Process: 169/2017-T

Date: October 17, 2017

Tax Type: IVA

Source: Original CAAD Decision

Summary

CAAD Process 169/2017-T addresses whether dental medicine providers can waive VAT exemption and whether the tax arbitral tribunal has jurisdiction to rule on such matters. Three dental clinic companies challenged VAT assessments for 2012-2015, arguing they qualified for exemption under Article 9(2) of the Portuguese VAT Code (CIVA) as outpatient healthcare providers and had the right to waive that exemption under Article 12(1)(b) CIVA. The Tax Authority contested on multiple grounds: (1) the arbitral tribunal lacked material competence because the case involved recognition of tax rights rather than mere annulment of assessments; (2) cumulation of claims by multiple taxpayers was improper; (3) a preliminary ruling from the CJEU was necessary; and (4) substantively, dental services fall under Article 9(1) CIVA (general healthcare exemption) rather than Article 9(2) (specific outpatient services), making waiver impossible. The tribunal rejected the competence challenge, holding that arbitral jurisdiction is defined by the type of act challenged (assessment acts under Article 2 RJAT), not by the underlying legal questions requiring resolution. The tribunal emphasized that verifying prerequisites for VAT exemption waiver does not transform an assessment annulment claim into a rights recognition proceeding. The decision clarifies that tax arbitral tribunals can examine any illegality in assessment acts, including whether exemptions or waivers were properly disregarded, as this falls within their statutory mandate to review tax assessments under the RJAT framework.

Full Decision

ARBITRAL DECISION

I - REPORT

A…, Ltd., B…, Ltd. and C…, Ltd., taxpayers no. …, … and …, respectively, all with registered office in Porto, submitted, on 10/03/2017, a request for constitution of an arbitral tribunal, pursuant to the provisions of subparagraph a) of no. 1 of article 2 and article 10, nos 1 and 2, both of Decree-Law no. 10/2011, of 20 January (RJAT), in which the Tax and Customs Authority (AT) is requested, with a view to declaring null an act of tacit dismissal of a hierarchical appeal and annulling the VAT assessments and corresponding compensatory interest, with reference to the years 2012 to 2015 identified below.

The request for constitution of the Collective Arbitral Tribunal was accepted by the President of AACS and notified to the Respondent on 14/03/2017.

Pursuant to the provisions of subparagraph a) of no. 2 of article 6 of the RJAT, by decision of the President of the Deontological Council of AACS, duly notified to the parties within the prescribed timeframes, the undersigned arbitrators were appointed, having notified that Council of their acceptance of the appointment within the period stipulated in article 4 of the Deontological Code of the Administrative Arbitration Centre.

On 11/05/2017 the parties were notified of this appointment, and manifested no intention to refuse it, pursuant to the combined provisions of articles 11, no. 1 subparagraphs a) and b) of the RJAT and 6 and 7 of the Deontological Code.

The collective arbitral tribunal was constituted on 26/05/2017, in consonance with the prescription of subparagraph c) of no. 1 of article 11 of the RJAT, in the wording conferred upon it by article 22 of Law no. 66-B/2012, of 31 December.

On 03/07/2017 the Respondent submitted its reply and on 13/09 thereafter submitted the administrative file.

By arbitral order of 07/07/2017 the holding of the meeting referred to in article 18 of the RJAT was dispensed with, inviting the parties to submit their submissions in writing.

The Claimants, dated 13/07/2017, replied to the exceptions and preliminary matters raised by the AT, having equally pronounced on the matter of the preliminary ruling and formulated their submissions.

On 15/09/2017, the AT submitted counter-arguments.

An arbitral order was issued on 26/09/2017, indicating as the final deadline for notification of the arbitral decision the day 26/10/2017.

To substantiate their requests, the Claimants invoke, in summary, that they are companies engaged in the activity of dental medicine and related activities, having initially or subsequently come within the normal VAT regime with monthly periodicity.

They consider that, as providers of health services in outpatient regime, carried out in establishments that they have for that purpose, they are covered by the exemption provided in no. 2 of article 9 of the Value Added Tax Code (CIVA), and are permitted to renounce it pursuant to subparagraph b) of no. 1 of article 12 of the same diploma.

Consequently, the disputed assessments are illegal, which were based on the understanding that they did not have the right to renounce that exemption, and are owed, moreover, compensatory interest, pursuant to articles 43 and 100 of the General Tax Law (LGT) and 61 of the Code of Tax Procedure and Process (CPPT).

The AT sustains the material incompetence of the arbitral tribunal on the grounds that it concerns the recognition of a right in tax matters - the right to renounce the VAT exemption -, defends that the cumulation of claims is illegal, argues for a preliminary ruling to the Court of Justice, and seeks, by way of objection, its dismissal of the arbitral pronouncement, as the activity carried out by the Claimants (dental medicine and odontology) comes within no. 1 of article 9 of the CIVA, and not its no. 2, consequently no possibility of renouncing the exemption exists under the provisions of subparagraph b) of no. 1 of article 12 of the CIVA, since this possibility is only attributed to taxable persons exempted pursuant to no. 2 of article 9.

II – PRELIMINARY MATTERS

  • Question of the material incompetence of the tax arbitral tribunal

Dilatory exceptions prevent the tribunal from deciding the merits of the case, and their consideration has a priority character, so it is important to begin by considering the material incompetence exception raised by the Respondent.

The AT states, in summary, that the tribunal is asked to consider the legality of the prerequisites of the right to renounce the VAT exemption, under the provisions of subparagraph b) of no. 1 of article 12 of the CIVA; now, the acts of additional VAT assessment carried out should be qualified as consequential acts, as they are in a relationship of substantial dependence on the recognition or non-recognition of the right by the Claimants to that renunciation.

The AT understands that the arbitral tribunal is materially incompetent to determine whether the Claimants have or do not have the right of renunciation of the exemption, since the scope of its competence does not contemplate the possibility of reviewing requests aimed at the recognition of rights in tax matters, as is derived from no. 1 of article 2 of the RJAT and nos 2 and 4, subparagraph b) of article 124 of Law no. 3-B/2010, of 28 April.

For the Claimants, the exception is without merit, inasmuch as the competence of the tax arbitral tribunals is defined based on the type of act that is the object of the taxpayers' claim and not on the questions that it is necessary to consider to decide on the legality of those acts.

This question, in situations such as the present, was submitted to arbitral jurisdiction in various proceedings, among them nos 168/2015-T, 782/2015-T, 788/2015-T, 789/2015-T, 160/2016-T and 687/2016-T.

As is stated in the decision issued in case no. 168/2015-T, subsequently adopted in the following ones, "Ordinance no. 112-A/2011, regarding acts that can be framed within the provisions of article 2, merely removed from the scope of the binding of the Tax Administration, in non-customs matters, claims relating to acts of self-assessment, withholding at source and payment on account that were not preceded by recourse to the administrative remedies and claims relating to acts of determination of taxable matter and acts of determination of taxable income, both by indirect methods, including the decision of the review procedure.

It is manifest that we are not faced with any of the situations in which Ordinance no. 112-A/2011 removes the competence of the arbitral tribunals operating in AACS, so the competence must be assessed only in light of the CPPT.

As can be seen from article 2 of the RJAT, the competence of the arbitral tribunals operating in AACS was defined by the RJAT only having regard to the type of acts that are the object of taxpayers' claims and not based on the type of questions that it is necessary to consider to decide whether the acts are legal or illegal.

There is, in particular, no prohibition on considering matters relating to the verification of the prerequisites of the right to renounce the 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 proceeds from disregarding an exemption or a renunciation of exemption does not cease to be a tax act of assessment. And the claim for consideration of the legality or illegality of that disregarding underlying an act of assessment is not, therefore, anything other than the consideration of a claim relating to the declaration of illegality of assessment acts, in which that disregarding materialises.

Thus, in the arbitral proceeding, as similarly occurs in the process of judicial review, any illegality can, as a rule, be imputed to the assessment acts, as follows from article 99 of the CPPT, subsidiarily applicable.

This will not be the case only in those situations in which the law provides for the autonomous reviewability of administrative acts that are prerequisites of the assessment acts, and only to that extent is the consideration of the legality of the assessment acts in all aspects excluded.

However, for there to be such autonomous review, it is necessary that there be some administrative act in tax matters, as reviewability relates to acts and not to legal positions assumed explicitly or implicitly as prerequisites of the assessment acts but not materialised in autonomous tax acts.

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

That is, for there to be a limitation on the reviewability of the disputed assessment acts, an administrative act would have to have been carried out previously that would be a prerequisite of these assessment acts, which did not occur in the case at hand.

Therefore, being assessment acts injurious to the interests of the Claimant and being the only acts carried out by the tax administration on the situation considered in them, their contentious reviewability must be ensured on the basis of any illegality, as follows from the principle of effective judicial protection, enshrined in articles 20, no. 1 and 268, no. 4 of the CRP.

On the other hand, when there is no autonomously reviewable act prior to an assessment act dealing with its prerequisites, "any illegality previously committed may be invoked in the review of the final decision" (final part of article 54 of the CPPT), so that all questions relating to the legality of the assessment acts can be considered in the tax courts in judicial review proceedings, as follows from subparagraph a) of no. 1 of article 97 and article 99 of the same Code.

In fact, in the tax courts, even when, having been carried out assessment acts, one is faced with a situation in which it might be more useful for the taxpayer to use the action for recognition of a right or legitimate interest (by making it possible, in addition to consideration of the legality of acts, to define for the future the rights of the taxpayer), the use of the action instead of judicial review is a mere option, as follows from the very text of article 145, no. 3, of the CPPT, in stating that "actions may only be brought whenever this procedural means is the most appropriate to ensure full, effective and actual protection of the right or legally protected interest".

That is, what this norm provides is a limitation on the use of the action and not a limitation on the use of the judicial review procedure.

In effect, it is manifest that the judicial review procedure includes the possibility of recognition of rights in tax matters, such as the right to the annulment or declaration of nullity of assessments, the right to compensatory interest and the right to indemnification for improper guarantee, so that the fact that the recognition of rights is at issue is no obstacle to the use of judicial review.

Thus, as the Tax and Customs Authority states, having the tax arbitral procedure been created as an alternative to the judicial review procedure, it must be concluded that there is no obstacle to the legality of the assessment acts in question in this proceeding being considered by this Arbitral Tribunal, as in the tax courts this legality could be considered in judicial review proceedings".

For the reasons transcribed, which are entirely subscribed to, the exception of material incompetence of the arbitral tribunal is without merit.

  • Question of illegal cumulation

The fact that the tribunal is competent for the dispute is not sufficient for its consideration to proceed.

As a rule, for functional reasons, to each claim, based on one or more causes of action, corresponds one action. Otherwise the proceedings could reach excessive complexity and prejudice correct and timely justice.

However, there are cases in which it is admitted that, in the same action, several claims are cumulated. In the case of reviews of tax assessment acts, it is admissible that several of these acts be submitted for consideration by the tribunal, provided that "the success of the claims depends essentially on the consideration of the same factual circumstances and on the interpretation and application of the same principles or legal rules", as established, for the case of tax arbitral tribunals, in no. 1 of article 3 of the RJAT.

Reasons of expedience, economy of means, avoidance of conflicting judgments, and facilitation of easier access to the courts and effective judicial protection apply here.

It is important to know whether ours is one of these cases.

The Respondent maintains that, in this proceeding, the cumulation of reviews is illegal.

It does so, however, with manifest ineptitude, appearing that it has made an error in treating this concrete case, using reasoning that has no place here.

In fact, the AT refers to a tax - the IUC - that is not at issue here, as the matter concerns VAT, and to factual circumstances that are not those invoked by the Claimants. See what it (inappropriately) writes:

"Even if it can be suggested that the factual procedures may be transversal to all assessments, what is certain is that we are faced with disparate factual situations embodied in: (i) different vehicles; (ii) with different transmission dates; (iii) different transmission grounds; (iv) different taxation grounds; and (v) different owners".

"In paragraphs 42° to 67°, the Claimant sets out the factual basis relating to situations in which the vehicles were sold;

In paragraphs 68° to 77°, the Claimant sets out the factual basis relating to situations in which a financial leasing contract is in effect on the vehicles;

In paragraphs 78° to 81°, the Claimant sets out the factual basis relating to situations of total loss of the vehicles.

And finally, in paragraphs 82° to 89°, the Claimant sets out the factual basis relating to situations of financial leasing contracts that are in default.

In the five factual scenarios described, the success of the claim does not depend, essentially, on the same factual circumstances".

And hence the request made, for dismissal of the instance.

However, as was said, the disputed acts are additional VAT assessments, based on a factual framework established by the AT in inspection actions, identical in all cases, and the principles and legal rules to be considered are, also, in all cases, the same, as clearly flows from the arbitral claim formulated.

It is concluded, therefore, by the legality of the cumulation of assessments, in light of the cited article 3, no. 1 of the RJAT.

  • Question of the preliminary ruling

We shall address this question now because, if the Tax Authority's reasoning were to proceed, this instance could not continue, necessitating its suspension for preliminary referral to the Court of Justice of the European Union (CJEU), pursuant to articles 267 of the Treaty on the Functioning of the European Union and 23 of the Statute of the CJEU.

The AT states:

"Given that the acts of additional VAT assessment, pending review in this arbitral instance, are in a relationship of dependence on the recognition or non-recognition of the right of the now Claimant to the renunciation of the VAT exemption (as stated above), and given that there does not exist in the Community case law any decision susceptible of direct application to the present case, it is requested, from the outset, that the referral of the proceeding to the CJEU be ordered, pursuant to article 267 of the TFEU, for the purposes of defining the scope of the renunciation of the said exemption regime.

In fact, all the case law of the CJEU, with some similarity to the case of the present proceeding, resulted from cases which are in an antagonistic position or, if you will, in a mirror position with respect to the situation of the present proceeding.

Effectively, in those cases, those involved sought rather to benefit from the exemption regarding the provision of medical services, when the respective tax administrations sought their subjection/taxation.

There is, therefore, in our view, a need to ascertain whether the concept of "analogous social conditions" should be assessed having regard to whether such "implies or does not imply a violation of the principle of equal treatment regarding the other operators carrying out the same services in comparable situations", for example, Dornier Case Law, Case C-45/01, of 6 November 2003.

Thus, if the definition of the right to renunciation does not have a precise and concrete definition, then it is closer to the general regime (the exemption regime), taking into account the interpretation that the Court of Justice of the EU has been carrying out in the cases that have been submitted to it".

The question has already been raised, in the same terms, in arbitral case no. 682/2016-T, which dealt with a similar case.

Drawing on the earlier AACS rulings in cases nos 315/2015-T and 782/2015-T, and transcribing part of the decision issued in case no. 315/2015-T, it reads:

"(…) the preliminary referral to the said Court should not be made when:

  • there already exists case law on the matter (and when the eventually new framework does not raise any real doubt regarding the possibility of applying that case law to the concrete case); or

  • when the correct way 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 informed by the case law of the Court, decide itself on the correct interpretation of Union law and its application to the factual situation of which it has cognisance.

Finally, as stated in point 18 of the same recommendations, "The national court may submit to the Court a request for a preliminary decision, 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 Community norms is necessary to issue, nor has the Respondent demonstrated it, having not even submitted any concrete question that would demonstrate it.

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

In fact, consultation with the CJEU, mandatory in certain cases, is not so in those in which the national court has no doubts about the interpretation of the applicable Community law norms, whether because it considers them unequivocal, or because it considers that previous pronouncements of the Union court have already clarified them, and not necessarily in cases with similar concrete facts.

It should not be forgotten that the applicator of Union law and, consequently, its interpreter, is in the first instance the national judge, who cannot relieve himself of his task by appealing to the CJEU in cases in which this is not justified.

This is why the suggestion of the AT to proceed with a preliminary referral to the CJEU cannot be accepted.

In conclusion:

The tribunal is competent and is regularly constituted, the parties have legal personality and capacity, are legitimate and are properly represented (article 3, 6 and 15 of the CPPT, by virtue of article 29, no. 1, subparagraph a) of the RJAT), the proceeding is not vitiated by nullities, and there are no other exceptions or preliminary matters that prevent consideration of the merits of the case.

III – APPRECIATION

A. MATTERS OF FACT

A.1. Facts Taken as Established

A) The Claimants are companies taxed for the exercise, in surgeries and clinics which they have for that purpose, without hospitalization, of the activity of dental medicine and odontology (CAE 086230).

B) Claimant A… commenced its activity on 27/01/2007, having submitted, on 26/01/2007 a Declaration of Commencement of Activity to the Tax Office of Porto, indicating that it would carry out "transfers of goods and/or provision of services that give the right to deduction".

C) Claimant A… did not mark the practice of operations "exempt that do not give the right to deduction", nor did it fill in the box "option for taxation regime (VAT)".

D) Claimant B… commenced its activity on 28/08/96 and enjoyed VAT exemption until 08/10/2012, the date on which it submitted a declaration of changes declaring that it would carry out exempt operations that give the right to deduction, opting for the normal taxation regime.

F) Claimant C… commenced its activity on 04/11/99, benefiting from VAT exemption until 02/11/2012, the date on which it submitted a declaration of changes in which it declared that it would carry out exempt operations that do not give the right to deduction, opting for the normal taxation regime in VAT.

G) For VAT purposes the Claimants are framed in the normal regime with quarterly periodicity.

H) The Claimants were subject to inspection procedures of an external nature, of general scope, with reference to the periods 2013 to 2015.

I) Following the said inspection actions the Claimants were notified of the corresponding reports, which contain the basis for the disputed assessments, and whose content is hereby reproduced herein.

J) The tax acts that are the object of the present arbitral pronouncement resulted from the said inspection actions.

K) The additional VAT assessments made to Claimant A… and relating to the years 2013 to 2015 amount to €160,301.10, plus €15,788.42 of compensatory interest.

L) The additional VAT assessments made to Claimant B… and relating to the years 2013 to 2015 amount to €16,778.62, plus €2,106.11 of compensatory interest.

M) The additional VAT assessments made to Claimant C… and relating to the years 2012 to 2014 amount to €40,706.10, plus €2,090.40 of compensatory interest.

N) Claimant C… filed a gracious complaint, which was dismissed, and appealed from such dismissal by means of a hierarchical appeal on 12/10/2016, which was not subject to decision.

O) Claimant A… paid, under Decree-Law no. 67/2016, €397.06 relating to costs, on 15 November 2016, €13,523.85, on 23 December 2016, and €4,507.95 on 20 February 2017, under the said installment payment plan.

P) Claimant B… paid the amounts assessed within the term for voluntary payment.

Q) Claimant C… paid the amounts assessed within the term for voluntary payment.

A.2. Facts Taken as Not Established

With relevance to the decision, there are no facts taken as not established.

A.3. Basis for the Matters of Fact Taken as Established and Not Established

The positions taken by the parties, the documentary evidence submitted to the case and the attached administrative file were taken into account.

B – MATTERS OF LAW

VAT was conceived as a neutral tax, meaning that, although it is levied on all operations of acquisition of goods and services, it does not burden the various participants in the chain, since they, although obliged to assess VAT on the operations they carry out, can recover the tax borne upstream, in such a way that only the last in the chain, in principle the final consumer, actually bears the VAT.

However, there are exceptions, which, for the reason that they are exceptions, cause a distortion in the system.

Among them, exemptions stand out, created with the intention of benefiting certain sectors of activity which, by the function they perform, were understood as deserving of a special regime.

Cases of exemption are not to be confused with cases of non-imposition of tax.

In the latter, there is no VAT, either because one of the elements typifying the tax is lacking or because there is a negative element that excludes taxation. The operations on which VAT is not levied are outside the system, do not constitute a taxable event for VAT purposes.

When we speak of exemptions, we speak of cases in which the rule of incidence finds its natural field of application, but this is deferred by the exceptional rule that removes the taxation, in consideration of factors of a political, economic or social nature - in the case at hand, activities connected with health, which aim at its maintenance and/or recovery - which the legislator understood as deserving of the exemption regime. In other words, VAT applies, because the elements typifying the taxable event occur, but there is also a dispensation from it, the rule of incidence not being given effect.

There are complete exemptions and incomplete, also called simple or partial exemptions. In the latter the taxable person benefiting is relieved of assessing tax on active operations but is burdened with a counterpart: he cannot deduct the tax borne in the acquisition of goods and services carried out upstream, contrary to what would occur if he came within the normal regime (of non-exemption).

In these cases of partial exemptions, one can be faced with a poisoned gift: the beneficiary of the exemption does not assess tax and, therefore, his activity is benefited, because the goods and services he deals in can be placed at a lower cost, by not incorporating VAT. But, on the other hand, not being permitted to recover the tax he bore in the acquisitions he made, tax which, by tendency, will be incorporated in the price of the goods and services he sells or provides, it can happen that such goods or services end up being more expensive than those marketed by operators who do not enjoy exemption.

It is for this reason that, in some cases, the beneficiary of the exemption regime is not obliged to accept the benefit, being able to renounce it, as will be seen below.

Exemptions in domestic operations are provided for in article 9 of the Value Added Tax Code (CIVA), which states, with relevance to the case at hand:

"The following are exempt from tax:

  1. Services provided in the exercise of the professions of physician, dental surgeon, midwife, nurse and other paramedical professions;

  2. Medical and health services and the operations strictly connected therewith provided by hospital establishments, clinics, dispensaries and similar".

Article 9 of the CIVA transposed article 132 of Directive 2006/112/EC, of the Council, of 28 November 2006, which reads:

"The Member States shall exempt the following operations:

(…);

"b) hospitalisation and medical assistance, as well as the operations closely linked thereto, provided by public law bodies or, in conditions analogous to those applying to the latter, by hospital establishments, medical and diagnostic assistance centres and other establishments of the same nature duly recognised";

"c) The services of a medical and paramedical nature, within the meaning of the Member State concerned".

The first question to be decided, in the case submitted to us, would therefore consist of knowing whether the Claimants enjoy the VAT exemption enshrined in article 9 of the CIVA.

In fact, this question does not arise, because both the Claimants and the Respondent agree on this point: the Claimants come within the provisions of article 9 of the CIVA, being exempt from VAT.

A second question must now be considered, because there is no agreement on it. It consists of determining whether the undisputed exemption is that provided in no. 1 of article 9 or that enshrined in its no. 2.

The point is relevant because what is decided on it determines the possibility of renouncing the exemption, as follows from article 12 of the CIVA, which we will consider below.

It was already seen that European law permits the Member States to exempt, both "hospitalisation and medical assistance, as well as the operations closely linked thereto, provided by public law bodies or, in conditions analogous to those applying to the latter, by hospital establishments, medical and diagnostic assistance centres and other establishments of the same nature duly recognised", and "the services of a medical and paramedical nature, within the meaning of the Member State concerned".

Internally, there are exempt "services provided in the exercise of the professions of physician, dental surgeon, midwife, nurse and other paramedical professions", and "medical and health services and the operations strictly connected therewith provided by hospital establishments, clinics, dispensaries and similar".

Services provided in the exercise of the professions of physician, dental surgeon, midwife, nurse and other paramedical professions may be provided anywhere, including the home of the professional or the patient, without intermediation of hospital establishments, clinics, dispensaries and similar.

Medical and health services and the operations strictly connected therewith provided by hospital establishments, clinics, dispensaries and similar are not provided directly by the professionals to the patient, nor do the professionals invoice them to the patient. Health professionals sell their services to the establishment, and it is this that supplies and invoices them to patients.

Regarding the concept of medical services, the understanding of the CJEU, in particular in the ruling of 14/09/2000, issued in Case C-384/98, is that those which consist of providing assistance to persons, diagnosing and treating a disease or any health anomaly are to be considered as such. In the ruling of 10.06.2010 the same CJEU, in Case C-262/08, the same court considers that activities aimed at preventing, avoiding or preventing a disease, injury or health anomalies, or at detecting latent or incipient diseases, have the nature of medical services.

Now, the Claimants provide, in surgeries and clinics – and not in any other location -, dental medicine and odontology services, also carrying out complementary diagnostic examinations there, and therefore benefit from the mandatory exemption provided in no. 2 of article 9 of the CIVA.

Their activity comes within number 2 and not number 1, as the latter defines its scope of application, only, by the nature of the services, without concern with the legal nature of the provider, whereas no. 2 has regard to that nature, requiring that it be hospital establishments, clinics, dispensaries and similar.

The Claimants are not themselves physicians, dental surgeons, nor paramedical professionals and, therefore, the services they provide do not constitute directly and immediately the exercise of those professions.

Rather, what they do is make available establishments specifically dedicated (and, necessarily, equipped) to that provision. The services are provided by establishments (naturally executed, interpreted and intermediated by health professionals), but not by those health professionals, directly to the patient, in the exercise of their professions.

The fact that the services provided by the Claimants are in an outpatient regime, not including, in any case, hospital hospitalization, is irrelevant, as such hospitalization does not constitute a requirement either of Community or of national law – in particular, it is not a factor of exclusion from the provisions of no. 2 of article 9 of the CIVA or (still less) of inclusion in its no. 1.

Note that the same line of thinking is reflected in the ruling issued by the CJEU, case L.u.P. (of 8 June 2006, in Case no. C-106/05), clarifying that "Article 13, A, no. 1, subparagraph b), of the Sixth Council Directive 77/388/EEC, of 17 May 1977, (...) must be interpreted to the effect that clinical analyses which have as their object the observation and examination of patients for preventive purposes, which are carried out, as those at issue in the main proceedings, by a clinical laboratory of private law external to a medical assistance establishment under the prescription of general practitioners, are capable of being covered by the exemption provided for in that provision as medical care provided by another".

In this L.u.P. ruling, the CJEU understood that "since clinical analyses are covered, having regard to their therapeutic purpose, by the concept of 'medical assistance' provided for in Article 13, A, no. 1, subparagraph b), of the Sixth Directive, a laboratory such as the one at issue in the main proceedings must be considered an establishment of the 'same nature' as the 'hospital establishments' and 'medical assistance and diagnostic centres' within the meaning of that provision" (point 35).

Note that the CJEU has insisted that exemptions are autonomous concepts of European law (among others VDP Dental Laboratory, C-401/05 of 14-12-2006, no. 44), which has the consequence that the interpretation of these norms should be based on the following principles: "on the one hand VAT is charged on each provision of services and each delivery of goods made for consideration by a taxable person; and, on the other hand, the principle of fiscal neutrality is opposed to economic operators carrying out the same operations being treated differently in terms of VAT collection" (see, Cimber Air ruling, C-382/02 of 16-09-2004).

Now, the Community case law is sufficiently clear on this matter, in the sense that the exemption provided in subparagraph b) of article 132 of the Directive covers the services provided by entities of the types of the Claimants, regardless of whether the provision occurs in a hospital setting or not - indeed no. 2 of article 9 of the VAT Code expressly alludes to entities qualified as "clinics" or "dispensaries" - and regardless of whether it implies hospitalization or not, as such interpretation defended by the AT, which associates health care with the need for hospitalization, finds no support in the normative text, either of the Directive or of the VAT Code.

Article 12 of the CIVA tells us that "the following may renounce the exemption, opting for the application of tax to their operations (...) hospital establishments, clinics, dispensaries and similar, not belonging to public law entities or private institutions integrated in the national health system, which carry out medical and health services and operations strictly connected therewith".

It does not permit those who provide services and are not hospital establishments, clinics, dispensaries and similar to renounce the exemption.

In conclusive summary: the Claimants are covered by the provision of no. 2 of article 9 of the CIVA and by subparagraph b) of article 132 of the cited Directive, and may renounce the exemption pursuant to article 12 of the CIVA, as they carry out medical services and operations strictly connected therewith, in accordance with subparagraph b) of no. 1 of article 12 of the CIVA.

According to this latter norm, "the right of option is exercised by delivery, at any tax office or other legally authorized place, of a declaration of commencement or changes, as the case may be, taking effect from the date of its presentation".

That is, in order to be covered by the general regime, of non-exemption, the Claimants must exercise this option.

An option that is not presumed (which would sit poorly with the mandatory character of the exemption regime), and must be expressed in clear, unequivocal terms, in a conscious manner, also so that the Administration knows, without doubt, the choice of the taxable person. For, from the moment he states that he wishes to be framed in the general taxation regime, he must proceed to assess tax on the operations he carries out, and can deduct the tax borne upstream.

However, there is no norm, either in Community or in domestic law, that specifies the precise terms in which the option must be made, beyond the one already transcribed, which states that the right of option is exercised by delivery of a declaration of commencement or changes.

That is, it is in one of those declarations that the taxable person must choose.

In the case at hand, Claimant A…, when it presented a declaration of commencement of activity, marked that it would carry out "transfers of goods and/or provision of services that give the right to deduction".

Now, the right to deduction presumes the assessment of VAT and, consequently, also the renunciation of the exemption.

The same applies to Claimant B…, which presented a declaration of changes on 08/10/2012 in which it declared that it would carry out exempt operations that give the right to deduction, opting for the normal taxation regime.

Less clear is the case of Claimant C…, which presented on 02/11/2012 a declaration of changes in which it declared that it would carry out exempt operations that do not give the right to deduction, opting for the normal taxation regime.

This declaration is not unequivocal, but the AT itself interpreted it in the sense of renouncing the exemption, resulting from the option for the normal taxation regime.

That is, it must be understood that, contrary to what the Respondent understood, the Claimants could renounce and actually did renounce the exemption from which they benefited, and that they did so in the terms required. And, consequently, they could proceed to deduct the VAT borne upstream, and do not have to return it.

V - DECISION

Based on the foregoing reasons, it is decided:

  • To uphold the claims of the Claimants, and consequently to annul the tax acts disputed;

  • To order the AT to refund the amounts paid by the Claimants, plus compensatory interest, calculated from the payments until actual reimbursement;

  • To order the AT to pay the costs of the proceeding, which are fixed at €4,284.00;

  • To fix the value of the proceeding at €237,770.49.

Let notification be made.

Lisbon, 17 October 2017.

The arbitrators,

(José Baeta de Queiroz – with dissenting vote)

(Paulo Lourenço)

(Filipa Barros)

DISSENTING VOTE DECLARATION

We voted for the decision, but the fact that we subscribed to the arbitral ruling issued in arbitral case no. 682/2016-T in a different sense necessitates an explanation.

We continue to understand that the renunciation of the exemption is not presumed nor can it be inferred from declarations that presuppose it, but rather should be formal, express, clear and unequivocal. Ideally, it should be embodied in an expression similar to this: "The declarant renounces the VAT exemption attributed to him/her by article (…)".

It is true that, if the taxable person declares opting for a particular taxation regime in VAT, underlying that declaration is his intention not to enjoy exemption. In the same manner, if he states that he will carry out exempt operations that give the right to deduction, it is to be inferred that he does not intend to benefit from the exemption.

But, since the exemption is mandatory, as it is in the case at hand, an express, clear and unequivocal renunciation will always be required, and not one that is inferred a contrario from another declaration.

See, indeed, the exemplary case of Claimant C…, which expressly declared that it would carry out exempt operations that do not give the right to deduction, while, contradictorily, opting for the normal taxation regime. Now, if the operations are exempt – that is, the taxable person does not assess VAT - and do not give the right to deduction – that is, the taxable person does not deduct the VAT it bore -, it is not understood that it chooses a regime of taxation in VAT.

In other cases of exemption with the possibility of renunciation, such as that of no. 30 of article 9 of the CIVA, combined with nos 5 and 6 of article 12 of the same diploma and with Decree-Law no. 21/2007, of 29 January, the legislator imposed precise formal rules for the renunciation of the exemption.

But the truth is that it did not do so in the case of the exemption now at issue, limiting itself to indicating what the moment of renunciation is and the document(s) in which it must appear.

It is also true that the Administration did not insert, in those documents – declaration of commencement of activities and/or changes – any express reference to the renunciation of the exemption, so that the taxable person would be obliged to mark unquestionably his option.

Nevertheless, declarations such as those made by the Claimants the Administration has always understood as renunciation of the exemption. Indeed, in the case, the AT does not contest that the Claimants renounced; what it defends, and which motivated the disputed assessments, was that the faculty of renouncing the exemption was not attributed to them by law and that, therefore, the renunciation was not valid.

To require now, when the Administration previously treated the Claimants as VAT taxable persons framed in the normal regime, allowing them to recover the VAT borne, the refund of that VAT, would affront legal certainty and the legitimate expectations of the Claimants which, furthermore, would see the services they provide artificially and unjustifiably made more expensive by the VAT they assessed on their active operations without the counterpart of recovery of what they themselves bore upstream.

In summary, we understand now that no other conduct was required of the Claimants, that is, we accept that their renunciation of the exemption took on adequate and sufficient form.

And, therefore, the sense of our vote differs from what we gave in the aforementioned case no. 682/2016-T.

(José Baeta de Queiroz)

Text prepared by computer, pursuant to the provisions of article 131 of the Code of Civil Procedure, applicable by virtue of article 29, no. 1, subparagraph e) of the Legal Regime of Tax Arbitration, with blank verses, and reviewed by the arbitrators.

The drafting of this ruling is governed by the spelling prior to the 1990 Orthographic Agreement, except with respect to transcriptions made.

Frequently Asked Questions

Automatically Created

Can dental service providers waive the VAT exemption under Article 12(1)(b) of the Portuguese VAT Code (CIVA)?
Under Article 12(1)(b) of the Portuguese VAT Code (CIVA), only taxable persons exempted pursuant to Article 9(2) CIVA may waive VAT exemption. The Tax Authority argued that dental medicine services fall under Article 9(1) CIVA (general healthcare services exemption) rather than Article 9(2) (outpatient healthcare in appropriate establishments), and therefore dental providers cannot exercise the waiver option. The claimant companies contended they qualified as outpatient healthcare providers under Article 9(2) and thus had the statutory right to renounce the exemption. The resolution of this substantive issue depended on correctly classifying dental services within the CIVA exemption structure.
Does the CAAD Tax Arbitral Tribunal have jurisdiction to rule on the annulment of VAT assessments related to healthcare services?
Yes, the CAAD Tax Arbitral Tribunal has jurisdiction over such disputes. Despite the Tax Authority's argument that the case involved recognition of tax rights (outside arbitral competence under Article 2 RJAT), the tribunal held that its competence is defined by the type of act challenged, not the underlying legal questions. Since the claimants challenged VAT assessment acts—specifically seeking annulment of assessments and tacit dismissal of hierarchical appeals—the matter falls squarely within Article 2(1)(a) RJAT. The tribunal emphasized that examining whether exemptions or waivers were properly applied is inherent to reviewing assessment legality under Article 99 CPPT, not a separate rights recognition proceeding excluded from arbitral jurisdiction.
What are the rules for cumulation of claims (cumulação de pedidos) by multiple taxpayers in Portuguese tax arbitration proceedings?
The Tax Authority raised cumulation of claims (cumulação de pedidos) as a preliminary objection when multiple taxpayers jointly submit arbitration requests. While the text does not detail the tribunal's full ruling on this procedural issue, Portuguese tax arbitration law permits cumulation when claims involve related facts, common legal questions, or would benefit from joint resolution to avoid contradictory decisions. The RJAT framework (Article 10) allows for collective arbitral tribunals. Similar cases (referenced as 168/2015-T, 782/2015-T, 788/2015-T) suggest tribunals generally accept cumulation when taxpayers face identical legal questions regarding the same tax treatment, as occurred here with three dental companies challenging the same exemption waiver denial.
How does the preliminary ruling referral (reenvio prejudicial) to the CJEU apply in disputes over VAT exemptions for outpatient medical services?
The Tax Authority requested a preliminary ruling (reenvio prejudicial) to the Court of Justice of the European Union (CJEU) regarding interpretation of EU VAT Directive provisions on healthcare exemptions and waiver rights. This procedural mechanism under Article 267 TFEU allows national courts and tribunals to seek authoritative EU law interpretation when outcome depends on understanding EU legislation. The request likely concerned whether dental services constitute 'medical care' under Article 132(1)(b) or 'outpatient' services under Article 132(1)(c) of the VAT Directive, and whether Member States can restrict waiver rights based on service classification. Portuguese arbitral tribunals can refer questions to the CJEU when EU law interpretation is necessary for deciding disputes.
What was the outcome of CAAD Process 169/2017-T regarding the legality of IVA assessments on dental medicine companies for 2012-2015?
The complete outcome is not fully presented in the excerpt provided. However, the tribunal rejected the Tax Authority's preliminary exception of material incompetence, affirming its jurisdiction to rule on the VAT assessment annulments. The tribunal held that examining prerequisites for VAT exemption waiver falls within its statutory competence to review assessment acts under the RJAT. The decision addressed years 2012-2015 for three dental medicine companies. The substantive merits—whether Article 9(1) or 9(2) CIVA applies to dental services and whether waiver was properly denied—along with the cumulation issue and preliminary ruling request, required further deliberation beyond the excerpt's scope.