- Excise duties in the EU: the “specific purposes” requirement
Notwithstanding the uniformization on the taxation of consumption within the European Economic Community (“EEC”) with the introduction of Valued Added Tax (“VAT”), specific products, due to their characteristics, have historically been subject to other taxes, such as excise duties levied by the different European Union (“EU”) Member States.
Aiming to ensure the establishment and functioning of the internal market, in 1992, the Council Directive 92/12, of 25 February was published, providing uniformized guidance for the taxation of products subject to excise duties. As per this Directive, Member States could impose excise duties on i) energy products and electricity, ii) alcohol and alcoholic beverages and iii) tobacco and tobacco products (all called “excise goods”). Excise duties imposed by Member States on excise goods should respect the (uniformized) conditions set on such Directive.
Council Directive 92/12, of 25 February has been subsequently replaced by more recent legal instruments: first, Council Directive 2008/118, of 16 December and, afterwards, Council Directive 2020/262, of 19 December, both aiming to adapt these indirect taxes to current challenges.
According to the above-mentioned EU legal instruments, Member States shall, in principle, levy one excise duty per excise good[1]. Member States are however allowed to levy other indirect taxes on excise goods, provided that two conditions[2] are met:
- such indirect tax excise duty is levied for “specific purposes”;
This condition has already been tackled by the European Court of Justice (“ECJ”) in, amongst others, the Tallinna Ettevõtlusamet case[3]. In this case, the ECJ concluded that “[…] a tax on excise goods can be regarded as pursuing a specific purpose within the meaning of Article 1(2) of Directive 2008/118 only if it is designed, so far as its structure is concerned, and particularly the taxable item or the rate of tax, in such a way as to guide the behavior of taxpayers in a direction which facilitates the achievement of the stated specific purpose, for example by taxing the goods in question heavily in order to discourage their consumption”.
- said indirect tax complies with the EU tax rules applicable for excise duties or VAT as far as the determination of the tax base, calculation of the tax, chargeability and monitoring of the tax are concerned.
- The contribution for road services in Portugal
Excise duties in Portugal are currently foreseen in the Excise Duties Tax Code (“Código dos Impostos Especiais do Consumo” or “CIEC”)[4]. In line with the above-mentioned EU Directives, Portugal imposes:
- excise duties on alcohol and alcoholic drinks (“Imposto sobre o Álcool e as Bebidas Alcoólicas” or “IABA”)[5];
- excise duties on petroleum and energy products (“Imposto sobre os Produtos Petrolíferos” or “ISP”);
- excise duties on tobacco products (“Imposto sobre o Tabaco” or “IT”).
Amongst others, the purchase of petrol, diesel and LPG have historically been subject to ISP, which is due by the registered consignee[6] or by the authorized custodian[7], typically service stations / petrol sellers. This happens because these are considered the “taxable persons” of this tax, having the option to choose whether or not to pass on the tax in the selling price of the petrol products to their customers.
Nonetheless, in 1 January 2008, a new levy on petrol, diesel and LPG products entered into force in Portugal: contribution for road services (“Contribuição de Serviço Rodoviário” or “CSR”) was created by Law no. 55/2007, of 31 August with the purpose of financing the national road network.
In particular, as per this Law, CSR constitutes the consideration for the use of the national road network, and shall therefore constitute a source of funding of the national road network under the responsibility of EP – Estradas de Portugal, S.A.[8].
Considering that this levy was aimed at (re)allocating resources to EP – Estradas de Portugal, S.A.[9] , with no intention whatsoever to increase
the sale price of fuels, ISP unit rates on petrol, diesel and LPG have been lowered by the exact amount of the new CSR.
Therefore, as from 1 January 2008, petrol, diesel and LPG products, which until then were only subject to ISP (plus VAT), became subject to ISP and CSR (plus VAT), but the sale price for customers remained untouched.
This contribution amounted to EUR 87 / 1000L of petrol and EUR 111 / 1000L of diesel.
From a legal standpoint, CSR constituted a levy other than the indirect tax (ISP) already applicable to excise goods (petrol, diesel and LPG) and should, therefore, fulfil the two conditions test of Article 1 (2) of Council Directive 2008/118, of 16 December[10].
This contribution has been repealed as from the 1st of January 2023 (we will see why in the next chapters).
- Challenging the validity of CSR
Arguing that the CSR goes against the conditions set out in Council Directive 2008/118, of 16 December[11] – as in particular, no “specific purposes” were arguably advanced by the legislator to support its creation– a few ISP (and now CSR) taxable persons challenged the CSR assessments issued by the Portuguese Tax Authorities.
One of such taxpayers was Vapo Atlantic, S.A., a company whose purpose is the operation of service stations and the wholesale marketing of petroleum products.
Initially, the company filed claims to the Tax Authorities (“Pedidos de Revisão Oficiosa”). The Portuguese Tax Authorities rejected the arguments presented by Vapo Atlantic, S.A. on the non-validity of the CSR, arguing instead that the CSR is compatible with Council Directive 2008/118, of 16 December and, even if it was not, CSR taxable persons’ are not entitled to claim the refund of this tax, as this would lead to their unjust enrichment, considering that CSR is usually passed on by taxpayers to their customers purchasing fuel.
Disagreeing with the Tax Authorities’ understanding, Vapo Atlantic, S.A. challenged the denial decisions before the Arbitration Court (“Centro de Arbitragem Administrativa” or “CAAD”). As far as we are aware, the CAAD’s processes where this subject matter was discussed are the following: i) no. 564/2020-T (covering the CSR paid by Vapo Atlantic, S.A. in 2016), ii) 629/2021-T (covering the CSR paid by Vapo Atlantic, S.A. in 2017) and iii) 304/2022-T (covering the CSR paid by Vapo Atlantic, S.A. in 2018)[12].
Process no. 564/2020-T (2016 CSR claim, where a preliminary ruling was requested to the ECJ)
In process no. 564/2020-T, the CAAD opted to stay the proceedings and to request a preliminary ruling to the ECJ on whether the CSR pursues ‘specific purposes’ within the meaning of Directive 2008/118, of 16 December.
In its decision of 7 February 2022[13], the ECJ ruled that Article 1(2) of Directive 2008/118, of 16 December allows Member States to introduce, in addition to minimum excise duty, other indirect taxes having a specific purpose. As per the Court, this is however subject to two conditions: “First, such taxes must be levied for specific purposes and, second, those taxes must comply with the EU tax rules applicable for excise duty or value added tax as far as determination of the tax base, calculation of the tax, chargeability and monitoring of the tax are concerned, but not including the provisions on exemptions.”
By applying these two conditions’ test to the CSR, the Court concluded that such levy, the revenue from which is allocated, in a generic manner, to a public undertaking holding the concession contract for the national road network is in breach of the Directive 2008/118, of 16 December, namely as it does not pursue ‘specific purposes’. Crucial for this decision was the fact that the law establishing the CSR does not show an actual desire to discourage the use of either the road network or the main road fuels such as petrol, diesel or LPG but, instead, only foresees the financing of the road network as the CSR’s purpose.
The ECJ also analyzed whether Vapo Atlantic, S.A. had the right to be refunded from the CSR charged in breach of the law. In this concern, the Court stated that “A Member State is thus in principle required to repay taxes levied in breach of EU law, in accordance with the applicable national procedural rules and with due regard for the principles of equivalence and effectiveness”, highlighting however one exception to this rule: when such refund would lead to unjust enrichment of the taxable person.
On the unjust enrichment topic, the ECJ argued that “Even though indirect taxes are designed in national law to be passed on to the final consumer and in commerce are normally passed on in whole or in part, it cannot be generally assumed that the charge is actually passed on in every case […]”, clarifying that “EU law thus precludes any presumption or rule of evidence intended to shift to the trader concerned the burden of proving that the charges unduly paid have not been passed on to other persons […]”.
Given the above, the Court ruled that EU law must be interpreted as precluding national authorities from being able to justify their refusal to reimburse a levy charged in breach of the law by assuming that that charge has been passed on to third parties (and, consequently, that the taxable person has been unjustly enriched).
Being notified from the ECJ’s decision on the preliminary ruling, it was now up to the CAAD to issue its decision.
First, when it comes to the CSR meeting the conditions set out in Article 1(2) of Directive 2008/118, of 16 December, the CAAD confirmed the position held by the ECJ in its preliminary ruling, by stating that this levy has not been created to pursue “specific purposes” and, should, therefore, be considered a tax charged by Portugal in breach of EU law.
The CAAD also confirmed the ECJ’s view on the right of Vapo Atlantic, S.A. to be refunded from the CSR charged, arguing that the Portuguese Tax Authorities did not present clear evidence[14] that the CSR had been passed on to consumers, so that it could be accepted that the refund of such tax could result in unjust enrichment of such entity.
Given the above, in 30 March 2022, the Court confirmed Vapo Atlantic, S.A.’s right to be refunded from the CSR unduly paid in 2016, in the global amount of approx. EUR 4.9M.
Process no. 629/2021-T (2017 CSR claim)
Process no. 629/2021-T had a rather different fate.
In this case, by its decision issued on the 3rd of August 2022, the CAAD decided not to review the merits of Vapo Atlantic, S.A.’s claim as, in its view, one of the objections raised by the Tax Authorities should proceed. In particular, the CAAD accepted the Portuguese Tax Authorities’ argument that, in February 2021 (date in which the entity presented its claim – “Pedido de Revisão Oficiosa” – for the Tax Authorities to review the CSR assessments of 2017), the right of Vapo Atlantic, S.A. to present such Pedido de Revisão Oficiosa had already expired.
The CAAD’s argument for such a decision was that the extended deadline of 4 years for taxpayers to present Pedidos de Revisão Oficiosa should not apply to this case[15]. This is due to the fact that, according to the CAAD, a possible breach of the law of CSR charged in 2017 could not be attributable to an error of the services (“erro imputável aos serviços”), but instead to an error of the lawmaker, as the Law establishing CSR was not in line with the Directive 2008/118, of 16 December. In our view, as this position goes against several case-law issued by the Portuguese Supreme Administrative Court (“Supremo Tribunal Administrativo”) regarding the concept of “erro imputável aos serviços” – e.g., decision issued in process no. 0678/16 -, we do really hope that Vapo Atlantic, S.A. appealed from such decision.
Due to the above, the CAAD ruled that Vapo Atlantic, S.A. should have presented its Pedido de Revisão Oficiosa within the general deadline of 120 days counted from the notification of the tax assessment, which did not happen. As the Pedido de Revisão Oficiosa preceding Vapo Atlantic, S.A.’s claim to CAAD was not presented in due time, this entity’s right to discuss its claim in front of the CAAD had consequently expired.
The consequence of the position held by CAAD is that, in opposition to process no. 564/2020-T, Vapo Atlantic, S.A. should not be refunded from the CSR paid in the year 2017 (as the Court did not even review if such CSR was charged in breach of the law or not[16]).
Process no. 304/2022-T (2018 CSR claim)
By applying the reasoning upheld by the ECJ in its decision in process C-460/21, the CAAD confirmed once more, in its decision dated from 5 January 2023 (process no. 304/2022-T), that this levy has not been created to pursue “specific purposes” and, should, therefore, be considered a tax charged by Portugal in breach of the law.
As a consequence, the CAAD confirmed Vapo Atlantic, S.A.’s right to be refunded from the CSR paid in 2018, amounting to approx. EUR 5.5M.
Worth highlighting that, in this process, the Tax Authorities raised, as an objection, that Vapo Atlantic, S.A. was not a legitimate party to request the refund of the CSR unduly paid in 2018, as the cost of such levy is assumed to have been passed on to its customers[17]. This question arose because the Portuguese procedural / process law seems to indiscriminately consider the taxable person (“sujeito passivo”), taxpayer (“contribuinte”) and tax substitute (“substituto ou responsável tributário”) [18] as legitimate parties to challenge the validity of tax assessments. Pragmatically, the Court decided that Vapo Atlantic, S.A. had legal standing to challenge the validity of CSR, as it was the taxable person (“sujeito passivo”) of such a tax. However, it was not analysed by the Court whether Vapo Atlantic, S.A.’s clients could also challenge the validity of such tax, due to their condition of taxpayers (“contribuintes”).
- How to claim CSR’s refund back?
Due to the initiative shown by Vapo Atlantic, S.A., we are now in a position to conclude that CSR – which was in force in Portugal between 1 January 2008 and 31 December 2022 – was an indirect tax charged in breach of the law, in particular in breach of Article 1 (2) of Directive 2008/118, of 16 December. This was confirmed by the ECJ in its decision in process C-460/21. Being a tax unduly charged, the Portuguese State has the obligation to refund it.
However, being an indirect tax, who should be entitled to receive the refund: the service stations / petrol sellers (as “taxable persons”) or the customers?
As mentioned by the ECJ in its decision in process C-460/21, “even though indirect taxes are designed in national law to be passed on to the final consumer and in commerce are normally passed on in whole or in part, it cannot be generally assumed that the charge is actually passed on in every case […]”. According to the Court, “EU law thus precludes any presumption or rule of evidence intended to shift to the trader concerned the burden of proving that the charges unduly paid have not been passed on to other persons […]”
Also, as clearly stated by the CAAD in process no. 304/2022-T, the above means that Member States may only oppose the refund of taxes unduly levied when the national authorities prove that such tax was fully passed on to another person (as, in such cases, the refund of the tax would lead to the unjust enrichment on the part of that taxable person).
Thus, as a first step, it is critical for service stations / petrol sellers in the years 2008-2022 to review if, during those years, the costs of CSR have, or not, been passed on to their customers.
In our view, those costs are expected to have been passed on to customers. In fact, as explained by Rogério Fernandes Ferreira to Dinheiro Vivo[19], since September 2020[20] service stations / petrol sellers are required to disclose the different taxes applicable to the sale of fuel, amongst them the CSR. Being these taxes disclosed in the invoices, at least since such date, one may conclude that these costs have indeed been passed to customers.
In such an event, service stations / petrol sellers shall not be entitled to be refunded from the CSR unduly charged on those years. Differently, in our view, each of the customers will have the right to such refund[21]. These customers should, however, expect the Tax Authorities to demand proof that the CSR had in fact been passed on to them.
However, if there were any circumstances leading to the CSR costs to stay at the level of the sellers – which we only see arguable in respect to CSR amounts paid before September 2020 -, the refund of CSR unduly charged in these years should be done to said entities[22].
And what should be the procedure to request such refunds?
According to the Portuguese tax law, the procedure should start by challenging the corresponding CSR assessments[23]. As a rule, tax assessments should be challenged before the Tax Authorities by means of i) an administrative claim (“Reclamação Graciosa”)[24] or a ii) review based on Article 78.º, n.º 1 first part of Lei Geral Tributária (“Revisão Oficiosa”)[25]. As an exception, iii) a review based on Article 78.º, n.º 1 second part of Lei Geral Tributária (“Pedido de Revisão Oficiosa”) may also be possible, provided that the tax assessment to be reviewed is in breach of the law due to error of the services (“erro imputável aos serviços”)[26].
Considering that the CSR was in force until 31 December 2022, entities / persons aiming to request its refund may only present Pedidos de Revisão Oficiosa (mentioned in iii) supra), as they are not in time to use the mechanisms mention in i) and ii) above.
Service stations / petrol sellers filing Pedidos de Revisão Oficiosa may expect the Tax Authorities to dismiss their requests. In fact, in addition to all the objections / arguments raised in Vapo Atlantic, S.A.’s cases, the Tax Authorities may now sustain that, at least since September 2020, CSR costs were mandatorily passed on to the customers (due to the entry to force of the obligation to disclose such amounts on the invoices issued).
On the other hand, Pedidos de Revisão Oficiosa filed by the customers (and not by service stations / petrol sellers) may face a different fate. In fact, i) given the obligation of service stations / petrol sellers to disclose taxes due on the invoices issued when selling fuel (applicable since September 2020) and ii) bearing in mind the arguments used by the Tax Authorities to dismiss Pedidos de Revisão Oficiosa filed by such service stations / petrol sellers[27], it seems unquestionable that (at least since September 2020), CSR amounts have been borne by the customers. Due to this, the Tax Authorities should not have arguments to deny refund requests filed by such customers[28].
Given the above, customers having had the burden of paying material[29] amounts of CSR between September 2020 and December 2022 should challenge such payments before the Tax Authorities as, due to the different developments that this topic has recently faced, these are the time periods where it is more likely the Tax Authorities to accept the refund. Other time periods – within the 4 years deadline mentioned above – may also be challenged, although (we believe) with less likelihood of success. If the Tax Authorities dismiss the requests filed by the CSR customers, the CAAD might be a good route to obtain a binding and positive outcome.
Afonso Costa Gomes
June 2023
[1] Please see Article 1 of Council Directive 2020/262, of 19 December, currently in force.
[2] Please refer to Article 1 (2) of Directive 2020/262, of 19 December, currently in force.
[3] Process C-553/13.
[4] Which transposed, to the Portuguese law, Council Directive 2008/118, of 16 December.
[5] Note that this tax currently also covers drinks containing sugar or other sweeteners.
[6] Please refer to Article 28(3) of CIEC.
[7] Please refer to Article 22(2) of CIEC.
[8] Entity which, as from that year, had the concession of the national road network.
[9] As we will see below in more details, in the last years experts have almost unanimously considered that no other aim than the allocation of financing to EP – Estradas de Portugal, S.A. may be seen on the creation of this levy.
[10] In force when such levy was created and now replaced by Council Directive 2020/262, of 19 December.
[11] In force at this date.
[12] CAAD’s decisions may be read in here: https://caad.org.pt/tributario/decisoes/.
[13] Please refer to process C-460/21.
[14] The Court even states that during the process the Portuguese Tax Authorities only presented mere general conclusions or considerations which, in essence, do not make it possible to conclude that the tax has been partially or wholly passed on.
[15] In a short, the Portuguese Tax Law foresees the possibility of taxpayers to present “Pedidos de Revisão Oficiosa” within the extended deadline of 4 years, provided that the tax assessment to be reviewed is in breach of the law due to error of the services (“erro imputável aos serviços”). If this error is not proven, “Pedidos de Revisão Oficiosa” may only be presented within the general deadline of 120 days.
[16] Although, if this review had been made, we expect the CAAD’s conclusion to be similar to the one held in process no. 564/2020-T, as the facts are essentially the same.
[17] Due to the indirect tax status of CSR, which cost should (in principle) be borne by a different party than the taxable person.
[18] We are aware that the direct translation of these tax terms to English language may distort their meaning.
[19] We refer to this Article: https://www.dinheirovivo.pt/economia/impostos/gasolineiras-so-poderao-recuperar-taxa-pre-2020-15885926.html
[20] Date in which Regulation no ERSE n.º 141/2020 entered into force.
[21] This is line with the conclusions laid down by the ECJ in its decision in process C-460/21, and also in line with the argumentation presented by the Portuguese Tax Authorities in processes nos. 304/2022-T and 629/2021-T, when sustaining the refusal of Vapo Atlantic, S.A.’s right of being refunded from the CSR amounts under discussion.
[22] Nonetheless, similarly to what happened in Vapo Atlantica, S.A. cases, we expect the Tax Authorities to deny all the refund requests presented in this concern and, therefore, these refund requests would have to be discussed in front of the Tax Courts (judicial or arbitration).
[23] CSR was assessed by the Tax Authorities on a monthly basis, together with ISP.
[24] To be presented within 120 days counting from the notification of such tax assessment.
[25] To be presented within the same deadline of administrative claims.
[26] To be presented within 4 years counting from the notification of such tax assessment. This was the procedure adopted by Vapo Atlantic, S.A. on its processes.
[27] We refer to the argument that the refund of such amounts to service stations / petrol sellers would lead to their unjustly enrichment, as this tax was assumed to be passed on to the customers.
[28] It will still be possible that the Tax Authorites object that, although bearing CSR, customers are not in due time to file Pedidos de Revisão Oficiosa, as the extended deadline of 4 years shall not apply. However, we strongly believe that the position held by Supremo Tribunal Administrativo’s in process no. 0678/16 should prevail over this position.
[29] Taking the example of a transport business having 10 transport vans, each one consuming 500 litres of diesel per month, CSR amounts to be refunded could reach EUR 6600 per year (considering that CSR represented EUR 0,11 per litre of diesel bought bought).