VAT Exemption for Education Centers Under Article 9(9) CIVA – CAAD Case 113/2019-T

ARBITRAL DECISION

The arbitrator Dr. José Joaquim Monteiro Sampaio e Nora, designated by the Deontological Council of the Administrative Arbitration Centre as sole arbitrator on 9 April 2019, hereby renders the following arbitral decision:

I. REPORT:

A... (hereinafter briefly referred to as "Claimant"), a civil association with headquarters at... —..., ..., ...-... ..., with the collective person identification number..., came, pursuant to the provisions of Decree-Law No. 10/2011 of 20 January, on the grounds of a) error in the qualification of the tax fact, b) violation of law, due to errors in the factual and legal premises, and c) illegality of the revision of the tax act practised by the Finance Directorate of..., to request the CONSTITUTION OF AN ARBITRAL TRIBUNAL for the purpose of obtaining the annulment of the tax acts corresponding to additional VAT assessments and compensatory interest with the following numbers and referring to the following periods:

• Assessment No. 2018... relating to VAT for period 201403T, which determines an amount of tax to be paid in the sum of € 13,486.08;

• Assessment No. 2018... relating to compensatory interest on the preceding assessment, which determines an amount to be paid in the sum of € 2,413.13;

• Assessment No. 2018... relating to VAT for period 201406T, which determines an amount of tax to be paid in the sum of € 9,942.70;

• Assessment No. 2018... relating to compensatory interest on the preceding assessment, which determines an amount to be paid in the sum of € 1,676.11;

• Assessment No. 2018... relating to VAT for period 201409T, which determines an amount of tax to be paid in the sum of € 4,701.90;

• Assessment No. 2018... relating to compensatory interest on the preceding assessment, which determines an amount to be paid in the sum of € 745.48;

• Assessment No. 2018... relating to VAT for period 201412T, which determines an amount of tax to be paid in the sum of € 10,677.04;

• Assessment No. 2018... relating to compensatory interest on the preceding assessment, which determines an amount to be paid in the sum of € 1,585.75.

All in the total additional amount of VAT to be paid in the sum of € 38,807.72 and compensatory interest in the sum of € 6,420.47, totalling € 45,228.19.

To that end, it invokes that, on the basis of information from the VAT Services Directorate (DSIVA) dispatched by SEAF on 08/05/2018, it was understood that the Claimant does not, nor has at any time, benefited from VAT exemption, but was incorrectly in that exempted status pursuant to item 9) of article 9 of the VAT Code. Now the Tax Authority (AT) has come to understand that the claimant's activity was not exempt from VAT, because the DSIVA understood that the claimant had not submitted any proof or declaration to be issued by the Ministry of Education that would allow it to be considered as covered by the aforesaid item 9) of article 9 of the VAT Code — which the Finance Directorate of... had previously considered to be sufficient.

For this reason, it requests that the present petition be upheld and that the assessments listed above be annulled, on the grounds impugned, based on their illegality due to violation of law and erroneous qualification of the tax fact.

The AUTHORITY FOR TAXATION AND CUSTOMS is the Respondent.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Authority for Taxation and Customs on 21-2-2019.

Pursuant to the provisions of item a) of article 6, paragraph 2, and item b) of article 11, paragraph 1, of the RJAT, as amended by article 228 of Law No. 66-B/2012 of 31 December, the Deontological Council designated as sole arbitrator the signatory, who communicated acceptance of the assignment within the applicable period.

On 9-4-2019, the parties were duly notified of this designation, and neither expressed a desire to refuse the designation of the arbitrator, in accordance with article 11, paragraph 1, items a) and b) of RJAT and articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provision in item c) of article 11, paragraph 1, of RJAT, as amended by article 228 of Law No. 66-B/2012 of 31 December, the sole arbitral tribunal was constituted on 2-5-2019.

Notified to respond on 3/5/2019, the Authority for Taxation and Customs (hereinafter referred to as AT) filed a response on 5-6-2019, in which it refutes the arguments of the claimant, holding that the claimant does not meet the necessary requirements to benefit from the exemption provided for in item 9) of article 9 of the VAT Code, as the claimant needed to be recognized within the scope of the National Education System, thereby automatically falling within the exemption, which, given the elements presented, does not occur, nor does the vice of illegality of double inspection occur, as the first inspection was an external inspection and the one that determined the assessment acts now impugned was an internal inspection.

Consequently, the present petition for arbitral pronouncement should be judged inadmissible as not proven, the tax assessment acts impugned shall remain in the legal order, and the Respondent shall be absolved of the petition accordingly.

By arbitral order of 27-6-2019, the meeting provided for in article 18 of RJAT was waived and the parties were given the opportunity, if they wished, to submit, within the simultaneous period of 15 (fifteen) days, written pleadings, on facts (essential facts which they consider proven and not proven) and on law.

It was further decided that the final decision would be rendered within 30 days following submission of pleadings by the Respondent, or expiry of the respective period, and the Claimant was notified to give proper effect to the provisions of article 4-3 of the Rules of Costs in Tax Arbitration Proceedings, that is, payment, before the decision and in the manner regulated, of the remainder of the arbitration fee, which it has already done.

By petition of 10-7-2019, the claimant came to "declare that it waives submitting written pleadings, given that no evidence was produced beyond the documentary evidence attached to the file, and that the initial petition already contains the argumentative content considered relevant. For this reason, and with all due respect, everything alleged in the initial pleading is considered reproduced, concluding as it concluded therein".

On 11-7-2019, the respondent came to reiterate what was already stated in its response, concluding for the rejection of the petition filed.

II. SANATORY ORDER:

The Arbitral Tribunal was regularly constituted, in accordance with the provisions of articles 2, paragraph 1, item a), and 10, paragraph 1, of Decree-Law No. 10/2011 of 20 January, is competent in terms of subject matter, the parties enjoy personality and judicial capacity and have standing (articles 4 and 10, paragraph 2, of the same instrument and article 1 of Ordinance No. 112-A/2011 of 22 March) and are duly represented, with no other exceptions or vices of cognizance ex officio to be considered.

Thus, there is no obstacle to examination of the merits of the case.

III. FACTS PROVEN:

Given the documents submitted by the claimant and the documents contained in the administrative file, as well as the express agreement of the parties or lack of challenge, the following facts are considered proven:

a) The claimant is a non-profit civil association whose object is the teaching of foreign languages, according to official programmes, aiming at the training of specialists and teachers in languages, within the scope of cultural formation of the population of the city of..., its municipality and area of influence - article 2 of the by-laws, contained in the administrative file.

b) In the exercise of its activity, the claimant operates a foreign language school, namely with courses in English, French, German and Spanish, teaching classes to students from the municipality of... and neighbouring areas.

c) The claimant also has courses for extracurricular enrichment taught to students of basic and secondary official education in the municipality where it operates, and is a trainer entity in foreign languages and literature.

d) The activity of the Association consists of the teaching of foreign languages, with students divided into various classes, according to the language to be taught and the level of education. The calendar of classes of the Association follows the school calendar, as appears from the activity plan for 2014.

e) The school directs its classes in accordance with official programmes, with a view to preparing students so that at the end of each cycle they are prepared to take examinations, as well as examinations conducted by entities authorized to grant certifications of students' competencies, namely the British Council, French Ministry of Education, Goethe Institut and Instituto Cervantes.

f) Initially, the headquarters of the Association was located at Avenue... ..., having been changed on 06-07-2011, moving to the current location, through an amendment to the by-laws deliberated at a general assembly held on 17-03-2011.

g) The claimant began its activity on 26-4-1991, having declared in its activity start-up declaration that it was in a regime of VAT exemption under article 9, for which reason it did not file periodic declarations.

h) As determined by Service Order No. 012017..., a tax inspection was carried out on the claimant, the final report of which was notified to it on 24 April 2018 — proven by the instructing file.

i) In this report it was written that:

1.3.6. Notification for Activity Framing

Given that, as previously mentioned, the taxpayer frames its activity under the exemption regimes with respect to VAT and CIT, it was notified on 06-12-2017, in the person of its President (B...— NIF...) to, within a period of 10 days:

"Justify the non-assessment of VAT in invoices for provision of services and sales of goods issued in the year 2014, given that, pursuant to article 1.9, paragraph 1, item a) of the VAT Code, such transactions are subject to VAT.

Justify the non-subjection to CIT of the result determined in the year 2014 and, in the event you consider that the taxable result is exempt pursuant to article 11 of the CIT Code, enumerate which cultural, sporting and recreational activities are exercised."

Furthermore, the notification contained a reference to articles 32, paragraph 1 of the VAT Code and 118, paragraph 5 of the CIT Code, which provide that, whenever there are changes to the framing of Passive Subjects, they must submit a declaration of changes.

On 19-12-2017, the taxpayer requested an extension of the response period for a period of 30 days, which was granted and notified through the letter... of 21-12-2017. Thus, the period which originally ended on 16 December 2017, was extended to 15 January 2018.

Meanwhile, on 12-12-2017, the taxpayer had sent an exposition regarding its tax situation to the Office of the Secretary of State for Tax Affairs, which was forwarded to AT, with the Director-General of AT determining, on 20-12-2017, that this exposition be forwarded to the Deputy Directors of Income Tax and VAT for analysis. It is not within our knowledge, to date, any information regarding the analysis performed.

This exposition by the taxpayer has no bearing on the procedures of this inspection action, which continued its normal course.

On 15-01-2018, the taxpayer requested an extension of the response period for a period of 30 days, which was granted and notified through the message... of 16-01-2018. Thus, the period which originally ended on 16 December 2017, was again extended to 14 February 2018.

On 13-02-2018, the taxpayer requested a further extension of the response period for a period of 15 days, informing that the documentation necessary for the response "is in an advanced stage of resolution with the Ministry of Education". By means of the message... of 16-02-2018, the requested additional period was granted. Thus, the period which originally ended on 16 December 2017, was again extended to 1 March 2018.

Finally, on 13/03/2018 (GPS entry 2018...) the taxpayer sent these services a declaration issued by the Secretary of State for Education, stating that since its inception, A... exercises an activity that falls within the scope of article 9, paragraph 9 of the VAT Code.

Regarding the framing of its activity under CIT, the taxpayer made no comment.

j) In the same report and regarding the framing under VAT, it further stated:

1.3.7.3. VAT Framing

As previously described, the activity of A... consists of the teaching of languages, that is, an activity of provision of services, being subject to VAT in accordance with the rule of objective taxable event provided for in article 1, paragraph 1, item a) of the VAT Code. Moreover, according to the rule of subjective taxable event of article 2, paragraph 1, item a) of the VAT Code, passive subjects of the tax are legal entities that engage in an activity of provision of services. Accessory to the activity of provision of services, it carries out transfers of goods, namely books, also subject to VAT in accordance with the same legal provision.

Beyond this generic framing, the VAT Code provides for, in article 9, exemptions applicable to specific cases, and in the case of education, paragraph 9 of that article provides that: "Services whose object is education, as well as transfers of goods and provision of services connected thereto, such as the provision of accommodation and food, carried out by establishments integrated into the National Education System or recognized as having analogous aims by the competent ministries". That is, this exemption is dependent on the recognition of the activities exercised by the competent Ministry.

As referred to in point 1.3.6 of this report, on 13/03/2018, the taxpayer presented a declaration of the Secretary of State for Education, recognizing the activity of A... as falling within the regime of VAT exemption, under the article previously mentioned.

Thus, the framing that the taxpayer has been giving to its activity is considered correct, with no assessment of VAT in the invoices issued, nor filing of periodic VAT declarations.

k) This report was the subject of an opinion by the Team Leader of 19 April 2018 as follows:

"The inspection action on the passive subject (p.s.) was carried out with the objective of verifying the legal framing regarding the activity exercised by it, both in terms of CIT and in terms of VAT.

From the analysis of the accounting elements, it was concluded that although being a private law association, exercising the activity of provision of language teaching services, the p.s. should be framed as an entity that exercises a commercial activity as its main purpose, for which reason its taxable profit is determined in accordance with the provisions of articles 17 to 52 of the CIT Code. In this sense, in terms of CIT, the following arithmetic corrections are proposed (point II) of the Report): Corrections to taxable matter: €58,543.76

The passive subject exercised the right to a hearing, as referred to in article 60 of the General Tax Law, invoking arguments that were subject to analysis, having been concluded that it is not correct, as stated in point IX.2 of this report. In this sense, the corrections proposed are to be maintained.

The corresponding correction document (DCU) was issued, the competent Notice of Irregularity was drawn up for penalization of the irregularities found, as well as the document of fixation was prepared.

For Superior consideration

..., 19 April 2018".

l) The same report has a memorandum of agreement by the Division Head of 23/4/2018, as follows:

"I concur.

This report concludes the inspection procedure pursuant to article 62 of RCIPTA.

The P.S. exercised the right to a hearing, provided for in article 60 of the General Tax Law and article 60 of RCPITA; in point IX of this report, its analysis is performed, concluding that the corrections contained in the draft report are to be maintained.

I concur with the direct quantification in terms of CIT, as per point III of the report.

Let the correction document, the document of fixation and the notice of irregularity drawn up be processed.

..., 23/04/2018"

m) Dated... March 2018, there is a declaration issued by Mr. Secretary of State for Education, João Miguel Marques da Costa, as follows:

"As requested, and for the purposes of paragraph 9 of article 9 of the Value Added Tax Code, it is hereby declared, based on information collected by the services of this Ministry, that A..., NIPC..., with headquarters at..., ..., ..., ..., has developed since its inception an activity of extracurricular enrichment, which operates in the facilities of the Group of Schools Dr.,... namely in the Basic and Secondary School... and in the Basic School.... "

n) It was on the basis of this declaration that in the Report of the Tax Inspection referred to in items h) to l) of these proven facts it states that "thus, the framing that the taxpayer has been giving to its activity is considered correct, with no assessment of VAT in the invoices issued, nor filing of periodic VAT declarations."

o) In compliance with Service Order O12018..., a further tax inspection was carried out on the claimant herein with a view to its "402-27 VAT Reframing", an inspection designated as internal, as the place of the inspection procedure is referred to in article 13, item a) of RCPIT.

p) In point II.3.5, the reason for the inspection is indicated:

"This inspection procedure arises from the fact that the taxpayer is wrongly framed in the VAT exemption regime of article 9 of the VAT Code, since the inception of its activity, as this is the framing that the taxpayer indicated in its activity start-up declaration, provided for in article 31 of the VAT Code. As will be described hereinafter, this framing is erroneous, as the activity exercised does not meet the conditions to benefit from any exemption.

Having previously been the subject of a tax inspection action, covered by O12017..., the taxpayer submitted, on 13/03/2018, a declaration of the Secretary of State for Education (SEE) stating that A... "has developed since its inception an activity of extracurricular enrichment".

However, in the course of that inspection action, on 12-12-2017, the taxpayer had sent an exposition regarding its tax situation to the Office of the Secretary of State for Tax Affairs (SEAF), which was forwarded to AT, with the Director-General of AT determining, on 20-12-2017, that it be forwarded to the Deputy Directors of Income Tax and VAT for analysis.

Despite a request for clarifications pending with SEAF, made by the taxpayer, the final report of that inspection was prepared on the basis of elements available at the time. It should be noted that the inspection action had been initiated on 01/06/2017, for which reason its maximum period for completion was 31/05/2018 (article 36, paragraph 3 of RCPITA).

Meanwhile, on 08/05/2018 (after the date of the final report of that inspection) SEAF dispatched the DSIVA information regarding the framing of A...'s activity in terms of VAT, as follows.

"... Conclusion:

1. As indicated in the preceding points: to the present date the claimant has not attached to the file proof that during the periods in which it exercised activity it was integrated into the National Education System, and/or, that it had obtained recognition from the Ministry of Education that the establishment pursues aims analogous to those integrated into the National Education System, for which reason it is not, nor has at any time been, framed in terms of VAT as exempt pursuant to item 9) of article 9 of the VAT Code.

2. Should it in future meet the essential conditions for its activity to meet the provision of the aforementioned rule, it may, from the moment it meets such conditions, be framed in the exemption of item 9) of article 9 of the VAT Code, or in the exemption of item 10) of the same article, if DGERT recognizes it as an entity certified in the area of vocational training. Until it meets such conditions, its framing is under the normal VAT regime, its active operations being subject to tax and not exempt therefrom. (emphasis and underlining mine)

Taking into account the content of this SEAF memorandum and the ambiguity of the declaration of the Secretary of State for Education (SEE), the same was forwarded by this Finance Directorate to the DSIVA for clarification of the information previously provided.

On 19/06/2018, supplementary information from the DSIVA was received, incorporating in its conclusions the SEE declaration, as follows:

1. ... The Declaration only refers to the activity developed, being completely silent as regards the aims of the claimant, and the consideration of it as an establishment integrated into the National Education System, or recognized as having aims analogous to those of establishments integrated into the National Education System.

2. For which reason, pursuant to the conclusion of the DSIVA information (points 17 and 18), notwithstanding the attachment to the file of the Declaration in question, the claimant continues to present no proof that: "during the periods in which it exercised activity it was integrated into the National Education System, and/or, that it had obtained recognition from the Ministry of Education that the establishment pursues aims analogous to those integrated into the National Education System".

3. It cannot be concluded, without more, that because the claimant develops "since its inception an activity of extracurricular enrichment", it carries out operations exempt pursuant to item 9) of paragraph of article 9 of the VAT Code (as has moreover been clarified in point 7 of this information), given that, as indicated by the final part of point III-16 of the Binding Information No. 11760, of 2017-07-20, of the DSIVA, which is consistent with point 1-3 of Circular Letter No. 30172, of 2015-07-01, of the DSIVA (indicated in point 7 of this opinion): "the exemption does not apply to upstream operations, that is, when supplied by third parties to the aforementioned educational establishments".

4. Which once again emphasizes the indispensability of framing the providing entity as forming an integral part of the National Education System, or, as an entity that pursues analogous aims, as an essential element for the framing of operations in terms of VAT, namely for the purposes of exemption, pursuant to item 9) of paragraph 1 of article 9 of the VAT Code.

Conclusion

1. Thus, it is verified that to the present date the claimant continues to present no proof that during the periods in which it exercised activity it was integrated into the National Education System, or, that it had obtained recognition from the Ministry of Education that the establishment pursues aims analogous to those integrated into the National Education System, for which reason, notwithstanding the Declaration of the SEE, whose validity and content are not in question, the entire content of information 1350, of 2018-04-16, which was subject to the SEAF Memorandum No. 157/2018 — XXI, is confirmed in its entirety." (emphasis and underlining mine)

Given the content of the information which was the subject of the SEAF memorandum and the subsequent clarifications from the DSIVA, it is concluded that the declaration issued by the Secretary of State for Education is not sufficient for A... to benefit from the VAT exemption provided for in item 9) of article 9 of the VAT Code.

In these terms, on the basis of the SEAF memorandum, resulting from a request by the taxpayer itself, made on 12/12/2017, the framing of the taxpayer in terms of VAT should be altered and the VAT that is missing in the State coffers should be assessed.

II.3.6. VAT Framing

As previously described, the activity of A... consists of the teaching of languages, that is, an activity of provision of services, subject to VAT in accordance with the rule of objective taxable event provided for in article 1, paragraph 1, item a) of the VAT Code. Moreover, according to the rule of subjective taxable event of article 2, paragraph 1, item a) of the VAT Code, passive subjects of the tax are legal entities that engage in an activity of provision of services. Accessory to the activity of provision of services, it carries out transfers of goods, namely books, also subject to VAT in accordance with the same legal provision.

Beyond this generic framing, the VAT Code provides for, in article 9, exemptions applicable to specific cases, and in the case of education, paragraph 9 of that article provides that: "Services whose object is education, as well as transfers of goods and provision of services connected thereto, such as the provision of accommodation and food, carried out by establishments integrated into the National Education System or recognized as having analogous aims by the competent ministries". That is, this exemption is dependent on the recognition of the activities exercised by the competent ministry.

Having been notified, the taxpayer assumed that the recognition process was still ongoing with the competent entity.

On this matter, reference should be made to binding information No. 9442 of 2015-10-19 from the Deputy Director General for VAT, from which the following excerpt is reproduced: "...18. However, if the claimant is not duly recognized for the exercise of activity related to education, the operations carried out in that field cannot, in terms of VAT, be considered exempt, with the normal rate provided for in item c) of paragraph 1 of article 18 of the VAT Code being applicable..."

On 13/03/2018 (entry 2018...) the taxpayer sent these services a declaration issued by the SEE, stating that A... "has developed since its inception an activity of extracurricular enrichment". Subsequently, following a request made by the taxpayer to SEAF, the DSIVA came to clarify that the aforementioned SEE declaration does not meet the conditions for application of the exemption in article 9, item 9) of the VAT Code as it does not expressly refer to A... being integrated into the National Education System or providing services with analogous aims.

Thus, although the taxpayer declared upon the commencement of activity, on 26-04-1991, that it would carry out VAT-exempt operations, it should have proceeded with the filing of the declaration of changes provided for in article 32, paragraph 1 of the VAT Code, since, in accordance with the framing previously presented, its provision of services and transfers of goods are subject to VAT, it being required to have assessed VAT in the invoices issued".

q) As a consequence of what is stated in point II.3.6 of the report and which is hereby transcribed, a Bulletin of Official Changes (BAO) was issued, with the aim of framing the passive subject in the normal taxation regime for VAT, as provided for in article 2, paragraph 1, item a) of the VAT Code, in the quarterly periodicity regime, as provided for in article 41, paragraph 1, item b) of the VAT Code, with effect retroactive to 01-01-2014".

r) In view of the change in the framing of the Passive Subject in terms of VAT, it was understood in point III.1.1.2 of the same report that the P.S. should have assessed VAT in its active operations (sales and provision of services) at the rates provided for in article 18 of the VAT Code, being entitled to the deduction of VAT borne in passive operations, pursuant to article 19 of the VAT Code.

s) This determination gave rise to the assessments now impugned, only as to their legality and no longer as to their quantification.

t) On 12/12/2017, the claimant sent an exposition to the Mr. Secretary of State for Tax Affairs.

u) The VAT Services Directorate issued information, without date, in which it concludes as follows:

"Conclusion

1. As indicated in the preceding points: to the present date the claimant has not attached to the file proof that during the periods in which it exercised activity it was integrated into the National Education System, and/or, that it had obtained recognition from the Ministry of Education that the establishment pursues aims analogous to those integrated into the National Education System, for which reason it is not, nor has at any time been, framed in terms of VAT as exempt pursuant to item 9) of article 9 of the VAT Code."

2. Should it in future meet the essential conditions for its activity to meet the provision of the aforementioned rule, it may, from the moment it meets such conditions, be framed in the exemption of item 9) of article 9 of the VAT Code, or in the exemption of item 10) of the same article, if DGERT recognizes it as an entity certified in the area of vocational training.

Until it meets such conditions, its framing is under the normal VAT regime, its active operations being subject to tax and not exempt therefrom.

1. The Finance Directorate of... shall be informed of the content of this information."

v) At the request of the Finance Directorate of..., the VAT Services Directorate issued on 4/6/2018, information, where it concludes as follows:

"Conclusion

1. Thus, it is verified that to the present date the claimant continues to present no proof that during the periods in which it exercised activity it was integrated in the National Education System, or, that it had obtained recognition from the Ministry of Education that the establishment pursues aims analogous to those integrated into the National Education System, for which reason, notwithstanding the Declaration of the SEE, whose validity and content are not in question, the entire content of information 1350, of 2018-04-16, which was subject to the SEAF Memorandum No. 157/2018 - XXI, is confirmed in its entirety,

DSIVA, 2018-06-04

The Technician

C...

(Tax Inspector Level I).

x) The assessments impugned had as the payment deadline 26 November 2018.

y) The present petition for arbitral pronouncement was filed with CAAD on 20 February 2019.

With relevance for the decision of the present case, no other fact was proven.

Regarding the facts, the Tribunal does not have to pronounce on everything alleged by the parties, but rather has the duty to select the facts that matter for the decision and to distinguish the proven from the unproven factual matter (cf. article 123, paragraph 2, of CPPT and article 607, paragraph 3 of CPC, applicable by virtue of article 29, paragraph 1, items a) and e), of RJAT). In this way, the facts relevant for the determination of the case are chosen and selected according to their legal relevance, which is established in relation to the various plausible solutions of the legal question(s) (cf. previous article 511, paragraph 1, of CPC, corresponding to current article 596, applicable by virtue of article 29, paragraph 1, item e), of RJAT). Thus, taking into account the positions assumed by the parties, in light of article 110/7 of CPPT, the documentary evidence and the administrative file attached to the case, the following facts were considered proven, with relevance for the decision, having regard also to the fact that, as stated in the Judgment of TCA-South of 26-06-2014, rendered in case 07148/131, "the probative value of the tax inspection report (...) may have probative force if the assertions contained therein are not challenged".

IV. QUESTIONS TO BE DECIDED:

1. Considering the proven facts and the legal matter contained in the petition for arbitral pronouncement presented by the Claimant, there are two questions to be decided:

• on the one hand, to know whether the claimant is an entity exempt in terms of VAT, on the basis of item 9) of article 9 of the VAT Code;

• on the other hand, to know whether the assessments made violate the provisions of article 60 of CPPT, as it is not admissible for a new inspection act to alter what was decided and communicated to the claimant by a previous inspection act.

1. Article 124 of the Code of Tax Procedure and Process (CPPT), subsidiarily applicable to tax arbitration by virtue of article 29, paragraph 1, items a) and c) of RJAT, provides, regarding the order of cognizance of vices in the decision, that, "[i]n the decision, the tribunal shall appreciate priority the vices that lead to the declaration of non-existence or nullity of the act impugned and, then, the vices alleged that lead to its annulment" (paragraph 1 of article 124), and, in each of the groups, the appreciation is made in the following order: "in the first group, that of vices whose upholding determines, according to the prudent discretion of the judge, more stable or effective protection of the injured interests"; "in the second group, the one indicated by the impugner, provided that it establishes between them a relationship of subsidiarity and no other vices are alleged by the Public Prosecutor, or, in the other cases, the one fixed in the preceding item" (cf. items a) and b) of paragraph 2 of article 124).

Given that the vices invoked by the Claimant, should they succeed, lead, prima facie, to the annulment of the acts impugned, it is necessary to have regard to the provisions of item b) of paragraph 2 of article 124 of CPPT, for which reason, if a relationship of subsidiarity is established by the impugner between the vices alleged (see article 101 of CPPT which provides that: "The impugner may allege the vices of the act impugned according to a relationship of subsidiarity"), this order should be respected — as stated in the judgment of STA of 18.6.2014, case No. 01942/13, "whenever the impugner establishes an order of precedence for the cognizance of the vices generating annulability, it is that order that must be followed by the judge, it not being permitted for the judge to alter it, just as it is not permitted for the judge to alter the order of cognizance of the vices generating nullity or non-existence, which is legally established".

In the present case, in his pleadings, the claimant begins by attacking the impugned acts on the basis of erroneous qualification of the tax fact, by holding that it is exempt from VAT, and only then analyzes the possible illegality of the revision of the act practised by the Finance Directorate of..., but in the final petition it reverses this order, by requesting the annulment of the impugned acts, since when indicating the grounds for that annulment it begins by referring to the second of the grounds indicated, never establishing between them any relationship of subsidiarity.

For this reason, we shall begin with the formal vice — possible illegality of the revision of the act practised by the Finance Directorate of...— and then we shall consider the act that has more to do with the activity of the claimant herein.

1. As stated in item j) of the proven facts, in the report of the Tax Inspection and regarding the framing of the claimant in terms of VAT, it was stated that "As referred to in point 1.3.6 of this report, on 13/03/2018, the taxpayer presented a declaration of the Secretary of State for Education, recognizing the activity of A... as falling within the regime of VAT exemption, under the article previously mentioned"

It was on the basis of this declaration that in the Tax Inspection Report referred to in items h) to l) of these proven facts it states that "thus, the framing that the taxpayer has been giving to its activity is considered correct, with no assessment of VAT in the invoices issued, nor filing of periodic VAT declarations."

This report was agreed to by the Head of Service and the Head of Division, having been notified to the claimant on 24 April 2018.

Subsequently, the Finance Directorate of..., in compliance with Service Order O12018..., determined a further tax inspection of the claimant herein with a view to its "402-27 VAT Reframing", an inspection designated as internal, as the place of the inspection procedure is referred to in article 13, item a) of RCPIT, with the reason for this inspection indicated in point II.3.5 of the report notified to the claimant on 12/9/2018.

The claimant contends that with this second inspection action, AT violated the provisions of article 60 of CPPT, which provides:

Tax acts practised by the fiscal authority competent in terms of subject matter are definitive as to the fixing of the rights of taxpayers, without prejudice to their possible revision or impugnation according to law.

For the claimant, the second inspection procedure is not the legal means for AT to reverse earlier decisions, thus imputing the vice of violation of law to the act of the second inspection, even if internal, for violating the provisions of the cited article 60 of CPPT.

In fact, the conclusion of the report of the first inspection in concluding the regularity of the VAT exemption regarding the claimant herein fixed the respective rights in this matter, having not therefore given rise to any VAT assessment relating to 2014.

However, the same article 60 permits its possible revision by the tax authority or impugnation by the taxpayer, the latter of which would never occur as the act would be favorable to it.

In turn, AT could proceed with the revision of the said decision, through a revision process, but no longer by means of a new inspection action, even if of a different nature, as those rights of the taxpayers are fixed.

The revision process is provided for in article 78 of the General Tax Law, which provides as follows:

Article 78

Revision of Tax Acts

1. The revision of tax acts by the entity that practised them may be carried out at the initiative of the passive subject, within the administrative complaint period and on the basis of any illegality, or, at the initiative of the tax administration, within four years after the assessment or at any time if the tax has not yet been paid, on the basis of error imputable to the services.

2. Without prejudice to the legal burdens of complaint or impugnation by the taxpayer, error in self-assessment is considered imputable to the services, for purposes of the preceding paragraph.

3. The revision of tax acts under paragraph 1, regardless of whether it is a matter of material or legal error, implies the respective recognition duly reasoned according to paragraph 1 of the preceding article.

4. The senior manager of the service may authorize, exceptionally, within three years following the tax act, the revision of the taxable matter determined on the basis of grave or notorious injustice, provided that the error is not imputable to negligent conduct by the taxpayer.

5. For purposes of the preceding paragraph, only manifestly obvious and unequivocal injustice is considered notorious and grave that resulting from manifestly exaggerated and disproportionate taxation with reality or from which considerable prejudice has resulted for the National Treasury.

6. Revision of the tax act due to duplication of collection may be carried out, whatever the basis, within four years.

7. The period for official revision of the tax act or the taxable matter is interrupted by a petition by the taxpayer directed to the competent body of the tax administration for its accomplishment.

In this way, it cannot but be considered illegal the alteration of the situation of the claimant herein, regarding its taxation in VAT, based on a new inspection procedure.

However, as the annulment of the assessments made on this basis, and given that AT still has time to remedy this formal incorrectness, is not the one that provides "more stable or effective protection of the injured interests" as such considered by the claimant, although the annulment of the assessments made and now impugned may be declared, on the basis of violation of article 60 of CPPT, we shall also analyze in light of said principle of effective or more stable protection, the alleged vice of erroneous qualification of the tax fact.

4.1 - In this way, we move to the necessary definition of the rights of the claimant, to the analysis of the question of whether or not the claimant meets the requirements for its activity to be considered exempt from VAT and, if so, since when.

This question is related to the framing of a set of services provided by the Claimant and considered by it to be within the exemption provided for in paragraph 9, of article 9 of the VAT Code.

This legal provision states:

"The following are exempt from the tax:

1. Services whose object is education, as well as transfers of goods and provision of services connected thereto, such as the provision of accommodation and food, carried out by establishments integrated into the National Education System or recognized as having analogous aims by the competent ministries;".

The provision in question explicitly establishes a subjective requirement, which requires that it be "establishments integrated into the National Education System or recognized as having analogous aims by the competent ministries", and an objective requirement, which presupposes that there are in question "services whose object is education, as well as transfers of goods and provision of services connected thereto".

4.2 - As was proven, the claimant's object is the teaching of foreign languages, according to official programmes, aiming at the training of specialists and teachers in languages, within the scope of cultural formation of the population of the city of..., its municipality and area of influence (item a) of proven facts).

To this end, and "in the exercise of its activity, the claimant operates a foreign language school, namely with courses in English, French, German and Spanish, teaching classes to students from the municipality of... and neighbouring areas." (item b) of proven facts).

Furthermore, "the claimant also has courses for extracurricular enrichment taught to students of basic and secondary official education in the municipality where it operates, and is a trainer entity in foreign languages and literature." (item c) of proven facts).

For this reason, "the activity of the Association consists of the teaching of foreign languages, with students divided into various classes, according to the language to be taught and the level of education. The calendar of classes of the Association follows the school calendar, as appears from the activity plan for 2014, and directs its classes in accordance with official programmes, with a view to preparing students so that at the end of each cycle they are prepared to take and examinations conducted by entities authorized to grant certifications of students' competencies, namely the British Council, French Ministry of Education, Goethe Institut and Instituto Cervantes." (items d) and e) of proven facts).

Furthermore, and with relevance for the present case, it was also proven that "dated... March 2018, there is a declaration issued by Mr. Secretary of State for Education, João Miguel Marques da Costa, as follows:

"As requested, and for the purposes of paragraph 9 of article 9 of the Value Added Tax Code, it is hereby declared, based on information collected by the services of this Ministry, that A..., NIPC..., with headquarters at..., ..., has developed since its inception an activity of extracurricular enrichment, which operates in the facilities of the Group of Schools..., namely in the Basic and Secondary School... and in the Basic School.... " (item m) of proven facts).

The problem ultimately amounts to knowing whether this declaration has the power to mean a recognition that the claimant meets the requirements for it to be granted the exemption provided for in paragraph 9 of article 9 of the VAT Code.

We are certain that the claimant is not an establishment integrated into the National Education System, and may only be an establishment recognized as having analogous aims, being however certain and sure that it devotes itself to the teaching of languages.

And there is also no doubt that this competence of recognition belongs to the holders of political positions in the Ministry of Education, and may be the Secretary of State for Education, which AT also recognizes.

Therefore, the problem amounts to the interpretation of the declaration given as proven in item m) of the proven facts.

4.3 – The Value Added Tax Code provides, in accordance with the provision in paragraph 9, of article 9 of the VAT Code, that services whose object is education, carried out by establishments integrated into the National Education System or recognized as having analogous aims by the competent ministries are exempt.

This exemption covers "services whose object is education, as well as transfers of goods and provision of services connected thereto, such as the provision of accommodation and food …"

The aforementioned exemption is based on item i), of paragraph 1, of article 132 of the VAT Directive, in accordance with which States exempt operations related to "the education of children and young people, school or university education, vocational training or retraining and likewise services and deliveries of goods closely related thereto, carried out by public law bodies pursuing the same aim and by other bodies which the Member State in question considers to be pursuing analogous aims"(cf. also item i), of article 13-A of the Sixth Directive).

Furthermore, according to article 134 of the VAT Directive "Services and deliveries of goods are excluded from the benefit of the exemption provided for in items b), g), h), i), 1), m) and n) of paragraph 1, in the following cases:

a) When they are not indispensable to the performance of the exempt operations;

b) When they are intended essentially to obtain supplementary revenue for the body by carrying out operations conducted in direct competition with taxable enterprises subject to value added tax.

It is important to note that the terms used to designate the exemptions enshrined in article 9 of the VAT Code are in principle strictly interpreted, as they constitute derogations from the general principle, according to which VAT is charged on any provision of services made for consideration by a passive subject (cf. Judgment of 11 January 2001, Commission/France, C-76/99 and Judgment of 20 June 2002 Commission/Germany, C-287/00, at http://curia.europa.eu).

However, contrary to "what normally occurs in the matter of interpretation of rules containing VAT exemptions for internal operations", in the judgment of 20 June 2002 (C-287/00, Commission/Germany, Coll. P. I -5811) the CJEU affirmed the non-necessity of a strict interpretation of the exemption which is currently embodied in item i) of paragraph 1 of article 132 of the VAT Directive, as it considered that this exemption is intended to ensure less costly access to services related to education"(cf. LAIRES, Rui – Exemptions of VAT in Cultural, Educational, Recreational, Sports and Medical or Social Assistance Activities, IDEFF, No. 14, p. 176).

The "purposive element has thus served to allow the CJEU to fix the sense of VAT exemption rules, always respecting the limits imposed by their literal element" (VASQUES, Sérgio – Value Added Tax, Lisbon, 2015, p. 330).

4.4 – Having defined the activity of the respondent, in accordance with what is contained in the report of the Tax Inspection of April 2018 and which is embodied in items a) to e) of the proven facts, it is necessary to verify whether the declaration submitted and issued by Mr. Secretary of State for Education corresponds to the recognition legally required for the respondent to be able to benefit from VAT exemption.

And we cannot fail to note the fact that, in that declaration, the said member of government states that the same is issued "for the purposes of paragraph 9 of article 9 of the Value Added Tax Code", which already means that the issuing entity is aware that the recognition made in the declaration issued may have the consequences of VAT exemption to which that legal provision refers.

Then we have the part of the declaration, which is a true recognition, that the claimant "has developed since its inception an activity of extracurricular enrichment".

For AT, in the first inspection report this declaration meant the recognition that the claimant had "analogous aims" and therefore it understood that the claimant was exempt from VAT, in contrast to the second report which contains a decision to the contrary, giving rise to the assessments now impugned.

For AT, the recognition of the claimant "as having analogous aims by the competent ministries" must be an express recognition, which cannot mean that that recognition must contain the exact words of the law, it being sufficient that it can be concluded from its content in a clear and certain manner that it corresponds to its literal sense that there exists that recognition. - cf. article 238 of the Civil Code.

For this reason, it is worth defining whether the activity of the respondent, in itself, corresponds to any activity of extracurricular enrichment.

Normally, the activity of education is carried out through curricula plans of the respective establishments, with student evaluation and conferring of academic degrees. – Cf. Decree-Law No. 55/2018, of 6 July.

However, the claimant herein, as results from the proven facts, neither carries out evaluations, nor confers academic degrees, limiting itself to, as is proven, "directing its classes in accordance with official programmes, with a view to preparing students so that at the end of each cycle they are prepared to take examinations and for examinations to be conducted by entities authorized to grant certifications of students' competencies, namely the British Council, French Ministry of Education, Goethe Institut and Instituto Cervantes".

It is manifestly a matter of education, but extracurricular education, as it does not fit into any previously approved curriculum, but rather aims at the enrichment of students in the matter of languages — and only this activity is in question — so that they can obtain approval within the curriculum of the public or private schools they attend, but also so that they can obtain certifications within the scope of other schools that grant certifications in the matter of language learning.

It is therefore a matter of provision of services analogous to those provided by educational establishments that are part of the National Education System, but which, by not conferring any degree or any diploma or certification, merely aiming at better preparation of students for tests inserted in the various curricula, must be considered as "extracurricular enrichment" services.

And this activity is in accordance with the statutory aims of the requesting association, which is "the teaching of foreign languages, according to official programmes", as appears from the proven fact in item a).

Indeed, that these are analogous services also results from the fact proven in item e), namely, that the claimant "directs its classes in accordance with official programmes".

Furthermore, it should be noted that it is relevant for the present case that the recognition is made from the inception of the claimant's activity, as is understood from the expression "since its inception", which stresses the idea that the recognition refers to the activity of the claimant herein since it was initiated, covering periods prior to the date on which it was issued, namely the period of 2014, which is in question in the present case.

In fact, it does not follow from the content of paragraph 9 of article 9 that the recognition must be prior to or even contemporary with the exercise of the exempt activity, being able, in our view, to be later, provided that it expressly refers to the scope of its recognition, as, in the absence of such indication, the recognition shall be valid only for the future.

Finally, it cannot fail to be noted that in the declaration issued by Mr. Secretary of State, it is referred that the claimant "operates in the facilities of the Group of Schools..., namely in the Basic and Secondary School..., in the Basic School...", that is, in educational establishments that are part of the National Education System, therefore exercising functions analogous to those of such educational establishments.

In view of the foregoing, we understand the declaration of Mr. Secretary of State — by the express reference it makes to the objectives of the declaration, by the indication of the concrete activity of the claimant, by the temporal scope to which it refers and by the reference to the place where it is exercised — as a recognition that the claimant has aims analogous to those of educational establishments, as established in item 9) of article 9 of the VAT Code, for which reason the claimant enjoys the right to VAT exemption for its activity, in accordance with what is stated in the report of the Tax Inspection of April 2018, from the moment when it declared the commencement of its activity.

4.5 This exemption also covers the sales of books as they are transfers of goods connected with this teaching activity.

Indeed, education is normally supported by lessons and the provision of books that serve as support and basis for study for those who learn. For this reason, the connection of the sale of books, presumably school books, as there is no different indication in the file, with the teaching activity is evident.

In view of the foregoing and because there was recognition by the competent Ministry that the respondent exercises activity in accordance with the statutory aims that are analogous to those of educational establishments, from the commencement of its activity, the impugnation presented by the claimant must be upheld and consequently the assessments now impugned must be annulled due to erroneous qualification of the tax fact, as the services provided by the claimant and the materials (books) sold by it are exempt from VAT.

V. COMPENSATORY INTEREST:

Given the upholding of the claimant's petition for annulment of the assessments made, no compensatory interest is due, as, with the debt non-existent, there is no default and consequently no indemnification is due for non-payment, the compensatory interest assessed by AT.

VI - DECISION

In these terms, and on the grounds set forth, the Arbitral Tribunal decides to uphold and prove in full the claimant's petition for a declaration of illegality of the VAT assessments impugned, including as to the assessment of compensatory interest, as they are not due, declaring those assessments annulled and condemning the respondent for the total costs of this proceeding.

Value of the Proceeding: In accordance with the provisions of article 306, paragraph 2 of the Code of Civil Procedure, 97-A, paragraph 1 a) of CPPT and article 3, paragraph 2 of the Rules of Costs in Tax Arbitration Proceedings, the value of the petition is fixed at € 45,228.19.

Costs: Pursuant to article 22, paragraph 4, of RJAT, and in accordance with Table I annexed to the Rules of Costs in Tax Arbitration Proceedings, I hereby fix the amount of costs at € 2,142.00, to be borne by the Respondent.

Lisbon, 16 September 2019,

The Arbitrator

José Sampaio e Nora

(Text prepared by computer, pursuant to article 131, paragraph 5 of the Code of Civil Procedure, applicable by virtue of article 29, paragraph 1, item e) of RJAT and according to the former orthography, maintaining citations made by their authors according to the new orthography).