Process: 199/2018-T

Date: January 4, 2019

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitral tribunal case (Process 199/2018-T) addresses a critical VAT dispute involving dental medicine and odontology services in Portugal. A..., S.A., following a merger by incorporation of three dental companies, challenged VAT assessments totaling €2,374,936.42 for tax years 2013-2016. The Tax and Customs Authority (AT) rejected the companies' waiver of VAT exemption, arguing that dental services not provided in hospital settings fall under Article 9(1) of the Portuguese VAT Code and cannot waive exemption. The AT contended that only entities providing in-patient hospital care under Article 9(2) may waive VAT exemption pursuant to Article 12(1)(b) of the VAT Code. The claimant companies had formally submitted Activity Change Declarations waiving VAT exemption and were classified under the Normal Monthly VAT regime. However, the AT subsequently denied input VAT deductions, claiming the waiver was invalid because dental clinics operate outside hospital contexts. The claimant argues this interpretation violates Portuguese and EU tax law, as Article 12 permits private health establishments not integrated into the national health system to waive exemption. The tribunal must determine whether dental clinics qualify as 'hospital establishments, clinics, dispensaries and similar facilities' eligible for exemption waiver, and whether the merger grants standing to challenge all incorporated entities' tax assessments. This decision carries significant implications for Portugal's dental industry regarding VAT treatment, input tax recovery rights, and the scope of exemption waiver provisions under Articles 9 and 12 of the VAT Code.

Full Decision

ARBITRAL AWARD (Consult full version in PDF)

The arbitrators, Maria Fernanda dos Santos Maças (arbitrator-president), Nina Aguiar and António Alberto Franco, designated by His Excellency the President of the Deontological Council of CAAD to form the Collective Arbitral Tribunal, agree to deliver the following arbitral award:

I – REPORT

  1. A..., S.A., a legal entity..., with registered office at ..., no. ..., ... – ... to ..., ...-... Porto, in the capacity of Claimant and incorporating company, following a merger operation by incorporation, of the companies "B..., LDA.", holder of NIPC..., "C..., LDA.", holder of NIPC..., and "D..., LDA.", holder of NIPC..., filed on 18-04-2018 a petition for establishment of the arbitral tribunal, pursuant to the provisions of Articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as LRAT), in conjunction with Article 102 of the CPPT, in which the Tax and Customs Authority (hereinafter referred to only as Respondent) is requested.

  2. The Claimant seeks, through its petition, the declaration of illegality of Value Added Tax assessments and respective compensatory interest, relating to the years 2013 to 2016, in the total amount of €2,374,936.42, as well as compensation for any provision of bank guarantee, as well as the recognition of the right to indemnity interest in case it comes to pay all or part of the tax subject to the arbitral petition.

  3. The petition for establishment of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 19-04-2018.

3.1. The Claimant did not proceed to appoint an arbitrator, therefore, under the provisions of paragraph a) of Article 6, paragraph 2 and paragraph b) of Article 11, paragraph 1 of the LRAT, the President of the Deontological Council designated the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the designation within the legal timeframe.

3.2. On 14-06-2018 the parties were notified of the appointment of the arbitrators, and no impediment was raised.

3.3. In accordance with the provision of paragraph c) of Article 11, paragraph 1 of the LRAT, the arbitral tribunal was constituted on 04-07-2018.

3.4. In these terms, the Arbitral Tribunal is regularly constituted to examine and decide the subject matter of the proceedings.

  1. To support its petition for arbitral decision, the claimant alleges, in summary, the following:

Following a merger operation registered on 22 December 2016, it incorporated into its sphere three other companies, therefore whoever has the standing to react against the legality of all issued assessments, not only to itself – A... – but also to the Incorporated Companies, is itself.

The Claimant and the Companies Incorporated by the Claimant were subject to inspection actions carried out by the Tax and Customs Authority, through which corrections were proposed in the field of VAT and which all relate to the same legal and fiscal question, namely, the classification of dental medicine/odontology activities in the VAT exemption provided for in Article 9, paragraph 2 of the VAT Code and the possibility for taxable persons to proceed with the respective waiver under the provisions of Articles 12, paragraphs 1 and 2 of the VAT Code.

The Claimant and, as well as the companies incorporated by the Claimant are commercial companies dedicated to dental medicine activities and related activities, since the beginning of their activity.

A... and the incorporated companies submitted Declarations of Activity Changes, in accordance with which those entities, formally and correctly, waived the VAT exemption, on the basis of which the competent Finance Services classified them in the Normal Monthly VAT Regime.

Notwithstanding, the AT converged on the decision to make corrections to the VAT deducted in the years under analysis because A... could not waive the VAT exemption, due to the absence of a legal rule that would allow it to do so, because "the waiver of the exemption provided for in paragraph b of Article 12, paragraph 1 of the VAT Code only applies to the exemption of paragraph 2 of Article 9 of the VAT Code" and not to the exemption of paragraph 1 of the same provision, where allegedly the Claimant would be classified.

Now, the Claimant – and the Incorporated Companies identified by the Claimant – cannot agree with the content of these grounds nor, consequently, with the corresponding additional assessments, as it considers them illegal and unjust, suffering from error in fulfilling the prerequisites both in fact and in law of the invoked taxable reality, and now it comes to set out the evident and irrefutable grounds that support its claim.

The AT understands that "the activity of Dental Medicine/Odontology exercised in a context other than hospital care services should be classified in paragraph 1 of Article 9 of the VAT Code".

Furthermore, regarding the company D... the AT argues that this company will not have – even if such were permitted – validly waived the exemption, thus existing, therefore, a formal defect in the waiver of the exemption.

For the AT, all the Community jurisprudence and doctrine it invoked point in the same and exact direction: only entities that fall within the exemption provided for in Article 9, paragraph 2 of the VAT Code, i.e., in the AT's view, those that offer in-patient care in "hospital settings", may waive the VAT exemption.

Now, in the specific case of the Claimant and the companies incorporated by the Claimant, in no case do the services provided involve hospitalization or in-patient care of patients and the services provided by said Companies are not provided in hospital settings, therefore they could not have waived the exemption, should have remained classified in the exemption regime provided for in Article 9 of the VAT Code, which implies "the non-acceptance of the totality of VAT deducted".

It happens that, for the Claimant, the provision of services in the exercise of the professions of physician, odontologist, midwife, nurse and other paramedical professions, among others, are covered by a simple VAT exemption [Article 9, paragraph 1) of the VAT Code].

In general, it is not possible to waive the exemptions provided for in Article 9 of the VAT Code, with cases in which such is admitted being the exception to the rule. The situations, very particular and necessarily typified, in which waiver of the exemption is provided for, are therefore expressly provided for in Article 12 of the VAT Code.

One of the exemptions that contemplates the possibility of its waiver is, precisely, the exemption relating to the provision of medical and health services and operations connected therewith provided by hospital establishments, clinics, dispensaries and similar facilities, not belonging to public law legal entities or private institutions integrated into the national health system [cf. paragraph b) of Article 12, paragraph 1 of the VAT Code].

Excluded from the right to waive the exemption are natural persons or even legal entities that provide medical services outside the context of a health establishment, in accordance with the provisions of paragraph 2 of the same article, also making it unfeasible, in accordance with paragraph b) of Article 12, paragraph 1 of the VAT Code, the possibility of waiver of the exemption to private institutions integrated into the national health system.

That is, the waiver of the exemption is only admitted for private entities that pursue profit-making purposes and that are not establishments operating under social conditions analogous to those applicable to public bodies.

Thus, to determine whether any entity, namely in the conditions of the companies incorporated by the Claimant, may or may not waive the exemption under the provisions of Article 12 of the VAT Code, it is first necessary to subsume it in one of the first two paragraphs of Article 9 of the same instrument and then, once concluding that it falls within the concept of health establishment stated therein, determine whether it is a private establishment or a public establishment or one assimilated to it (here included, for this purpose, private establishments integrated into the national health system).

Without any room for ambiguity, paragraph b) of Article 132 of the VAT Directive makes mention of two distinct realities: on the one hand hospitalization and, on the other, medical care, and further, the operations closely related to them (whether with hospitalization or with medical care) provided by hospital establishments, medical care and diagnostic centers and other establishments of the same nature duly recognized. Simple reading of this rule allows one to perceive that this exemption does not depend on hospitalization/in-patient care, but is satisfied by the provision of medical care services, as long as provided from the establishments mentioned therein.

On the other hand, it emerges from the text of that Directive provision that from the comparison of the two paragraphs here under analysis, it is that paragraph c) "can only be applied to situations in which medical or paramedical activity is attributed to individuals and not to organisms, it being inconceivable that an "organism" within the meaning of the directive could benefit from the exemption provided for in paragraph c) under penalty of emptying of useful content the remaining requirements provided for in paragraph b)".

It cannot be ignored that paragraph c) – like Article 9, paragraph 1 of the VAT Code – makes reference to "professions" in counterpoint with the expression "organisms and establishments" contained in paragraph b), and that the use of that first term emerged with the current VAT Directive, while in its predecessor the expression used was "activity". The Directive thus carved out a distinctive criterion between the two paragraphs based on the concept of "organism".

It is clear that paragraph b) applies to "organisms" and paragraph c) is designed for situations in which the activity is pursued by natural persons exercising medical professions.

It is all too evident that it was intended to encompass in this specific exemption various types of establishments that provide health services, and cannot in any way be confined to hospitals or establishments that allow in-patient care/hospitalization.

It is absolutely unequivocal that medical clinics (in which dental clinics are included) are exempt under Article 9, paragraph 2 of the VAT Code and that, as such, they may waive the exemption under the provisions of paragraph b) of Article 12, paragraph 1 of the same instrument.

It invokes arbitral jurisprudence in the direction it advocates and against which no conclusion other than that of the illegality of the assessments examined herein should be drawn.

It concludes, therefore, by the Claimant of the illegality of the impugned assessments.

  1. The Tax and Customs Authority submitted a response, having sustained in summary:

The Claimant has as its activity the provision of Dental Medicine and Odontology services in an establishment open to the public, which consists in carrying out medical consultations and a whole set of treatments and/or surgical acts within the scope of dental medicine, as well as complementary diagnostic examinations, such as radiographs, without, in any case, involving hospitalization or in-patient care of patients. Now, pursuant to Article 9, paragraph 1, of the VAT Code, such activity is exempt, insofar as it results from that normative provision that the following are exempt from tax "The provision of services carried out in the exercise of the professions of physician, odontologist, midwife, nurse and other paramedical professions".

Given the nature and characteristics of these services, one can only conclude that the now Claimant incorrectly considered that they referred to operations that grant the right to deduction, because, contrary to what it claims, it cannot consider the activity carried out in the area of Dental Medicine and Odontology as subject and not exempt from tax, because it falls under Article 9, paragraph 1 of the VAT Code and not Article 9, paragraph 2 of the same article, as it claims.

Article 132 of the VAT Directive enshrines all medical service exemptions in the strict sense, exempting, as stated in the Decision delivered in case C-141/00 of 10 September 2002, "Paragraph b) of this provision (…) all services provided in hospital settings, whereas paragraph c) is intended to exempt medical services provided outside that scope, either at the patient's home, or at any other place".

The exemption provided for in Article 9, paragraph 1 of the VAT Code operates independently of the legal nature of the service provider, namely, whether it is a natural or legal person, since that exemption is based on paragraph c) of Article 132, paragraph 1 of Directive 2006/112/EC, of the Council, of 28 November (which amended Directive 77/388/EEC, of the Council, of 17 May, commonly called the Sixth Directive).

Despite the provisions presented by the Claimant, the only strict interpretation that is consonant with the literal meaning, in harmony with proper interpretation of exemption rules, and that pursues the objective of their establishment (the need to reduce medical expenses and favor access to medical care), is the one carried out by the now Respondent, embodied in the RITs and evidenced by the jurisprudence of the Court of Justice.

The VAT exemption exemption covers the provision of medical and health services (health acts) consisting of providing assistance to persons, diagnosing and treating diseases or any health anomalies and the operations connected therewith, carried out by the establishments expressed in that rule or by similar establishments (hospitalization/in-patient care).

On the other hand, establishments similar to those referred to for purposes of the exemption mentioned are public or private establishments that diagnose and treat diseases or any other health anomaly, that is, establishments that actually carry out operations that constitute the nature of health services.

While paragraph b) – which corresponds to Article 9, paragraph 2 of the VAT Code – exempts the provision of care services provided in hospital settings, including closely connected operations, paragraph c) – which corresponds to Article 9, paragraph 1 of the VAT Code – is intended to exempt the provision of medical and paramedical services provided outside those locations, whether in the private residence of the provider, or in the patient's residence, or in any other place.

Even if hospital treatments are provided by a legal entity, if they are not provided within the scope of hospital medical care, as services ancillary to hospitalization, in-patient care, they must be considered exempt under paragraph c) of Article 132 of the Directive (to which corresponds Article 9, paragraph 1 of the VAT Code). Thus, contrary to what is argued by the Claimant, the application of the exemption provided for in Article 9, paragraph 1 of the VAT Code, to which Article 132, paragraph 1, paragraph c) of the Directive corresponds, does not depend and cannot depend on the legal form of the service provider as a natural person (natural person in the Claimant's terminology) or legal entity (organism in the same terminology).

The fact that several professionals act as employees of a legal entity that provides the healthcare services in question, in a space exactly equal (except in the number of offices) to a "dental practitioner's office" and under the name of clinic, does not materially alter the services that are provided, nor the reason why the recipients resort to such services.

As is clear, the application of one or another exemption rule to a given factual reality cannot be left to the discretion of either the taxable person or the Tax Authority, but rather to objectively defined criteria, having such differentiation in view, as is observed in the conclusions of the Advocate General in case C-45/01 which it transcribes.

If exemptions have an exceptional character, their waiver, although in practical terms it reduces their effects to those of the general regime (by restoring the right to deduct tax), does not cease to correspond, from a conceptual point of view, to an even more exceptional regime than that of the exemption itself (which has a mandatory nature), therefore the regime of waiver (constituting a faculty) should be carefully and specifically weighed in light of the domestic legal framework (admittedly divergent from the Community framework), to the detriment of vain generalizations that could collide with the neutrality of the tax.

Thus, and being the activity of provision of services in the area of Dental Medicine and Odontology, carried out outside hospital settings, the same is exempt from VAT, pursuant to Article 9, paragraph 1 of the VAT Code, therefore it is not susceptible of waiver.

Regarding the neutrality of the tax, it argues that exempt operators, by choosing to waive the exemption, then have the right to deduct the tax they supported, thus giving them the opportunity to choose between remaining exempt and bearing that tax as a cost of the activity or proceeding to be taxed in normal terms, like other operators subject to tax, thus freeing themselves from upstream VAT and thus reducing the fiscal costs of the activity.

However, in this case, the touted deleterious effects of the exemption do not occur, since it does not occur at an intermediate stage of the economic circuit and public hospitals belonging to the State or any public legal entities cannot set it aside, through the mechanism of waiver, that is, cannot free themselves from the fiscal costs of the activity, thus burdening the final cost of the services they provide.

It also appears to be true that the possibility of waiver, being residual, by allowing escape from the mandatory nature of the exemption, is beneficial exclusively to the service provider (who thus gains access to the possibility of deducting the VAT incurred in acquisitions), therefore can only be granted when it does not cause distortions relative to the remaining providers.

In fact, the assumption by the State, even if in part, of the costs of providing certain health care provided by these private entities, necessarily implies its recognition for purposes of the application of the exemption, as delimited by the AT. If not, the principle of neutrality would be frustrated, from which it follows that there must be equality of treatment of economic operators that carry out the same operations.

The possibility of waiver of the exemption is limited to taxable persons whose activity falls within Article 9, paragraph 2 of the VAT Code, which is not the case of the Claimant, which, exercising Dental Medicine and Odontology, is classified in Article 9, paragraph 1, therefore there is no possibility of waiver under paragraph b) of Article 12, paragraph 1 of the VAT Code. This is a formal condition set out by the legislator as an essential/fundamental requirement for the taxable person to be able to opt for the taxation of certain operations.

It concludes, therefore, by the Respondent of the legality of the tax acts in issue, because they conform to the legal regime in force at the date of the tax facts, and in no circumstance are indemnity interest due.

  1. The meeting provided for in Article 18 of the LRAT was dispensed with, and the Claimant presented allegations in which it reiterated what was alleged in the initial petition.

II – Sanation

7.1. The tribunal is competent and regularly constituted.

7.2. The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented (Articles 4 and 10, paragraph 2, of the LRAT and Article 1 of Portaria no. 112-A/2011, of 22 March). Legitimacy which, on the part of the Claimant, results from the fact that it proceeded with the incorporation by merger of the companies B..., LDA (NIF...), C..., LDA (NIF...) AND D..., LDA (NIF ... [Article 112, a) of the Commercial Companies Code].

7.3. The cumulation of claims is legal, given that the examination of the same circumstances of fact and the interpretation and application of the same principles and rules of law are at issue (Article 3, paragraph 1 of the LRAT).

7.4. The proceedings do not suffer from nullities.

7.5. No exceptions were raised that would prevent the examination of the merits of the case.

III – QUESTIONS TO BE DECIDED

The following are the questions to be analyzed and decided in these proceedings:

  1. Whether a commercial company holding dental clinic establishments falls, as to the services provided therein, in paragraph 1) or paragraph 2) of Article 9 of the VAT Code;

  2. Whether the same company may, as to such services, waive the VAT exemption under Article 12 of the VAT Code;

  3. In case of affirmative answer to the previous question, whether the Claimant, or more precisely, in this case, the companies it incorporated, effectively exercised the right to waive said exemption.

IV – QUESTIONS OF FACT AND LAW

8.1. Questions of Fact

Having in mind that the Tribunal 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 discriminate between proven and unproven matters (cf. Article 123, paragraph 2, of the CPPT and Article 607, paragraphs 3 and 4, of the CPC, applicable by virtue of Article 29, paragraph 1, paragraphs a) and e), of the LRAT), given the positions assumed by the parties, the documentary evidence attached to the proceedings and the testimonial evidence produced, the following facts are considered proven:

PROVEN FACTS

The following facts are considered proven:

a) Following a merger operation, the Claimant incorporated the following companies:

  • B..., Lda., holder of NIPC...;
  • C..., Lda., holder of NIPC...;
  • D..., Lda., holder of NIPC....

b) The Claimant develops the activity of provision of medical care services, in the specialty of Dental Medicine, to which CAE 86230 corresponds.

c) The Claimant – A..., SA – submitted in 2011 a declaration of changes to its activity, having waived the VAT exemption.

d) The incorporated company B..., Lda. submitted in 2013 a declaration of changes to its activity, having waived the VAT exemption.

e) The incorporated company C..., Lda. submitted in 2012 a declaration of changes to its activity, having waived the VAT exemption.

e) The incorporated company D..., Lda. submitted in 2007 a declaration of commencement of activity, in which it waived the VAT exemption.

f) The Claimant and the incorporated companies were subject to external inspection actions in the field of VAT, covering the years 2015 and 2016 for D..., Lda and the years 2013 to 2016 for the remaining companies.

f) Following those inspections, the AT proceeded to issue the following VAT assessments and respective compensatory interest:

To A..., SA: attached as doc. 2 to the initial petition, in the total amount of €2,099,809.63, of which €1,943,918.25 is VAT and €155,891.38 is compensatory interest;

  • To B..., Lda: attached as doc. 3 to the initial petition, in the total amount of €59,276.65, of which €54,114.37 is VAT and €5,162.28 is compensatory interest;
  • To C..., Lda: attached as doc. 4 to the initial petition, in the total amount of €106,835.94, of which €97,196.41 is VAT and €297.70 is compensatory interest;
  • To D..., Lda: attached as doc. 5 to the initial petition, in the total amount of €109,014.20, of which €102,065.05 is VAT and €6,949.15 is compensatory interest;

g) The Claimant did not proceed to pay the tax;

h) To suspend the enforcement proceedings it presented guarantees in the form of surety bonds (docs 10 to 12) and offered for attachment various commercial establishments (doc 13.).

8.1.2. There are no facts given as unproven with relevance for the examination of the claim.

8.1.3. The matter given as proven and unproven was based on the documents attached to the proceedings by the Claimant, as well as the administrative file attached to the proceedings.

8.2. Questions of Law

8.2.1 THE QUESTION OF CLASSIFICATION OF THE CLAIMANT'S ACTIVITY IN PARAGRAPH 1) OR PARAGRAPH 2) OF ARTICLE 9 OF THE VAT CODE

Article 9 of the VAT Code contains a list of situations of incomplete tax exemption, that is, exemptions that prevent the exempt taxable person from deducting the tax incurred upstream.

Several of the exemptions provided for in that provision refer to health-related services, with the subject of these proceedings being of interest to the exemptions established in paragraphs 1) and 2) of said Article 9.

Under paragraph 1) of Article 9, the following are exempt from tax: "The provision of services carried out in the exercise of the professions of physician, odontologist, midwife, nurse and other paramedical professions";

Under paragraph 2) of the same provision, the following are exempt from tax: "Medical and health services and operations closely connected therewith provided by hospital establishments, clinics, dispensaries and similar facilities".

For its part, Article 12 of the VAT Code provides for the possibility of waiver of the exemption regime in some of the situations for which Article 9 establishes an exemption regime.

In the case at issue, we are concerned only with paragraph b) of Article 12, paragraph 1, under which the following may waive the exemption "Taxable persons referred to in Article 9, paragraph 2), who are not public law legal entities, as to the provision of medical and health services and operations closely connected therewith, which do not result from agreements with the State, within the health system, in accordance with its respective basic law".

The Claimant alleges that it met – or rather, that all the companies it incorporated met – all the conditions to waive the tax exemption under the provision transcribed (paragraph b) of Article 12, paragraph 1 of the VAT Code) and that it effectively exercised the right to waive.

For the companies incorporated by the Claimant to be able to waive the tax exemption under paragraph b) of Article 12, paragraph 1, it was necessary:

  1. That they fall within paragraph 2) of Article 9 of the VAT Code;
  2. That they not be public law legal entities;

With such conditions verified, the waiver would only cover the provision of services that did not result from agreements with the State, within the health system, in accordance with its respective basic law.

The main question that divides the positions of the Tax Authority and the Claimant is the verification of the first of the conditions indicated, the classification of the activity of the companies in paragraph 2) of Article 9 of the VAT Code, which applies to "medical and health services and operations closely connected therewith provided by hospital establishments, clinics, dispensaries and similar facilities".

The Tax Authority considers that the companies could not fall within this rule, but rather in paragraph 1) of Article 9, which applies to "the provision of services carried out in the exercise of the professions of physician, odontologist, midwife, nurse and other paramedical professions".

To support its position, the Tax Authority states that "the exemption of Article 9, paragraph 2 covers the provision of medical and health services (health acts) consisting of providing assistance to persons, diagnosing and treating diseases or any health anomalies and the operations connected therewith, carried out by the establishments expressed in that rule or by similar establishments (hospitalization/in-patient care)."

At this juncture, the RIT leaves implicit, through what is placed in brackets, the idea that the exemption of paragraph 2) of Article 9 only applies to health establishments with the possibility of hospitalization or in-patient care.

The RIT then turns to the jurisprudence of the CJEU to consolidate this position.

In fact, the current Article 9 of the VAT Code is based on Article 132 of the VAT Directive[1].

Therein, paragraph b) establishes the exemption of "hospitalization and medical care, and the operations closely related thereto, provided by public law bodies or, under conditions analogous to those applicable to such bodies, by hospital establishments, medical care and diagnostic centers and other establishments of the same nature duly recognized, with this provision forming the basis of paragraph 2) of Article 9 of the VAT Code.

Already paragraph c) of Article 132 of the Directive establishes the exemption of "the provision of services for assistance in the exercise of medical and paramedical professions, as defined by the Member State concerned", forming the basis of paragraph 1) of Article 9 of the VAT Code.

It is, therefore, in the jurisprudence of the CJEU as to the interpretation of these two provisions – paragraphs b) and c) of Article 132 of the VAT Directive – that the RIT relies, with full legitimacy, to defend its restrictive interpretation of paragraph 2) of Article 9 of the VAT Code.

The RIT thus begins by citing the Decision of the CJEU of 10 September 2002, case C-141/00 (Kugler), in which the Court states (par. 36) that "paragraphs b) and c) of Article 13, A, paragraph 1, of the Sixth Directive, whose scopes are distinct, are intended to regulate all exemptions of medical services in the strict sense. Paragraph b) of this provision exempts all services provided in hospital settings, whereas paragraph c) is intended to exempt medical services provided outside that scope, whether in the private residence of the provider or in the patient's residence, or in any other place."[2]

However, the RIT itself contrasts with this decision another – the decision of the CJEU of 8 June 2006, case C-106/05 (Lup), which contradicts that first statement. In this decision, the CJEU states: "since clinical analyses are covered, taking into account their therapeutic purpose, by the concept of "medical care" provided for in Article 13, A, paragraph 1, paragraph b), of the Sixth Directive, a laboratory such as that at issue in the main proceedings must be considered an establishment of the "same nature" as the "hospital establishments" and "medical care and diagnostic centers" within the meaning of that provision."

The RIT then proceeds to an interpretation of the rules based on the principle of VAT neutrality. Says the inspection body: in accordance with the jurisprudence of the Court of Communities (no. 42 of the Dornier Decision, of 6/11/2013), "...the interpretation of the terms used in this provision must be in accordance with the objectives pursued by said exemptions and respect the requirements of the principle of fiscal neutrality pursued by the said exemptions and respect the requirements of the principle of fiscal neutrality inherent in the common VAT system. (...) It follows from the jurisprudence that the objective of reducing the cost of health care and making such care more accessible to individuals is common both to the exemption provided for in Article 13, A, paragraph 1, paragraph b), of the Sixth Directive, and to that provided in the same paragraph, paragraph c).

Furthermore, continues the RIT, it is stated in no. 44 of the Dornier Decision that "the principle of fiscal neutrality is opposed, in particular, to operators carrying out the same operations being treated differently in the matter of VAT collection".

Then, concludes the RIT, it is not understood that the provision of services carried out by a dental practitioner, in the exercise of his profession, has classification in paragraph 1 of Article 9 of the VAT Code and the provision of services carried out by a dental clinic (aggregating several dental practitioners) has classification in paragraph 2 of the Code, since both entities provide the same services, but only the dental clinic could waive the exemption.

The RIT further invokes, in support of its thesis, various communications from the VAT Services Directorate and Circular Office 30183, of 28-10-2016.

Starting with these latter, it is well known that the administrative instructions of the tax administration, as well as information from it, are not a source of law, "not imposing on the judge except by the doctrinal value it may possess and lacking heteronomous binding force for private parties," as is reiterated once again in the recent decision of the Supreme Administrative Court of 21-06-2017, in proc. no. 0364/14.

As to the principle of neutrality: the Respondent AT argues that it does not make sense that a dental clinic can waive the exemption (under Article 12, paragraph 1, paragraph b)), when a dentist in individual practice cannot do so, as that would constitute a violation of the principle of neutrality.

We agree that this differentiation is not the most in accordance with the principle of fiscal neutrality.

However, given that the question before us is whether the activity of the dental clinic falls within paragraph 1) or paragraph 2) of Article 9, the starting point of this classification must be the interpretation of those same provisions. That is, it will first have to be in the rules that define the situations of exemption where we will have to find the basis for the classification of a situation in the exemption regime that corresponds to it.

Let us return, then, to paragraph 2) of Article 9 of the VAT Code, under which the following are exempt from tax "medical and health services and operations closely connected therewith provided by hospital establishments, clinics, dispensaries and similar facilities".

The thesis defended by the Tax Authority is that only hospital establishments, that is, establishments where hospitalization or in-patient care is possible, should be classified in this exemption.

However, the wording of the rule is clear in the sense that not only hospital establishments, but also clinics, dispensaries and similar facilities are covered by this exemption.

If in certain "clinics" there may, in certain cases, be in-patient care, in other cases there is none, and there is never any in "dispensaries", a term that designated old health establishments corresponding to the current "health centers".

Therefore, the first conclusion we must emphasize is that the literal element of the rule of paragraph 2) of Article 9 does not allow restricting its scope to establishments that have in-patient care capacity.

It could be the case that the rule of Portuguese law is in contradiction with its corresponding one in EU law. But let us see.

Paragraph b) of paragraph 1 of Article 132 of the VAT Directive establishes the exemption of "hospitalization and medical care, and the operations closely related thereto, provided by public law bodies or, under conditions analogous to those applicable to such bodies, by hospital establishments, medical care and diagnostic centers and other establishments of the same nature duly recognized.

Here too the literality of the normative provision does not allow restricting its scope of application to establishments that have in-patient care capacity. Quite the contrary, the rule is clear in referring, alongside hospitalization, to medical care, within the activities exempt under it. And then, alongside hospital establishments, it refers to medical care and diagnostic centers and others.

Faced with this express and clear mention of establishments that are neither hospital nor in-patient care, one can only conclude that, in the Kugler decision, in which, moreover, the question to be decided by the CJEU in no way resembled ours, the Court expressed itself incorrectly, by saying that "paragraph b) of this provision exempts all services provided in hospital settings, whereas paragraph c) is intended to exempt medical services provided outside that scope, whether in the private residence of the provider or in the patient's residence, or in any other place".

It has already been said, but it is worth repeating that, in this case, the Court did not have to decide whether a non-hospital clinical establishment fell or did not fall within the exemption rule (paragraph b) of Article 1 of the Sixth Directive, corresponding to the current paragraph b) of paragraph 1 of Article 132 of the VAT Directive). The Court was only concerned with determining whether a company that had no establishment, i.e., which provided medical care exclusively on an outpatient basis, could benefit from any of the exemptions provided for in Article 13 A, paragraph 1, paragraphs b) and c).

Already more accurate to us seems to be the position of the same court in the LUP decision, in which it states that "a laboratory such as that at issue in the main proceedings must be considered an establishment of the "same nature" as the "hospital establishments" and the "medical care and diagnostic centers" within the meaning of that provision", contrasting, just as the rule does, hospital establishments with medical care and diagnostic centers. The question examined in this case is much more similar to ours, as it was a question of whether a clinical analysis laboratory can be classified in the exemption corresponding to that provided for in paragraph b) of Article 132 of the VAT Directive.

We do not see, therefore, how we cannot classify a medical clinic in the exemption of paragraph 2) of Article 9 of the VAT Code, when therein "clinics, dispensaries and similar facilities" are expressly referred to.

We cannot, therefore, accompany the Tax Authority when it concludes, in its Response, that, "with Article 9, paragraph 1 of the VAT Code intended to exempt the provision of medical services provided outside hospital settings, whether in the residence of the provider, the patient, or in any other place, and Article 9, paragraph 2 of the VAT Code intended to exempt the provision of care services provided in hospital settings, including closely connected operations, if one considers the activity carried out by the Claimant, in the manner in which it is provided, it will be necessary to conclude that Article 9, paragraph 2 of the VAT Code does not apply.

In fact, if we could accept the premise that paragraph 1) of Article 9 applies to all medical activities and related services carried out outside hospital settings, which is the basic premise on which the Authority's entire position rests, that conclusion would be proper.

But it is precisely that premise that cannot, in our opinion, be considered validated, especially because it directly contradicts the letter of paragraph 2) of Article 9, which expressly refers to hospital establishments, clinics, dispensaries and similar facilities (with dispensaries being the twentieth-century equivalent of current "health centers", where, by definition, in-patient care never existed).

The domestic rule also does not collide with paragraph b) of paragraph 1 of Article 132, its basis of validity, in referring itself to "hospital establishments, medical care and diagnostic centers and other establishments of the same nature duly recognized". Here too it is evident that the legislator did not intend to limit the exemption to hospital establishments.

Therefore, we can only conclude that, in the Kugler decision, the CJEU expressed itself incorrectly, in stating, (par. 36) that "paragraph b) of this provision [Article 13 A), paragraph 1 of the Sixth Directive] exempts all services provided in hospital settings, whereas paragraph c) is intended to exempt medical services provided outside that scope," reminding once again that, in this judgment, the Court pronounced on this precise question as a secondary matter, for the main question was whether an association of natural persons without legal personality – a "partnership" – which, in addition to not having legal personality, did not have an establishment for the provision of health care, but which brought together professionals who provided such care, without profit motive, on an outpatient basis, and which obviously, by not having an establishment, could not be included in paragraph b) of paragraph 1 of Article 13, A) of the Sixth Directive, could benefit from the exemption of paragraph c) of the same number.

Thus, it is concluded that the activities of the companies incorporated by the Claimant, holders of establishments classified as dental clinics, can only be classified in paragraph 2) of Article 9 of the VAT Code, and not in paragraph 1).

Both the conclusion we have reached and which we believe to be the most correct, as well as the interpretive path followed are in accordance with already solid doctrine from previous arbitral decisions, among which are mentioned those delivered in proceedings 629/2017-T, 168/2015-T and 681/2016-T.

It is stated in the first of the cited decisions:

"Regarding the classification of the Claimant's activity within the scope of the VAT Code, it is concluded (...), in the following terms:

With regard to Article 9 of the VAT Code, the text of its paragraph 2) does not provide explicit support for the thesis defended by the Tax and Customs Authority that only the activity exercised in hospital settings falls within it and, in particular, that the provision of clinical analysis and diagnostic services connected with hospital activities is outside its scope. In fact, in this paragraph 2) of Article 9, reference is made, in addition to hospital establishments, also to 'clinics, dispensaries and similar facilities.'"

On the other hand, the reference to "dispensaries" unequivocally encompasses the provision of health services outside that hospital setting, as the meaning of "dispensary" is that of "charitable establishment for the treatment of patients with economic difficulties, giving them access to free consultations and medicines", or "establishment to give, free of charge, care and medicines to poor patients who can be treated at home".

The decision delivered in proceeding 168/2015-T says in turn:

"[I]t follows from the jurisprudence of the CJEU that the exemption provided for in paragraph b) of Article 132 covers the services provided by entities similar to the Claimant, regardless of whether the provision occurs or not in hospital settings, an interpretation that is in manifest accordance with the text of this rule, in referring to the exemption of operations closely related to hospitalization and medical care provided to "medical care and diagnostic centers.

It is, therefore, in accordance with this already firm jurisprudence that we consider it not to be sanctioning the thesis of the Respondent.

We recognize that the question that the Tax Authority raises, both in the RIT and in the Response, relating to a possible incompatibility, in the specific case of Portuguese law, of this solution with the principle of neutrality is relevant.

But it is worth noting that, in examining the question of the classification of an activity such as that of the companies incorporated by the Claimant in paragraph 1) or paragraph 2) of Article 9, given that these rules are the direct result of the transposition of Article 132 of the VAT Directive, it is in this normative provision of Union law that the main basis for that interpretive task must be found.

The problem of a possible collision of the solution reached at this point with the principle of neutrality will result from another rule, for which the Portuguese legislator is responsible, which is Article 12 of the VAT Code, in which the situations of possibility of waiver of the exemption are defined. There will then be a need to examine, when the appropriate time arrives, whether that definition is in accordance with the principle of neutrality. But then, what will necessarily be at issue will be the scope of the possibility of waiver of the exemption and never the classification of the activity in paragraph 1) or 2) of Article 9 of the VAT Code.

8.2.2 THE QUESTION OF THE EXISTENCE OF A FORMAL DEFECT IN THE EXERCISE OF WAIVER OF EXEMPTION BY THE INCORPORATED COMPANY D..., LDA

Finally, the Tax Authority further argues that there is a formal defect in the waiver of the exemption, therefore this waiver could not have produced effects.

The Tax Authority alleges (point 2.2.1 of the RIT relating to the inspection procedure on D..., Lda, years 2015-2016, Service Order OI2017...) that the Company submitted the declaration of commencement of activity, provided for in Article 31 of the VAT Code, through a verbal declaration, on 26-01-2007.

It further alleges that, in the said declaration, the taxable person marked, as to the type of operations it would carry out, only the option of "transfers of goods and/or provision of services that grant the right to deduction", not marking the option "exempt that do not grant the right to deduction".

The taxable person, further states the Tax Authority, also did not fill in any field of the "Option for the taxation regime (VAT)" table, namely the one relating to the possibility of opting for waiver of the exemption, provided for in paragraphs 1 and 2 of Article 12 of the VAT Code.

The Tax Authority further adds (point 2.2.2 of the RIT) that "as a result of the elements contained in the declaration of changes referred to in the previous point, in the field of VAT, the taxable person was classified in the normal taxation regime with monthly periodicity, as from 26-01-2007."

Let us see:

In the version in force at the time of the facts, Article 35 of the VAT Code provided as follows:

Article 35

Submission of declarations

1 - The declarations referred to in Articles 31 to 33 are sent by electronic data transmission or presented at any finance service or other legally authorized location, by a verbal declaration made by the taxable person, of all elements necessary for registration and commencement of activity, for the alteration of the data contained in that register and for cessation of activity, with these being immediately entered into the computer system and confirmed by the declarant, after their printing in a standardized document.

2 - The proof document relating to the declarations mentioned in the previous number, presented at finance services or other authorized places, is delivered to the taxable person, after authentication by the receiving official and affixing of the accountant's stamp, where applicable, who assumes the tax responsibility of the taxable person to which the declarations relate.

3 - Declarations are reported within 30 days by the General Directorate of Taxes, which pronounces on the declared elements and any others of interest for the examination of the situation.

4 - In case the General Directorate of Taxes disagrees with the declared elements, it fixes those it considers appropriate, notifying the taxable person accordingly.

According to the information contained in the proceedings, the company (incorporated by the Claimant) used one of the procedures provided for in Article 35 of the VAT Code – "by a verbal declaration made by the taxable person, of all elements necessary for registration and commencement of activity".

Under that procedure, the data provided by the taxable person, now Claimant, must be "… immediately entered into the computer system and confirmed by the declarant, after their printing in a standardized document".

Field 10 of the declaration of commencement of activity has the purpose of classifying the taxable person in a VAT regime.

The possible regimes are:

  1. Special exemption regime (Article 53);
  2. Special small retailer regime (Article 60);
  3. Normal regime:
    a. Quarterly
    b. Monthly
  4. Exclusive exercise of transfers of goods and/or provision of services exempt that do not grant the right to deduction (Article 9);
  5. Special taxation regimes;
  6. Intra-Community acquisitions of goods under the conditions provided for in field 8 of table 11 or in field 4 of table 13;
  7. Transfers of goods under the conditions provided for in field 9 of table 11 or in field 5 of table 13 (sales at a distance to private parties);
  8. Isolated act;
  9. Not subject.

It being certain and proven that the company correctly declared its activity – dental medicine and odontology activities – which would always be exempt from tax, whether under paragraph 1) or paragraph 2) of Article 9 of the VAT Code, the corresponding classification, in the absence of waiver of the exemption, would be "Exclusive exercise of transfers of goods and/or provision of services exempt that do not grant the right to deduction (Article 9)".

Now, according to the facts proven by documentation in the proceedings, the company in question was classified by the Finance Service in the Normal Quarterly regime, that is, as a taxable person integrally subject and not exempt from VAT.

Being so, it seems clear that there was a formal error.

But, given that the declaration was made verbally, either the taxable person did not declare the option for waiver and, in that case, the services erred in classifying it in the normal regime, or the taxable person declared the option for waiver and the services erred in not marking the option.

Moreover, under paragraphs 3 and 4 of Article 35 in the version in force at the time, and also currently, the AT would have to, within 30 days, report on the declarations pronouncing itself "on the declared elements and any others of interest for the examination of the situation" and, in case of "… disagreement with the declared elements" fix "those it considers appropriate, notifying the taxable person accordingly".

Now, the Tax Authority did nothing in this regard, which allows us to conclude that it accepted the classification of the Claimant in the Normal Quarterly Regime, understanding the same as a manifestation of the option of waiver of the VAT exemption, under Article 12 of the respective Code.

Making our own the arguments expounded in the arbitral decision in proceeding 681/2016-T, on a situation in all respects similar, "while it is not less true that the waiver of the exemption is dependent on the fulfillment of a formal requirement of effective exercise of that option and, even admitting that the formalization of that option did not follow all the usual formalities provided for, it is no less true that the Claimant manifested its will to apply the Normal Quarterly Regime, which implies tacitly the option for waiver of the exemption in its declaration of commencement of activity".

And continuing the quotation:

"On this point, it is important to recall that Article 12 of the VAT Code provides only, in paragraph 2, that the option for taxation must be exercised in the declaration of commencement of activity. Now, it seems to result unequivocally from the classification of the taxable person contained in that declaration of commencement of activity that it sought to waive the exemption having classified itself in the normal taxation regime, declaring to practice operations subject that grant the right to deduction. The mere fact that the correct box in the form was not properly marked cannot override the substantial classification declared by the Claimant and accepted by the AT – i.e. that of complete subjection to VAT.

This understanding is even more pertinent when it is certain that it was the AT that filled in the declaration of commencement of activity in the computer system, not having marked the option for the taxation regime, indicated by the Claimant in the handwritten declaration, despite having accepted the declaration of exercise of a medical activity as a provision of services that grants the right to deduction of VAT. Now, this procedure of the AT is capable of putting in question the duty of cooperation enshrined in Article 59 of the LGT, in accordance with which the AT must provide the necessary assistance for compliance with the accessory duties of taxpayers.

On the other hand, if the AT understood that the option for the normal VAT taxation regime was not in accordance with the formal requirements imposed, it would necessarily have to, within 30 days, under paragraph 3 of Article 35 of the VAT Code, pronounce itself on the declared elements, as well as on any others of interest for the examination of the situation.

For this purpose, it would also have to, under paragraph 4 of the same article, notify the Claimant, if it disagreed with the declared elements, fixing those it considered to be appropriate.

Now, in the absence of such a procedure, it can only be concluded that the Finance Services did not detect any irregularity in the classification of the Claimant's activity in the Normal VAT Regime.

In these terms, the Claimant proceeded to charge VAT on all operations carried out within the scope of the activity it developed – provision of dental medicine and odontology services in an establishment open to the public, which consists of carrying out medical consultations and a whole set of treatment and/or surgical acts within the scope of dental medicine, as well as complementary diagnostic examinations – in full accordance with the classification contained in the Declaration of Commencement of Activity.

Likewise, the Claimant proceeded to deduct the tax it incurred in accordance with the classification resulting therefrom."

And also in accordance with the content of the cited decision, this tribunal also understands that, "having regard to the principles of the prevalence of substance over form, of proportionality, legal certainty and material justice, (...) the AT may not avail itself of a mere error in filling in a form – often difficult to understand – and in which it participated, to reclassify the taxable person in the field of VAT, collecting not only the VAT charged to the customers of the Claimant but also the VAT incurred by it in the exercise of its activity."

Thus, we understand that the Tax Authority has no reason on this point, being a mere error in filling in the declaration of commencement of activity and not the omission of the exercise of the option for taxation under Article 12 of the VAT Code.

8.2.3 RIGHT TO INDEMNITY INTEREST

Given that it has not been proven (nor alleged) that the assessed tax was actually paid, a question that remained pending the decision on a petition for suspension of enforcement with provision of guarantee, there cannot be condemnation to payment of indemnity interest.

8.2.3 PETITION FOR COMPENSATION FOR PROVISION OF GUARANTEE

The Claimant alleges in this regard that to suspend the enforcement proceedings instituted, it provided guarantee in the form of a surety bond and in relation to itself it offered attachment of various commercial establishments.

The Claimant thus requests that the Arbitral Tribunal condemn the Respondent to proceed with payment of the compensation provided for in Articles 171 CPPT and 53 LGT, should the guarantee that may eventually be provided prove to be undue.

It is necessary to examine this.

This is a topic that has already been dealt with in previous CAAD decisions, namely in the awards delivered in proceedings 48/2013-T and 239-2015-T and 679/2015-T which established jurisprudence that we see no reason to contradict.

Reproducing what was mentioned in Arbitral Decision no. 679/2015-T we have that "the regime of the right to compensation for undue guarantee is contained in Article 53 of the LGT, which establishes in its paragraph 1 the following: 'The debtor who, to suspend enforcement, offers bank guarantee or equivalent will be compensated in full or in part for the losses resulting from its provision, should it have maintained it for a period exceeding three years in proportion to the outcome in administrative appeal, petition or opposition to enforcement that have as their object the guaranteed debt.'"

"As is seen, Article 53, paragraph 1, of the LGT refers to 'bank guarantee or equivalent' and not to mortgage. Now, in the words of JORGE DE SOUSA [2], 'Equivalent to bank guarantee,' for purposes of Article 171 of the CPPT, 'will be all forms of guarantee that imply for the interested party bearing an expense whose amount will increase according to the period of time during which it is maintained'. And the same author points out, next, as an example, the 'guarantee insurance'.

In this sense, see also the decision of the Supreme Administrative Court, of 24 October 2012, delivered in proceeding no. 0528/12, thus summarized: 'I - In the specific case of these proceedings, in which the guarantee provided to suspend enforcement was a mortgage, this real guarantee cannot be understood as a guarantee equivalent to bank guarantee for purposes of Article 171 of the CPPT. II - In fact, this voluntary mortgage will in principle only have emolument costs, of constitution and registration. Thus, it cannot be said that we are facing a guarantee equivalent to bank guarantee. III - Nor could the fixation of compensation be requested under the quantifying rule of Article 53, paragraph 3, of the LGT as this is inapplicable to the case of these proceedings. IV - It is nevertheless true that the defendant may have other damage beyond the losses arising from the payment of emoluments. Thus it is admissible that the indemnification petition be made in an autonomous proceeding where the damages that the interested party may have suffered can be assessed with more accuracy (this must specify the concrete losses) along the lines of what is stipulated in Article 53, paragraph 3 of the LGT for bank guarantee and guarantee insurance.'"

In the case at issue, as we have seen, no expenses related to the guarantees in question were alleged or proven, resulting from the evidence that the Claimant presented guarantees in the form of surety bond and attachment of various establishments, modalities of provision of guarantee which, similarly to guarantee by mortgage, do not satisfy the requirements provided for in Article 53, paragraph 1, of the LGT, which means the failure of the petition for compensation for undue guarantee.

In these terms, provenance cannot be granted to this petition of the Claimant.

V - DECISION

In accordance with what has been set out, the members of this Arbitral Tribunal agree to:

  1. Grant full approval to the Claimant's petition for annulment of the assessed tax acts impugned, due to violation of law;

  2. Judge as unsuccessful the petition for condemnation of the Respondent to payment of indemnity interest, as well as the petition for compensation for undue guarantee, absolving the Respondent thereof.

  3. Condemn the Respondent for the costs of the proceedings.

VI – VALUE OF THE PROCEEDINGS

The value of the proceedings is fixed at €2,374,936.42, under Article 97-A, paragraph 1, a), of the Code of Tax Procedure and Process, applicable by virtue of paragraphs a) and b) of Article 29, paragraph 1 of the Legal Regime for Tax Arbitration and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

VII – COSTS

The value of the arbitration fee is fixed at €30,600.00, under Table I of the Regulation of Costs in Tax Arbitration Proceedings, under Articles 12, paragraph 2, and 22, paragraph 4, both of the Legal Regime for Tax Arbitration, and Article 4, paragraph 4, of the cited Regulation, to be borne by the Respondent.

Notify accordingly.

Lisbon, 04 January 2019

The Arbitrator President,

(Maria Fernanda dos Santos Maças)

The Arbitrator member,

(Nina Aguiar)

The Arbitrator member,

(António Alberto Franco)

[1] Directive 2006/112/EC of the Council, of 28 November 2006, relating to the common system of value added tax.

[2] Article 13 of the "Sixth Directive" (Council Directive 77/388/EEC, of 17 May 1977, relating to the harmonization of the laws of the Member States relating to taxes on turnover - common system of value added tax: uniform taxable amount) was the predecessor to the current Article 132 of the "VAT Directive" (Directive 2006/112/EC of the Council, of 28 November 2006, relating to the common system of value added tax), with both provisions forming the basis of Community law for Article 9 of the VAT Code.

Frequently Asked Questions

Automatically Created

What is the VAT exemption waiver (renúncia à isenção) in the context of dentistry and odontology services in Portugal?
The VAT exemption waiver (renúncia à isenção) allows certain healthcare providers to opt out of VAT exemption and charge VAT on services, enabling them to recover input VAT on expenses. Under Article 12(1)(b) of the Portuguese VAT Code, this waiver applies to medical and health services provided by hospital establishments, clinics, dispensaries and similar facilities that are private entities not integrated into the national health system. The key dispute in dental services is whether dental clinics qualify as such facilities or fall under Article 9(1) as individual professional services without waiver rights.
Can dental and odontology companies waive their VAT exemption under Portuguese tax law?
Yes, dental and odontology companies can waive their VAT exemption under Portuguese tax law, provided they meet specific criteria. According to Article 12(1)(b) of the VAT Code, private dental clinics operating as commercial entities (not integrated into the national health system) may waive the exemption by submitting a Declaration of Activity Changes. However, the Tax Authority has challenged this interpretation, arguing that only facilities providing hospital-level in-patient care qualify for waiver. Individual dentists practicing outside an establishment context cannot waive exemption per Article 12(2). The legal classification of dental clinics as 'clinics, dispensaries and similar facilities' remains contentious.
How does a merger by incorporation affect VAT liability and the right to challenge tax assessments at CAAD?
Under Portuguese tax law, a merger by incorporation transfers all rights and obligations of the absorbed companies to the incorporating entity. In this CAAD case, A..., S.A. acquired standing (legitimidade) to challenge VAT assessments issued not only against itself but also against the three incorporated dental companies (B..., C..., and D...). This consolidation occurred following a merger registered on December 22, 2016. The incorporating company can contest all VAT liquidations and compensatory interest relating to pre-merger periods of the absorbed entities, as it assumes their complete tax position and litigation rights under Portuguese corporate and tax procedural law.
What are the legal requirements for challenging VAT liquidations and compensatory interest at Portugal's CAAD arbitral tribunal?
To challenge VAT liquidations at Portugal's CAAD arbitral tribunal, taxpayers must file a petition for establishment of the arbitral tribunal under Articles 2 and 10 of Decree-Law 10/2011 (LRAT) in conjunction with Article 102 of the Tax Procedure Code (CPPT). The petition must identify the contested tax assessments, specify amounts (in this case €2,374,936.42), and state grounds for illegality. If no arbitrator is appointed by the claimant, CAAD's President designates a collective tribunal (three arbitrators). Parties are notified of appointments and may raise impediments. The tribunal must be constituted within statutory timeframes. Claimants can request declaration of illegality, compensation for bank guarantees provided, and indemnity interest if amounts are paid pending resolution.
Are dental services subject to VAT in Portugal, and what are the conditions for exemption under the Portuguese VAT Code?
Dental services in Portugal are generally VAT-exempt under Article 9 of the Portuguese VAT Code, but the specific exemption provision is disputed. The Tax Authority classifies dental services under Article 9(1) as professional medical services, which cannot be waived. However, dental clinics argue they qualify under Article 9(2) as health services provided by clinical establishments. The conditions for exemption include: provision of medical/health care services; delivery by qualified professionals (dentists/odontologists); and therapeutic purpose. Private dental clinics not integrated into the national health system may waive this exemption under Article 12(1)(b), allowing them to charge VAT and recover input tax, provided they operate as establishments rather than individual practitioners (Article 12(2) exclusion).