CAAD 141/2016-T: VAT Exemption Waiver for Private Health Entity Serving National Health Service

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Arbitrator President), João Taborda da Gama and José Nunes Barata, appointed by the Deontological Council of the Administrative Arbitration Centre to form an Arbitral Court, hereby agree:

I – REPORT

On 8 March 2016, A…, Lda., holder of the collective person identification number…, with registered office at…, …, in …, filed an application for the constitution of an arbitral tribunal, under the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the act of dismissal issued by the Director of Finance of … on 04.12.2015 of the administrative review filed by that entity against the additional VAT assessments No. …, relating to period 1206T, No. …, relating to period 1212T, No. …, relating to period 1303T, No. …, relating to period 1306T, No. …, relating to period 1309T, No. …, relating to period 1312T, No. …, relating to period 1401M, No. …, relating to period 1402M, No. 2014…, relating to period 1403M, as well as the assessments of compensatory interest Nos. 2014…, 2014… and 2014…, in the total amount of € 1,445,683.39.

To support its request, the Claimant alleges, in summary, that the Respondent:

i. Made an incorrect interpretation of the provisions of Articles 9, No. 2, and 12, No. 1, paragraph b), of the VAT Code, as well as item 2.7 of List I, annexed to the VAT Code;

ii. Made an incorrect interpretation of Articles 132, No. 1, paragraph b), 377 and 391 of the VAT Directive (which are the basis for the aforementioned national provisions);

iii. Made an incorrect (or, at least, confused) interpretation of the various Court of Justice of the European Union judgments relevant to the case.

The Claimant further argues that, should it lose the right to renounce VAT exemption, then the tax assessed by it in the taxation periods comprised during the years 2012.06T to 2014.02M should be adjusted in its favour, and that such adjustment in its favour would not result in unjust enrichment.

The Claimant further contests corrections relating to:

a) Improperly deducted VAT – event of inauguration of B…;

b) Failure to assess VAT – transfer of space to C….

On 09-03-2016, the application for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

The Claimant did not appoint an arbitrator, so, under the provisions of paragraph a) of No. 2 of Article 6 and paragraph a) of No. 1 of Article 11 of the RJAT, the President of the Deontological Council of the CAAD appointed the undersigned arbitrators of the collective arbitral tribunal, who communicated acceptance of the engagement within the applicable time period.

On 04-05-2016, the parties were notified of these appointments and expressed no intention to refuse any of them.

In accordance with the provision of paragraph c) of No. 1 of Article 11 of the RJAT, the Collective Arbitral Court was constituted on 19-05-2016.

On 17-06-2016, the Respondent, duly notified for that purpose, filed its response defending itself by exception and by challenge, raising several preliminary questions analyzed below.

Considering that in arbitral proceedings the general procedural principles of procedural economy and prohibition of futile acts apply, under the provisions of paragraphs c) and e) of Article 16 and No. 2 of Article 29, both of the RJAT, the holding of the meeting referred to in Article 18 of the RJAT was dispensed with.

Having been granted a time period for the submission of written pleadings, these were submitted by the parties, stating their positions on the evidence produced and reiterating and developing their respective legal positions.

A time period of 30 days was set, after the submission of pleadings by the Respondent, or the end of the respective time period, for submission of the final decision and appraisal of the preliminary questions raised, which time period was extended until 19/11/2016.

Given the complexity of the proceedings and its effect on the internal discussion process of the arbitral tribunal, it was not possible, until that date, to issue a final decision, so, pursuant to Article 21/2 of the RJAT, the time period for issuance and notification thereof, referred to in No. 1 of that article, was extended by two months, and the date indicated pursuant to Article 18/2 of the RJAT was extended by a further 30 days.

Given the complexity of the proceedings and its effect on the internal discussion process of the arbitral tribunal, it was not possible, until that date, to issue a final decision, so, pursuant to Article 21/2 of the RJAT, the time period for issuance and notification thereof, referred to in No. 1 of that article, was extended by two months, and the date indicated pursuant to Article 18/2 of the RJAT was extended by a further 30 days.

Given the existence of an autonomous act of reclassification of the Claimant's VAT situation (document 1 attached by the Claimant on 15-07), and the possibility that the determination in the said act, which altered the Claimant's VAT classification, would have to be respected, the parties were afforded the opportunity to exercise their right of contradiction with respect to this matter, which they did.

A new date was set, 19-01-2017, for purposes of Article 18/2 of the RJAT.

As the draft final decision prepared by the Reporting Arbitrator was still in the review and signature phase, pursuant to Article 21/2 of the RJAT, the time period for issuance and notification thereof, referred to in No. 1 of that article, was extended by a further two months, and the date of 23-01-2017 was set, pursuant to Article 18/2 of the RJAT.

The Arbitral Tribunal is materially competent and is regularly constituted, pursuant to Articles 2, No. 1, paragraph a), 5 and 6, No. 1, of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to Articles 4 and 10 of the RJAT and Article 1 of Order No. 112-A/2011, of 22 March.

The proceedings are free of defects.

Everything considered, it is necessary to issue

II. DECISION

A. FACTUAL MATTERS

A.1. Facts Established as Proven

1. The Claimant began activities on 01/01/2012, being classified under CAE … – Activities of health establishments with hospitalization.

2. The Claimant is a VAT taxpayer who filed its statement of commencement of activities in January 2012.

3. The Claimant chose, in the said statement of commencement of activities, to renounce the exemption referred to in Article 9, No. 2, of the VAT Code, pursuant to Article 12, No. 1, paragraph b), of the same Code.

4. On 21/09/2012, the Claimant concluded an agreement with E… and, subsequently, in February 2014, concluded an agreement with D… within the scope of the Integrated Management System for Registered Persons for Surgery (SIGIC).

5. The Claimant, in the periodic VAT return for March 2014, requested a VAT refund in the amount of € 1,281,130.12.

6. Following this request, the Tax Authority issued Service Order No. OI2014…, intended to initiate an external tax inspection action of partial scope – VAT – for the period 2014.03M, inspection which began on 05-06-2014.

7. Subsequently, the scope and extension of the service order were modified, becoming general for the years 2012 and 2013 and partial, given the reclassification of the Claimant from quarterly to monthly periodicity, for the tax periods 2014.01M, 2014.02M and 2014.03M, with respect to VAT.

8. After analyzing the accounting and respective supporting documents, the Tax Inspection Services concluded that the percentage of operations carried out by the Claimant, under the agreement concluded with E…, of the total medical service provision is 34.87% in 2012 (September to December), 32.92% in 2013, and 34.61% in 2014 (January to March), as stated at pages 20 et seq. of the Inspection Report.

9. Furthermore, the Tax Authority also considered, given the Claimant's invoicing, that the majority of the 10 most invoiced medical acts were provided to users of E…, as shown in the following table:

[table content preserved as shown in original]

1. Having further concluded the Tax Authority, in the inspection procedure, that, as the Claimant could not have exercised the renunciation of VAT exemption, due to lack of legal basis, it should be classified as an exempt taxpayer, pursuant to Article 9 of the VAT Code.

2. In view of the above, the Tax Authority concluded that the Claimant could not deduct the tax borne in the acquisition of goods and services, as, in the exercise of its activity, it carried out operations that did not confer the right to deduction.

3. The Tax Authority also concluded, within the scope of its inspection procedure, that there was a failure to assess VAT in period 2013 12T, with respect to the transfer of space carried out to C…, Lda., pursuant to Article 4, No. 2, paragraph b) of the VAT Code.

4. And also, the improper deduction of VAT, in period 2012 06T, pursuant to Article 21, No. 1, paragraph d) of the VAT Code, relating to reception expenses, namely, for a pyrotechnic display, tent rental and decoration of the space where an event took place, management and support for guests, musical entertainment and associated equipment.

5. On 03-09-2014, the Claimant was notified of the draft tax inspection report, in which the Tax Authority proposed VAT assessments in the total amount of € 1,450,879.63, with reference to the periods comprised between the 2nd quarter of 2012 and March 2014, broken down as follows:

[table content preserved]

1. According to that draft inspection report, the Tax Authority proposed the following assessments:

i. Improperly deducted VAT in the acquisition of goods and services related to the activity of medical service provision, in the total amount of € 1,410,468.47, in the periods 2012.12T to 2014.03M;

ii. Improperly deducted VAT in the acquisition of goods and services resulting from the inauguration event of B…, in the amount of € 24,817.22, in period 2012.06T; and

iii. Failure to assess VAT on the operation of gratuitous transfer of space to C…, in the total amount of € 15,593.94, in periods 2012.12T and 2013.12T.

1. The Claimant timely exercised its right of prior hearing on 18-09-2014.

2. Following this right of prior hearing, the Claimant was notified on 01-10-2014, through official letter No. …, of 30-09-2014, of the Final Tax Inspection Report, in which VAT corrections in the amount of € 1,437,322.96 were made.

3. In the Report, the Tax Authority reproduced the argumentation previously presented in the draft, having upheld the Claimant regarding the need to reduce the initially proposed amount by € 13,556.67.

4. The inspection report contains, among other things, the following:

i. the "VAT Directive enshrines (…) the tax exemption regime (simple or incomplete) for [hospitalization and medical care service provision] when carried out by public law entities and by hospital establishments in conditions analogous to those applicable for public hospitals";

ii. "Portugal may grant taxpayers the option to choose taxation of the said operations" provided that "they are not public law entities or that, not being of that nature, they do not exercise their activity in conditions socially analogous";

iii. For purposes of "determining when a private establishment can be considered as 'duly recognized' as practicing conditions analogous to those existing for public law entities", the Tax Authority focused, first, on the criterion of "who bears the cost of the service provision carried out by the private institution";

iv. With reference to the case law of the Court of Justice of the European Union (hereinafter "CJEU"), a private health unit operates "in social conditions analogous to a public entity [in the case of] the cost of its service provision [being] largely assumed by the public sector";

v. "the number of users of the taxpayer" beneficiaries of E…" is quite relevant" in the context of medical activity exercised by the Claimant;

vi. among the "ten most invoiced medical acts" by it to all entities, "the vast majority were invoiced to E…";

vii. taking as reference "the number of medical acts invoiced to all entities (public and private) (…) the number of medical services invoiced to E… (for provision of health care to users beneficiaries of this subsystem) represents approximately 61% of the total services invoiced to all entities (such as, private companies, other private health subsystems and insurers)";

viii. were invoiced to E… "approximately one third of the total medical service provision carried out by the taxpayer" being this public health subsystem responsible for the "majority of the activity" of the Claimant when measured through the number of medical acts performed;

ix. "private entities that conclude agreements or conventions with the National Health Service or with its respective subsystems, if integrated in the national health system (providing services in social conditions analogous to public law entities), cannot, thus, renounce the tax exemption from the moment they conclude such conventions";

x. The concept of "national health system" includes public entities integrated in the National Health Service [NHS], as well as private entities that, pursuant to applicable law, have concluded agreements or conventions with the NHS or with one of the public health subsystems for provision of health care";

xi. The Claimant "concluded, on 21 September 2012, a convention with a public health subsystem (E…)" and could not, from that moment on, be classified under the "normal VAT regime with respect to the principal activity of provision of health care", which depended "[i]n a significant part" on the "users benefiting from E…";

1. The final result in terms of VAT amounted to the total amount of € 1,437,322.96, broken down as follows by years and by topics:

[table content preserved]

1. On 13-11-2014 and 26-02-2015, the Claimant received the following additional VAT assessments and respective compensatory interest, based on the said final inspection report:

[table content preserved]

1. As a result of these assessments, there was an amount due of € 339,777.29, which the Claimant paid this amount, increased by late payment interest in the amount of € 669.83 and costs in the amount of € 1,537.34, in a total of € 341,984.46.

2. The Claimant timely filed an administrative review against these assessments, having been notified on 09-12-2015 of its dismissal, by order issued by the Director of Finance of … on 04-12-2015.

3. On 05-11-2014, the Tax Authority, proprio moto, issued an express act reclassifying the Claimant in terms of VAT classification, which the Claimant had in terms of VAT, such that it became classified as a mixed taxpayer, that is, as carrying out taxed VAT operations and VAT-exempt operations, assigning retroactive effect to such act, retroactively effective as of 01-01-2012.

4. The Tax Authority justified this cadastral reclassification by pointing to the conclusions that had resulted from the previous tax inspection, referred to above, carried out by its inspection services.

5. On 30-01-2015, the Claimant filed a special administrative action with the Administrative and Tax Court of…, against the said reclassification act in terms of VAT classification, carried out by the Tax Authority.

6. The Claimant is a limited liability company with private capital, with profit objectives, whose corporate purpose consists of the management and operation of health units, provision of medical services, complementary diagnostic services, radiology, clinical analysis, nursing and physiotherapy.

7. It is classified, according to the Portuguese Classification of Economic Activities - CAE Rev 3, under Activity Code … which is characterized by "activities of health establishments with hospitalization".

8. According to the descriptive note of this Activity Code, the same comprises "the activities of hospitals (general and specialized), clinics (including dental clinics), health care facilities and other health establishments with facilities for hospitalization of short and long-term patients. These activities are mainly directed towards hospitalized patients, under the direct supervision of doctors, encompassing a wide variety of health care services (medicine, surgery, analysis, radiology, emergency services, etc.). It includes official hospitals (public, military, paramilitary and prison) and private hospitals".

9. The Claimant exercises its economic activity through the operation of five health establishments, namely:

i. A…– Clinic …(…);

ii. A…– Clinic …;

iii. A…– Clinic …;

iv. A… – Clinic …(…), and

v. A…– B…;

1. The Claimant's activity comprises, in addition to the provision of medical services, the management and operation of health establishments.

2. In this context, the Claimant concluded contracts for the transfer of equipped space and provision of services with several other entities that develop their activity in the health sector.

3. The Claimant only directly provides part of the medical services made available at B…, the other part of the medical services available to the public being performed by these entities that agree with it on the use of space and services.

4. One of these space transfers carried out by the Claimant had as counterparty the company C…, Lda.

5. C… carries out its activity of provision of services and health care, namely in the areas of gynecology, obstetrics and pediatrics and instrumental or complementary activities and services in the facilities of B… (operated by the Claimant).

6. The space used (non-exclusively) by C… was transferred by the Claimant without there being direct remuneration associated with this operation.

7. Part of the services provided by C… (whenever it provides services to users benefiting from public and private health subsystems) are invoiced by the Claimant itself (with this entity receiving the full amount invoiced and subsequently allocating part of that value to doctors of C…, as is the case with other doctors in its service, to whom no sums are charged as consideration for space transfer).

8. C… is part of the same corporate group as the Claimant.

9. At the time of the inauguration of B…, the Claimant organized an event intended to promote its name, its brand and its image to the public and to potential customers.

10. For the realization of this promotional and advertising event for B…, the Claimant contracted several services, namely, a pyrotechnic display, tent rental, decoration of the space where the event took place.

11. The Claimant concluded various agreements/protocols with private entities operating in the field of health insurance, as shown in the following table:

[table content preserved]

1. The convention between the Claimant and E… ("E…") was concluded on 21-09-2012.

2. The prices of health services provided by the Claimant under the convention, in outpatient or inpatient care, are defined in the tables published on E…'s Portal.

3. The price set in those tables and which is due by E… for the medical services provided by the Claimant to users of that health subsystem is independent of its cadastral classification in terms of VAT, that is, regardless of whether the Claimant assesses or does not assess VAT on the medical services provided under the convention concluded with E…, the price that the latter will pay for them will always be the same.

4. The services provided to E…'s users by the Claimant have the same price as those charged to such users by any other hospitals that have also concluded conventions with that public entity.

5. During the period from September 2012 to March 2014, and as a result of the exercise of activities related to its corporate purpose, the Claimant presented the following volume of net turnover:

[table content preserved]

1. Part of that business volume of the Claimant was due to the convention concluded with E…, as itemized below:

[table content preserved]

1. During the years 2012 to 2014, the Claimant assessed VAT in the amount of € 1,858,044.12 (of which € 722,659.51 relating to medical service provision), in the service provision it carried out, as itemized:

[table content preserved]

1. The Claimant filed its statement of commencement of activities on 06.01.2012, where it chose to renounce the exemption granted by Article 9, No. 2, of the VAT Code, pursuant to Article 12, No. 1, paragraph b), of the same Code, so it became classified under the normal taxation regime, with quarterly periodicity.

2. As a result of that choice, from the beginning of its activity, the Claimant began to assess VAT on:

i. The medical services provided by it, at the reduced tax rate, pursuant to item 2.7 of List I annexed to the VAT Code;

ii. The other services carried out by it (space transfer and parking lot management), at the normal rate of 23%.

1. It also began to deduct the VAT borne in the acquisition of goods and services necessary for the pursuit of its activity.

2. The medical services provided by the Claimant represent a significant part of its operations, and are taxed at the reduced VAT rate (6%).

3. A significant part of the VAT borne on goods and services acquired for the realization of its operations is assessed at the normal rate (23%).

A.2. Facts Not Established as Proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Justification for Proven and Unproven Factual Matters

With respect to factual matters, the Court does not have to pronounce on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and to distinguish proven from unproven matters (see Article 123, No. 2, of the Code of Tax Procedure and Article 607, No. 3 of the Code of Civil Procedure, applicable ex vi Article 29, No. 1, paragraphs a) and e), of the RJAT).

Thus, the pertinent facts for adjudication are chosen and defined according to their legal relevance, which is established in light of the various plausible solutions of the legal question(s) (see former Article 511, No. 1, of the Code of Civil Procedure, corresponding to current Article 596, applicable ex vi Article 29, No. 1, paragraph e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of Article 110/7 of the Code of Tax Procedure, the documentary evidence and the evidence file in the proceedings, the facts listed above were considered proven, with relevance to the decision.

B. ON THE LAW

i. Preliminary Questions

a.

The Respondent begins by arguing that "the present proceedings cannot continue pursuant to Article 497 and No. 2 of Article 498 of the Code of Civil Procedure, as the exception of lis pendens is verified".

To this end, it alleges that the now Claimant filed a special administrative action on 29.01.2015 with the Administrative and Tax Court of ..., which runs its course under Case No. …/15. … … in which it requests the "annulment of the administrative act of official modification of the classification in terms of VAT of the defendant, with effects as of 1 October 2012, whose proposal for modification was notified to the defendant on 7 October 2014, through Official Letter No…, of 3 October 2014, of the Directory of Finance of ..., having become final on 23 October 201, and cumulatively, condemnation of the Tax and Customs Authority to adopt the necessary acts and operations to restore the situation that would exist if the act whose annulment is requested had not been carried out, that is, to reclassify the defendant under the normal VAT regime, as carrying out only taxed VAT operations conferring the right to deduction, with effects as of 1 October 2012, which it does on the following grounds:".

With respect to lis pendens, Article 580/1 of the Code of Civil Procedure provides that "The exceptions of lis pendens and res judicata presuppose the repetition of a cause; if the cause is repeated while the previous one is still pending, there is lis pendens; if the repetition occurs after the first cause has been decided by a judgment that no longer admits ordinary appeal, there is the exception of res judicata".

Further provided in Article 581 of the same statute:

"1 - A cause is repeated when an action identical to another is filed regarding the subjects, the claim and the cause of action.

2 - There is identity of subjects when the parties are the same from the point of view of their legal nature.

3 - There is identity of claim when in one or the other cause the same legal effect is sought.

4 - There is identity of cause of action when the claim deduced in the two actions arises from the same legal fact. In real actions the cause of action is the legal fact from which the real right derives; in constitutive and annulment actions it is the concrete fact or specific nullity invoked to obtain the intended effect."

First and foremost, since it is the Respondent that invokes the exception at issue here, it would be incumbent upon the Respondent to demonstrate its presuppositions, which, as flows from the aforementioned provisions, consists in the "repetition of a cause", which occurs "when an action identical to another is filed regarding the subjects, the claim and the cause of action".

If as to the identity of subjects there is no doubt as to its verification, the same cannot be said regarding the identity of claim and cause of action.

Indeed, in tax actions of impugning nature, as is the case here, as is known, the cause of action is the illegality of the impugned tax act. Thus, identity of claim and cause of action would only be verified between the present action and Case No. …/15. … …, if the impugned tax act were the same and the alleged illegalities were also the same. A situation which, it is repeated, it would be up to the party invoking lis pendens to demonstrate.

Now, in the special administrative action No. …/15. … …, by definition, the assessment of the legality of a tax act that is not an assessment would be at issue, whereas in the present arbitral proceedings the assessment of illegalities relating to the assessments indicated by the Claimant in its initial request is at issue.

This alone is sufficient – the lack of identity of the object – for the invoked lis pendens not to be verified, an exception which, as such, is unfounded.

b.

The Respondent further considers that Case No. …/15. … … constitutes a prejudicial question with respect to the present proceedings, pursuant to and for the purposes of Article 272 of the Code of Civil Procedure.

However, it is considered that the Respondent is not correct in this regard.

For there to be a relationship of prejudiciality, it is necessary that "knowledge of the object of the action depends, in whole or in part, on the decision of one or more questions within the competence of a court belonging to another jurisdiction" (Article 15/1 of the Administrative Procedure Code).

Now, in the case this does not occur.

Indeed, and subject to respect due to other opinions, the reclassification act of the Claimant in terms of VAT, carried out on 05-11-2014, in the part in which it covers such reclassification with relevance for the VAT assessment in the periods covered by the assessments that are the subject of the present tax arbitral action, is merely confirmatory, introducing nothing new into the legal order.

As was written in the Decision of the Supreme Administrative Court of 06-03-2008, issued in Case 01011/07:

"I - For an administrative act to be considered merely confirmatory of another, it is necessary that both have as their presuppositions the same factual situation and the same legal regime, furthermore, both use the same justification and that the confirmed act has been regularly notified to its recipient.

II - The confirmatory act – because it is limited to maintaining, without alteration, the legal situation already defined by the confirmed act and because it introduces no modification to that situation - does not result in any violation of the rights or legally protected interests of the administered party and that, therefore, not being harmful, it is not contentiously appealable."

In the same sense it was written:

• In the Decision of the Supreme Administrative Court of 28-10-2010, issued in Case 0390/10: "A confirmatory act is one that, emanating from the same entity, and directed to the same recipient, repeats the content of a prior act, before presuppositions of fact and law identical, and without the reexamination of those presuppositions arising from revision imposed by law.";

• In the Decision of the Administrative Court of Appeals – North, of 08-03-2012, issued in Case 01172/09.4BEPRT: "The merely confirmatory act is issued following a contenticiously challengeable administrative act, in the same sense, by the same entity, and maintaining the subjects and the legal and factual circumstances of the confirmed act.";

• Decision of the Administrative Court of Appeals – North, of 22-02-2013, issued in Case 00003/09.0BEBRG: "A merely confirmatory act will be one, among confirmatory acts, that have as their object prior harmful act(s), and for its verification it is important that the following requirements are cumulatively verified: a) That the confirmed act was harmful; b) That such act was within the knowledge of the interested party; c) That between the confirmed act and the confirmatory act there is identity of subjects, of object and of decision."

• In the Decision of the Administrative Court of Appeals – North, of 14-02-2014, issued in Case 03303/10.2BEPRT: "A confirmatory act presupposes that the two acts (confirmed and confirmatory) have been carried out under the same legal discipline, that the interested party has had timely knowledge of the confirmed act and that between both there is correspondence of grounds and legal effects."

In this matter, account should also be taken of what was written in the Decision of the Supreme Administrative Court of 20-10-2011, issued in Case 0500/10, where it is stated that "The relationship of confirmatory nature between two administrative acts presupposes, among other things, that the circumstances of fact and law remain unchanged between the issuance of the first and the practice of the second."

In light of all these criteria, the only conclusion that can be drawn is that, in the part in which it overlaps with the assessments that are the subject of the present arbitral action, the act that is the subject of Case No. …/15. … … is merely confirmatory, all criteria of such qualification being verified, namely:

• it was "emanated from the same entity, and directed to the same recipient";

• it has "as its presuppositions the same factual situation", that is, the activity concretely exercised by the Claimant in the periods covered by the assessments that are the subject of the present arbitral action, and "the same legal regime", that is, the norms of Articles 9 and 12 of the VAT Code, that is, it was carried out "before presuppositions of fact and law identical, and without the reexamination of those presuppositions arising from revision imposed by law.";

• in both "the same justification was used", that is, that contained in the tax inspection report carried out under Service Order No. OI2014…;

• the confirmed act was "regularly notified to its recipient" and was harmful;

• the "circumstances of fact and law" that are relevant "remain unchanged between the issuance of the first and the practice of the second".

Thus, there can be no doubt that, in the part in which it overlaps with the assessments that are the subject of the present arbitral action, the reclassification act of the Claimant in terms of VAT, "is limited to maintaining, without alteration, the legal situation already defined" by those assessments, and "introduces no modification to that situation", therefore "does not result in any violation of the rights or legally protected interests of the administered party (...) therefore, not being harmful".

Thus being, as it appears to be, there will be no relationship of prejudiciality between Case No. …/15. … … and the present arbitral action, since the knowledge of the object of the present action does not depend, in whole or in part, on the decision of one or more questions to be decided therein.

c.

The Respondent also raises, as a question to be decided before appraisal of the merits of the case, the material competence of this Tribunal to arbitrate the present case, considering that "the first question to be decided concerns whether or not the right of renunciation of exemption can be recognized on the part of the Claimant, given that the presuppositions for its recognition have been altered", and that "For this reason, we have no doubt in stating that, in the present proceedings, the acts of additional VAT assessment should be qualified as consequent acts", since "the acts of additional VAT assessment, pending appraisal in this arbitral instance, are in a relationship of dependence on the recognition or not of the right on the part of the now Claimant to renounce VAT exemption, pursuant to Article 12, No. 1, paragraph b), of the VAT Code".

Thus, still in the perspective of the Respondent, "given this circumstance, the recognition of the right that the now Claimant has, or not, to renounce exemption as referred to above, will determine, or not, the annulment of the additional tax assessments, since this depends directly and exclusively on that", so, concludes the Respondent, "the present arbitral instance is materially incompetent to know of one of several requests formulated in the present proceedings, namely, whether the now Claimant has or does not have the right of renunciation of exemption provided for pursuant to paragraph 2) of Article 9, as provided in Article 12, No. 1, paragraph b), both of the VAT Code".

First and foremost, it should be said that the conclusion of material incompetence formulated by the Respondent is, from the outset, unfounded, insofar as the relationship of consequence between acts, on which the Respondent bases itself, does not have the effect of tribunal incompetence, but rather suspension of the instance due to prejudiciality, in the case where the presupposed act has been subject to challenge, or the unfoundedness of the claim, in the case where that act has been consolidated in the legal order.

Furthermore, this same question was raised in Case 168/2015-T of the CAAD, which dealt with a matter in all respects identical to that of the present proceedings, where it was written what is now, with due deference, transcribed:

"Ordinance No. 112-A/2011, regarding acts that can be classified as indicated in Article 2, only removed from the scope of the Tax Authority's binding nature, in non-customs matters, claims relating to self-assessment acts, withholding at source and payment on account that were not preceded by recourse to the administrative remedy and claims relating to acts of determination of the taxable base and acts of determination of taxable matter, both by indirect methods, including the decision of the revision procedure.

It is clear that we are not dealing with any of the situations in which Ordinance No. 112-A/2011 removes the competence of the arbitral tribunals operating at the CAAD, so competence must be assessed solely in light of the RJAT.

As can be seen from Article 2 of the RJAT, the competence of the arbitral tribunals operating at the CAAD was defined by the RJAT only taking into account the type of acts that are the object of the claims of taxpayers and not based on the type of questions that need to be assessed to decide whether the acts are legal or illegal.

There is, in particular, no prohibition on the assessment of matters relating to the verification of the presuppositions of the right of renunciation of VAT exemption or any other questions of legality relating to the acts of the types referred to in Article 2 of the RJAT. A tax assessment that departs from the disregard of an exemption or a renunciation of exemption does not cease to be a tax assessment act. And the claim for assessment of the legality or illegality of that underlying disregard in a tax assessment act is not, therefore, anything other than the assessment of a claim relating to the declaration of illegality of assessment acts, in which that disregard is embodied.

Thus, in arbitral proceedings, similar to what occurs in proceedings of judicial challenge, any illegality can, in general, be imputed to assessment acts, as flows from Article 99 of the Code of Tax Procedure, subsidiarily applicable.

This will only not be the case in situations where the law provides for the independent challengeability of administrative acts that are presuppositions of assessment acts, and only insofar as the assessment of the legality of assessment acts is excluded in all aspects. But, for there to be such independent challengeability, it is necessary that there be some administrative act in tax matters, since challengeability refers to acts and not to legal positions assumed explicitly or implicitly as presuppositions of assessment acts but not materialized in autonomous tax acts.

The consequent acts, of which the Tax and Customs Authority speaks, are consequent on other prior tax or administrative acts and, in the case at issue, there is no record of any administrative act having been carried out assessing whether the Claimant has or does not have the right to renounce VAT exemption.

That is, for there to be a limitation on the challengeability of the impugned assessment acts, some administrative act would have had to be previously carried out that was a presupposition of these assessment acts, which did not occur in the case at issue.

For this reason, being the assessment acts harmful to the interests of the Claimant and being the only acts carried out by the tax administration on the situation assessed therein, its contentious challengeability must be ensured on the basis of any illegality, as flows from the principle of effective judicial protection, enshrined in Articles 20, No. 1, and 268, No. 4, of the Constitution.

On the other hand, when there is no autonomously challengeable act prior to an assessment act concerning its presuppositions, "any illegality previously committed can be invoked in the challenge of the final decision" (final part of Article 54 of the Code of Tax Procedure), so all questions relating to the legality of assessment acts can be assessed in tax tribunals in proceedings of judicial challenge, as flows from paragraph a) of No. 1 of Article 97 and Article 99 of the same Code.

In truth, in tax tribunals, even when, tax assessments having been made, one is in a situation where it could be more useful for the taxpayer to use the action for recognition of a right or legitimate interest (by enabling, beyond the assessment of the legality of acts, the definition for the future of the taxpayer's rights), the use of the action instead of judicial challenge is a mere optional right, as flows from the very text of Article 145, No. 3, of the Code of Tax Procedure, when it states that "actions can only be filed whenever that procedural means is the most adequate to ensure full, effective and actual protection of the right or legally protected interest". That is, what is provided for in this norm is a limitation on the use of the action and not a limitation on the use of the judicial challenge procedure.

Indeed, it is clear that the judicial challenge procedure includes the possibility of recognition of rights in tax matters, such as the right to annulment or declaration of nullity of assessments, the right to indemnifying interest and the right to compensation for improper guarantee, so the fact that recognition of rights is at issue is not an obstacle to the use of the judicial challenge procedure.

Thus, as the Tax and Customs Authority states, since tax arbitral proceedings have been created as an alternative to judicial challenge proceedings, it can be concluded that there is no obstacle to the legality of the assessment acts in question in this proceedings being assessed by this Arbitral Tribunal, since in tax tribunals that legality could be assessed in judicial challenge proceedings.

Thus, as to the request for annulment of the assessment acts, the exception of material incompetence raised by the Tax and Customs Authority based on there being a matter of recognition of a right in tax matters is unfounded."

It is true that, in the present case, there is an additional circumstance compared to the situation assessed in the proceedings in which the aforementioned decision was issued, namely the practice of an express act of classification of the Respondent in terms of VAT autonomously challengeable (and challenged). However, such an act is, as was seen, not prior, but posterior to the acts that are the subject of the present arbitral action, so, in what matters for the decision, the situation sub iudice identifies itself with that of the referred decision, insofar as, indeed, "there is no autonomously challengeable act prior to an assessment act concerning its presuppositions".

Thus, the Tribunal's competence in judicial challenge is assessed based on the act(s) that serve(s) as its object, and this Tribunal is unquestionably competent to assess the legality of the assessment acts that are part of the object of the present tax arbitral action, in light of their respective grounds.

It is therefore seen no reason to depart from what was learned in the said judgment, indeed fully subscribing to what was set out therein, and the exception of material incompetence raised by the Respondent is judged unfounded.

d.

The Respondent also requests in its response that the case be referred to the Court of Justice of the European Union, pursuant to Article 267 of the Treaty on the Functioning of the European Union, for purposes of defining the scope of renunciation of the said exemption regime.

To this end, it alleges that "all the CJEU case law with some similarity to the case of the present proceedings has resulted from cases that are in an antagonistic position or, if you will, in a mirror position facing the situation of the present proceedings.", since in those cases "private economic operators sought to benefit from exemption with respect to the provision of medical services they carried out faced with the position of the respective tax administrations that advocated for their subjection/taxation", so there will be "a need to ascertain what the classification in terms of VAT is of the activities of management of health units, provision of medical services, complementary diagnostic means, radiology, clinical analysis, nursing and physiotherapy, carried out by the now Claimant, and the possibility of renouncing VAT exemption with respect to these activities, since it appears to follow from community case law, namely in the Kügler, Dornier and L.U.P decisions, that these services are provided in conditions socially analogous to those of public establishments".

As is referred to in point 7 of the Recommendations to National Courts and Tribunals regarding the submission of preliminary ruling requests (2012/C 338/01) of the CJEU:

"the role of the Court in the context of a preliminary ruling request is to interpret European law or to pronounce on its validity, and not to apply this law to the factual situation underlying the main proceedings. This role is incumbent upon the national judge and, therefore, it is not for the Court to pronounce on questions of fact raised in the context of the dispute in the main proceedings nor on possible divergences of opinion as to the interpretation or application of national law rules".

Further recalled, in point 12 of those same recommendations, is that the preliminary reference to the said Court should not be made when:

i. there already exists case law on the matter (and when the possibly new framework does not give rise to any real doubt as to the possibility of applying this case law to the concrete case); or

ii. when the correct manner of interpreting the legal rule in question is unequivocal.

Consequently, it is continued in point 13, "a national court may, in particular when it considers itself sufficiently clarified by the Court's case law, decide for itself on the correct interpretation of European law and its application to the factual situation of which it has knowledge".

Finally, as provided in point 18 of the same recommendations, "The national court may submit a preliminary ruling request to the Court from the moment it considers that a decision on the interpretation or validity is necessary to issue its decision."

In the case, it is not considered that a decision on the interpretation of the Community norms is necessary to issue its decision, nor does the Claimant demonstrate this, not having even submitted any specific question capable of being weighed.

On the other hand, and as will be seen below, it is understood that the available CJEU case law clarifies sufficiently, in terms of being able to decide on the correct interpretation of European law and its application to the factual situation of which it is aware.

This has, moreover, been the understanding of the Arbitral Tribunals that have addressed the same question, and can be seen, in that sense, in what is referred to in arbitral cases 227/2015T and 341/2015T, to whose grounds this tribunal hereby adheres.

No unconstitutionality is discerned in the understanding followed, in particular by violation of Articles 13 and 20 of the Constitution, as alleged by the Respondent in its Pleadings, not least because what it contests, by means of such a flaw, is not the normative interpretation carried out, which is settled, but the application of such interpretation to the concrete case.

Thus, as was written in the Decision of the Constitutional Court 73/2016, of 03-02-2016:

"Now, in the scope of the constitutional review appeal, only, as is known, the scrutiny of the constitutionality of norms and not any other operations, in particular the manner in which the court of appeal interpreted or applied infra-constitutional law is available. It is not the responsibility of the Constitutional Court to monitor the hermeneutical judgment followed in the instances, in light of the concrete elements brought to the case sub judice, to assess the applicability of the contested regime.

That is, it is not available, in the scope of constitutional review appeal, the revision of court decisions and their correctness. This is a matter of common law, for which common courts are competent. Constitutional jurisdiction has instead the control of the constitutional conformity of norms, excluding the assessment of court decisions, under penalty of inadmissibility."

Thus, and for the foregoing reasons, the requested preliminary ruling request is dismissed.

e.

Finally, the Respondent requests that "a preliminary ruling be requested to the Supreme Administrative Court (SAC), pursuant to Article 93 of the Administrative Procedure Code and 25, No. 2, of the Law on the Organization of the Administrative and Fiscal Courts, applicable ex vi Article 29, No. 1, paragraph c) of the RJAT, insofar as it must always be considered that this is a new legal question that raises serious difficulties and may come to be raised in other disputes, with all the necessary presuppositions being verified for that purpose."

The Respondent further suggests that "by not admitting such possibility of control by the SAC, there would be a violation of the right of access to justice (Article 20 of the Constitution), of legality (Articles 3, No. 2, 202 and 203 of the Constitution) and, also, Article 266, No. 2, of the Constitution, in its corollary of the principle of indisponibility of tax credits, inherent in Article 30, No. 2 of the General Tax Code."

Articles 93/1 of the Administrative Procedure Code and 25, No. 2, of the Law on the Organization of the Administrative and Fiscal Courts provide that:

• "When an administrative court of first instance is faced with a new legal question that raises serious difficulties and may come to be raised in other disputes, the respective president, at the proposal of the judge of the case, may adopt one of the following measures:

a) Determine that in the judgment all judges of the court intervene, with a quorum of two-thirds and with the application of the provisions of the preceding article;

b) Submit it for appraisal to the Supreme Administrative Court, in order for it to issue a binding pronouncement within the proceedings on the question, within three months."

• "It is further incumbent on the plenary of the Administrative Contentious Section of the Supreme Administrative Court to pronounce itself, pursuant to the terms established by law of procedure, regarding the sense in which a new legal question that raises serious difficulties and may come to be raised in other disputes should be resolved by an administrative court of first instance."

As can be ascertained from a reading of the norms in question, in the context of the administrative and fiscal judicial organization, these are intended exclusively for Administrative and Tax Courts.

Indeed, the competence for the referral in question, as flows from the norms in question, belongs to the President of the Court of First Instance, referred to in Article 43 of the Law on the Organization of the Administrative and Fiscal Courts.

Now, such organization is not transposable to the CAAD, which, on the one hand, does not have a panel of judges of the Court (as presupposed by paragraph a) of No. 1 of Article 93 of the Administrative Procedure Code), the judges being appointed ad hoc for each case and their functions being restricted to the proceedings for which they are appointed, and on the other hand, does not have a President who exercises functions analogous to those of a President of a Court of First Instance, whether the generically provided for in Article 43-A of the Law on the Organization of the Administrative and Fiscal Courts, or the specially provided for in the Administrative Procedure Code, being particularly relevant here the impossibility of the President of the CAAD intervening, in any capacity, in arbitral proceedings and, in particular, carrying out jurisdictional acts, as is undoubtedly the case with those referred to in paragraphs a) and b) of the referred Article 93/1 of the Law on the Organization of the Administrative and Fiscal Courts, which will be explained, among other things, by the fact that the presidents of the Courts of First Instance are appointed, as a rule, judges (see Article 43/3 of the Law on the Organization of the Administrative and Fiscal Courts) qualified with a training course (see Article 43/3 of the Law on the Organization of the Administrative and Fiscal Courts).

Thus, as there is no figure analogous to the President of the Court of First Instance within the framework of the organization of tax arbitral jurisdiction, the application of the norm in question is impossible, so the situation in question is not a matter omitted, covered by the remission of Article 29/1 of the RJAT, so necessarily the requested referral to the SAC must be dismissed.

Such impossibility does not entail, it is judged, any unconstitutionality by violation of the right of access to justice (Article 20 of the Constitution), of legality (Articles 3, No. 2, 202 and 203 of the Constitution) and, also, Article 266, No. 2, of the Constitution, insofar as it exclusively reflects specificities and constraints inherent to arbitral jurisdiction, analogous, for example, to the non-existence of ordinary merit appeals of the decisions issued, which are inherent to adhesion to the same.

***

Having reached this point, it falls to this arbitral tribunal to ascertain the legality of the impugned VAT assessments, identified above.

Being at issue corrections with three distinct types of grounds, namely:

i. Improperly deducted VAT in the acquisition of goods and services related to the activity of medical service provision, in the total amount of € 1,410,468.47, in the periods 2012.12T to 2014.03M;

ii. Improperly deducted VAT in the acquisition of goods and services resulting from the inauguration event of B…, in the amount of € 24,817.22, in period 2012.06T; and

iii. Failure to assess VAT on the operation of gratuitous transfer of space to C…, in the total amount of € 15,593.94, in periods 2012.12T and 2013.12T.

Each of them shall be assessed separately.

With respect to the correction regarding improperly deducted VAT in the acquisition of goods and services related to the activity of medical service provision, in the total amount of € 1,410,468.47, in the periods 2012.12T to 2014.03M, the Tax Authority bases it, in summary, on the circumstance that there were invoiced by the Claimant to E…"approximately one third of the total medical service provision carried out" being this public health subsystem responsible for the "majority of the activity" of the Claimant when measured through the number of medical acts performed, understanding the said Authority that "private entities that conclude agreements or conventions with the National Health Service or with its respective subsystems, if integrated in the national health system (providing services in social conditions analogous to public law entities), cannot, thus, renounce the tax exemption from the moment they conclude such conventions", and that the concept of "national health system" includes "public entities integrated in the National Health Service [NHS], as well as private entities that, pursuant to applicable law, have concluded agreements or conventions with the NHS or with one of the public health subsystems for provision of health care", so, as the Claimant "concluded, on 21 September 2012, a convention with a public health subsystem (E…)" and could not, from that moment on, be classified under the "normal VAT regime with respect to the principal activity of provision of health care", which depended "[i]n a significant part" on the "users benefiting from E…".

Normatively, the correction at issue is based on Articles 9 and 12 of the VAT Code, which provide:

Article 9

Exemptions in Internal Operations

The following are exempt from the tax:

1. Service provision carried out in the exercise of the professions of doctor, dentist, midwife, nurse and other paramedical professions;

2. Medical and health service provision and operations closely connected therewith carried out by hospital establishments, clinics, dispensaries and the like; (...)

Article 12

Renunciation of Exemption

1 - May renounce exemption, opting for the application of the tax to their operations: (...)

b) Hospital establishments, clinics, dispensaries and the like, not belonging to public law entities or to private institutions integrated in the national health system, which carry out medical and health service provision and operations closely connected therewith; (...)

2 - The right of option is exercised by filing, at any tax office or at another legally authorized location, a statement of commencement or of modifications, as the case may be, taking effect from the date of its presentation.

3 - Having exercised the right of option pursuant to the preceding numbers, the taxpayer is obliged to maintain the regime it chose for a period of at least five years, and, after such period, should it wish to return to the exemption regime:

a) File, during the month of January of one of the years following the year in which the term of the option regime has been completed, the statement referred to in Article 32, which takes effect as of 1 January of the year of its filing;

b) Subject to taxation the remaining inventories and proceed, pursuant to No. 5 of Article 24, to adjustment of deduction regarding fixed asset goods.

The said norms have a corresponding provision in Article 132 of Directive No. 2006/112/EC, of 28-11-2006 (VAT Directive), which provides:

1. Member States exempt the following operations:(...)

b) Hospitalization and medical care, as well as operations closely related thereto, provided by public law entities or, in conditions socially analogous to those applicable to the latter, by hospital establishments, medical care and diagnostic centers and other establishments of the same nature duly recognized;

c) Service provision of assistance provided in the exercise of medical and paramedical professions, as defined by the Member State concerned; (…)

Paragraph b) of No. 1 of Article 12 of the VAT Code permits only the renunciation of the exemption of entities exempted and classified under No. 2 of Article 9 of the same Code, a classification that is expressly recognized for the Claimant in the Inspection Report (see p. 18).

The Tax and Customs Authority, understands, as was seen, that the Claimant is integrated in the National Health System and operates in conditions analogous to those of a public entity, so the renunciation of the exemption provided for in paragraph b) of No. 1 of Article 12 of the VAT Code would be barred for it.

This question has already been the subject of deep and detailed analysis within the scope of arbitral cases 278/2013T, 227/2015T and 341/2015T.

As regards the principal ground of the corrections carried out by the Tax Authority, now at issue, that is, that the reference, in Article 12/1/b) of the VAT Code, to "national health system", should be equated with the notion of National Health Service, contained in specific and proper legislation of the area in question, reference is made in full to what was set out in those decisions, whose justification, in that part, is fully subscribed.

It is thus concluded here as there, that "The term 'national health system', contained in Article 12, No. 1, of the VAT Code must be interpreted in accordance with the criterion imposed by the applicable provisions of the VAT Directive", that is, as referring to "hospital establishments, clinics, dispensaries and the like, not belonging to public law entities or to private institutions (...), which carry out medical and health service provision and operations closely connected therewith" in conditions socially analogous to those applicable to operations provided by public law entities.

This question, moreover, ends up being downplayed by the Tax Authority itself in the present proceedings (despite dedicating points 131 to 156 of its Response to it), conceding that "the question cannot even be centered on the delineation of the expressions "national health service", "health system" and "national health system", which has brought so much intellectual pleasure to some experts, in this matter, but questioning and exposing the fact that the "right" or "non-right" to renounce the exemption provided for in No. 2) of Article 9 of the VAT Code could or could not entirely subvert the rules of neutrality that govern any and every value added tax system in force in the European Union." (point 34 of the Response).

On this point, the principal question, equally formulated by the Tax Authority in the proceedings, becomes that of "knowing whether, by force of the conventions concluded with the State, in the concrete case, with E…, the now Claimant should be considered as a private institution integrated in the "national health system", pursuant to and for purposes of Article 12, No. 1, paragraph b) of the VAT Code." (point 126 of the Response).

Ending up recognizing the Tax Authority in the proceedings, in terms coincident with those seen above, that "the concept of "national health system" introduced in paragraph b) of No. 1 of Article 12 of the VAT Code should be interpreted, in light of the Directive and the legal framework then in force, in the sense of covering public entities integrated in the National Health Service, as well as private entities that, pursuant to applicable law, provide health care services in "conditions analogous" to those applicable to public law entities." (point 162 of the response), it is necessary to ascertain whether the Claimant actually provides its health services in such conditions.

The Tax Authority centers this equation on two aspects, namely:

• the circumstance that between 32.92% and 34.87% of the Claimant's invoicing comes from revenues relating to the convention concluded with E…, being that the 10 most invoiced medical acts were, mostly, pursuant to the table contained in point 9 of the proven factual matters, to users of E…;

• the alleged violation of the principle of neutrality of VAT, arising from the acceptance of the right to VAT exemption by the Claimant.

It should be said, from the outset, that it is not considered that any one of the aspects, individually or jointly, is capable of substantiating the necessary equation of the conditions in which the Claimant operates with those of public entities holding hospital establishments, clinics, dispensaries and the like.

Preliminarily, with respect to the data relating to the 10 most invoiced medical acts, the same is deemed clearly irrelevant to the question at issue, insofar as, on the one hand, what is at issue is the public or private origin of the financing of the activity, being, as such, only the total volumes of invoicing relevant, and that, on the other hand, the individualization of the 10 most practiced medical acts is manifestly arbitrary, insofar as no validating criterion therefor is advanced, nor is it even properly contextualized, indicating, for example, the total number of medical acts performed (10 in 11 has a completely different significance than 10 in 11,000), or the part of the total invoicing volume that such acts represent.

Furthermore, recognizing that the public or private nature of the financing of the activity of the operator seeking to exercise the right to the renunciation of exemption in question could constitute "an indication that the entity exercises its activity in "conditions analogous" to those applicable to public hospitals", as the Tax Authority refers to in point 193 of its response, the fact is that, on the one hand, in the case, not even the majority of the Claimant's invoicing comes from revenues relating to the convention with E…, and, on the other hand, the verification of an index, among others, in itself, could never, without more, as would be the case, allow the conclusion that the conditions analogous to those presumed by the norm of Article 12/1/b) of the VAT Code exist, since, beyond financing, public entities act within a framework characterized by constraints (such as, for example, budgetary control, public contracting requirements) and prerogatives (such as, for example, inherent authority of public law entities, guarantees inherent to state involvement) specific, which it would always be necessary to weigh and assess in order to demonstrate the intended analogy in the conditions of exercise of activity.

With respect to the alleged violation of the principle of VAT neutrality, and subject to respect due to other opinions, it is judged that the Tax Authority is laboring under several misconceptions.

Thus, and from the outset, such a question could only be validly formulated if, and insofar as, it was verified that the Claimant actually exercises its activity in conditions analogous to those of public entities holding hospital establishments, clinics, dispensaries and the like, which, as was seen, has not been duly demonstrated.

On the other hand, the argumentation presented by the Tax Authority in the present proceedings, in this matter, is riddled with some contradiction, insofar as, on the one hand, it acknowledges that "the objective of the exemption regime is to ensure that the benefit of medical care does not become inaccessible due to the increase in costs resulting from VAT taxation" (point 182 of the Response), and that "without a shadow of a doubt, it may be cheaper for citizens covered by E… to resort to a private hospital instead of a public hospital" (point 169 of the Response) while on the other hand it argues that the renunciation of the exemption, now sought by the Claimant, and in analogous situations, "violates the principle of equality/non-discrimination in that the same service provision will in some cases be subject to tax and, in other cases, be exempt." (point 51 of the Response), since "those who resort to the services of a private health institution and have to bear VAT in its obtaining are faced with clear discrimination compared to the acquisition of the same services by those who resort to a public health establishment – the protection of their right to health is discriminated against because they must bear the tax that burdens those services" (point 39 of the Response), there being "a clear discrimination facing the final consumers of this type of services (the patients)." (point 49 of the Response).

Now, recognizing that "without a shadow of a doubt, it may be cheaper for citizens covered by E… to resort to a private hospital instead of a public hospital", any claim to inequality or discrimination resulting from the renunciation of VAT exemption becomes impossible, such renunciation not affecting, on the contrary, the acknowledged "objective of the exemption regime", which immediately proves the non-existence of any unconstitutionality in this matter, contrary to what the Tax Authority contends (see points 37 and 68 of the Response).

Without prejudice to all this, it will always be said that the framework presented by the Tax Authority in the matter at issue lacks, in itself, sustenance.

Thus, from the outset and always with due respect, it will lack sense to state that in the case it is necessary to ensure "an equality of treatment between economic operators that appeals more to criteria of fair competition among them" (point 47 of the Response), since, by definition, the public entities in question do not operate, in any way, within a framework of competition, since these are, by definition, economically deficient entities, since they are instituted in execution of the constitutional command contained in Article 64 of the Constitution, referred to by the Tax Authority itself, according to which "everyone has the right to protection of health", this right being realized "through a universal and general national health service, (…) tending to be free", "incumbent [in priority] upon the State".

That is, in other words, the "public entities integrated in the National Health Service", which the Tax Authority recognizes as deprived of the right of renunciation of exemption (point 162 of the response), and with respect to which the analogy of conditions of exercise of activity should be assessed, do not aim, by nature, to ensure their financing by means of payment by third parties for the services they provide, since, by legal imposition, such service must tend to be free, which is, evidently, incompatible with operation in a competitive environment.

Stated yet another way: since the provision of a public health service by the State, by means of the public entities that provide it, is a charge on the State, the provision of such services is incompatible with operation in a competitive environment, since, logically, the greater the volume of services provided, the greater the burden, not the profit, as is natural in a competitive market, so that, on the side of the public entity, there can never be a violation of the principle of neutrality by distortion of competition.

The framework, still in this matter, operated by the Tax Authority, appears also maladjusted to the case when it states that "the assumption by the State, even if in part, of the costs of provision of certain health care provided by these private entities, implies its recognition for purposes of application of the exemption, as delimited in paragraph b) of No. 1 of Article 132 of the VAT Directive." (point 183 of its Response), insofar as what is comparticipated within the framework of the convention with E… is not the cost "of provision of certain health care provided by these private entities", but the consideration that is due by the users of the health services provided to the private provider for the services provided. That is, and in summary, what is comparticipated is the beneficiary of E… recipient of the services provided (as consideration for the comparticipations that it bears or has borne for that service), and not the providing entity.

Thus, and in summary, not having been, by any of the means attempted by the Tax Authority, duly demonstrated that the Claimant provides its services in conditions analogous to those of public entities holding hospital establishments, clinics, dispensaries and the like, it must be considered that the corrections now at issue suffer from error in the factual presuppositions, and consequent error in the application of Law, and should, as such, be annulled, the arbitral claim succeeding in this part.

***

With respect to the corrections relating to improperly deducted VAT in the acquisition of goods and services resulting from the inauguration event of B…, in the amount of € 24,817.22, in period 2012.06T, regarding expenses incurred with a pyrotechnic display, tent rental and decoration of the space where the event took place, management and support for guests and musical entertainment and associated equipment, the Tax Authority bases them, dedicating a point of its Response to them (point 114), on the circumstance that "such expenses do not have necessary connection to the realization of the operations carried out by the now Claimant", falling under paragraph d) of No. 1 of Article 21 of the VAT Code, which has the following wording:

"However, the right to deduction is excluded for tax contained in the following expenses:

d) Expenses relating to accommodation, food, beverages and tobacco and reception expenses, including those relating to the reception of persons external to the company and expenses relating to real property or part of real property and its equipment, intended mainly for such receptions;"

With respect to this matter, it is established that the Claimant organized the event intended to promote its name, its brand and its image to the public and to potential customers.

As was written in the Decision issued in arbitral case 238/2013T (which included the now Reporting Arbitrator), in a position subsequently adopted in cases 398/2014-T and 403/2014-T:

"The Claimant argues, in summary, that the events in question are part of disclosure and promotion actions of the image and heritage of the Claimant — specifically … — intrinsically connected with the pursuit of its activity and that, being thus, if such expenses are not considered foreign to the activity exercised and, moreover, contribute to its pursuit — being subsumable, in the Claimant's view, to advertising expenses — no reason is seen why the right to deduction of VAT should be questioned.

The norm of Article 21 of the VAT Code excludes the right to deduction of certain expenses which, by their nature, permit the presumption that they may be used to satisfy particular needs.

The Claimant argues that these are presumptions that are rebuttable, by force of the provisions of Article 73 of the General Tax Code which establishes that «The presumptions enshrined in the norms of the scope of taxation always admit proof to the contrary».

Norms of scope, in the broad sense, are those that «define the scope of taxation, that is, the complex of presuppositions from whose combination results the birth of the tax obligation, as well as the elements of the same obligation».

In this sense, norms of scope are those that determine the active and passive subjects of the tax obligation, those that indicate what is the taxable base, the rate and tax benefits.

The norms relating to the right to deduction of VAT have the effect of excluding the scope of the tax, so they are reconducted to norms of negative delimitation of scope, and the regime of the referred Article 73 of the General Tax Code should be applied to the presumptions contained therein.

As the Claimant argues, underlying the situations of exclusion of the right to deduction will be presumptions that the expenses indicated in Nos. 1 and 2 of Article 21 do not have total or partial exclusive relationship with the productive activity of companies subject to VAT, since that is the only acceptable justification for the exclusion of deductibility of this tax, which, as a tax on consumption, is intended to be neutral for intermediaries in the economic circuit.

In the case at issue, given that it is a well-known fact that the realization of concerts …, especially in the case of the concert that had television coverage, have the potential to disclose and promote the image of the Claimant, the presumption that justifies the exclusion of VAT deductibility should be considered rebutted, especially since it is not credible that a company of the size of the Claimant would carry out events of this kind, with a view to satisfying the particular interests of those who produce and those who attend the concerts.

For this reason, the presumption inherent in paragraph d) of No. 1 of Article 21 of the VAT Code should be considered rebutted, so the Claimant has the right to deduct the total VAT relating to the expenses referred to, so the non-recognition of that right with respect to € 28,458.42 is illegal, by violation of that norm, combined with Article 20, No. 1, of the VAT Code and Article 73 of the General Tax Code."

Accepting here the understanding that has just been transcribed, and given the proof that the expenses in question relate exclusively to an event intended to promote the name, brand and image of the Claimant to the public and to potential customers, it is concluded that the correction now at issue suffers, it also, from error in the factual presuppositions, and consequent error in the application of Law, and should, as such, be annulled, the arbitral claim succeeding in this part.

***

Having reached this point, it is necessary to assess, finally, the legality of the correction relating to the failure to assess VAT on the operation of gratuitous transfer of space to C…, in the total amount of € 15,593.94, in periods 2012.12T and 2013.12T.

This correction was based, according to the Inspection Report, on the understanding that "this space transfer and provision of services is qualifiable as a provision of services carried out for purposes foreign to the Claimant" "thus constituting, for VAT purposes, a provision of services for consideration subject to taxation, pursuant to paragraph b) of No. 2 of Article 4 of the VAT Code", which article provides that are considered provisions of services for consideration "service provision made free of charge by the very company with a view to the needs of its owner, of the personnel or, in general, for purposes foreign to it".

In this respect, it was established that:

• The Claimant's activity comprises, in addition to medical service provision, the management and operation of health establishments.

• In this context, the Claimant concluded contracts for the transfer of equipped space and provision of services with several other entities that develop their activity in the health sector.

• The Claimant only directly provides part of the medical services made available at B…, the other part of the medical services available to the public being performed by these entities that agree with it on the use of space and services.

• One of these space transfers carried out by the Claimant had as counterparty the company C…, Lda.

• C… carries out its activity of provision of services and health care, namely in the areas of gynecology, obstetrics and pediatrics and instrumental or complementary activities and services in the facilities of B… (operated by the Claimant).

• The space used (non-exclusively) by C… was transferred by the Claimant without there being direct remuneration associated with this operation.

• Part of the services provided by C… (whenever it provides services to users benefiting from public and private health subsystems) are invoiced by the Claimant itself (with this entity receiving the full amount invoiced and subsequently allocating part of that value to doctors of C…, as is the case with other doctors in its service, to whom no sums are charged as consideration for space transfer).

• C… is part of the same corporate group as the Claimant.

In this respect, the Claimant argues that its business model "depends, decisively, on being able to count, in the facilities of B…, a broad set of service providers who, in addition to itself, there exercise, in a concerted manner, various medical services", so "the presence of C… in the facilities of B… constitutes an important focus of attractiveness and customer loyalty for that unit and, as such, enhances the increase in services provided by the Petitioner, which are taxed in VAT.", so it rejects that "the provision of space transfer services contracted free of charge between the Petitioner and C… has a purpose foreign to the activity and business model of the Petitioner".

Subject to due respect, it is considered that the Claimant is not correct here.

Indeed, what results from the proven facts is that the Claimant transferred spaces of its property to third parties for them to exercise therein an activity aimed at their own profit, without obtaining any direct consideration, a situation which, in a context of normality, is not consistent with the pursuit of a profit-making purpose, characteristic of corporate entities of the type of the Claimant.

Contrary to what the Claimant alleges, the proven facts do not permit sustaining the conclusion that it was, in fact, decisive for its business model the availability in the facilities of B… of a broad set of service providers who,

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