Summary
Full Decision
ARBITRATION DECISION
The Arbitrators José Pedro Carvalho (President Arbitrator), Nuno Maldonado Sousa and Filipa Barros, appointed by the Ethics Council of the Administrative Arbitration Centre, agree to form an Arbitration Tribunal:
I – REPORT
On 18 May 2015, A…, LDA., taxpayer number …, with registered office at Rua de …, no. …, …, …-… …, filed an application for the constitution of an arbitration tribunal, under the combined provisions of Articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters, as amended by Article 228 of Law no. 66-B/2012, of 31 December (hereinafter abbreviated as LRATM), seeking the declaration of illegality of additional assessment acts for Value Added Tax ("VAT") relating to 2012 identified with numbers 2015…, 2015…, 2015… and 2015…, all of 19 December 2015, in the total amount of €81,135.02, and the corresponding compensatory interest assessments, in the total amount of €10,298.91, as well as additional Value Added Tax assessments relating to 2013 identified with numbers 2015…, 2015…, 2015… and 2015…, all of 19 December 2015, in the total amount of €80,306.08, and the corresponding compensatory interest assessments, in the total amount of €6,957.76.
To support its application, the Claimant alleges, in summary, that the services provided by it, to which the assessments object of this arbitration action refer, meet all requirements to be qualified as physiotherapy services, and as such exempt from VAT, contrary to what the Tax Authority considered, and even if that were not the case, osteopathy services should, in view of ongoing legislative changes, similarly be considered as exempt from the said tax, and therefore the legally required conditions are met for the application of the exemption provided for in Section 1 of Article 9 of the VAT Code.
On 20-05-2016, the application for constitution of the arbitration tribunal was accepted and automatically notified to the Tax Authority.
The Claimant did not proceed to appoint an arbitrator, and therefore, under the provisions of subsection a) of Section 2 of Article 6 and subsection a) of Section 1 of Article 11 of the LRATM, the President of the Ethics Council of the CAAD appointed the undersigned as arbitrators of the collective arbitration tribunal, who communicated acceptance of the appointment within the applicable period.
On 08-07-2016, the parties were notified of these appointments and expressed no wish to refuse any of them.
In accordance with the provision of subsection c) of Section 1 of Article 11 of the LRATM, the collective Arbitration Tribunal was constituted on 26-07-2016.
On 13-10-2016, the Respondent, duly notified for this purpose, submitted its reply defending itself solely by objection.
On 14-12-2016, the hearing referred to in Article 18 of the LRATM was held, where the witnesses presented by the Claimant were examined, and the period referred to in Article 21/1 of the LRATM was also extended by two months.
Having been granted a period for submission of written submissions, these were presented by the parties, pronouncing on the evidence produced and reiterating and developing their respective legal positions.
A period of 30 days was set for pronouncement of final decision, following presentation of submissions by the Tax Authority, which period was extended by a further 7 days.
The Arbitration Tribunal is materially competent and regularly constituted, in accordance with Articles 2, Section 1, subsection a), 5 and 6, Section 1, of the LRATM.
The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10 of the LRATM and Article 1 of Regulation no. 112-A/2011, of 22 March.
The proceedings do not suffer from any nullities.
Thus, there is no obstacle to the examination of the merits of the case.
Having examined all matters, it is incumbent to pronounce:
II. DECISION
A. MATTERS OF FACT
A.1. Facts Established as Proven
1. In accordance with the respective permanent certificate, the Claimant is a legal entity of private law, having been established as a limited liability company on 14 May 1987, with the corporate purpose of providing osteopathy services, designated as B…, Ltd., with registered office at …, no. …-..., in …, and on 24 July 2007, a modification of the articles of association was made and the registered office was relocated, with the Claimant being thereafter designated "A…, Ltd., with registered office at rua de…, no.…, in….
2. On 24 November 2015, two amendments were registered in the Commercial Registry: of the company name from C…, Ltd. to A…, Ltd., and of the corporate purpose to physiotherapy activities, healthcare provision, diagnosis and other human health activities.
3. The corporate purpose of the Claimant declared in the permanent certificate is healthcare provision, diagnosis, osteopathy and other human health activities, the share capital being €5,000.00, subscribed by the partners, D…, TIN … and E…, TIN…, each holding a share of €2,500.00.
4. In the fiscal years 2012 and 2013, the company was classified for VAT purposes under an exemption regime in accordance with Section 1 of Article 9 of the VAT Code, and under the general regime for Corporate Income Tax.
5. The Tax Authority initiated against the Claimant an inspection procedure of an external nature and partial scope in VAT matters, concerning the years 2012 and 2013, based on doubts regarding the classification of the Claimant's activity for VAT purposes, specifically regarding the exemption regime in accordance with Section 1 of Article 9 of the VAT Code.
6. The Tax Authority commenced the inspection procedure on 17 July 2015, with the signature by the Manager of the Claimant of Service Orders nos. OI2015… and OI2015…, concerning the fiscal years 2012 and 2013, respectively.
7. In the course of the inspection procedure undertaken, the following measures were taken and the following facts were ascertained:
i. The Claimant, for purposes of advertising the Clinic …, had a website (http://....com.pt/pt), where it publicized its activity, providing services in the area of osteopathy, homeopathy, clinical and functional nutrition and general medicine;
ii. The clinical staff presented on the website:
[1]
iii. At the registered office, which are the premises where the Claimant's activity was carried out, there was inscribed on the glazed entrance door, painted in silver, advertising of osteopathy consultations.
iv. In the clinic waiting room on the wall was posted an article signed by D…, on non-conventional medicines, namely osteopathy and homeopathy.
v. The profession declared by the managing partner D…, to insurance company K… in the context of entering into an insurance contract with policy number … was osteopath.
vi. Upon analysis of the company's invoicing, it was found that in the invoices issued to its clients, in the description of service provisions, they mention "structural assessment and correction" and "integrative consultation".
vii. The Claimant was notified in the person of the managing partner on 20 August 2015, to:
a. Clarify and present, in accordance with the legislation in force, namely Decree-Law 261/93 of 24 July, Decree-Law 320/99 of 11 August, Law 45/2003 of 22 August and Law 71/2013 of 2 September, the documents that authorized the Claimant and its employees to carry out healthcare service provision activities as paramedics and non-conventional therapists.
b. The Claimant defended in its reply that the healthcare services provided at the clinic by various therapists are acts in the paramedical field and that the employees were hired for this purpose, having organized a table in which it identified the managing partner, the employees, providing information on their training and academic qualifications, specifying the services they provided at the clinic, and also mentioning whether or not they held professional credentials.
c. The Claimant was requested to explain the specialty of service provisions invoiced as "structural assessment and correction and integrative consultation", and stated that the consultations conducted at the clinic were grouped into various types, namely general medicine, nutrition, speech therapy, integrative consultation and structural assessment and correction.
d. According to the explanation provided, in the structural assessment and correction consultation, the focus is on the analysis and relationships between anatomical structures, from the point of view of posture and movement, which resulted in an intervention strategy for correcting imbalances, and in the consultations specific therapeutic techniques based on manipulative therapies were used, which comprised various phases, described in the reply to the notification.
viii. The Claimant did not explicitly pronounce on whether the activity developed by itself and its employees had the classification under Decree-Law no. 320/99 as paramedical activity or whether it would fall under Law no. 71/2013 as non-conventional medicine activity.
ix. From the reply it appears that the managing partner in the exercise of its activity conducted physiotherapy consultations, but also and simultaneously used knowledge and techniques of osteopathy.
8. The Tax Authority prepared and notified the Claimant on 27 October 2015 of the draft tax inspection report, within the scope of which it proposed the following corrections:
[blank space for corrections]
9. The Claimant accepted the corrections proposed by the Tax Authority regarding Corporate Income Tax ("CIT") and autonomous taxation, and on 16 November 2015 proceeded to regularize its situation for CIT purposes, for which it submitted the appropriate substitute declarations for the fiscal years 2012 and 2013 and proceeded to payment of the corresponding tax in the amounts of €4,476.63 and €8,364.78 on 17 November 2015.
10. Although the Claimant did not accept the corrections proposed regarding VAT, it proceeded to regularize its VAT situation, having submitted for this purpose the appropriate monthly periodic VAT declarations on 15 November 2015, in the terms and amounts proposed in the Project, and proceeded to payment thereof on 22 December 2015.
11. For not agreeing with the corrections in VAT matters proposed by the Tax Authority within the scope of the inspection, the Claimant exercised its right to prior hearing.
12. Upon pronouncement on the arguments raised in the context of prior hearing, the Tax Authority converted the draft into a final inspection report, with respect to the corrections proposed in VAT matters, which report was notified to the Claimant on 16 December 2015, in the person of its representatives.
13. The inspection report contains, among other things, the following:
"Taking into account the elements collected during the inspection action and the replies provided by the representative of the taxpayer, especially the reply to the notification, delivered on 10/09/2015, ANNEX 6 and in accordance with the grounds set out below, the taxpayer did not meet the conditions required under Article 9, Section 1 of the VAT Code, to exempt part of the service provisions carried out by the company, since not all professionals possessed the legal qualification required under Decree-Laws 261/1993, 320/1999 and, on the other hand, carried out operations provided for in Law 45/2013 and Law 71/2013, not covered by the VAT exemption and consequently VAT assessment at the rate of 23% is proposed on the value of services provided by the taxpayer in the fiscal years 2012 and 2013, relating to consultations conducted by the managing partner and by the employees identified below.
In the present case, the managing partner D…- TIN … does not satisfy two conditions, on the one hand, the condition of equivalence of academic qualifications was not exhibited, on the other, in accordance with the provisions of Articles 4, Section 1, subsection d) and Article 5, Section 1 of Decree-Law 320/99, by not exhibiting the professional credential for the exercise of activity.
Regarding the employees Dr. F…, TIN … and Dr. L… TIN…, in accordance with the provision of Article 5, Section 1 of Decree-Law 320/99, for not having complied with this norm, by not exhibiting the professional titles for the exercise of activity."
14. The substitute declarations presented by the Claimant on 15 November 2015 were not validated by the system, "due to a contradiction between the classification under the quarterly regime and the monthly VAT declarations submitted".
15. The Tax Authority prepared a correction document and the corresponding official quarterly declarations for the fiscal years 2012 and 2013, and issued a first copy of the VAT assessments object of this arbitration action on 19 December 2015, with a voluntary payment deadline until 18 February 2016.
16. Having the Claimant proceeded to payment of the amounts in question through self-assessment on 22 December 2015, it did not proceed a second time and in duplicate to payment of the tax already paid, and therefore the Tax Authority instituted the appropriate tax enforcement proceedings for the collection of the tax debt and interest assessed.
17. The Tax Authority imputed the payments made through self-assessment to the tax assessments it issued, and issued on 29 April 2016 a second copy of the additional VAT assessments, recording therein the self-assessment payment and recalculating the compensatory interest owed by the Claimant, closing the tax enforcement proceedings it had instituted.
18. The Claimant paid the entirety of the tax that the Tax Authority considered to be due in the amount of €161,441.10.
19. The Claimant operates, and operated at the date of the tax facts in question in the present proceedings, a healthcare clinic, located at Rua …, no.…, in….
20. The Claimant has been engaged since 1987 in activity in the healthcare sector, namely in the fields of physiotherapy and osteopathy, and from 2007 onwards began to provide other types of therapeutics and healthcare services, namely general medicine, diagnosis, nutrition and speech therapy.
21. In the years 2012 and 2013, the following healthcare services were provided by the Claimant at the said Clinic:
i. general medicine;
ii. nutrition/dietetics;
iii. speech therapy;
iv. structural assessment and correction; and
v. integrative consultation.
22. General medicine consultations were provided in the years in question to the Clinic's patients by I…, a properly licensed and credentialed physician.
23. Nutrition consultations were provided to the Clinic's patients by J…, a properly licensed and credentialed therapist.
24. Speech therapy consultations were provided to the Clinic's patients by M…, a properly licensed and credentialed therapist.
25. Integrative consultations and structural assessments were provided to the Clinic's patients in the years 2012 and 2013 by D…, manager of the Claimant, by F… and L….
26. D… is trained in Physiotherapy, having completed his degree in Belgium in 1979, and in 1980, the Department of Human Resources of the Ministry of Social Affairs, on 16 October 1980, affixed a stamp with the following wording:
"under legal terms the present diploma of auxiliary technician, physiotherapist, is registered in book no.…, page…, under number…. DR., Lisbon 16 October 1980".
27. D… was responsible for creating the Physiotherapy Service of N… Insurance.
28. D…, in the year 1980, began a post-graduate course in Osteopathy, in …, United Kingdom, and in the year 1983 opened his first practice in …, as a physiotherapist.
29. In 2015 D… had requested registration with ACSS and the corresponding issuance of credentials as a physiotherapist.
30. ACSS issued the professional credential of D… in 2016, following a new request for this purpose.
31. F… is a bachelor in physiotherapy since 7 August 1989 from the Technical School of Health Services of Lisbon.
32. F… completed specific training in osteopathy, homeopathy and in sciences, technology and health with specialization in clinical trials and validation.
33. F... requested in 2015 the issuance of credentials as a physiotherapist from ACSS, having been assigned credential number….
34. L… is a bachelor in physiotherapy, since 28 July 1989 from the Rehabilitation School of the Rehabilitation Medicine Centre of the Ministry of Health, recognized by the Higher School of Health of … on 14 October 1998 and attended specific training in osteopathy.
35. L… requested in 2015 the issuance of credentials as a physiotherapist from ACSS, having been assigned credential number….
A.2. Facts Established as Not Proven
1. That the Claimant paid the compensatory interest assessed in the total amount of €17,256.67.
A.3. Justification of Matters of Fact Proven and Not Proven
Regarding matters of fact, the Tribunal need not pronounce on everything alleged by the parties, with it instead having the duty to select the facts that are relevant for the decision and to distinguish between proven and unproven matters (cf. Article 123, Section 2, of the Code of Tax Procedure and Process and Article 607, Section 3 of the Code of Civil Procedure, applicable by virtue of Article 29, Section 1, subsections a) and e), of the LRATM).
Thus, the facts relevant for the judgment of the case are selected and delimited according to their legal relevance, which is established with regard to the various plausible solutions of the question(s) of Law (cf. former Article 511, Section 1, of the Code of Civil Procedure, corresponding to the current Article 596, applicable by virtue of Article 29, Section 1, subsection e), of the LRATM).
Thus, having regard to the positions assumed by the parties, in light of Article 110/7 of the Code of Tax Procedure and Process, the documentary evidence and the Administrative Procedure file attached to the case, the facts listed above were considered proven, as relevant for the decision.
The fact established as not proven is due to the absence of proof to that effect, with the Claimant protesting to submit such proof in Article 105 of its initial Application, but failing to do so.
B. ON THE LAW
As results from the Inspection Report, the corrections in question in the present arbitration action are founded on the understanding that the professionals in the service of the Claimant, D…, F…, L…:
- at the date of the tax facts did not possess the legal qualification required under Decree-Laws 261/1993 and 320/1999 to provide physiotherapy services; and
- carried out operations provided for in Law 45/2013 and Law 71/2013, namely osteopathy service provisions, not covered by the VAT exemption.
Regarding the managing partner of the Claimant, D…, the Tax Authority considered that the same did not meet the condition of equivalence of academic qualifications nor the possession of a professional credential for the exercise of the physiotherapist activity.
Regarding the employees of the Claimant F… and L…, the Tax Authority considered that they similarly did not possess professional titles for the exercise of the physiotherapist activity.
It is therefore incumbent to assess the soundness of such grounds.
*
At issue in the present proceedings is the exemption provided for in Article 9/1) of the VAT Code, which prescribes that:
"The following are exempt from tax: 1) The service provisions made in the exercise of the professions of physician, dentist, midwife, nurse and other paramedical professions;"
As has been noted, the tax assessments object of this arbitration action are founded on the understanding that the Claimant carried out operations provided for in Law 45/2013 and Law 71/2013, namely osteopathy service provisions, not covered by the VAT exemption.
Regarding this matter, and as the Claimant timely noted in the proceedings, on 17 January last year Law 1/2017, of 16 January, came into force, which added Article 8-A to Law 71/2013 of 2 September, which provided that:
"Professionals engaged in the exercise of non-conventional therapeutics referred to in Article 2 are subject to the same value added tax regime as paramedical professions."
In accordance with Article 3 of the said Law 1/2017, "Article 8-A of Law no. 71/2013, of 2 September (...) has an interpretative nature".
In accordance with Article 13, Section 1 of the Civil Code, "Interpretative law is integrated into the law being interpreted." Thus, Article 8-A should be considered as integrated into Law 71/2013, from the beginning of its coming into force, on 2 October 2013.
In this way, from that date, non-conventional medicine service provisions, including osteopathy, should be considered as covered by the exemption of Article 9/1 of VAT, as results, among other things, from Article 2/f) of the said Law 71/2013.
In fact, from the content of the latter Law, as interpreted by Law 1/2017, it results, among other things, that non-conventional therapeutic activities are not incorporated nor are they equivalent, by nature, to paramedical activities. Hence the need for the legislator to provide that the same value added tax regime is applied to them, rather than saying that they form part of, or are equivalent to, those activities to which Article 9/1 of the VAT Code refers.
Hence, in the absence of a legal provision, the exemption enshrined in the latter norm cannot be applied to non-conventional therapeutic activities, which is why, prior to the coming into force of Law 71/2013, it is not possible to consider those activities as exempt.
Thus, assessment number 2015…, relating to the period 12T/2013, will suffer from an error of law, by considering osteopathy service provisions not covered by the VAT exemption, due to incorrect interpretation of Law 71/2013, and should, as such, be annulled.
Regarding this part, the ground that the Claimant's employees did not possess, at the date of the tax facts, the legal qualification required, does not likewise proceed, since only by Regulation no. 182-B/2014, of 12 September, were the qualification criteria regulated.
*
Regarding the ground of the tax assessments sub iudice, according to which at the date of those the Claimant's employees providing service as therapists did not possess the legal qualification required under Decree-Laws 261/1993 and 320/1999 to provide physiotherapy services, it should first be noted that the aforementioned Article 9/1) of the VAT Code has its Community basis in Article 132, Section 1, subsection c), of the VAT Directive, regarding which the Court of Justice of the European Union has held that:
"It is for each Member State to define, in its internal law, the paramedical professions in the context of which assistance services are exempt from VAT. Member States have a discretion in this regard (see judgment Solleveld and van den Hout-van Eijnsbergen, C‑443/04 and C‑444/04, EU:C:2006:257, no. 29).
29 That discretion encompasses not only the power to define the qualifications required to exercise the said professions but also the power to define the specific assistance service activities covered by those professions (judgment Solleveld and van den Hout-van Eijnsbergen, C‑443/04 and C‑444/04, EU:C:2006:257, no. 30).(...)
31 Consequently, Member States are, it is true, authorized not to regard as paramedical and, therefore, to exclude from the VAT exemption a given profession or to reserve it to providers who have the professional qualifications set out in the relevant national regulation and solely with respect to the specific assistance service activities for which those qualifications are required (judgment Solleveld and van den Hout-van Eijnsbergen, C‑443/04 and C‑444/04, EU:C:2006:257, nos. 33 and 34)."[2]
The same High Court has equally held that:
"30 However, the discretion of the Member States in this regard is not unlimited (judgment Solleveld and van den Hout-van Eijnsbergen, C‑443/04 and C‑444/04, EU:C:2006:257, no. 31). (...)
32 However, it follows from the case law of the Court of Justice that the requirement of a correct and simple application of exemptions does not permit Member States to undermine the objectives pursued by the VAT Directive nor the principles of Union law, in particular the principle of equal treatment, which is reflected, in VAT matters, in the principle of fiscal neutrality (see judgments Solleveld and van den Hout-van Eijnsbergen, C‑443/04 and C‑444/04, EU:C:2006:257, no. 35, and MDDP, C‑319/12, EU:C:2013:778, no. 38).
33 Consequently, when a taxable person requests that it be recognized that its assistance service activities fall within the exercise of paramedical professions, in order to benefit from the VAT exemption provided for in Article 132, Section 1, subsection c), of the VAT Directive, it is for the national courts to examine whether the competent authorities, in refusing such recognition, respected the limits of the discretion conferred by that provision, having regard to the objective pursued by the latter and the principle of fiscal neutrality inherent in the common VAT system (see, in this sense, judgment Solleveld and van den Hout-van Eijnsbergen, C‑443/04 and C‑444/04, EU:C:2006:257, no. 36).
34 In this regard, as regards, in the first place, the objective pursued by Article 132, Section 1, subsection c), of the VAT Directive, it should be recalled that the requirement provided by this provision, according to which assistance service provisions must be made in the context of the exercise of paramedical professions as defined by the Member State concerned, is aimed at ensuring that the exemption applies only to assistance service provisions made by providers with the required professional qualifications (see, in this sense, judgment Solleveld and van den Hout-van Eijnsbergen, C‑443/04 and C‑444/04, EU:C:2006:257, no. 37).
35 It follows that the exclusion of a given profession or of a specific assistance service activity from the definition of paramedical professions provided by national regulation for the purposes of the exemption under Article 132, Section 1, subsection c), of the VAT Directive must be capable of being justified by objective reasons based on the professional qualifications of assistance service providers and, therefore, by considerations relating to the quality of services provided (see, in this sense, judgment Solleveld and van den Hout-van Eijnsbergen, C‑443/04 and C‑444/04, EU:C:2006:257, no. 38)."[3]
The Court of Justice of the European Union has further held that:
"37 As regards, in the second place, the principle of fiscal neutrality, which is inherent in the common VAT system, it should be recalled that this principle precludes similar service provisions, which are therefore in competition with each other, being treated differently from the VAT point of view (judgment Solleveld and van den Hout-van Eijnsbergen, C‑443/04 and C‑444/04, EU:C:2006:257, no. 39).
38 In this regard and as specifically regards the profession of physiotherapist, the Court of Justice has already emphasized that it is important to verify whether the persons exercising that profession have, for the provision of specific assistance services, professional qualifications apt to ensure those services a level of quality equivalent to that of services provided by persons who, under that same national regulation, benefit from the exemption (judgment Solleveld and van den Hout-van Eijnsbergen, C‑443/04 and C‑444/04, EU:C:2006:257, no. 41). (...)
41 It is for the referring court to determine whether, in light of all those elements, the exclusion of certain activities carried out by a physiotherapist from the scope of the exercise of paramedical professions, for the purposes of the VAT exemption provided for in Article 132, Section 1, subsection c), of the VAT Directive, exceeds the limits of the discretion conferred on Member States by that provision (in this sense, judgment Solleveld and van den Hout-van Eijnsbergen, C‑443/04 and C‑444/04, EU:C:2006:257, no. 42)."[4].
That is, and summarizing as regards the present case, in accordance with the Court of Justice of the European Union, it is for each Member State to define, in its internal law, the paramedical professions in the context of which assistance services are exempt from VAT, with Member States having a discretion in this regard which encompasses not only the power to define the qualifications required to exercise the said professions but also the power to define the specific assistance service activities covered by those professions, and are authorized not to regard as paramedical and to exclude from the VAT exemption a given profession or to reserve it to providers who have the professional qualifications set out in the relevant national regulation and solely with respect to the specific assistance service activities for which those qualifications are required.
Also in accordance with the same case law, it is incumbent on national courts to examine whether the competent authorities, in refusing such recognition, respected the limits of the discretion conferred on them or, on the contrary, exceeded the limits of such discretion, taking into account:
i. the objective pursued by the exemptions, having regard to the fact that assistance service provisions must be made in the context of the exercise of paramedical professions as defined by the Member State concerned, is aimed at ensuring that the exemption applies only to assistance service provisions made by providers with the required professional qualifications, and that the exclusion of a given profession or of a specific assistance service activity from the definition of paramedical professions provided by national regulation for the purposes of the exemption under Article 132, Section 1, subsection c), of the VAT Directive must be capable of being justified by objective reasons based on the professional qualifications of assistance service providers and, therefore, by considerations relating to the quality of services provided;
ii. the principle of fiscal neutrality inherent in the common VAT system, having regard to the fact that this principle precludes similar service provisions, which are in competition with each other, being treated differently from the VAT point of view and, as specifically regards the profession of physiotherapist, it is important to verify whether the persons exercising that profession have, for the provision of specific assistance services, professional qualifications apt to ensure those services a level of quality equivalent to that of services provided by persons who, under that same national regulation, benefit from the exemption.
It is therefore in light of the criteria set out that the present situation must be assessed, and given the clarity of the criteria set by the Court of Justice of the European Union and the equally clear definition of the role that falls to national courts, there is no need for a referral, contrary to what the Claimant suggested.
*
Regarding the definition of paramedical activities, to which the provision of Article 9/1) of the VAT Code refers, Decree-Law 261/93 of 24 July includes therein Physiotherapy, this appearing in point 7 of the Annex to such regulation.
Decree-Law 320/99 of 11 August, which came to regulate the said Decree-Law 261/93 of 24 July, which in accordance with its Article 1, defines the general principles regarding the exercise of diagnostic and therapeutic professions, where, in accordance with its Article 2/1, that of physiotherapist is included, and proceeds to its regulation, requires for access to the exercise of these professions the possession of a course that falls within the provision of Section 1 of Article 4, or the verification of a situation provided for in Sections 2 and 3 of the same article.
Furthermore, in Article 5, the same Decree-Law provides that "The exercise of the professions is dependent on a professional title, corresponding to one of the designations referred to in Article 2, to be recognized by the Department of Human Resources of Health, (...), in accordance with the following sections." (Section 1), with "The recognition of the professional title is made through the issuance of credentials, in accordance with the model to be approved by dispatch of the Minister of Health."
In the legislation in question, the national legislator exercised its power to define the qualifications required to exercise the said professions, including, as regards the present case, that of Physiotherapist, reserving it to providers who have the professional qualifications set out therein.
Saving due respect for other opinions, it is considered that, among the requirements required by the national legislator for the exercise of the said professions, is the administrative recognition of the professional title through issuance of credentials, and, according to the preamble of the regulation in question, "It was opted for generic regulation of these professions, essentially based on the granting of a professional title as a guarantee of its lawful exercise", and that, in accordance with Section 3 of Article 10 of that same regulation, "The recruitment and maintenance in service, in any capacity, by employing entities, of professionals for the exercise of the professions provided for in this regulation, who do not possess the respective professional title or authorization to exercise, shall be sanctioned in accordance with the general rules of law."
There is no doubt, therefore, that it follows from the applicable legal regime that, for the activity exercised by someone to be, legitimately, qualifiable as, in the case, Physiotherapist, and so that, as such, it be, in light of the legal system, deemed as such, the respective practitioner must be in possession of the corresponding title, embodied in the respective professional credential.
*
Having thus ascertained the national legal regime of access to the paramedical activity of physiotherapy, it is incumbent, in the sequence of what has been set out above, to verify whether such regime is in conformity with the objective pursued by the exemptions and with the principle of fiscal neutrality inherent in the common VAT system.
Regarding the first of the aforementioned aspects, there is no doubt that the requirement of a professional credential is intended to ensure that the exemption applies only to assistance service provisions made by providers with the required professional qualifications, guaranteed through prior administrative scrutiny of the qualifications of professionals in the respective field.
In fact, it would be practically impossible for the Tax Authority itself to verify case by case and materially whether the professional qualifications of each declared service provider of, in the case, physiotherapy, were adequate and legitimate. Moreover, the present case provides a good example of this very point, with the Tax Authority considering that the qualifications of the Claimant's managing partner would not be valid due to lack of recognition, with the latter precisely alleging to the contrary.
Now, the prior administrative review inherent in the professional credential qualification process has, precisely, as its purpose, to avoid such insecurities and uncertainties, not only in relation to the Tax Authority, but in general. Thus, the holder of a professional credential should be presumed to be qualified for the exercise of the profession titled by that credential, absent conclusive evidence to the contrary.
Similarly, it is perfectly clear that the exclusion from the scope of the paramedical professions provided by national regulation for the purposes of the exemption under Article 132, Section 1, subsection c), of the VAT Directive and Article 9/1) of the VAT Code, of the activity of those not holding a professional credential is justified by objective reasons based on considerations relating to the quality of services provided, as follows, among other things, from the preamble of Decree-Law 329/99 set out above.
In fact, the requirement of possession of a professional credential, issued following a prior administrative procedure for scrutiny of the required professional qualifications, cannot but be considered as justified, precisely, by the need to guarantee the quality of services provided in the professional field in question, demonstrating, precisely, the possession of a professional credential that the qualifications of its holder have been verified and approved by the competent administrative entity.
As was written in the Judgment of the Court of Appeal of Lisbon, of 15 February 2012, rendered in case 77/06.5TTLSB.L1.S1[5]:
"Decree-Law no. 261/93, of 24 July, introduced a qualitative change in the conditions for the exercise of certain professional activities in the field of healthcare provision, motivated by the concern to safeguard this collective value, against the risk of the exercise of these activities by professionals not equipped with adequate professional training and the lack of monitoring and control of the manner in which such activities were exercised.
The motivations for the discipline that came to be introduced by that regulation are significant in the considerations contained in its preamble, when it states that 'in this field, it is undoubtedly relevant the knowledge that this essential legal right must be protected against possible injuries caused by the unqualified exercise of certain functions' and that 'from such knowledge results, directly, the need to condition the exercise of activities linked to healthcare provision, in order to achieve that protection', or when it emphasizes that 'this need is all the more felt given that scientific and technological evolution, with repercussions in the field of medical sciences, functions as a determining factor of greater requirements at the level of training and specialization of health professionals'.
This need to ensure public health, as referred to in the same preamble, will impose the 'intervention of the State, in obedience to constitutional imperatives relating to health, promoting measures that guarantee the highest quality of care to be provided, through adequate technical training of health agents and their enhancement from a deontological point of view'.
The exercise of the professional activities covered by that regulation becomes subject to administrative regulation which, in addition to defining the professional training necessary for its exercise, defines the conditions under which access to the exercise of these activities can be had, as well as the discipline that conditions their exercise. (...)
The exercise of the activities covered thus becomes conditional on academic qualification resulting from a course, as follows from subsections a) and b), and the obtaining of a professional credential, or equivalent title, 'issued or validated by a public entity' which demonstrates the fulfillment of the conditions for the exercise of the activity in question.
By virtue of the provision of Section 2 of Article 4, the professionals covered are subject to professional registration, on which depends the obtaining of the professional credential referred to above.(...)
The specific regulation of the conditions of access and exercise of the covered activities came to be defined by Decree-Law no. 320/99, of 11 August.
Continuing the policy of conditioning access to healthcare provision activities, it is stated in the preamble of that regulation that it aims to 'pursue, through regulation of the technical activities of diagnosis and therapy that conditions their exercise in general, both in defense of the right to health, by providing care by those with adequate qualification, and in defense of the interests of professionals who actually possess the knowledge and skills proper for the exercise of the corresponding profession'.
Still within the same line of concerns, it is also stated in that preamble, that 'in the development of Decree-Law no. 261/93, of 24 July, and in the context of the provision in principle XV of Law no. 48/90, of 24 August, the relevance of healthcare activities requires that their provision be subject to monitoring actions, avoiding situations of unqualified exercise that should merit the immediate intervention of public authorities, through the current mechanisms of licensing, inspection actions and the special attention of health authorities'.(...)
Access to the exercise of the covered professional activity is thus dependent on basic training of an academic nature and the obtaining of a title awarded by a State service, in this case, the 'Department of Human Resources of Health'.
The award of this professional title depends on the fulfillment of the conditions set out in Section 2 of this article, namely, an application to be submitted within a period counted from the date of coming into force of this regulation, which must be accompanied by 'identity card or passport, as well as the respective certificate, professional credential or training diploma'.
The award of the professional title is materialized in a specific document, the professional credential."
Regarding the principle of fiscal neutrality specific to VAT, it is also considered that the same is not compromised by the national regime set out above.
Thus, having in mind that this principle precludes similar service provisions, which are in competition with each other, being treated differently from the VAT point of view, it is noted that all practitioners of physiotherapy, as indeed all practitioners of all other paramedical activities, in order to benefit from the exemption, must be holders of a professional credential, and one cannot consider similar the provision of services by someone duly qualified by professional credential, to a provision of services, moreover, and in concrete, similar, by someone who is not, in that way, qualified. Furthermore, one can never consider that the activity of someone not titled by a professional credential is in competition with that of someone duly titled, not least because the activity of the former will be unlawful, as follows, among other things, from the already aforementioned Section 3 of Article 10 of Decree-Law 329/99, and may even give rise to criminal liability, as will be seen below.
It is concluded, therefore, that persons who practice Physiotherapy, even if academically qualified to do so, without being holders of a professional credential, do not have, from an objective point of view, for the provision of their respective services, professional qualifications apt to ensure those services a level of quality equivalent to that of services provided by persons providing the same service, being holders of a professional credential, not least because the absence of this legitimizes any third party (general public, public authorities) to doubt the sufficiency of academic qualifications, as indeed and in the case occurred regarding the Claimant's managing partner.
Furthermore, and as will be seen below, the requirement of qualification for the exercise of paramedical activities, in general, and of physiotherapy, in concrete, through possession of a professional credential, is fundamentally of the same nature as the requirement, for the same purposes, of determined academic qualifications, with both, for the same grounds, meeting the conformity with the purpose of the exemptions and with the principle of fiscal neutrality.
*
The Claimant contests the understanding that has been set out, alleging, in the first place, that, under Section 2 of Article 4 of Decree-Law 320/99, access to the profession is equally permitted to those persons "who possess one of the qualifications referred to in Section 4 of the ministerial dispatch of 4 April 1978, published on 12 April 1978, as well as those who possess the promotion course provided for in Section 8.1 of the same dispatch, and also holders of a professional credential validated by the competent ministerial department under proper regulation, as long as prior to the date of coming into force of Decree-Law no. 358/84, of 13 November".
Saving due respect, it is considered that such argument does not proceed, in that Section 2 of Article 4 in question complements Section 1 of the same article, so that the "qualifications referred to in Section 4 of the ministerial dispatch of 4 April 1978, published on 12 April 1978, as well as (...) the promotion course provided for in Section 8.1 of the same dispatch, and (...) [the] professional credential validated by the competent ministerial department under proper regulation, as long as prior to the date of coming into force of Decree-Law no. 358/84, of 13 November", will be substitutes for the requirements of the referred Section of Article 4, and not for the requirement of Article 5 - possession of a professional credential – which adds to the requirements of Article 4, where is included the referred Section 2.
The Claimant also alleges that "the Therapists providing services at the Claimant in the years 2012 and 2013 were all equipped with the necessary academic qualifications for the exercise of the profession of physiotherapy." However, as has been seen above, the exercise of that profession is not solely conditioned by the possession of academic qualifications, being also indispensable, for the lawfulness of such exercise, administrative recognition of such qualifications by means of a professional credential. Moreover, it should be noted that Community case law, as well as national case law to be analyzed below, postulates that Member States define the qualifications, and not (merely) the (academic) qualifications necessary for the exercise of the activities entitled to exemption, with the former notoriously being a broader concept than the latter. Moreover, in various parts of its argument, the Claimant seems to confuse academic qualifications, which in the case are proven, with professional and/or legal qualifications, which integrate a broader concept, encompassing not only academic qualifications but also the other requirements legally necessary for the exercise of the profession.
The Claimant also alleges that the corresponding credentials of all therapists have already been issued by ACSS, so that all are now duly credentialed for the exercise of the profession of physiotherapist. However, the fact is that at the date of the tax facts sub iudice this did not occur, and therefore, without the award of a professional credential having retroactive effect, it cannot be considered that the said therapists were at that time qualified, in legal terms, for the exercise of the profession in question, with nothing altering the fact that, at the time of the final inspection report, one of the said professionals (the Claimant's managing partner) had made a request for issuance of the respective credential, not least because such occurred already after the occurrence of the relevant tax facts[6].
The foregoing applies directly to the Claimant's argument, according to which "through the evidence of academic qualifications presented it is demonstrated that the conditions are fully met for these Therapists to obtain the said professional title, meeting the conditions required in Decree-Law 320/99, as indeed demonstrated by the corresponding issuance of the credential". In fact, being a qualification necessary for the lawful exercise of the profession in question the possession of a professional credential, and the issuance of such not having retroactive effect, it cannot be concluded that, in the case, the qualifications legitimately (as has been seen) judged necessary by the Portuguese State for the practice of the activity (in the case, of physiotherapy) benefiting from the VAT exemption, were met.
The Claimant further argues that "from a material point of view, all Therapists providing services at the Claimant's Clinic met the conditions required in Decree-Law 320/99, both in terms of academic qualifications for this purpose and for the awarding of the professional title", so that "as a matter of substantive justice, the Tax Authority could never come to say that the VAT exemption provided for in Article 9 of the VAT Code should not apply because the title to be presented is dated 2015 and not 2012 or 2013".
Once again, it is considered that the Claimant's position is not supported. In fact, and for the reasons set out above, it is considered that the possession of a professional credential is a material requirement for the exercise of the profession in question, and not a mere formality declarative of a pre-existing quality.
From this point of view, the requirement of a professional credential will in no way differ, from a substantive point of view, from the necessity of the possession of an academic degree for the exercise of a profession. This too is merely a title that formally attests the attendance and approval in a course of an academic institution, with nothing resulting therefrom, in a direct and necessary manner, as to the real and concrete ability for the exercise of a profession, so much so that, in some areas (such as, for example, the legal profession), the possession of the academic qualification is not sufficient for the exercise of a profession. Nevertheless, no one will question that, however materially competent a certain person may be in a certain area for whose professional practice the possession of determined academic qualifications is required, such practice will not be lawful, nor can it enjoy the regimes proper to the activity in question, if the said practitioner, even if of unquestionable actual competence in the area, does not have the necessary academic degree.
This is because, notwithstanding its formal character, the possession of an academic degree required for given professional exercise corresponds to the satisfaction of material interests resulting from the requirement of a minimum degree of public certainty and security as to the possession of knowledge necessary for such exercise, which the said possession with a high degree of certainty provides.
In the same way, the possession of a professional credential, in the sequence of what has been set out above, seeks to attend to the same type of needs for certainty and public security, resulting from the administrative verification of the qualifications held by applicants for the practice of the profession titled by that document.
Furthermore, the award of the professional credential is not only a source of rights, such as, in the first place, the right to exercise the professional activity, but also of obligations, such as those of bearing the professional registration fee, referred to in Article 7 of Decree-Law 320/99, of reporting, provided for in Section 3 of Article 5 of the same Decree-Law, or of compliance with the rules on ethics, deontology and professional qualification that may be approved by the National Council of Diagnostic and Therapeutic Professions, in accordance with subsection d) of Article 14, also of Decree-Law 320/99.
Hence, the exercise of professional activity without possession of a legally necessary professional credential may even give rise to criminal liability, as is seen, for example, in the Judgments of the Supreme Court of Justice of 15 November 2012 and of the Court of Appeal of Lisbon, of 28 June 2011, rendered, respectively, in cases 1054/07.4TAOLH and 1146/06.1TAOLH.L1-5[7].
In this way, where a situation exists of material inequality between those exercising the activity in question duly titled by a professional credential and those practicing that same activity without the necessary qualification, the inequality of treatment as to both situations is justified, with nothing resulting therefrom, on the contrary, of any violation of substantive justice.
Finally, the Claimant invokes the decision in the Judgment of the Central Administrative Court of the South, of 6 July 2010, rendered in case no. 04087/10[8].
Always saving due respect, it is considered, not only that nothing in the aforementioned judgment results in support of the position sustained by the Claimant, but that from it precisely the opposite is derived.
Thus, the said judgment considers that under Decree-Law no. 261/93 of 24 July "the exercise of paramedical activities depends on the verification of the following conditions:
a) Possession of a course provided at an official educational establishment or private or cooperative education, as long as recognized in accordance with legal terms;
b) Possession of a diploma or certificate recognized as equivalent to those referred to in the preceding subsection by joint dispatch of the Ministers of Education and Health;
c) Possession of a professional credential, or equivalent title, issued or validated by a public entity." (emphasis ours).
Moreover, the judgment notes that "Article 3 of the said legal provision sanctions that the contract by which someone is obliged to exercise paramedical activities in exchange for remuneration, without observance of the provision in the preceding article, is null (Section 1) and the regime provided for in this regulation cannot be departed from by a collective labor relations instrument." (emphasis ours).
The same judgment also states that "for the exercise of paramedical activities was fixed in the legislation applicable to the present case the necessity/obligation of verification of the conditions referred to" in Section 1 of Article 2 of Decree-Law 261/93 of 24 July, with such "necessity inscribing itself in the safeguarding of superior constitutional interests of protection of the health of citizens when they are assisted by professionals who exercise these paramedical activities", further stating that "the activity of physiotherapy and its execution be entrusted to professionals not qualified with courses that comply with the requirements set by law", where includes, as was seen, the possession of a professional credential, or equivalent title, issued or validated by a public entity.
Finally, the Claimant presented, in support of its position, a decision of the Tax Administrative Court of Leiria, in a matter similar to that of the present proceedings, but distinct, in that in the situation judged there the possession of a professional credential by the taxpayer was not questioned, which is why, regarding the matter just assessed, nothing is incumbent to assess regarding the argument spent there.
Thus, and in light of all that has been set out, it is concluded that, contrary to its claim, the Claimant could not benefit from the exemption provided for in Article 9/1 of the VAT Code, on the grounds of the exercise of the physiotherapy activity, with nothing, from that point of view, to censure in the tax assessments sub iudice.
*
Subsidiarily, the Claimant invokes the illegality of the assessment of compensatory interest in the present case, alleging that responsibility should not be imputed to it for the delay in assessment, since the VAT deduction by the Claimant that the Tax Authority now comes to correct resulted from a conviction that the services provided were covered by the VAT exemption under Section 1 of Article 9 of the VAT Code, so that the Claimant acted in good faith and the error is excusable.
Saving due respect once again, it is understood that this is not so.
In fact, engaging professionally in the provision of services of, among other things, physiotherapy, the Claimant had the obligation to become acquainted with and know the conditions necessary for the lawful exercise of the activity in question, including the necessity of its employees being holders of the respective professional title and corresponding professional credential.
Thus, by applying the exemption of Article 9/1 of the VAT Code to service provisions made through employees who did not meet the conditions legally necessary to do so, the Claimant acted, at least, negligently, justifying itself, therefore, in light of the applicable provisions, namely Article 35, Section 1, of the General Tax Law, the assessment of compensatory interest.
*
The Claimant accumulates, with the request for annulment of the tax assessments object of the present proceedings, the request for condemnation of the Tax Authority to payment of compensatory interest.
In light of the partial success of the request for annulment, the payments that, regarding the annulled tax assessment, are verified as paid by the Claimant, should be refunded, if necessary in execution of judgment. In the present case, it is manifest that the illegality of the annulled assessment act, whose amount the Claimant paid, is attributable to the Respondent, which, on its own initiative, made them without legal support.
Consequently, the Claimant is entitled to compensatory interest, in accordance with Articles 43, Section 1, of the General Tax Law and 61 of the Code of Tax Procedure and Process. The Respondent shall give execution to this judgment, in accordance with Article 24, Section 1, of the LRATM, determining the amount to be refunded to the Claimant and calculating the respective compensatory interest, at the legal supplementary rate for civil debts, in accordance with Articles 35, Section 10, and 43, Sections 1 and 5, of the General Tax Law, 61 of the Code of Tax Procedure and Process, 559 of the Civil Code and Regulation no. 291/2003, of 8 April (or the regulation or regulations that succeed it).
Compensatory interest is owed from the date of undue payment until the processing of the credit note, in which it is included.
*
C. DECISION
To which end, this Arbitration Tribunal decides to judge the arbitration request partially granted and, consequently:
a) Annul assessment number 2015…, relating to the fourth quarter of 2013 (12T2013) in the amount of €21,785.12, plus compensatory and default interest in the amount of €1,627.91;
b) Condemn the Respondent to payment of compensatory interest, in the terms indicated above, on the amounts shown to have been paid by the Claimant, by virtue of the annulled assessment;
c) Judge the remaining arbitration requests to be without merit;
d) Condemn the parties to the costs of the proceedings, in proportion to their respective loss, fixing the amount of €3,191.00, at the expense of the Claimant, and €481.00, at the expense of the Respondent.
D. Value of the Proceedings
The value of the proceedings is fixed at €178,697.77, in accordance with Article 97-A, Section 1, a), of the Code of Tax Procedure and Process, applicable by virtue of subsections a) and b) of Section 1 of Article 29 of the LRATM and Section 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.
E. Costs
The value of the arbitration fee is fixed at €3,672.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the parties in proportion to their respective loss, as fixed above, since the request was partially granted, in accordance with Articles 12, Section 2, and 22, Section 4, both of the LRATM, and Article 4, Section 4, of the cited Regulation.
Let notice be given.
Lisbon 3 March 2017
The President Arbitrator
(José Pedro Carvalho - Rapporteur)
The Arbitrator Vogal
(Nuno Maldonado de Sousa)
The Arbitrator Vogal
(Filipa Barros)
[1] Data extracted from the website (http://...com.pt/pt) in September 2015. In the fiscal years 2012 and 2013 the techniques marked with "a)" did not provide services through the Claimant.
[2] Case C‑555/15.
[3] Ibid.
[4] Ibid.
[5] Unpublished, but transcribed in the Judgment of the Supreme Court of Justice of 30 January 2013, rendered in the same case, available at www.dgsi.pt.
[6] In the same sense, in a similar situation, cf. the Judgment of the Administrative Court - North, of 22 October 2015, rendered in case 00199/06.2BEMDL, available at www.dgsi.pt.
[7] Available at www.dgsi.pt.
[8] Available at www.dgsi.pt. With identical content, cf. also the judgment of the same Court of 23 March 2010, in case 03816/10.
Frequently Asked Questions
Automatically Created