Article 226, No. 6 of this directive, when those authorities have at their disposal all the information necessary to verify whether the substantive requirements relating to the exercise of that right are satisfied – see Barlis Judgment, No. 43 and operative part.

This position had already been previously upheld in the Judgments of 30 September 2010, Uszodaépito kft, C-392/09; of 21 October 2010, Nidera, C-385/09; of 1 March 2012, Kopalnia (or Polish Trawertyn), C-280/10; of 27 September 2012, VSTR, C-587/10; of 8 May 2013, Petroma, C-271/12; of 18 July 2013, Evita-K EOOD, C-78/12; of 6 February 2014, SC Fatorie, C-424/12 and of 11 December 2013, Idexx Laboratories, C-590/13. This consistent case law of the ECJ affirms that, without prejudice to the important documentary function of the invoice, insofar as it may contain controllable data, as long as the substantive requirements are met and demonstrated, non-observance of formalities cannot, in principle, lead to suppression of the right to deduct VAT, reinforcing that this "ensures neutrality in the application of VAT, and therefore could not be refused merely because taxable persons neglected certain formal requirements, when substantive requirements have been met" – see Uszodaépito kft Judgment, No. 38).

In the interpretation of the ECJ, the requirement to have an invoice in all respects compliant with the provisions of the VAT Directive would have an unacceptable consequence: that of calling into question the taxable person's right to deduction, when the data can be validly proved through means other than an invoice – see No. 48 of the Kopalnia Judgment.

Additionally, at this point, and as referred to in arbitral decision No. 3/2014-T, of 6 December 2016, to invoke the Judgment of 12 July 2012, EMS Bulgaria, C-284/11, "which raises the question of the effects associated with non-compliance with formalities in the sanctionary field and not on the (very distinct) plane of the imperative or extinctive effects of the exercise of (substantive) right to deduction".

The said understanding has been reinforced in later case law, notably in the Judgment of 15 November 2017, Rochus Geissel, C-374/15, which recalls that the right to deduct VAT cannot, in principle, be limited, and that the deduction scheme aims to completely free the businessman from the burden of VAT due or paid in the course of all his economic activities, so the deduction of VAT paid upstream must be granted if substantive requirements are met, even if taxable persons have neglected certain formal requirements (Nos. 40 to 46 of the Rochus Geissel Judgment).

Likewise, the Judgment of 15 September 2016, Senatex, C-518/14, reiterates the previous anti-formalist position and endorses the understanding that, should the correction of invoices containing errors (or omissions) occur, such correction has (retroactive) effects as of the date the invoices were initially drawn up – Senatex Judgment, Nos. 35 to 43 and operative part.

However, in situations of fraud, for example, when the violation of "formal requirements has the effect of preventing proof that substantive requirements were observed", the ECJ confirms the admissibility, in light of European law, of refusal of the right to deduction. In this case, it is necessary that it be demonstrated that the taxable person "fraudulently failed to comply with, which it is for the referring court to verify, the majority of the formal obligations incumbent on it in order to be able to benefit from this right." – see Judgment of 28 July 2016, Giuseppe Astone, C-332/15, No. 42 and point 2 of the operative part.

National legal scholarship is parameterized by European case law. According to Sérgio Vasques, "[t]he complexity inherent in the invoice regime and the margin of freedom still left to Member States in this matter have led to the multiplication of disputes with the CJEU relating to formal requirements for the exercise of the right to deduct VAT. In its decisions the court, while reiterating the function of the invoice as support for the right to deduction, in correspondence with Article 178 of the Directive, has allowed that over this formal requirement substance of the operations prevail, whenever it shows necessary to ensure VAT neutrality and does not place excessive risk" – see Value Added Tax, Almedina, 2015, pp. 340-345 (excerpt from p. 341).

Miguel Durham Agrellos and Paulo Pichel, also with support in Community case law, consider that formal defects are only capable of preventing the right to deduction if they "reasonably call into question the capacity for correct tax collection and control by the tax authorities, such that the latter is not in a position to know the underlying material reality, in light of the elements presented by the taxable person" – see "ECJ Case Law on Invoice Formal Requirements and the Right to Deduct VAT", VAT Notebooks 2015, Coord. Sérgio Vasques, Almedina, 2015, pp. 191-211 (excerpt from p. 194).

Also Cidália Lança states that "in accordance with the case law of that Court [ECJ], the principle of neutrality requires that VAT deduction be granted if substantive requirements have been met, even if taxable persons have neglected certain formal requirements" – see Note to Article 36 of the VAT Code: VAT Code and RITI Notes and Comments, Coord. and Org. Clotilde Celorico Palma and António Carlos dos Santos, Almedina, 2014, p. 340.

2.4. Concrete analysis

The actual provision of services by B..., S.A. to the Applicant is not questioned in the proceedings, nor in the disputed assessments. No indications of fraud or abuse by these entities were manifested, or even alleged.

It is therefore in the context of the normal conduct of economic activities and relations between B..., S.A. and the Applicant, as is clear from the factual matter established, that the invoices whose VAT was considered non-deductible by the AT are situated, based on the argument that the formal requirements regarding the description of services provided are not met and that this non-compliance constitutes an obstacle to control of the material prerequisites for the exercise of the right to deduction, preventing the determination of the nature and quantity of services and the tax underlying them.

The said invoices contain, in addition to the generic description of "Administrative Services" and "Marketing Services", a note, in an autonomous field, where they detail in greater specificity the nature of those services which correspond, in the first case, to those usually provided by companies specialized in the provision of shared intra-group services, namely accounting services, financial management, computing, collections, supplier management and human resources management and, regarding marketing services, specify that they relate to trademark registration management, label design, packaging and catalogues, fair preparation and institutional communication competitions.

This description is repeated in all invoices issued monthly and, according to the AT, not only does it not indicate the concrete nature and quantity of the services, but would have to vary as the invoiced amount differs from month to month.

It is pertinent to recall at this point that, as the ECJ emphasizes, the description of invoices need not be exhaustive and does not constitute an end in itself. It is instrumental to the purpose of controlling operations, payment due (e.g., rates, exemptions) and the existence of the right to deduction.

Taking into account the supplementary notes appearing on the invoices, it appears to be clearly perceptible the nature of the services provided by B..., S.A. to the Applicant and their respective value, so that the purposes of controlling the payment of tax are safeguarded, particularly as regards rates and exemptions, with the maximum rate always being applied and the corresponding VAT assessed. These invoices permit "reconstruction of what service was provided and what its cost was", in the manner advocated by the Judgment of the Supreme Administrative Court ("SAC"), of 4 October 2017, in case No. 1141/16.

Contrary to what the AT asserts, it is not strange that the description be the same, since we are dealing with typified services provided in a successive and continuous manner, with monthly periodicity, which occurs in innumerable other situations of general knowledge.

With regard to the different terminology employed by the VAT Code and the Directive, in the former case, appealing to "quantity and usual denomination of services provided" and, in the latter, to "extent and nature of services provided", no discrepancy in meaning is identified, as the Applicant points out. It is a matter of ascertaining the nature of services which must be indicated by the normal denomination thereof and their extent or measure, always with a view to the objective it serves: to permit control by the tax authorities. Should such discrepancy be verified, European law would have to prevail, on the meaning of which the ECJ has already pronounced itself as described above.

Without prejudice to the foregoing, should it be understood, by appeal to a restrictive criterion, that some doubts were raised regarding the extent (or "quantity", in the terminology of the VAT Code) of services provided, due to the monthly variation of invoiced amounts resulting from the calculation methodology provided for in the contracts, we would be faced with a partial insufficiency of the description of the invoices under analysis, regarding the extent of services provided.

However, in these circumstances, such (partial) formal insufficiency relating to the extent of services provided is not such as to, as the AT wishes, prevent control of the substantive requirements of the operations and the right to deduction.

First and foremost, it is important to specify what these substantive requirements are, since the AT makes an erroneous connection of the VAT incurred (on services acquired) with the obtaining of income by the Applicant, which would be understandable if the matter in discussion were a question of income tax, which is not the case.

For purposes of VAT, the right to deduction depends materially on:

• The actual performance of the operations; and

• The connection – direct and immediate – of the goods and services acquired (burdened with VAT) with the intention (confirmed by objective elements) of performing operations of supplies of goods and provision of services that confer such right (Article 20, No. 1 of the VAT Code), irrespective of whether these are carried out and whether they are or are not profitable (Judgments of the ECJ of 21 March 2000, Gabalfrisa, C-110/98, Nos. 45 to 47; of 14 February 1985, Rompelman, 268/83, Nos. 19 to 24, and of 29 February 1996, INZO, C-110/94, Nos. 16, 23 and 24).

In the concrete case, the activity of the Applicant is entirely taxable and confers the right to deduction. Therefore, to conclude on the deductibility of the VAT incurred on services acquired from B..., S.A., it is necessary, but also sufficient, to determine whether those services were actually provided, to what extent, and whether they relate to the activity of the Applicant.

One cannot agree with the opening assertion of the AT that the merely partial insufficiency of the description of the invoices in question, relating to the extent of services provided, makes impossible the control of the substantive requirements of the right to deduction, i.e., the determination of such extent through other means and the ascertainment of whether the services in question present, or do not present, the connection indispensable to the activity carried out by the Applicant.

The Applicant demonstrated in the proceedings, in a contextual and circumstantial manner, that in the context of the normal conduct of its activity, it contracted with the shared services company of the corporate group to which it belongs – B..., S.A. – the provision of services relating to support and auxiliary functions of its activity, as is common in the vast majority of business groups of some size, for reasons of economic rationality and efficiency in the management of human resources dedicated to those functions, namely accounting, financial management and reporting, collections, computing support, supplier management, human resources management, design and content of bottle and packaging labels for various markets, registration and management of own trademarks, preparation of international competitions, among others.

Indeed, and by way of example, rather than each (operational) company having employees assigned to the preparation and execution of accounting, management of human resources or marketing, such functions were "outsourced" to a group company, specialized in such activities and equipped with the necessary competencies (B..., S.A.), minimizing the number of employees indispensable for the performance of such functions and ensuring, at the same time, the quality of services provided.

The procedure for measuring services provided and their pricing also became evident. Given the rationalization purpose underlying the shared services entity, remuneration of services provided to other Group companies followed a logic of cost allocation.

Thus, the expenses recorded monthly in B..., S.A.'s accounting, consisting almost entirely of personnel costs and other expenses connected with workers in its employ, such as those associated with vehicles used by them (such as the Unique Vehicle Circulation Tax and lease payments), were passed on, at cost, i.e., as a rule, without addition of any margin, to the companies acquiring the services.

B..., S.A. has management information, organized by cost centers, that allocates the accounting expenses incurred to the various areas or functions, knowing, with monthly periodicity, the expenses incurred on marketing, accounting, etc. These expenses were proportionally divided among the companies acquiring the services, all integral part of the same corporate group, in the percentage defined annually, based on a management decision based on certain criteria that considered the relative weight estimated in the consumption of B..., S.A. resources that each would claim in the various areas. It should be added that the invoices issued by it contain attached the maps with the month's expenses, their allocation by areas (cost centers) and proportional allocation to the respective entities.

When accounting closing was delayed and/or expenses were provisionally estimated, invoices were issued for the provisional amount and later corrected by actual consumption of resources, as noted in the Applicant's accounting.

In these terms, monitoring of invoiced amounts is direct and relatively simple, since it corresponds to the pre-defined percentages applied to monthly expenses determined and recorded in accounting and allocated by cost center. This information (which is contained in the proceedings) was available in the documents filed by the Applicant, together with the invoices, and in its information systems. It is important, at this point, to note that the AT did not allege any violation of the cooperation principle.

In this manner, the Applicant succeeded in supplementing the information from the invoices of services acquired from B..., S.A. regarding their procedures and methods/criteria for quantification, highlighting with clarity the nature of the services acquired and their direct and immediate connection with the activity of the Applicant, as they constitute essential support services to the performance thereof, with no reasonable ground for the right to deduct the respective VAT to be denied to it.

In light of the foregoing, the tax assessment acts for VAT, relating to the years 2013 and 2014, are flawed by substantive vice and must be annulled, in accordance with Article 163, No. 1 of the Code of Administrative Procedure ("CPA").

2.5. Acts of assessment of compensatory and default interest

Considering that, in the situation sub iudice, interest, compensatory and default, is incurred on the tax debt for VAT and that it is annulled in its entirety, in accordance with and for the reasons set out above, the acts assessing such interest share identical vices and invalidating effect, and therefore must also be annulled.

At this point, it should be noted that default interest (provided for in Articles 44 of the LGT and 86 of the CPPT), unlike compensatory interest (of Article 35 of the LGT) and indemnification interest (of Article 43 of the LGT), do not form part of the realities which, under the enumeration of No. 1 of Article 30 of the LGT, make up the tax legal relationship. That is to say, they are incurred on the tax debt, but do not share the nature thereof.

However, in accordance with Article 6 of the [text truncated]

[Note: The full judgment continues beyond the provided text and would include final operative provisions and signature lines, but the translation ends as provided in the source document.]