Judgment;Summary — ECLI:EU:C:2020:335
Date: 2020-04-30
Language of the case: Portuguese
Court formation: Seventh Chamber
Subject matter: Taxation;Value added tax
Procedure: Reference for a preliminary ruling
Origin: Portugal

Summary C-661/18 — 1 
Case C-661/18 
Summary of the request for a preliminary ruling pursuant to Article 98(1) of 
the Rules of Procedure of the Court of Justice 
Date lodged:  
22 October 2018 
Referring court:  
Tribunal Arbitral Tributário (Centro de Arbitragem 
Administrativa — CAAD) (Portugal) 
Date of the decision to refer:  
15 October 2018 
Applicant:  
CTT — Correios de Portugal, S.A. 
Defendant:  
Autoridade Tributária e Aduaneira 
  
I. Subject-matter of the dispute 
The dispute concerns an application made by CTT — Correios de Portugal, 
S.A. for a declaration of the unlawfulness, and for the annulment, of various 
notices of assessment of value added tax (VAT), for the annulment of previous 
corrections made to the deduction of VAT and for damages in respect of the losses 
arising from the provision of guarantees. 
II. Provisions of national law at issue 
Código do Imposto sobre o Valor Acrescentado (Value Added Tax Code) 
approved by Decree-Law No 394-B/84 of 26 December 1984: Article 23(1)(b) 
and (6), and Article 98(2). 
Article 23  
Deduction methods relating to goods of mixed use 
EN 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING — CASE C-661/18 
 
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1 — When a taxable person, in the conduct of its business, carries out transactions 
in respect of which value added tax is deductible and transactions in respect of 
which it is not deductible, under Article 20, the deduction of the tax paid on the 
purchase of the goods and services used in the conduct of both types of 
transactions shall be determined as follows: 
…  
(b) Without prejudice to the provisions of the foregoing subparagraph, in the case 
of goods or services used to carry out operations connected with the pursuit of an 
economic activity provided for in Article 2(1)(a), some of which are not 
deductible, the tax shall be deductible in direct proportion to the annual value of 
the transactions which give rise to a deduction. 
… 
6 — The deductible proportion referred to in paragraph 1(b), provisionally 
calculated on the basis of the value of the transactions carried out in the previous 
year, like the deduction made under paragraph 2, provisionally calculated on the 
basis of objective criteria used to apply the method of actual allocation, shall be 
adjusted in accordance with the final amounts for the year to which they relate, 
resulting in the corresponding adjustment of the deductions made which shall 
appear in the declaration for the final period of the relevant year. 
Article 98  
Ex officio review and deadline for exercising the right of deduction 
…  
2 — Without prejudice to any special provisions, the right to the deduction or to 
the reimbursement of overpaid tax may only be exercised for a period of four 
years from the date on which the right to the deduction or to the payment of the 
overpaid tax has arisen, respectively. 
III. Facts and procedure 
(1) The applicant’s main activity is the provision of postal services. 
(2) In the course of its business, the applicant carries out transactions in respect 
of which VAT is deductible and others in respect of which it is not (exempt 
operations with no right to deduction), and is therefore a mixed taxable person for 
the purposes of VAT. 
(3) The applicant used to be a state-owned undertaking, which was subsequently 
privatised. 
CTT — CORREIOS DE PORTUGAL 
 
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(4) While it was a state-owned undertaking, the Autoridade Tributária e 
Aduaneira (Tax and Customs Authority) took the view that ‘postal bill-payment’ 
transactions were exempt from VAT. 
(5) The applicant paid VAT in respect of ‘postal bill-payment’ transactions 
carried out from 1 January 2013, having made arrangements to make an additional 
back payment of VAT for the year 2013, in the sum of EUR 1 896 563.71, by 
submitting a replacement declaration for the periodic declaration for December 
2013. It did the same thing for the years 2014, in the sum of EUR 1 632 942.68, 
and 2015, in the sum of EUR 356 031.50. 
(6) The applicant also made arrangements to revise the deduction methodology 
which it used in the fiscal period 2013 onwards. 
(7) With that revision, part of the VAT which had been deducted using the pro 
rata method was then deducted using the actual-allocation method. 
(8) In addition, the applicant identified situations in which it considered that 
there was a complete and direct link between expenses and operations subject to 
VAT, and applied the direct allocation method to them. 
(9) That revision resulted overall in an additional VAT deduction of 
EUR 1 967 567.82. 
(10) The Tax and Customs Authority conducted an inspection of the applicant in 
respect of the financial year 2015. 
(11) At the end of that inspection, it concluded, in essence, the following in its 
draft report: 
‘(a) The right to a deduction arises when the deductible tax becomes chargeable 
and is defined by the taxable person’s allocation of the goods and services used in 
its economic activity. 
(b) In the case of goods and services of mixed use, the choice of method for 
calculating the initial deduction may only be made for each purchase of goods or 
services at the point when the right to the deduction arose, in accordance with 
Article 20(1), Article 22(1) and Article 23 of the VAT Code. 
(c)  Article 23 of the VAT Code does not include the possibility for a taxable 
person who had opted for a method of deducting the tax paid on goods and 
services of mixed use to be able to alter that method retroactively by recalculating 
the initial deduction made. 
(d) Article 23(6) only makes provision for corrections to the calculation of the 
deduction coefficients provided for in Article 23 1(b) and (2) of the VAT Code, 
that being the provision used by the taxable person, and it establishes the principle 
that those corrections must be made at the end of the year in which it is to be 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING — CASE C-661/18 
 
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applied and reflected in the declaration for the final period of the year in question 
(December 2015). 
(e) Moreover, the adjustments set out in Articles 24 to 26 of the VAT Code do 
not constitute a basis for any retroactive alteration of the deduction coefficient 
initially used. 
(f) The choice of a deduction method is a legitimate option for a taxable person 
who, when the goods or services of mixed use were purchased, chose the method 
for calculating the right to deduct VAT which, in its opinion, was best suited to its 
business needs, and never as a result of an error, for which reason it does not come 
within the scope of Article 78 of the VAT Code. 
(g) It should be noted that Article 78(6) of the VAT Code refers solely to the 
correction of ‘material or calculation errors’, and it does not cover corrections 
included in other parts of that article, which are governed by other specific 
provisions of VAT legislation (as is the case with an adjustment under 
Article 23(6)) or errors of law made in the registers or in the declarations. 
(h) In other words, the term ‘material or calculation errors in the registers or 
periodical declarations’ covers errors in the transposition of information in the 
supporting documents to the accounts or from the accounts to the periodic 
declaration, or arithmetical errors made in the accounts or in the declarations, for 
which reason they do not constitute a legal basis for retroactively altering the 
method of calculating the right to an initial deduction in respect of goods and 
services of mixed use or for a correction of the calculation of the deduction 
proportion. 
(i) Nor does the adjustment of tax already deducted come under Article 98 of 
the VAT Code, given that that provision covers only situations where the right of 
deduction is exercised, and not adjustments of deductions already made. 
(j) Finally, it should be noted that the rule in Article 23 — on which the taxable 
person relies — was not properly applied and that the adjustment is similarly not 
legally justified by Article 78 or by Article 92 of the VAT Code. 
Throughout the year, CTT made deductions using the methods provided for in 
Article 23 of the VAT Code. At the end of 2015, it was possible to determine the 
final proportion and adjust it in accordance with Article 23(6). In May 2016, CTT 
filed a replacement periodic declaration in which it altered the deductions in its 
favour in field 24 in the sum of EUR 1 967 567.82 by altering the deduction 
method, relying wrongly on Article 23(6). Such an alteration, however, is not 
legally permissible under the VAT Code, in particular Articles 20, 22 to 26, 78 
and 98, in line with the reasoning adopted in this draft report. 
In the light of all the foregoing and in accordance with the legal provisions cited, 
it is proposed that the tax adjustment in field 24 of the replacement periodic VAT 
declaration for December 2015 be corrected in the sum of EUR 1 967 567.82.’ 
CTT — CORREIOS DE PORTUGAL 
 
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(12) Following the inspection, the Tax and Customs Authority made the 
following VAT assessments: 
(i) VAT assessment in the sum of EUR 67 935.03; 
(ii) VAT assessment in the sum of EUR 487 076.76; 
(iii) VAT assessment in the sum of EUR 1 480 491.06; 
(iv) Default interest assessment in the sum of EUR 42 527.46; 
(v) Default interest assessment (which added interest in the sum of 
EUR 2 428.29); 
(vi) Default interest assessment in the sum of EUR 123 185.05. 
On 22 March 2018, the applicant submitted an application for arbitration, which 
gave rise to the present proceedings. 
V. Succinct presentation of the reasons for the request for a preliminary 
ruling and essential arguments of the parties 
Throughout 2015, the applicant made VAT deductions in accordance with the 
methods provided for in Article 23 of the VAT Code, deducting VAT as a 
percentage of the interim proportion (16%) as and when it recorded its inputs. 
At the end of 2015, the applicant made an adjustment by applying the final 
proportion (19%), pursuant to Article 23(6) of the VAT Code, which appeared in 
the declaration for the final period of that year. 
The applicant made that adjustment assuming that the ‘postal bill-payment’ 
service which it provided was exempt from VAT, according to a binding tax 
ruling from the tax authority issued in 2007. 
Subsequently, due to doubts over the continued application of that exemption 
following the passing of new legislation, specifically Law No 17/2012 of 26 April 
2012, the applicant adjusted the transactions and paid VAT on those transactions 
as of 1 January 2013, and in 2015 adjusted the VAT assessment for the years 
2013, 2014 and 2015. 
Following that retroactive VAT assessment, the applicant, in relation to the inputs 
for which it had deducted VAT using the interim proportion, adjusted 
subsequently by the final proportion, applied another key on the basis of an actual 
allocation to each group of inputs. 
The differential between the amount determined by application of the actual 
allocation method and the proportion method to the same inputs in the sum of 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING — CASE C-661/18 
 
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EUR 1 967 567.82 increased the deduction in favour of the applicant, claimed in 
field 24 of the replacement declaration submitted in May 2016. 
The Tax and Customs Authority considered that the alteration of the deduction 
method, after the adjustment was made in accordance with Article 23(6) of the 
VAT Code, has no legal basis in the VAT Code, in particular Articles 20, 22 to 
26, 78 and 98. 
In summary, the applicant submits that the right to the deduction may be exercised 
after the taxation period in which the right to the deduction arose, in accordance 
with Article 22(2) of the VAT Code, within the four-year period laid down in 
Article 98(2) of that code, where no specific time-limit is laid down (as would be 
the case with Article 78(6) of the VAT Code). 
The applicant argues that the principles of effectiveness, equivalence and 
neutrality are incompatible with an interpretation of Article 22(2) of the VAT 
Code to the effect that the deduction of VAT may only be made on one single date 
or occasion (when the invoices are received). 
VI. Questions referred for a preliminary ruling 
(1) Do the principles of neutrality, effectiveness, equivalence and 
proportionality preclude an interpretation of Article 98(2) of the VAT Code to the 
effect that it does not apply to situations where deductions which have already 
been made are altered or adjusted? 
(2) Do those principles preclude legislation such as Article 23(1)(b) and (6) of 
the VAT Code, interpreted to the effect that a taxable person, who had opted for a 
coefficient method and/or allocation key in order to calculate the right to deduct 
tax paid on goods and services of mixed use and who had made the correction on 
the basis of the final amounts for the year to which the deduction related, pursuant 
to Article 23(6), may not retroactively alter those amounts by recalculating the 
initial deduction which has already been adjusted in accordance with that 
provision following a retroactive VAT assessment relating to an activity which it 
had initially regarded as being exempt?