VAT Exemption for Acupuncture Services: CAAD Arbitral Decision 111/2017-T on Interpretive Law

ARBITRAL DECISION

The arbitrators Dr. Jorge Manuel Lopes de Sousa (arbitrator-president, appointed by the CAAD Deontological Council, following a request presented by the other Arbitrators), Dr. João Taborda Gama and Dr. Nuno Maldonado Sousa, appointed, respectively, by the Claimant and the Respondent, to form the Arbitral Tribunal, constituted on 12-05-2017, agree as follows:

1. Report

A…, LDA., with collective person number…, with registered office at Rua…, …, …-… Lisbon, hereinafter referred to as the "Claimant", filed a request for arbitral ruling to assess the legality and declare void VAT assessments with the numbers 2016…, of 15.09.2016, in the amount of € 36,015.57, 2016…, of 15.09.2016, in the amount of € 34,477.78, 2016…, of 15.09.2016, in the amount of € 40,678.80, 2016…, of 15.09.2016, in the amount of € 37,149.41, 2016…, of 15.09.2016, in the amount of € 41,699.52, 2016…, of 15.09.2016, in the amount of € 41,447.06, 2016…, of 15.09.2016, in the amount of € 37,028.34, 2016…, of 15.09.2016, in the amount of € 31,907.82, 2016…, of 15.09.2016, in the amount of 34,736.04, 2016…, of 15.09.2016, in the amount of € 40,080.00, 2016…, of 15.09.2016, in the amount of € 38,345.17 and 2016…, of 15.09.2016, in the amount of € 29,503.13, relating to 2012/01, 2012/02, 2012/03, 2012/04, 2012/05, 2012/06, 2012/07, 2012/08, 2012/09, 2012/10, 2012/11 and 2012/12, respectively, in the total amount of € 443,068.00.

The Claimant also requests compensation for undue guarantee.

The Respondent is the TAX AND CUSTOMS AUTHORITY.

The Claimant appointed Dr. João Taborda Gama as Arbitrator, pursuant to article 6.º, no. 2, subparagraph b), of the RJAT.

The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 17-02-2017.

Pursuant to the provisions of subparagraph b) of no. 2 of article 6.º and no. 3 of the RJAT, and within the deadline set in no. 1 of article 13.º of the RJAT, the senior official of the Tax Administration service appointed Dr. Nuno Maldonado de Sousa as Arbitrator.

The Arbitrators appointed by the Parties submitted to the CAAD Deontological Council a request for appointment of the Arbitrator President, following which, on 21-04-2017, Dr. Jorge Lopes de Sousa was appointed, who accepted the appointment.

Pursuant to the provisions of no. 7 of article 11.º of the RJAT, the President of CAAD informed the Parties of this appointment on 24-04-2017.

Thus, in accordance with the provisions of no. 7 of article 11.º of the RJAT, once the deadline set in no. 1 of article 13.º of the RJAT had elapsed without the Parties raising any objections, the Collective Arbitral Tribunal was constituted on 12-05-2017.

The Tax and Customs Authority filed a Reply, in which it argued that the request for arbitral ruling should be judged unfounded.

By order of 04-07-2017, a hearing was dispensed with and it was decided that the proceedings continue with written submissions.

The Parties submitted their submissions.

The Arbitral Tribunal was regularly constituted and is competent.

The parties are duly represented, have judicial personality and capacity and are legitimate (articles 4.º and 10.º, no. 2, of the same instrument and article 1.º of Ordinance no. 112-A/2011, of 22 March).

There are no vices or obstacles to the consideration of the merits of the case.

2. Factual Matters

2.1. Proven Facts

The following facts are considered proven:

• The Claimant's main activity is the operation of medical consultation and treatment establishments, aesthetic treatments, physiotherapy, physical rehabilitation, acupuncture, provision of medical services and paramedical services and other health services;

• For VAT purposes, the Claimant is classified under the exemption regime of article 9.º since the beginning of the activity;

• The Tax and Customs Authority conducted an external inspection of the Claimant relating to the years 2012, in compliance with Service Orders OI 2016…, together with others relating to the years 2013, 2014 and 2015;

• In that inspection, the Tax Inspection Report was prepared, a copy of which is contained in the administrative file, whose contents are deemed to be reproduced, in which, among other things, the following is stated:

According to the accounting records relating to the years under analysis, 2012 to 2015, we confirmed that the activity of the taxpayer consisted exclusively of the provision of Acupuncture and Tui Na services, carried out by acupuncturists, in the areas of the company's clinics (Clinic B…, Clinic C…, Clinic D…, Clinic E…, Clinic F…, Clinic G…, Clinic H…).

(...)

For VAT purposes, the TP did not comply with its declarative obligations, in that management considers that the activities they carry out (acupuncture and tui na), classified in the area of unconventional therapies, constitute service provisions exempt under article 9 of the VAT Code. This understanding, as will be demonstrated in this report, is incorrect, justifying the revision of its classification for VAT purposes, being obliged to submit periodic VAT declarations as provided for in articles 29º and 41º of the CIVA.

(...)

III - DESCRIPTION OF FACTS AND GROUNDS FOR MERELY ARITHMETICAL CORRECTIONS

3.1 – LEGAL FRAMEWORK

3.1.1 - UNCONVENTIONAL THERAPIES

The basic framework for unconventional therapies was established through Law no. 45/2003, of 22 August, more recently supplemented by Law no. 71/2013, of 2 September, which regulates the former as to the professional exercise of activities involving the application of unconventional therapies, dealing with access to those professions and their exercise, in the public or private sector, with or without profit objectives.

Article 3.º, no. 2 of Law no. 45/2003 recognized as unconventional therapeutic activities those practiced within "acupuncture, homeopathy, osteopathy, naturopathy, phytotherapy and chiropractic", this list being reiterated in subparagraphs a), b), c), e), f) and g) of article 2.º of Law no. 71/2013, to which is added, through its subparagraph d), traditional Chinese medicine.

Pursuant to article 3.º, no. 1 of Law no. 45/2003, unconventional therapies are considered to be those that depart from a philosophical basis different from conventional medicine and apply specific diagnostic processes and therapies of their own.

Article 4.º, no. 1 of Law no. 45/2003 indicates, as one of the guiding principles of unconventional therapies, the individual right to choose the therapeutic method, based on an informed choice, regarding safety, quality, efficacy and possible risks.

Another guiding principle of unconventional therapies, to which article 4.º, no. 4 of Law no. 45/2003 refers, consists of the defence of the well-being of the user, which includes complementarity with other health professions.

Both article 5.º of Law no. 45/2003 and article 3.º of Law no. 71/2013 establish that technical and deontological autonomy is recognized in the professional exercise of unconventional therapies.

Pursuant to article 4.º, no. 1 of article 5.º, nos. 3 and 4 of article 6.º, no. 2 of article 11.º, article 17.º and nos. 2 and 5 of article 19.º, all of Law no. 71/2013, the following matters are regulated through ordinances: activities comprised in the exercise of unconventional therapist professions; study cycle compatible with the degree course required for each of the unconventional therapeutic areas; rules for obtaining the professional credential required and the fee to be paid for this purpose; requirements for licensing the premises where unconventional therapeutic activities are conducted; competencies and rules of operation of the Advisory Council for Unconventional Therapies; fixing the terms of curriculum assessment of candidates for obtaining a professional credential, to be carried out by the Central Health System Administration (ACSS), and the fee to be applied to the possible issuance of a professional credential with provisional character.

Ordinance no. 207-A/2014 deals with the characterization and functional content of the naturopath profession, with subparagraph a) of no. 2 of its article 2.º referring to the application of diagnostic, prescription and treatment methods of its own, based on specific axioms and theories, as a result of a holistic, energetic and natural approach to the human being, using, as stated in no. 1 of the same article, phytotherapy, homeopathy, hydrotherapy, geotherapy, manipulation therapies and other related methods.

Ordinance no. 207-B/2014 concerns the characterization and functional content of the osteopath profession, with subparagraph e) of no. 2 of its article 2.º clarifying that osteopathy has as essential components of intervention structural diagnosis, manipulative treatment and others necessary for proper osteopathic performance.

Ordinance no. 207-C/2014 addresses the characterization and functional content of the homeopath profession, which resorts, for prevention and treatment, to homeopathic medicines derived from substances called stocks or homeopathic raw materials, and whose theoretical principles are, namely, the law of similarity, the principle of cure duration, the principle of single remedy, the theory of infinitesimal minimal dose and the theory of chronic disease, as indicated in nos. 1 and 2 of article 2.º of the aforementioned instrument.

Ordinance no. 207-D/2014 deals with the characterization and functional content of the chiropractor profession, which is based on the diagnosis, treatment and prevention of disorders of the neuromuscular-skeletal system, mainly subluxation (in the chiropractic concept), as well as the effects of these disorders on general health and individual well-being, as stated in no. 1 of its article 2.º, which places great importance on manual techniques, with or without the use of instruments, including the adjustment of subluxation (in the chiropractic concept) and/or manipulation of joints, and which does not resort to medicines or surgery, and values biopsychosocial factors in the treatment of the person, in accordance with what is clarified, respectively, in subparagraphs d) and e) of no. 2 of that same article.

Ordinance no. 207-E/2014 concerns the characterization and functional content of the phytotherapist profession, which, pursuant to no. 1 and subparagraph a) of no. 2 of article 2.º of that instrument, uses, as therapeutic ingredients, substances derived from plants and implements a holistic, energetic and natural conception of the human being, and diagnostic, prescription and treatment methods of its own based on specific axioms and theories.

Ordinance no. 207-F/2014 addresses the characterization and functional content of the acupuncturist profession, with no. 1 of its article 2.º referring to the use of diagnostic, prescription and treatment methods of its own based on axioms and theories of acupuncture, utilizing the network of meridians, acupuncture points and reflexology zones of the human organism, in order to prevent and treat energy, physical and psychic disharmonies, while subparagraphs a) and b) of no. 2 of the same article refer to a holistic, energetic and dialectical conception of the human being and a specific philosophy and methodology based on traditional Chinese medicine.

Ordinance no. 207-G/2014 concerns the characterization and functional content of the traditional Chinese medicine specialist profession, within which prevention, diagnosis, prescription and treatment methods of its own are used, based on traditional Chinese medicine theories and its specific methods, namely, the stimulation of acupuncture points and meridians through different therapeutic methods, the prescription of phytotherapeutic formulas, dietary advice and exercises to promote and recover health, as stated in no. 1 of article 2.º of the aforementioned instrument.

3.1.2 - MEDICAL, DENTAL, MIDWIFERY, NURSING AND OTHER PARAMEDICAL PROFESSIONS IDENTIFIED IN NO. 1 OF ARTICLE 9 OF THE CIVA

As the CJEU recalls, in the Order issued in case C-555/15, of 14-04-2016, regarding article 132.º, no. 1, subparagraph c), of Directive 2006/112, "26. (...) according to a literal interpretation of this provision, for a professional to be able to benefit from the exemption provided therein, he must meet two requirements, namely, on the one hand, to provide 'medical assistance services' and, on the other, these services must be 'provided in the course of the exercise of medical and paramedical activities, as defined by the Member State concerned' (judgment Solleveld and van den Hout-van Eijnsbergen, C-443/04 and C-444/04, EU:C:2006:257, no. 23)."

It is therefore appropriate to ascertain whether acupuncture service provisions meet the requirements necessary to be assimilated to service provisions provided in the exercise of the professions of doctor, dentist, midwife, nurse and other paramedical professions, to which article 9.º, no. 1 of the CIVA refers.

i) Doctors

Decree-Law no. 203/2004, of 18 August, which defines the legal regime for medical training after the degree in Medicine, with a view to specialization, and establishes the general principles that the respective process must follow, determines in no. 1 of its article 2.º that, after the degree in Medicine, the medical internship begins, which corresponds to a unique process of specialized, theoretical and practical medical training, with the objective of enabling the doctor to exercise technically differentiated practice in the respective professional area of specialization.

Article 2.º, no. 2 of Decree-Law no. 203/2004 stipulates that, without prejudice to the provisions of the previous number, the autonomous exercise of medicine is recognized from the conclusion, with success, of the second year of medical internship training, with nos. 1 and 2 of article 3.º of the same instrument establishing that the medical internship is structured in professional areas of specialization, which are approved by ordinance of the government member responsible for the health area, on the proposal of the Medical Association and after hearing the National Medical Internship Council.

Pursuant to no. 3 of article 2.º and Annex I of the Medical Internship Regulation, approved by Ordinance no. 251/2011, of 24 June, the medical specialties are the following:

• pathological anatomy;
• anesthesiology;
• angiology/vascular surgery;
• cardiology;
• pediatric cardiology;
• cardiac surgery;
• general surgery;
• maxillofacial surgery;
• pediatric surgery;
• plastic, reconstructive and aesthetic surgery;
• thoracic surgery;
• dermatovenereology;
• infectious diseases;
• endocrinology/nutrition;
• stomatology;
• gastroenterology;
• medical genetics;
• gynecology/obstetrics;
• clinical hematology;
• immunoallergology;
• immuno-hemotherapy;
• sports medicine;
• physical medicine and rehabilitation;
• general and family medicine; internal medicine;
• legal medicine;
• nuclear medicine;
• occupational medicine;
• nephrology;
• neurosurgery;
• neurology;
• neuroradiology;
• ophthalmology;
• medical oncology;
• orthopedics;
• otorhinolaryngology;
• clinical pathology;
• pediatrics;
• pneumology;
• psychiatry;
• child and adolescent psychiatry;
• radiodiagnosis;
• radiotherapy;
• rheumatology;
• public health; and
• urology.

In accordance with what is established in article 8.º of the Statute of the Medical Association, approved by Decree-Law no. 282/77, of 5 July, the exercise of medicine depends on registration with the Medical Association, with article 9.º of the same statute establishing that only Portuguese nationals and foreigners licensed in Medicine by a Portuguese or foreign higher education institution can register with the Medical Association, provided that, in the latter case, they have obtained official course equivalence duly recognized by the Medical Association.

The Code of Ethics of the Medical Association and, in nos. 1 and 2 of its article 32.º, respectively, establishes that the doctor should only make decisions dictated by science and his conscience, without prejudice to having freedom of choice of diagnostic and therapeutic means, but must refrain from unnecessarily prescribing expensive tests or treatments or performing superfluous medical acts.

ii) Dentists

With respect to dental doctors, no. 2 of article 3.º of the Statute of the Dental Association, approved by Law no. 110/91, of 29 August, qualifies as such a person licensed by a higher education institution or by a dental medicine faculty, Portuguese or foreign, provided that, in the latter case, he has obtained course equivalence recognized by the Dental Association (Ordem dos Médicos Dentistas), as well as the person who, being licensed by another institution, obtains the aforementioned equivalence, in accordance with the legal provisions in force, and equally recognized by the Dental Association, with its article 9.º establishing that for the exercise of dentistry registration with the Dental Association is mandatory.

Pursuant to no. 1 of article 19.º of the Code of Ethics of the Dental Association, the dental doctor must refrain from any therapeutic or diagnostic care not scientifically substantiated, as well as from reckless experimentation or the use of diagnostic or therapeutic processes that may produce alteration of consciousness, with diminution of free determination or responsibility, or cause morbid conditions, except with formal patient consent or their legal representative, preferably in writing, after having been informed of the risks involved, and always in the patient's interest.

Presently, in light of the academic and professional qualification of dental doctor, the term "dentist", contained in no. 1 of article 9.º of the CIVA, in practice corresponds only to a profession that the law itself qualifies as having a residual character, whose exercise depends on the possession of the dentist qualification and the respective professional card, encompassing solely the professionals identified in the Official Journal, 2nd Series, no. 270, of 22 November 2002, with any measures aimed at regularizing future professional situations being expressly prohibited, as determined in article 2.º of Law no. 40/2003, of 22 August, which regulates and disciplines the professional activity of dentistry.

According to no. 1 of article 7.º of the Code of Ethics of Dentists, contained in Annex I of Ordinance no. 168/2011, of 20 April, dentists have the duty to ensure their patient the provision of the best oral health care, within their limits of competence, and to act with the greatest respect and propriety, being obliged, pursuant to no. 11 of the same code, to refrain from the application of any therapeutic or diagnostic care not scientifically substantiated, as well as from reckless experimentation or the use of processes that may produce alteration of consciousness, with diminution of free determination or responsibility, or cause morbid conditions.

iii) Nurses and Midwives

In turn, the Regulation of the Professional Exercise of the Nurse (REPE), approved by Decree-Law no. 161/96, of 4 September, in no. 1 of its article 4.º, conceptualizes nursing as the profession that, in the health field, aims to provide nursing care to the human being, whether healthy or ill, throughout the life cycle, and to the social groups to which he belongs, in a manner that they maintain, improve and recover their health, helping them achieve their maximum functional capacity as quickly as possible.

Pursuant to nos. 2 and 3 of article 4.º of the REPE, by "nurse" is meant the professional qualified with a legally recognized nursing course, to whom has been attributed a professional qualification that recognizes scientific, technical and human competence to provide general nursing care to the individual, family, groups and community, at the levels of primary, secondary and tertiary prevention, and by "specialized nurse" is meant the nurse qualified with a nursing specialization course or a course of specialized higher education studies in nursing, to whom has been attributed a professional qualification that recognizes scientific, technical and human competence to provide, in addition to general nursing care, specialized nursing care in his/her area of specialization.

As illustrated in no. 5.2 of Annex II of Law no. 9/2009, of 4 September, relating to the recognition of professional qualifications within the EU, the term "midwife", contained in no. 1 of article 9.º of the CIVA, corresponds to the professional qualification of specialized nurse in maternal and obstetric health, currently having the full designation of specialized nurse in maternal, obstetric and gynecological health nursing, in accordance with specific competencies contained in Regulation no. 127/2011, of 18 February.

In accordance with no. 4 of article 4.º of the REPE, nursing care comprises the autonomous or interdependent interventions to be performed by the nurse within the scope of his/her professional qualifications, being one of the characteristics of nursing care, indicated in subparagraph 3) of article 5.º of the REPE, the use of scientific methodology, which includes identification of health problems in general and nursing problems in particular, in the individual, family, groups and community; collection and assessment of data on each situation presented; formulation of nursing diagnosis; preparation and implementation of plans for the provision of nursing care; correct and adequate execution of necessary nursing care; assessment of nursing care provided and reformulation of interventions.

In accordance with article 6.º of the REPE, the exercise of the nursing profession is conditional on obtaining a professional credential, to be issued by the Nurses Association.

iv) Paramedical Activities

In turn, Decree-Law no. 261/93, of 24 August, regulates qualified health professional activities classified as paramedical, with no. 1 of its article 1.º indicating that they comprise the use of scientifically-based techniques aimed at promoting health and preventing, diagnosing and treating disease, or rehabilitation, with Decree-Law no. 320/99, of 11 August, defining the general principles and regulation of paramedical professions of diagnosis and therapeutics, enumerated in that first instrument, with no. 1 of its article 3.º reiterating the use in paramedical activities of scientifically-based techniques for the purposes described above.

Pursuant to no. 1 of article 2.º of Decree-Law no. 320/99, grounded in no. 3 of article 1.º and the Annex of Decree-Law no. 261/93, the following professions are considered paramedical:

• clinical analysis and public health technician;
• pathological anatomy, cytology and thanatology technician;
• audiology technician;
• cardiopulmonary technician;
• dietician;
• pharmacy technician;
• physiotherapist;
• oral hygienist;
• nuclear medicine technician;
• neurophysiology technician;
• orthoptist;
• orthotics and prosthetics technician;
• dental prosthetics technician;
• radiology technician;
• radiotherapy technician;
• speech therapist;
• occupational therapist;
• environmental health technician.

In accordance with no. 2 of article 1.º of Decree-Law no. 261/93, the activities exercised, within the scope of their own competencies, by professionals with mandatory registration in a public-nature association and also by dentists, nurses and midwives are not covered by this instrument.

In accordance with no. 1 of article 2.º of Decree-Law no. 261/93, the exercise of paramedical professions depends on holding a course from a recognized educational establishment, a diploma or certificate recognized as equivalent, or a professional card or equivalent qualification, with the aspects related to access to such professions being regulated in more detail in article 4.º of Decree-Law no. 320/99.

Law no. 65/2014, of 28 August, which establishes the regime of access and exercise of the podologist profession, with or without profit objectives, as well as the issuance of the respective professional qualification, characterizes podology, in accordance with subparagraph g) of its article 2.º, as the science in the health field that aims at the investigation, study, prevention, diagnosis and therapeutics of affections, deformities and alterations of the feet, establishing in no. 1 of its article 7.º that said profession is equated, for all legal purposes, to a paramedical profession.

This examination of the national regulations that regulate the professions referred to in no. 1 of article 9.º of the CIVA, prima facie, allows the conclusion that professions whose exercise consists of providing assistance services that fall within the legal qualification of unconventional therapies are not encompassed therein.

3.2 - EXEMPTIONS IN ACTIVITIES LINKED TO HUMAN HEALTH

In nos. 1 to 5 of article 9.º of the CIVA are provided a set of exemptions in the field of human health, particularly in the domain of medical and health assistance. These internal provisions are based on what is provided in subparagraphs b) to e) of no. 1 of article 132.º of the VAT Directive.

In broad terms, the exemptions provided for in nos. 1 and 2 of article 9.º of the CIVA, corresponding to subparagraphs c) and b) of no. 1 of article 132.º of the VAT Directive, respectively, relate to services whose objective is to diagnose, albeit merely for prevention purposes, as well as to treat and, to the extent possible, cure diseases or health anomalies.

This point of view has already been expressed by the CJEU in numerous decisions, regarding the EU provisions that serve as their basis.

Article 9.º, no. 1 of the CIVA exempts from the tax service provisions provided in the exercise of the activities of doctor, dentist, midwife, nurse and other paramedical professions. The provision is based on subparagraph c) of no. 1 of article 132.º of the VAT Directive, according to which Member States must exempt "services of medical assistance provided in the course of the exercise of medical and paramedical professions, as defined by the Member State concerned".

Regarding the norm contained in subparagraph c) of no. 1 of article 132.º of the VAT Directive, the CJEU, in its judgment of 27 April 2006 (C-443/04 and C-444/04, Solleveld and others, nos. 29 and 37), stressed that it is incumbent upon each Member State to define in its internal law the paramedical professions whose services are exempt from VAT, as such norm grants Member States a discretionary power in this regard. However, the exemption must be applied only to services provided by providers with the required professional qualifications.

In Portuguese internal legislation, the definition of paramedical activities is contained in Decree-Law no. 261/93, of 24 August, and Decree-Law no. 320/99, of 11 August, already explained in section 3.1.2.

In accordance with no. 1 of article 2.º of Decree-Law no. 261/93, the exercise of paramedical activities depends on holding a course from a recognized educational establishment, a diploma or certificate recognized as equivalent, or a professional card or equivalent qualification. Additionally, article 4.º of Decree-Law no. 320/99, regarding the exercise of diagnostic and therapeutic professions, specifies the conditions of access to those professions.

Regarding the norm currently contained in subparagraph c) of no. 1 of article 132.º of the VAT Directive, the CJEU stated in several judgments, including in the judgment of 10 September 2002 (C-141/00, Kugler, no. 26), that the same has an objective character, defining exempt operations based on the nature of the services provided, without mentioning the legal form of the provider. For this reason, for the exemption to apply, it is sufficient that the services are medical or paramedical and that these are provided by persons possessing the required professional qualifications, without it being possible to discriminate based on whether the services are provided in the course of an activity by a natural or legal person.

In turn, article 132.º no. 1, subparagraph b) of the VAT Directive exempts medical and health services provided by hospital establishments, clinics, dispensaries and similar institutions. This exemption extends to operations closely related to hospitalization and medical assistance, understood to mean accessory goods transfers or service provisions that logically fit within the framework of the supply of hospitalization and medical assistance services, provided that they constitute an indispensable step in the process of provision of the exempt services, in order to achieve the therapeutic objectives pursued.

Thus, for the exemption provided for in article 132.º, no. 1, subparagraph b) of the VAT Directive to apply, it is necessary that:

• hospitalization or medical assistance or closely related operations are at issue;
• assured by organisms; and
• of public law or, under equivalent conditions, by other hospital establishments, medical care and diagnostic centers or of the same nature, in any case, duly recognized.

It should be noted that the CJEU has consistently assimilated the concept of medical assistance, provided for in subparagraph b), to the concept of medical assistance service provisions in the course of the exercise of medical and paramedical professions, provided for in subparagraph c).

However, it results from the CJEU's case law that the activities of aesthetic medicine, aesthetic, plastic and reconstructive surgery are not encompassed in the concept of medical assistance.

3.3 - UNCONVENTIONAL THERAPIES AND THE EXEMPTIONS PROVIDED FOR IN ARTICLE 9, NOS. 1 AND 2 OF THE CIVA

In accordance with what has been expounded above, the understanding assumed by the Tax Authority, regarding no. 1 of article 9.º of the CIVA, is directed toward limiting the exemption provided therein to medical assistance service provisions provided in the exercise of the professions of doctor, including dental doctor, dentist and nurse, including specialized nurse in maternal and obstetric and gynecological health, and of professions that are qualified as paramedical, whose notion and list Decree-Laws no. 261/93 and no. 320/99 define.

It thus results with full clarity that service provisions provided in the exercise of the professions of acupuncturist, traditional Chinese medicine specialist, phytotherapist, homeopath, naturopath, osteopath and chiropractor are not encompassed within no. 1 of article 9.º of the CIVA.

The understanding of the Tax Authority is supported by the fact that the provision that serves as the matrix for no. 1 of article 9.º of the CIVA, specifically subparagraph c) of no. 1 of article 132.º of the VAT Directive, reduces the granting of the exemption to medical and paramedical professions, as defined by the Member State concerned. Contrary to what occurs regarding the concepts that comprise the majority of the norms of the common system establishing VAT exemptions, that EU provision grants to the internal legislation of each Member State the responsibility to delineate the professional notions it evokes.

In effect, as a general rule, the concepts that comprise VAT exemption norms constitute autonomous notions of EU law, which must be interpreted in the general context of the common tax system, and not based on definitions specific to each Member State, namely those imported from other areas of taxation or other branches of law, except when the provision in question expressly permits it, as occurs in the stretch in question of subparagraph c) of no. 1 of article 132.º of the VAT Directive. Hence the margin of autonomy granted to Member States, in terms of the consequences to be drawn in the VAT context from the definitions of medical and paramedical professions that exist in each of them, does not impose on them a uniform interpretation of such concepts. Thus, there being no need to interpret the concepts to which no. 1 of article 9.º of the CIVA refers in light of the specific context of the common tax system, the interpretive rules to which article 11.º of the General Tax Law (LGT) refers necessarily apply. Now, in the absence of definitions directly adapted in VAT legislation, it follows from no. 2 of article 11.º of the LGT that the content of the term paramedical must be interpreted in the sense attributed to it in other branches of law.

This has indeed been the scope of no. 1 of article 9.º of the CIVA that the Tax Authority, as well as the national courts themselves, have repeatedly attributed to the expression "paramedical professions" contained in that subparagraph, thus referring to the configuration of its content given by Decree-Law no. 261/93 and Decree-Law no. 320/99.

In any case, it should be noted that, despite the margin of autonomy conferred on Member States, this does not mean that it is not subject to limitations, either those resulting from the objective of subparagraph c) of no. 1 of article 132.º of the VAT Directive, or those of EU law principles applicable to the common tax system.

Beginning with a generic reference to the principle of neutrality that informs the common VAT system, the same has a dual content. On the one hand, it requires that economic operators that supply similar goods or services that are in competition with each other be treated identically regarding VAT, in order to avoid any distortion of competition. On the other hand, the principle of neutrality implies that taxable persons can, as a general rule, with respect to goods and services acquired for the exercise of their activities taxed under this tax, be relieved of the VAT charged on those goods and services.

Within the scope of the exemption currently provided for in subparagraph c) of no. 1 of article 132.º of the VAT Directive, the CJEU has also referred to the fact that the interpretation thereof is subject to the principle of fiscal neutrality, in the first sense indicated above, as it follows from what is stated in the judgments of 6 November 2003 (C-45/01, Dornier, nos. 42, 44 and 49), 27 April 2006 (C-443/04 and C-444/04, Solleveld and others, nos. 35, 36, 39 and 41) and 8 June 2006 (C-106/05, L.u.P., nos. 24, 32, 36 and 48). To this extent, the application of the exemption provided for in subparagraph c) of no. 1 of article 132.º of the VAT Directive must encompass, in the first place, economic operators that are in competition with each other.

In this context, it does not appear that the exercise of the professions of acupuncturist, traditional Chinese medicine specialist, phytotherapist, homeopath, naturopath, osteopath or chiropractor consists of the provision of services that are in direct competition with the exercise of the professions indicated in no. 1 of article 9.º of the CIVA, and that the respective taxation collides, at least in a strict sense, with the principle of fiscal neutrality. The benefit of those services does not have in its genesis an indifferentiated choice by patients but rather a deliberate option by them to resort to their specific methods, there being, therefore, no competitive relationship with conventional therapies, but rather a complementary relationship with these.

The CJEU has manifested itself to the effect that the principle of fiscal neutrality constitutes an expression, in the VAT domain, of the general principle of equality of treatment, stressing that, while a strict violation of the former can only occur in relation to competing economic operators, the aspect linked to equality of treatment prevents other types of tax discrimination that affect economic operators that, not necessarily being in a position of competition, find themselves in a comparable situation in other respects.

Regarding the principle of equality of treatment, the CJEU, although it has not failed to state that the terms of a provision of EU law must, as a general rule, be interpreted autonomously and uniformly throughout the EU, in light of the context and the objectives pursued, considered that this is not so when the provision contains an express reference to the law of Member States to determine its meaning and scope. Now, regarding the norm contained in subparagraph c) of no. 1 of article 132.º of the VAT Directive, in the judgment of 27 April 2006 (C-443/04 and C-444/04, Solleveld and others, nos. 29 and 37), the CJEU reiterated that it is incumbent upon each Member State to define in its internal law the paramedical professions whose services are exempt from VAT, as such norm grants Member States a discretionary power in this regard, provided it is only applied to services provided by providers with the professional qualifications required by law. Although a reference to the internal law of each Member State occurs in the case of subparagraph c) of no. 1 of article 132.º of the VAT Directive, one cannot lose sight of the fact that in no. 35 of that same judgment, despite having recognized the margin of free appraisal granted to Member States in that provision, the CJEU also added that the requirement for correct and simple application of exemptions does not allow Member States to prejudice the objectives pursued by the Directive, nor the principles of EU law, in particular the principle of equality of treatment, which is translated, in the VAT field, into the principle of fiscal neutrality.

The differentiated treatment given to unconventional therapies, in light of the autonomy granted to Member States by subparagraph c) of no. 1 of article 132.º of the VAT Directive, reflects, in the first place, the objective difference as to their nature and training requirements of their respective professionals, characteristic of the therapies covered by Laws nos. 45/2003 and 71/2013, and by Ordinances nos. 207-A/2014 to 207-G/2014 and the professions identified in no. 1 of article 9.º of the CIVA.

Still within the framework of objective dissimilarities with the professions inserted in no. 1 of article 9.º of the CIVA, unconventional therapeutic activities depart from a philosophical base different from conventional medicine and apply specific diagnostic processes and therapies of their own, enjoying technical and deontological autonomy, not consubstantiating in the same types of interventions, acts, processes, methods, techniques or specialties associated with the professions mentioned in that provision of the CIVA.

The WHO itself defines as unconventional therapies those that depart from a philosophical base different from conventional medicine and apply specific processes and therapies of their own, recognizing as such those practiced, namely, in the exercise of acupuncture, homeopathy, osteopathy, naturopathy, phytotherapy and chiropractic.

Regarding the exemption provided for in subparagraph b) of no. 1 of article 132.º of the VAT Directive, the CJEU considers that the expression "medical assistance", which appears in subparagraph b) of no. 1 of article 132.º of the VAT Directive, encompasses the totality of service provisions covered in subparagraph c), and that the difference between the cited subparagraphs is not so much the nature of the services provided, but the place where they are provided. Thus, covered by subparagraph b) are the health care provided in establishments pursuing social purposes of protection of human health, whereas subparagraph c) refers to care provided outside hospital establishments.

In conclusion,

Regarding the framework of UCT within article 9.º of the CIVA, the Tax Authority has pronounced itself at various times in the form of Binding Information, Other Administrative Information and Administrative Instructions, namely:

1. 17/12/2004 - Office no. … of the Director General's Cabinet to the Portuguese Association of Acupuncture Professionals - VAT and IRC framework for the exercise of Acupuncture

2. 14/01/2005 - Office no. … of DSCIVA to the Portuguese Association of Acupuncture Professionals - VAT framework of acupuncture activity

3. 07/03/2005 - Binding Information in Case no. 1301 2004003 with order of SDG-VAT, subject: Medical and paramedical activities. Chiropractor activity

4. 11/06/2007 - Information in Case 1301 2007077, with order of SDG-DG; subject: Acupuncture.

5. 21/08/2007 - Binding Information in Case no. 1301 2007027 with order of SDG-VAT, subject: Acupuncture.

6. 8/09/2008 - Information no. 1764, order of the Director General - VAT framework of acupuncture activity

7. 26/08/2015 – Circular Office no. 30174 - VAT Framework of Unconventional Therapeutic Activities

In the administrative doctrine produced regarding the activities of unconventional therapies identified, namely acupuncture and chiropractic, the Tax Authority has assumed a consistent position over time, clarifying and informing that these activities are subject to VAT at the normal rate and are not exempt from it, as is demonstrated.

In the first administrative information of 17/12/2004, under Office no. … of the Director General's Cabinet, to clarify the VAT and IRC framework for the exercise of Acupuncture, the Tax Authority (then DGCI) came, in information prepared for the Portuguese Association of Acupuncture Professionals (APPA), of which Dr. Pedro Choy is president, to clarify the following (see nos. 3 and 4, which are transcribed):

"3 - In accordance with Decree-Law no. 261/93, of 24/07, an instrument that regulates the exercise of health professional activities designated as paramedical, it appears, as already stated above, that acupuncture activity is not listed in the aforementioned list, consequently it is not possible to apply the VAT exemption referred to in subparagraph b) of no. 1 of article 9.º of the CIVA, as it does not fit into any of the professional activities referred to therein.

"4 - In light of the above, it is concluded that acupuncture activity does not fit into any of the exemptions referred to in article 9.º of the CIVA, nor into any other VAT exemption norms contained in legislation complementary to that code."

This position was reaffirmed, both in binding information, issued, among others, in Case 1301 2007027 of 21/08/2007, and in Information no. 135 of 6/10/2007, regarding the framework of acupuncture activities and in Information no. 1764 of the DG of 08/09/2008, as well as in Circular Office no. 30174 of 26/08/2015.

In order to clarify the interpretation of the Tax Authority, regarding the exercise of UCT professions, when the subjective criterion of the exemption provided for in no. 1 of article 9.º of the CIVA is satisfied (that is, possession of qualifications and credentialing in accordance with internal law for the exercise of the professions of doctor, dentist, midwife, nurse and other paramedical professions), the VAT Services reiterate that:

• It is incorrect to argue that the Tax Authority considers that services provided for UCT (in the case under analysis acupuncture) can benefit from the exemption provided for in article 9.º, nos. 1 and 2 of the CIVA if provided by doctors or paramedics;

• The exemption is only applicable, in specific circumstances, i.e., when, within the exercise of medical or paramedical professions, UCT techniques are applied, as an auxiliary therapy of the medical or paramedical act;

• Consequently, if a doctor, nurse or paramedic acts as an acupuncturist, the service provisions by these provided, although of assistance, are not integrated in the exercise of a medical or paramedical profession, thereby being subject to VAT.

In this manner, the principle of fiscal neutrality is not infringed, as only within the scope of the exercise of medical and paramedical professions, and only as a complementary or auxiliary therapy, can the services provided by an acupuncturist benefit from the VAT exemption, in view of the strict, but not restrictive, objective of the exemption provided for in no. 1 of article 9 of the CIVA.

In the case at hand, the clinic designated "The Clinics I…", are specialized in health services exclusively within the scope of Chinese Medicine, comprising the various disciplines of this ancient medicine, namely Acupuncture and phytotherapy." As they advertise themselves on their website, https://www.clinicas...php/..., where among other aspects the network of clinics is defined: Almeirim, Aveiro, Cacém, Carcavelos, Cascais, Coimbra, Faro, Évora, Leiria, Lisbon (Av….), Lisbon (…), Lisbon (…), Mafra, Matosinhos, Odivelas, Portimão, Porto (…), Santarém, Salvaterra de Magos, Tomar.

These clinics, despite being known as "The Clinics I…", take the legal form of two private law legal entities, Clinic A…, Lda, (NIF…) and J…, Lda (NIF…), with the activity of both being attributed to the natural person K…, and, although their designation, they do not constitute hospital units, so the service provisions provided therein have no framework either in no. 1 or in no. 2 of article 9.º of the CIVA.

In line with the reasoning developed in points 3.1 to 3.3, above:

• the regulation of unconventional therapeutic activities provided for in Law no. 45/2003 and implemented in Law no. 71/2013 and its respective regulatory ordinances, does not equate the professions of acupuncture, phytotherapy, homeopathy, traditional Chinese medicine, naturopathy, osteopathy and chiropractic to paramedical professions, a requirement that is necessary for the recognition of the exemption enshrined in no. 1 of article 9.º of the CIVA;

• there is also no expressly recognized exemption in the VAT Code that contemplates unconventional therapeutic activities, so their exercise constitutes the performance of taxable operations not exempt therefrom, without prejudice to the professionals exercising them being able to benefit from the special exemption regime provided for in article 53.º of the same instrument, if the conditions provided therein are met (as clarified in point 10 of Circular Office no. 30174 of 26/08/2015 of the DSIVA).

3.4 - DETERMINATION OF VAT CORRECTIONS PROPOSED

Taking into consideration the grounds expounded, it is proposed to levy VAT on acupuncture and Tui Na services provided by the TP, as they do not constitute active operations framed in the exemptions provided for in article 9.º of the CIVA, so they constitute operations subject to tax levy, at the rate defined in subparagraph c) of no. 1 of article 18.º of the same Code.

Thus, the elements necessary for determining the amounts of VAT to be levied in the years between 2012 and 2015 were extracted from the monthly trial balances through the Saf-T file, with the accounts up to level 2, based on the amounts recorded in account 72 - Service Provisions, as shown in the following summary tables:

(...)

The proposed VAT correction for each year are synthesized in the following summary table:

(...)

F) Following the inspection, the Tax and Customs Authority issued VAT assessments nos. 2016…, of 15.09.2016, in the amount of € 36,015.57, 2016…, of 15.09.2016, in the amount of € 34,477.78, 2016…, of 15.09.2016, in the amount of € 40,678.80, 2016…, of 15.09.2016, in the amount of € 37,149.41, 2016…, of 15.09.2016, in the amount of € 41,699.52, 2016…, of 15.09.2016, in the amount of € 41,447.06, 2016…, of 15.09.2016, in the amount of € 37,028.34, 2016…, of 15.09.2016, in the amount of € 31,907.82, 2016…, of 15.09.2016, in the amount of 34,736.04, 2016…, of 15.09.2016, in the amount of € 40,080.00, 2016…, of 15.09.2016, in the amount of € 38,345.17 and 2016…, of 15.09.2016, in the amount of € 29,503.13, relating to 2012/01, 2012/02, 2012/03, 2012/04, 2012/05, 2012/06, 2012/07, 2012/08, 2012/09, 2012/10, 2012/11 and 2012/12, respectively, in the total amount of € 443,068.00;

G) The Claimant filed a request for exemption from provision of guarantee, which was inferred (document no. 15 attached to the request for arbitral ruling, whose contents are deemed reproduced and article 68.º thereof);

H) The Claimant did not pay the levied amounts (article 67.º of the request for arbitral ruling);

I) The Tax and Customs Authority initiated a tax enforcement proceeding, which had the number …2016…, for coercive collection of the levied amounts (in addition to others relating to the years 2013, 2014 and 2015), following which the attachment of the balance of the Claimant's bank accounts was made in the total amount of € 12,852.14 (document no. 16 attached to the request for arbitral ruling, whose contents are deemed reproduced);

J) The Claimant requested the lifting of the attachment referred to in the preceding subparagraph and subsequently filed a complaint against the attachment (documents nos. 17 and 18 attached to the request for arbitral ruling, whose contents are deemed reproduced);

K) On 13-02-2017, the Claimant filed the request for constitution of an arbitral tribunal that gave rise to the present proceeding.

2.2. Unproven Facts and Reasoning of the Decision on Factual Matters

It was not proven that bank accounts of the Claimant in the L… were attached in the amount of € 2,082,909.59 (article 69.º of the request for arbitral ruling), as the document that the Claimant indicates as proof of the alleged only refers to the attachment of bank account balances in the total amount of € 12,852.14.

The proven facts are based on documents attached to the request for arbitral ruling and in the administrative file, not being subject to controversy.

3. Legal Matters

The issue that is the subject of the proceeding is whether, in the year 2012, the exercise of the acupuncture activity was exempt from VAT, when the services were not provided by doctors or nurses.

The Claimant did not levy VAT regarding the provision of services of this type that it provided in 2012, on the understanding that it was covered by the exemption provided for in subparagraph 1 of article 9.º of the CIVA, in the part establishing that "services provided in the exercise of the professions of doctor, dentist, midwife, nurse and other paramedical professions are exempt from the tax".

Furthermore, the Claimant argues that the application of the exemption to the provision of services in question was clarified by Law no. 1/2017, of 16 January, which added a new article 8.º-A to Law no. 71/2013, establishing that "professionals engaged in the exercise of unconventional therapies referred to in article 2.º are subject to the same value added tax regime as paramedical professions", a provision to which the Law no. 1/2017 attributed an interpretative nature through article 3.º thereof.

The Tax and Customs Authority understood, in sum, that the provision of acupuncture services is not covered by this concept of "paramedical professions", so it is not covered by the exemption, when the services are not provided by those who exercise the other professions provided for covered by this norm, namely doctors or nurses.

As for the scope of Law no. 1/2017, the Tax and Customs Authority understands, in sum, that it only applies from the entry into force of Law no. 71/2013, of 2 September, because the interpretative law integrates into the interpreted law, in accordance with what is provided in article 13.º of the Civil Code, and therefore only from the entry into force of this Law must the interpretation made therein be applied.

Since there is consensus between the Parties that the referred interpretative law resolves the issue at least from the entry into force of Law no. 71/2013, it is justified that the issue of the scope of that Law be addressed as a priority, as, if it has the scope defended by the Claimant, it will be pointless to consider the remaining issues raised.

3.1. Scope of Law no. 1/2017, of 16 January, in attributing an interpretative nature to article 8.º-A added to Law no. 71/2013, of 2 September

The disagreement between the Parties on this issue concerns the date to which the rule stating "professionals engaged in the exercise of unconventional therapies referred to in article 2.º are subject to the same value added tax regime as paramedical professions", contained in the referred article 8.º-A, applies retroactively.

Article 8.º-A defines the VAT regime applicable to professionals engaged in the exercise of unconventional therapies referred to in Law no. 73/2013, through a reference to the "value added tax regime of paramedical professions".

Therefore, the norm that this article 8.º-A interprets is the one that previously defined the VAT regime for those exercising paramedical professions, clarifying that it also applies to professionals engaged in the exercise of unconventional therapies referred to in article 2.º of Law no. 73/2013.

The provision establishing the VAT regime applicable to service provisions within paramedical professions is article 9.º, no. 1, subparagraph a), of the CIVA, which establishes that "services provided in the exercise of the professions of doctor, dentist, midwife, nurse and other paramedical professions are exempt from the tax".

Thus, the practical scope of article 8.º-A of Law no. 1/2017 is to clarify that, for VAT purposes, the professions of those engaged in the exercise of unconventional therapies referred to in article 2.º of Law no. 73/2013, which includes acupuncture, are considered paramedical professions for VAT purposes.

Therefore, the provision that is authentically interpreted by Law no. 1/2017 is article 9.º, no. 1, subparagraph a), of the CIVA and not Law no. 71/2013, which contains no norm of a fiscal nature, namely regarding VAT incidence.

The preparatory works of Law no. 1/2017 explicitly corroborate this conclusion that article 9.º, no. 1, subparagraph a), of the CIVA was intended to be interpreted.

Indeed, in the Draft Law no. 289/XIII/1st, presented by MPs of the PSD, which gave rise to the legislative process that led to the approval of Law no. 1/2017, the following is stated:

After having consistently accepted the registration of professionals in unconventional therapies (UCT) in the VAT exemption regime, doubts and inconsistencies began to emerge in the Tax Authority's understanding regarding the framework of UCT professionals in the exemption regime provided for in no. 1 of article 9.º of the VAT Code.

Indeed, it was conveyed to the Parliament – including through a petition with approximately 120,000 subscribers – that the Tax Authority had initiated tax inspection procedures aimed at issuing additional VAT assessments for the last four years of activity, corresponding to the period of limitation of the right to levy.

It was also conveyed to Parliament that UCT professionals had not levied VAT to their patients as they considered themselves covered by the exemption regime, so, as VAT was normally not charged to patients, the economic burden resulting from the additional levy of this four-year tax would amount to an unsustainable charge for the continuation of the activity of the majority of UCT professionals. This conviction of the professionals was reinforced by several years of practice and even by the activity classification record that the Tax Authority itself assigned to those professionals (typically assigning them the activity code corresponding to "other paramedics").

Parallel to this, in cases where these therapies are administered by doctors, the Tax Authority continues to apply the exemption regime resulting from no. 1 of article 9.º of the CIVA, which leads to a distortion of competition between services of an identical nature, prejudicing the free choice of patients and penalizing non-doctor UCT professionals.

It should be noted that the legal framework of unconventional therapies and the exercise of professionals applying them, established by Law no. 45/2003, of 22 August, recognizes them as health therapies, so, regardless of whether they are provided by doctors or by UCT professionals, they should be exempt from VAT, like the remaining health service provisions.

Recently, following the complaint filed by the Portuguese Association of Acupuncture Professionals (APPA), the Competition Authority issued a recommendation in which it proposes to recommend to the Ministers of Finance and Health that the regulation of the fiscal framework to which UCT service provisions are subject be promoted, in order to ensure the neutrality of the taxation of these services under VAT, regardless of whether they are provided by doctors, within competencies recognized by the Medical Association, or by UCT professionals, within competencies regulated by Law no. 71/2013, of 2 September, thereby recognizing the existence of a competition distortion resulting from the levy of VAT to UCT professionals.

The Competition Authority further states that "even though prior to the entry into force of Law no. 71/2013, it might be questioned whether service provisions of UCT assistance offered a level of quality to users equivalent to that offered by doctors, that law and the regulation adopted in 2014 and 2015 (…) created a framework that appears complete regarding the professional qualifications of persons who are qualified to exercise activities within UCT."

European Community Law also imposes a non-discriminatory interpretation and application of different operators practicing the same type of acts or services. Indeed, the VAT Directive and the case law of the Court of Justice of the European Union (CJEU) affirm the principle of VAT neutrality as a fundamental principle, which requires equal treatment of VAT for similar activities. According to the CJEU, there will be neutrality with respect to consumption when the tax does not influence the choices of various goods or services by consumers. Now, if this new understanding of the Tax Authority were to prevail, the VAT regime would then be inducing a certain choice of consumers, discriminating the services produced by UCT professionals against those produced by doctors, despite the 2003 and 2013 Laws having placed both at a similar level of legal admissibility.

In view of these doubts and difficulties generated by this alleged new understanding of the Tax Authority, it becomes necessary to provide a legislative clarification, which has an interpretative and not innovative nature as it is simply making explicit the non-discriminatory intent of the national legislator (affirmed in 2003 and 2013) and which is determined by the principle of fiscal neutrality affirmed by EU legislation and case law.

It is clarified that the reference of the new article 8.º-A of Law no. 71/2013, of 2 September, to paramedical professions serves only and exclusively for fiscal purposes under VAT.

There is no other effect or scope to this equation.

Considering that this is to legislatively reinforce a historical and habitual understanding and practice and to reiterate the understanding in accordance with applicable EU legislation, there is obviously no impact on loss of present or future tax revenue: any tax collections based on a different understanding would be, before and after this interpretative instrument, undue as lacking legal basis.

The initial indication that the doubt intended to be clarified is the "framework of UCT professionals in the exemption regime provided for in no. 1 of article 9.º of the VAT Code" reveals unequivocally that it is this provision that was intended to be interpreted.

On the other hand, the phrase "it becomes necessary to provide a legislative clarification, which has an interpretative and not innovative nature as it is simply making explicit the non-discriminatory intent of the national legislator (affirmed in 2003 and 2013)" is also perfectly clarifying that the effects of the clarification refer, at least to 2003, namely to Law no. 45/2003, of 22 August, which established the framework for the activity and exercise of professionals applying unconventional therapies and which Law no. 73/2013 regulated.

In the same vein, in Draft Law no. 301/XIII/2nd, presented by MPs of the Left Bloc, the following is stated:

Unconventional therapies are health activities, insofar as they provide assistance to persons, diagnosing and providing treatment aimed at curing diseases or improving the health status of those same persons.

Portuguese legislation recognizes the validity of unconventional therapies, namely with Law no. 45/2003, of 22 August, and Law no. 71/2013, of 2 September. Within this legislative framework, the existence of legal therapies that depart from a "philosophical base different from conventional medicine" and that "apply specific diagnostic processes and therapies of their own" is recognized. The national legal framework, by recognizing that these activities perform diagnosis and therapy, places them under the supervision of the Ministry of Health.

The activities arising from unconventional therapies recognized and regulated by law, namely those described in article 2.º of Law no. 71/2013, of 2 September, should therefore be exempt from VAT payment, as this has been the VAT framework for the provision of services provided in the exercise of professions in the health field.

For a long time the activity was registered in a way often at random, depending on the interpretation of the tax office where the professional opened their business. Many of these professionals registered, at the suggestion of the tax office, as paramedics or with codes in the health field that granted them exemption.

Registration with this economic activity code granted VAT exemption, however, this registration was often advised by the finance service, with professionals having no intention of causing any fraud.

During the tenure of the previous PSD/CDS Government, the Tax Authority published Circular Office no. 30174, of 26 August 2015, where it considered, on the one hand, that "the legal framework does not grant them equiparation to paramedical professions" and, on the other hand, "no exemption is expressly recognized in the VAT Code that contemplates unconventional therapeutic activities, so their exercise constitutes the practice of taxable operations not exempt therefrom (…)". Thus, the Tax Authority concluded in 2015 that service provisions provided by UCT professionals should pay VAT at the normal rate of 23%.

Since then, this Office has been applied very widely and with retroactive effects to the last four years! In practice, the Tax Authorities are requiring these professionals more than 100% of their annual billing, just for VAT payment, fines and interest.

As can be seen, it is an unsustainable situation that will lead the overwhelming majority of these professionals to bankruptcy.

Beyond this generalized impact on this activity and the employment it generates, the Tax Authority's interpretation has many other negative consequences:

By interpreting that unconventional therapy professionals are not exempt from VAT, while other health professionals can have this exemption, a discrimination by profession rather than by act or activity is established. That is, a professional, with specific theoretical and practical training in one of the legally recognized unconventional therapies, is obliged to pay VAT; but, for example, a nurse, a doctor or a psychologist who practices acupuncture is already exempt from such payment for the provision of acupuncture services. The Tax Authorities are thus treating similar or identical activities differently, establishing a preference or fiscal advantage of some over others. This is, moreover, the interpretation of the Competition Authority itself.

The Tax Authority's new interpretation, from August 2015, may in fact represent an incentive for underreporting and clandestine activity related to UCT, which poses a double problem. On the one hand, a loss of tax revenue because professionals do not open a business or underreport their services. On the other hand, it jeopardizes user safety, hampering regulation, credentialing and licensing processes for the activity and the location where it occurs and pushing them back to clandestinity where there is no oversight.

The Left Bloc considers it imperative to resolve this situation. Unconventional therapy professionals are, evidently, health professionals. They exercise functions related to the health of their users, their professional card is issued by the Central Health System Administration (ACSS), their training is in the health field, they are activities recognized by the World Health Organization.

The Tax Authority's interpretation is contradictory with these facts and contradictory even with other interpretations it has taken in the past. Recall that, for example, in 2012, it decided - and correctly - to grant VAT exemption to clinical psychology activity because "given EU case law and in accordance with the understanding of these services, the activity of a psychologist, while aimed at service provisions that consist of the preparation of diagnoses or the application of treatments, is exempt from VAT, under no. 1 of article 9.º of the CIVA".

It is known and recognized that unconventional therapy professionals deal with people's health. And this recognition is, above all, a social recognition, with an estimated 40% of the Portuguese population having resorted, at least once in their lifetime, to treatments and unconventional therapies.

We consider that the provision of services provided within legally recognized UCT should have been exempt from VAT payment from the start. However, if clarification is necessary, then let it be clarified once and for all: it is in this sense that the Left Bloc presents this Draft Law proposing that the VAT Code now exempt UCT professionals from VAT levies.

But it is also necessary to remedy the problem created by the Tax Authority's recent interpretation and its coercive and retroactive collections from UCT professionals.

It is to this end that this legislative initiative also provides for the extinction of pending inspection procedures aimed at additional VAT levies, relating to service provisions provided by unconventional therapy professionals, as well as the annulment of additional VAT assessment acts, and VAT self-assessment acts, carried out as a result or pending inspection actions, relating to service provisions provided by unconventional therapy professionals.

Furthermore, on 23-09-2016, Parliament Resolution no. 207/2016 was approved, published in the Official Journal, I Series, of 24-10-2016, in which it was resolved "to recommend to the Government to ensure the annulment of the interpretation made by the Tax and Customs Authority regarding the retroactive levy of value added tax on service provisions within unconventional therapies (UCT) regulated by Law no. 71/2013, of 2 September, when the same were provided by UCT professionals recognized by the Central Health System Administration, I. P.".

It is thus unequivocal that Parliament intended for the authentic interpretation made by Law no. 1/2017 to apply retroactively to the professional activity of exercise of unconventional therapies to which Law no. 73/2013 refers, with the sense of applying thereto the same value added tax regime that applied to paramedical professions, at least from the entry into force of Law no. 45/2003, of 22 August.

By the foregoing, it is concluded that the VAT exemption regime is applicable, in the year 2012, to professionals who provided acupuncture services.

3.2. Issue of Tax Repercussion and Unjust Enrichment

The Tax and Customs Authority suggests, in articles 32.º to 37.º of its Reply, that the retroactive application provided for in Law no. 1/2017 cannot be applied, as it is incompatible with article 37.º of the CIVA, regarding taxable persons who have applied VAT in their invoicing, as it could result in unjust enrichment.

This issue, however, does not have relevance in the case at hand, as we are dealing with a situation in which the Claimant did not levy VAT nor receive it from its clients, being precisely this lack of levy that was invoked by the Tax and Customs Authority to make the assessments challenged.

Therefore, this possible obstacle to the application to the Claimant of the exemption regime does not exist.

3.3. Defect Affecting the Assessments

In light of what has been expounded, the request for arbitral ruling is to be judged founded.

The Claimant requests that the assessments be declared void, but, there being no situation classifiable under article 161.º of the Code of Administrative Procedure, the defect affecting the assessments is generative of voidability, in accordance with what is provided in article 163.º, no. 1, of the same Code.

3.4. Issues Rendered Moot

Since the request for arbitral ruling is to be judged founded regarding the illegality of the assessments, the consideration of the remaining issues of legality raised becomes moot, as it is pointless (article 130.º of the CPC).

4. Compensation for Undue Guarantee

The Claimant formulates a request for compensation for undue guarantee.

Article 171.º of the CPPT establishes that "compensation in case of a bank guarantee or equivalent unduly provided shall be requested in the proceeding in which the legality of the enforceable debt is disputed".

The request for constitution of an arbitral tribunal and for arbitral ruling has as a corollary that it is in the arbitral proceeding that the "legality of the enforceable debt" will be discussed, so, as results from the express wording of that no. 1 of the referred article 171.º of the CPPT, it is also the arbitral proceeding that is appropriate for considering the request for compensation for undue guarantee.

The regime of the right to compensation for undue guarantee is contained in article 52.º of the LGT, which establishes the following:

Article 53.º

Guarantee in case of undue provision

1. The debtor who, to suspend execution, offers a bank guarantee or equivalent will be compensated in whole or in part for the losses resulting from its provision, if he has maintained it for a period exceeding three years in proportion to the vesting of administrative appeal, challenge or opposition to execution that have as their object the debt guaranteed.

2. The deadline referred to in the previous number does not apply when it is verified, in administrative grievance or judicial challenge, that there was error attributable to the services in the tax levy.

3. The compensation referred to in number 1 has as its maximum limit the amount resulting from the application to the guaranteed value of the indemnity interest rate provided for in this law and can be requested in the proper proceeding for administrative grievance or judicial challenge, or autonomously.

4. Compensation for undue guarantee provision shall be paid by deduction from the tax revenue of the year in which the payment was made.

In the case at hand, no bank guarantee was provided, but attachment of bank account balances was made, which should be considered equivalent, as follows from article 199.º, no. 4, of the CPPT.

On the other hand, the error underlying the assessments challenged is attributable to the Tax and Customs Authority, as they were initiated by it and the Claimant in no way contributed to the occurrence of that error.

Thus, the requirements provided for in nos. 1 and 2 of the transcribed article 53.º are met, so the Claimant has the right to compensation for the losses that are proven to have resulted from the aforementioned attachment.

As there are no elements that permit determining the amount of compensation, the condemnation must be made with reference to what is subsequently liquidated in execution of this judgment (article 609.º, no. 2, of the Code of Civil Procedure).

5. Decision

For these reasons, this Arbitral Tribunal agrees:

a) To judge the request for arbitral ruling founded and to annul the VAT assessments nos. 2016…, of 15.09.2016, in the amount of € 36,015.57, 2016…, of 15.09.2016, in the amount of € 34,477.78, 2016…, of 15.09.2016, in the amount of € 40,678.80, 2016…, of 15.09.2016, in the amount of € 37,149.41, 2016…, of 15.09.2016, in the amount of € 41,699.52, 2016…, of 15.09.2016, in the amount of € 41,447.06, 2016…, of 15.09.2016, in the amount of € 37,028.34, 2016…, of 15.09.2016, in the amount of € 31,907.82, 2016…, of 15.09.2016, in the amount of 34,736.04, 2016…, of 15.09.2016, in the amount of € 40,080.00, 2016…, of 15.09.2016, in the amount of € 38,345.17 and 2016…, of 15.09.2016, in the amount of € 29,503.13;

b) To judge the request for compensation for undue guarantee founded and to condemn the Tax and Customs Authority to pay the Claimant the compensation to be liquidated in execution of this judgment.

6. Value of the Proceeding

In accordance with the provisions of article 306.º, no. 2, of the CPC and 97.º-A, no. 1, subparagraph a), of the CPPT and 3.º, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at € 515,814.93.

Lisbon, 25-10-2017

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(João Taborda Gama)
With dissenting opinion

(Nuno Maldonado Sousa)
With dissenting opinion

Dissenting Opinion

I voted in favor of this judgment because I agree fully with the decision and, except for what will be said, with its reasoning. In my view, the interpretative provision under analysis has a fiscal nature, if only because it has effects on the taxation of a group of professionals. Now, in consistency with what I defended in my dissenting opinion in Case no. 302/2016-T, the use of interpretative provisions in tax matters should be subject to the methodological scrutiny of tax retroactivity. However, in the case at hand, dealing with favorable retroactivity, contrary to what occurred in the aforementioned Case no. 302/2016-T, the interpretative provision does not suffer from any constitutional or other censure.

(João Taborda Gama)

Dissenting Opinion

I voted against the judgment that was rendered. I do not believe that the interpretation of Law no. 1/2017, of 16 January, can lead to the understanding that an authentic interpretation of the provision contained in article 9.º-1, subparagraph b) of the CIVA was established.

Note that the very summary of the instrument proclaims that it is "First amendment to Law no. 71/2013, of 2 September, which regulates Law no. 45/2003, of 22 August, regarding the professional exercise of activities involving the application of unconventional therapies, establishing the value added tax regime applicable to these activities". Article 1.º stipulates that "This law makes the first amendment to Law no. 71/2013, of 2 September, which regulates Law no. 45/2003, of 22 August, regarding the professional exercise of activities involving the application of unconventional therapies." Nowhere is there any intention to interpret the CIVA, which is a code, with all the interpretive implications that codifications have.

Moreover, the very wording of article 8.º-A introduced by the aforementioned law is very clear: "Professionals engaged in the exercise of unconventional therapies referred to in article 2.º are subject to the same value added tax regime as paramedical professions". That is, paramedical professions have a regime (contained in the CIVA) and professionals engaged in the exercise of unconventional therapies are subject to the same VAT regime. In other words: it was not intended to fix a new meaning to the provisions that comprise the VAT regime; it was intended that the same regime that applies to paramedical professions now apply to unconventional therapies. It was not intended to change the VAT regime; it was intended that the VAT regime applicable to certain professions would now extend to others.

But the issue that seems decisive to me is another and concerns the very limits that authentic interpretation, through interpretative provisions, must observe. Laws that aim to fix the authentic interpretation of other preexisting provisions are designated by legal science as interpretative laws, and they are the instrument for dissipating doubts about the meaning of a particular provision, by the legislator that issued it. I believe that if not emanating from the same legislative body, the new provision may even alter, revoke or repeal the previous provision, but it will not be able to interpret it, as, incorporating the interpretative provision into the interpreted provision, only its "original" author can do so.

It seems to me that the words of J. Baptista Machado (Introduction to Law and Legitimizing Discourse, Coimbra, Almedina, 1983, pp. 176-177) on the concept constitute the best understanding on the subject: "(…) once a certain law has been promulgated and important doubts about its exact meaning or scope are raised, the body that issued it has, as is logical, the competence to interpret it through a new law." I believe that this approach encompasses the generality of authors, as recognized by José de Oliveira Ascensão (Law. Introduction and General Theory, 3rd ed., Lisbon, FCG, pp. 469-470), who defends a different solution. To the same effect, the Constitutional Court in judgment no. 176/2017, in a plenary decision, on 06-04-2017, stated that "(…) whatever the nature of the interpretative law in question, authentic interpretation, that is, the mandatory fixing (for all legal operators) of the meaning of a provision, made by the "legislator" — is something that integrates the very exercise of the normative function…", and therefore only has legitimacy for such interpretation — or rather to impose the injunction contained therein — the author himself of the interpreted provision". This orientation has been followed for a long time, as attested by judgments of the same Constitutional Court no. 801/2014, unanimous decision in plenary, 26-11-2014; no. 139/92, 07-04-1992; no. 372/91, in plenary, 17-10-1991; no. 157/88, in plenary, 07-07-1988; no. 32/87, 28-01-1987. [text truncated in original]