However, recent decisions by the Court of Justice of the
European Union (CJEU) – e.g. the Euro Tyre II case
(C-21/16) – and Portuguese tax courts (notably the
Supreme Administrative Court, or SAC), mean this trend may be
about to change.
Background
As a rule, the PTA have been challenging the exemption
applied to ICS, mainly for the following reasons: (i) lack of
proof of the expedition of the goods to a EU country other than
Portugal (notably in takeaway transactions ie the goods
transportation is dealt with by a non-established acquirer);
(ii) the acquirer’s VAT number is not registered
in the VAT Information Exchange System (VIES); and (iii) the
acquirer is not registered for the purpose of carrying out
intra-EU acquisitions of goods in the EU country that issued
its VAT number. More recently, however, the PTA has been
refusing to exempt ICS on the grounds that the acquirer is not
registered for VAT purposes in the country of destination of
the goods.
Under this context, several judicial disputes have arisen
between the PTA and Portuguese VATable persons; in the majority
of these, the non-established VATable person failed to register
in VIES despite having VATable person status for domestic
transactions. In this regard, Euro Tyre II (case C-21/16)
constitutes a landmark case for Portugal. In this case, the
CJEU was called upon to rule on the conformity of the domestic
rules setting the conditions for ICS exemptions to apply with
Article 138(1) of the VAT directive.
In a nutshell, when answering questions, the CJEU referred
to its past decisions on Mecseck-Gabona, VSTR and Plöckl;
it said that where material conditions for VAT exemption are
met and there is no evidence of the VATable person
intentionally participating in tax fraud (ie there is no reason
not to qualify the acquirer as a legitimate trader), or that it
knows or should have known that it is participating in tax
fraud, the tax authorities of a member state cannot refuse said
exemption due to the failure to comply with formal
requirements, in particular solely on the grounds that the
acquirer does not hold a VAT number for the purposes of ICS and
is not registered in the VIES.
Recent developments
As stated above, notwithstanding the path that has been
pursued by the CJEU when analysing the legal requirements for
the ICS, with Euro Tyre II being the most recent
example, the PTA has failed to fall back on its
understanding of the application of the aforementioned
exemption. This is mainly because the domestic VAT provision
ruling on the legal requirements for the VAT exemption to apply
remains unaltered [see Article 14(a) of the RITI].
Nevertheless, the Portuguese Tax Arbitration Tribunal, when
faced with disputes identical to that portrayed in the Euro
Tyre II case (C-21/16), in which the PTA denied the application
of a VAT exemption for ICS due to the acquirer failing to
register in time in the VIES, it has not shied away from
replicating the main findings developed by the CJEU in this
decision, thereby ruling against the PTA.
Additionally, the SAC has been confronted with similar
disputes, between the PTA and Portuguese VATable persons, in
granting exemptions in the ICS.
In this regard, the PTA recently refused to grant an
exemption in an ICS on the grounds that although the goods had
been dispatched outside Portugal (to a Latvian VATable entity
that used its VAT number issued by Latvian authorities for the
acquisition), the goods were delivered in France to a French
representative of the acquirer, where the latter was not
registered for VAT purposes (notably, it was not registered for
the purpose of performing intra-EU acquisitions of goods
therein). As a result, the PTA decided to reject the
application for VAT exemption, accounting for the Portuguese
VAT due.
Furthermore, in an awkward application of the safety net
principle (please see Article 40 and 41 of the VAT Directive),
to further support this line of reasoning, the PTA argued that
the Portuguese supplier had failed to demonstrate that the
transactions at issue had been liable to VAT in the country of
destination and in the country that issued the VAT number used
for the acquisition of the goods.
Once more, the Euro Tyre II case (C-21/16) doctrine was
advocated to conclude that the VAT registration of the acquirer
of goods represents a mere formality that cannot justify, per
se, the denial of the benefits of the VAT exemption for an ICS.
As such, should the substantive conditions of an ICS be
satisfied, that is to say, the delivery of goods in another
member state to a taxable person acting as such, as established
in Article 138 (1) of the VAT directive, the supplier cannot be
deprived of the right to apply the VAT exemption on such
operations.
In this context, the PTA has yet to fully comply with the
CJEU’s understanding of the application of the VAT
exemption provided for by the ICS, mainly because the relevant
domestic provisions have not yet been revised; nonetheless, the
recent rulings by Portuguese courts offer reassurance and are a
testimony that we may be on the brink of a paradigm shift in
what concerns the practical application of the legal
requirements for the VAT exemption at issue.
This article was written by Mário Silva
Costa, senior associate lawyer, and João Garrinhas,
tax, at Cuatrecasas, Gonçalves Pereira & Associados
in Portugal.
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Mário Silva Costa
Senior associate lawyer
Cuatrecasas
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João Garrinhas
Tax
Cuatrecasas
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