VAT Exemption Waiver Under Article 9(2) CIVA: CAAD Arbitral Ruling 284/2015-T

ARBITRAL AWARD

I – Report

A…, S.A. with N.I.P.C…, with registered office at Rua…, … –…Viseu, here represented by its directors B… and C…, came, pursuant to the provisions of articles 2.º no. 1 a) and article 10.º of Decree-Law no. 10/2011 of 20 January - Legal Framework for Arbitration in Tax Matters, hereinafter "RJAT", to file a request for the constitution of a Collective Arbitral Tribunal, pursuant to the combined provisions of articles 2.º, 5.º, 6.º and 10.º of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter "RJAT"), in which the Tax and Customs Authority is the Respondent (hereinafter "AT" or "Respondent").

The Claimant seeks an arbitral ruling on the illegality and consequent annulment of the additional VAT assessments and compensatory interest issued by the Tax and Customs Authority and which are set out below:

Year 2011

Additional VAT Assessment no. … (period 1101), in the amount of €10,002.60 (ten thousand and two euros and sixty cents): Doc. no. 1;

Additional VAT Assessment no. … (period 1102), in the amount of €9,868.59 (nine thousand eight hundred and sixty-eight euros and fifty-nine cents): Doc. no. 2;

Additional VAT Assessment no. … (period 1103), in the amount of €13,133.07 (thirteen thousand one hundred and thirty-three euros and seven cents): Doc. no. 3;

Additional VAT Assessment no. … (period 1104), in the amount of €5,523.81 (five thousand five hundred and twenty-three euros and eighty-one cents): Doc. no. 4;

Additional VAT Assessment no. … (period 1105), in the amount of €11,935.02 (eleven thousand nine hundred and thirty-five euros and two cents): Doc. no. 5;

Additional VAT Assessment no. … (period 1106), in the amount of €5,869.64 (five thousand eight hundred and sixty-nine euros and sixty-four cents): Doc. no. 6;

Additional VAT Assessment no. … (period 1107), in the amount of €7,275.25 (seven thousand two hundred and seventy-five euros and twenty-five cents): Doc. no. 7;

Additional VAT Assessment no. … (period 1108), in the amount of €5,040.82 (five thousand and forty euros and eighty-two cents): Doc. no. 8;

Additional VAT Assessment no. … (period 1109), in the amount of €11,095.63 (eleven thousand and ninety-five euros and sixty-three cents): Doc. no. 9;

Additional VAT Assessment no. … (period 1110), in the amount of €18,169.02 (eighteen thousand one hundred and sixty-nine euros and two cents): Doc. no. 10;

Additional VAT Assessment no. 2014 … (period 1111) in the amount of €10,186.95 (ten thousand one hundred and eighty-six euros and ninety-five cents) and respective statement of account adjustment: Doc. no. 11;

Additional VAT Assessment no. 2014 … (period 1112) in the amount of €11,136.24 (eleven thousand one hundred and thirty-six euros and twenty-four cents) and respective statement of account adjustment: Doc. no. 12;

Additional compensatory interest assessment no. … (period 1101), in the amount of €1,457.91 (one thousand four hundred and fifty-seven euros and ninety-one cents). Doc no. 13;

Additional compensatory interest assessment no. … (period 1102), in the amount of €1,403.77 (one thousand four hundred and three euros and seventy-seven cents). Doc no. 14;

Additional compensatory interest assessment no. … (period 1103), in the amount of €1,826.40 (one thousand eight hundred and twenty-six euros and forty cents). Doc no. 15;

Additional compensatory interest assessment no. … (period 1104), in the amount of €747.61 (seven hundred and forty-seven euros and sixty-one cents). Doc no. 16;

Additional compensatory interest assessment no. … (period 1105), in the amount of €1,578.69 (one thousand five hundred and seventy-eight euros and sixty-nine cents). Doc no. 17;

Additional compensatory interest assessment no. … (period 1106), in the amount of €757.10 (seven hundred and fifty-seven euros and ten cents). Doc no. 18;

Additional compensatory interest assessment no. … (period 1107), in the amount of €912.10 (nine hundred and twelve euros and ten cents). Doc no. 19;

Additional compensatory interest assessment no. … (period 1108), in the amount of €616.50 (six hundred and sixteen euros and fifty cents). Doc no. 20;

Additional compensatory interest assessment no. … (period 1109), in the amount of €1,319.32 (one thousand three hundred and nineteen euros and thirty-two cents). Doc no. 21;

Additional compensatory interest assessment no. … (period 1110), in the amount of €2,096.66 (two thousand and ninety-six euros and sixty-six cents). Doc no. 22;

Year 2012

Additional VAT Assessment no. 2014 … (period 1201) in the amount of €12,576.70 (twelve thousand five hundred and seventy-six euros and seventy cents) and respective statement of account adjustment: Doc. no. 23 and 24;

Additional VAT Assessment no. 2014 … (period 1202) in the amount of €10,400.03 (ten thousand and four hundred euros and three cents) and respective statement of account adjustment: Doc. no. 25 and 26;

Additional VAT Assessment no. 2014 … (period 1203) in the amount of €13,198.75 (thirteen thousand one hundred and ninety-eight euros and seventy-five cents) and respective statement of account adjustment: Doc. no. 27 and 28;

Additional VAT Assessment no. 2014 … (period 1204) in the amount of €9,323.10 (nine thousand three hundred and twenty-three euros and ten cents) and respective statement of account adjustment: Doc. no. 29 and 30;

Additional VAT Assessment no. 2014 … (period 1205) in the amount of €14,758.48 (fourteen thousand seven hundred and fifty-eight euros and forty-eight cents) and respective statement of account adjustment: Doc. no. 31 and 32;

Additional VAT Assessment no. 2014 … (period 1206) in the amount of €14,548.94 (fourteen thousand five hundred and forty-eight euros and ninety-four cents) and respective statement of account adjustment: Doc. no. 33 and 34;

Additional VAT Assessment no. 2014 … (period 1207) in the amount of €11,653.44 (eleven thousand six hundred and fifty-three euros and forty-four cents) and respective statement of account adjustment: Doc. no. 35 and 36;

Additional VAT Assessment no. 2014 … (period 1208) in the amount of €9,121.47 (nine thousand one hundred and twenty-one euros and forty-seven cents) and respective statement of account adjustment: Doc. no. 37 and 38;

Additional VAT Assessment no. 2014 … (period 1209) in the amount of €10,491.60 (ten thousand four hundred and ninety-one euros and sixty cents) and respective statement of account adjustment: Doc. no. 39 and 40;

Additional VAT Assessment no. 2014 … (period 1210) in the amount of €14,543.40 (fourteen thousand five hundred and forty-three euros and forty cents) and respective statement of account adjustment: Doc. no. 41 and 42;

Additional VAT Assessment no. 2014 … (period 1211) in the amount of €12,542.93 (twelve thousand five hundred and forty-two euros and ninety-three cents) and respective statement of account adjustment: Doc. no. 43 and 44;

Additional VAT Assessment no. 2014 … (period 1212) in the amount of €13,104.82 (thirteen thousand one hundred and four euros and eighty-two cents) and respective statement of account adjustment: Doc. no. 45 and 46;

Additional compensatory interest assessment no. 2014 … (period 1201), in the amount of €1,325.88 (one thousand three hundred and twenty-five euros and eighty-eight cents) and respective statement of account adjustment: Doc. no. 47 and 48;

Additional compensatory interest assessment no. 2014 … (period 1202), in the amount of €1,063.30 (one thousand and sixty-three euros and thirty cents) and respective statement of account adjustment: Doc. no. 49 and 50;

Additional compensatory interest assessment no. 2014 … (period 1203), in the amount of €1,306.08 (one thousand three hundred and six euros and eight cents) and respective statement of account adjustment: Doc. no. 51 and 52;

Additional compensatory interest assessment no. 2014 … (period 1204), in the amount of €889.90 (eight hundred and eighty-nine euros and ninety cents) and respective statement of account adjustment: Doc. no. 53 and 54;

Additional compensatory interest assessment no. 2014 … (period 1205), in the amount of €1,361.82 (one thousand three hundred and sixty-one euros and eighty-two cents) and respective statement of account adjustment: Doc. no. 55 and 56;

Additional compensatory interest assessment no. 2014 … (period 1206), in the amount of €1,293.06 (one thousand two hundred and ninety-three euros and six cents) and respective statement of account adjustment: Doc. no. 57 and 58;

Additional compensatory interest assessment no. 2014 … (period 1207), in the amount of €996.04 (nine hundred and ninety-six euros and four cents) and respective statement of account adjustment: Doc. no. 59 and 60;

Additional compensatory interest assessment no. 2014 … (period 1208), in the amount of €749.70 (seven hundred and forty-nine euros and seventy cents) and respective statement of account adjustment: Doc. no. 61 and 62;

Additional compensatory interest assessment no. 2014 … (period 1209), in the amount of €824.28 (eight hundred and twenty-four euros and twenty-eight cents) and respective statement of account adjustment: Doc. no. 63 and 64;

Additional compensatory interest assessment no. 2014 … (period 1210), in the amount of €1,098.11 (one thousand and ninety-eight euros and eleven cents) and respective statement of account adjustment: Doc. no. 65 and 66;

Additional compensatory interest assessment no. 2014 … (period 1211), in the amount of €904.45 (nine hundred and four euros and forty-five cents) and respective statement of account adjustment: Doc. no. 67 and 68;

Additional compensatory interest assessment no. 2014 … (period 1212), in the amount of €898.99 (eight hundred and ninety-eight euros and ninety-nine cents) and respective statement of account adjustment: Doc. no. 69 and 70;

Year 2013

Additional VAT Assessment no. 2014 … (period 1301) in the amount of €12,867.91 (twelve thousand eight hundred and sixty-seven euros and ninety-one cents) and respective statement of account adjustment: Doc. no. 71;

Additional VAT Assessment no. 2014 … (period 1302) in the amount of €12,826.05 (twelve thousand eight hundred and twenty-six euros and five cents) and respective statement of account adjustment: Doc. no. 72;

Additional VAT Assessment no. 2014 … (period 1303) in the amount of €17,624.33 (seventeen thousand six hundred and twenty-four euros and thirty-three cents) and respective statement of account adjustment: Doc. no. 73;

Additional VAT Assessment no. 2014 … (period 1304) in the amount of €23,946.68 (twenty-three thousand nine hundred and forty-six euros and sixty-eight cents) and respective statement of account adjustment: Doc. no. 74;

Additional VAT Assessment no. 2014 … (period 1305) in the amount of €19,295.06 (nineteen thousand two hundred and ninety-five euros and six cents) and respective statement of account adjustment: Doc. no. 75;

Additional VAT Assessment no. 2014 … (period 1306) in the amount of €16,880.81 (sixteen thousand eight hundred and eighty euros and eighty-one cents) and respective statement of account adjustment: Doc. no. 76;

Additional VAT Assessment no. 2014 … (period 1307) in the amount of €14,661.18 (fourteen thousand six hundred and sixty-one euros and eighteen cents) and respective statement of account adjustment: Doc. no. 77;

Additional VAT Assessment no. 2014 … (period 1308) in the amount of €13,156.21 (thirteen thousand one hundred and fifty-six euros and twenty-one cents) and respective statement of account adjustment: Doc. no. 78;

Additional VAT Assessment no. 2014 … (period 1309) in the amount of €11,026.95 (eleven thousand and twenty-six euros and ninety-five cents) and respective statement of account adjustment: Doc. no. 79;

Additional VAT Assessment no. 2014 … (period 1310) in the amount of €21,992.52 (twenty-one thousand nine hundred and ninety-two euros and fifty-two cents) and respective statement of account adjustment: Doc. no. 80;

Additional VAT Assessment no. 2014 … (period 1311) in the amount of €11,470.40 (eleven thousand four hundred and seventy euros and forty cents) and respective statement of account adjustment: Doc. no. 81;

Additional VAT Assessment no. 2014 … (period 1312) in the amount of €16,153.99 (sixteen thousand one hundred and fifty-three euros and ninety-nine cents) and respective statement of account adjustment: Doc. no. 82;

Additional compensatory interest assessment no. 2014 … (period 1301), in the amount of €843.28 (eight hundred and forty-three euros and twenty-eight cents) and respective statement of account adjustment: Doc. no. 83 and 84;

Additional compensatory interest assessment no. 2014 … (period 1302), in the amount of €798.37 (seven hundred and ninety-eight euros and thirty-seven cents) and respective statement of account adjustment: Doc. no. 85 and 86;

Additional compensatory interest assessment no. 2014 … (period 1303), in the amount of €1,039.03 (one thousand and thirty-nine euros and three cents) and respective statement of account adjustment: Doc. no. 87 and 88;

Additional compensatory interest assessment no. 2014 … (period 1304), in the amount of €1,327.89 (one thousand three hundred and twenty-seven euros and eighty-nine cents) and respective statement of account adjustment: Doc. no. 89 and 90;

Additional compensatory interest assessment no. 2014 … (period 1305), in the amount of €1,008.62 (one thousand and eight euros and sixty-two cents) and respective statement of account adjustment: Doc. no. 91 and 92;

Additional compensatory interest assessment no. 2014 … (period 1306), in the amount of €821.37 (eight hundred and twenty-one euros and thirty-seven cents) and respective statement of account adjustment: Doc. no. 93 and 94;

Additional compensatory interest assessment no. 2014 … (period 1307), in the amount of €666.72 (six hundred and sixty-six euros and seventy-two cents) and respective statement of account adjustment: Doc. no. 95 and 96;

Additional compensatory interest assessment no. 2014 … (period 1308), in the amount of €555.08 (five hundred and fifty-five euros and eight cents) and respective statement of account adjustment: Doc. no. 97 and 98;

Additional compensatory interest assessment no. 2014 … (period 1309), in the amount of €426.57 (four hundred and twenty-six euros and fifty-seven cents) and respective statement of account adjustment: Doc. no. 99 and 100;

Additional compensatory interest assessment no. 2014 … (period 1310), in the amount of €780.88 (seven hundred and eighty euros and eighty-eight cents) and respective statement of account adjustment: Doc. no. 101 and 102;

Additional compensatory interest assessment no. 2014 … (period 1311), in the amount of €368.30 (three hundred and sixty-eight euros and thirty cents) and respective statement of account adjustment: Doc. no. 103 and 104;

Additional compensatory interest assessment no. 2014 … (period 1312), in the amount of €463.80 (four hundred and sixty-three euros and eighty cents) and respective statement of account adjustment: Doc. no. 105 and 106;

Year 2014

Additional VAT Assessment no. 2014 … (period 1401) in the amount of €18,825.63 (eighteen thousand eight hundred and twenty-five euros and sixty-three cents) and respective statement of account adjustment: Doc. no. 107;

Additional VAT Assessment no. 2014 … (period 1402) in the amount of €13,033.79 (thirteen thousand and thirty-three euros and seventy-nine cents) and respective statement of account adjustment: Doc. no. 108;

Additional compensatory interest assessment no. 2014 … (period 1401), in the amount of €482.76 (four hundred and eighty-two euros and seventy-six cents) and respective statement of account adjustment: Doc. no. 109 and 110;

Additional compensatory interest assessment no. 2014 … (period 1402), in the amount of €289.95 (two hundred and eighty-nine euros and ninety-five cents) and respective statement of account adjustment: Doc. no. 111 and 112.

Grounds of the Claim

It grounds its claim, alleging in essence:

a) As appears from the inspection report attached, it was not notified to the claimant the reverse of the sheet where the continuation of the dispatches issued superiorly by the AT appears, as well as their signatures and the capacity in which they were issued.

b) And here under this heading, taking into account the cover sheet of the RFIT, not fully notified as an annex to the official letter, "N/REFERENCE 2014 … of 07.11.201" and the remaining 35 sheets, all numbered and the index of contents of sheet 5/35, it seems clear to us that such document suffers from the following lack or serious irregularity which irreversibly tainted the final result with the defect of nullity, for all legal purposes (Cf. RCPIT, 62º, 6 and CPPT, 36º, 2, 39º, 12, 102º, 3 and 124º, 1):

"Lack of indication of the author of the act and, in case the latter performed it in the exercise of delegation or subdelegation of competences, the capacity in which it decided." Whereby the claimant through its representative found it necessary to consult the file with the Finance Directorate of…, and requested certification of the sheet omitted from the notification. (cfr. Doc. attached hereto and hereby reproduced for all purposes).

c) From the certification issued on 16.03.2015 by the Finance Service of … of the RFIT for the year 2011 to 2014, relating to OI2014…, there is the opinion of the team chief "For Consideration Above" issued and signed on 04 November 2014 by "The Team Chief, D…– IT2" and also the "DISPATCH" issued and signed on 06.11.2014 by "The Deputy Finance Director, By subdelegation, E…– Division Chief in Replacement Capacity".

d) With such request for certification of the omission from the notification carried out, it was found that there is no reference to the legal publication in the Official Journal (DR) of the "subdelegation" invoked. ["The inspection report shall be signed by the official or officials participating in the procedure and shall contain the opinion of the team chief who participates or coordinates, as well as the higher approval of its conclusions." (RCPIT, 62º, 6), and it is certain that, "Notifications shall always contain the decision, its grounds and means of defense and deadline to react against the notified act, as well as the indication of the entity that performed it and if it did so in the exercise of delegation or subdelegation of competences." (CPPT, 36º, 2). (underlined by us)

e) Either such higher approval of the RFIT under analysis does not exist at all or it is clearly illegal, since it is dispatched "by the Deputy Finance Director By subdelegation E…– Division Chief in Replacement Capacity".

f) Thus, The Division Chief, E…, when using, in this case (or in any other), a power received by subdelegation, it will never be sufficient for the legal perfection of its decision, the simple invocation that it does so under a subdelegation of competences. If this is a necessary condition, it is not, however, a sufficient condition. This lies in the concrete indication of the Official Journal in which such subdelegation of competences was published, for general knowledge and, in particular, for the knowledge of the concrete recipient of its act in tax matters.

g) That is: the RFIT does not have the decision of higher approval by the Finance Director of…, as a regional body of the AT, with its own competence for the tax inspection of companies with registered office in the district of Viseu and to sanction it, by decision to be issued in the final version of its reports, pursuant to article 16º, 1 b) of the RCPIT.

h) Ms. Division Chief, E…, as Division Chief in replacement capacity, is not the highest incumbent of the regional body of the AT. This is the Finance Director of … and, therefore, Ms. Division Chief, having signed in the capacity of subdelegated by the "...Deputy Finance Director, By subdelegation, E…– Division Chief in Replacement Capacity", so that her decision was not exhausted in a mere opinion of agreement with the proposal of Ms. Inspector F…, I.T. no. …, (since Ms. Team Chief, not committing herself, merely left the matter for consideration above) would have to record, following her signature, the formal elements of the subdelegation invoked: Date of subdelegation and date of its publication in the Official Journal, with indication of its number and series.

i) Thus, what was notified to SP A…SA, was not an RFIT (here generously qualified as such in this opinion), but only and exclusively a "proposal-opinion" which, as such, did not have to be notified. It would be, if integrated (substantiation by integration, pursuant to the LGT, article 77º, 1,) in the decision of the regional body – Finance Director of…, which is entirely unknown. [See the legal, practical effects, embodied in the IVA account for 2011 to 2014 to pay – 480,244.86€. Pay attention, therefore, to the effects of this inspection procedure in the legal sphere of the inspected company, A…SA, and bear in mind what the applicable law provides and transcribed and cited above, and one cannot draw any other conclusion than that this procedure carries formal irregularities that elementarily taint it with the defect of nullity].

j) The lack of any one of the 5 elements expressly required by the transcribed no. 2 of article 36º of the CPPT does not always taint the result with the defect of nullity. However, it was the legislator's understanding, in the name of the principle of legality and legal certainty, that the lack of indication of the author of the act or of the capacity in which it decided or decides, would cause the defect of nullity of the notification carried out.

k) This diploma (CPPT) is very clear, in no. 12 of article 39º, when it provides that "the act of notification shall be null in case of lack of indication of the author of the act and, in case the latter performed it in the exercise of delegation or subdelegation of competences, the capacity in which it decided, its meaning and its date"

l) This gives a clear measure of the irregularity and illegality thus practiced in this inspection procedure and of the defect, incurable, that is associated with it. That is: even if Ms. Division Chief, in replacement capacity, "E…" were materially using (as she claims, but does not prove...) a competence subdelegated by Ms. Deputy Finance Director, a competence which she in turn would have received by delegation from the entity originally competent – Finance Director of… - even in this hypothesis, we said, (which is admitted here only for the sake of reasoning), she would be openly violating the legal regime applicable in matters of delegation of powers or competences. [Here it is recorded and hereby reproduced such legal regime: See: Article 62º of the LGT; Article 9.º, of Law no. 2/2004, of 15/1; Article 27.º of DL no. 135/99, of 22/4 and Articles 29.º no. 1 and 35.º to 37.º of the CPA].

m) In summary: what was formally notified to A…SA, was not a true RFIT, but only and exclusively, at most, a preparatory act thereof which, if superiorly approved - and it is not proven that it was - would constitute its substantiation. It cannot, therefore, serve as an RFIT, because tainted with the incurable defect of nullity in the precise terms of the applicable law (Cf. CPPT, 39º, 12). If one were to admit the notification of a true and proper RFIT, there would have to exist and be known to the public and particularly to the recipient A…SA, with publication in the Official Journal, perfectly identified, a decision of subdelegation of powers and competences, as to the "ARITHMETIC CORRECTIONS" that occurred in this case (article 39º-12, CPPT – defect of violation of Law).

Without prejudice to:

n) The corrections recommended by the Tax Authority set forth in the substantiating report invoked, with which the claimant cannot agree due to an open violation of Constitutional Law and the Guiding Principles of Tax Law as well as the relations that should guide the relationships between the Tax Authority and the Taxpayer, which should be guided by the Principle of Good Faith and Legal Certainty.

o) The cause of the inspection tax procedure, from which emerge the tax acts of VAT for 2011, 2012, 2013 and 2014 in the amount of 480,244.86€, which took place from 02.06.2014 to 03.10.2014, based on the External Inspection Order no. OI2014…, of 02.06.2014, an inspection action whose objective legal framework (articles 13º and 14º of RCPIT) is/was the following:

REASON: "VAT Reclassification",

SCOPE: "Partial Action", VAT, and

TEMPORAL INCIDENCE: "2011, 2012, 2013, 2014-01; 2014-02".

That is, all in accordance with the content of pages 3/35 of the RFIT (Final Tax Inspection Report).

p) By this objective legal framework, we learned that the Finance Director of…, or someone on his behalf with or without competence, when on 02.06.2014 he issued his formal inspection order to SP A… -OI2014…- had no other reason, ground or motive, than "VAT Reclassification"

q) They concluded thus in the report, page 16/35 as follows:

"Indeed, the s.p., in carrying out operations that consist of the practice of services exempt from tax, classifiable in items 2) and 29) of the VAT Code, is in the right to be able to waive the exemption, pursuant to item b) of no. 1 of article 12º, of no. 4 of the same Statute, combined with the latter with decree-law 21/2007, of 29.01, by referral of no. 6, provided that it meets the requirements provided therein:"1- They may waive the exemption, opting for the application of the tax to their operations: (…) b) Hospital establishments… not belonging to legal entities of public law or Private Institutions integrated into the national health system, which provide medical and health services and operations strictly connected with them;(…)". That is, cases are excepted where Private Institutions are integrated into the national health system." Adding "(...)It happens that, the s.p. did not make any waiver of exemption option in the declaration of changes, delivered on 01-03-2010 or in another subsequent to this. The option would have to be made in field 13 of the declaration of changes, with the s.p. marking field 1 of that field." "if you intend to exercise the right of option, meeting the necessary conditions, indicate the scheme you choose (articles 12º, 55º and 63º of the VAT Code), as well as in field 12 of the same declaration of changes, field 1, with respect to the practice of real estate operations. From this it follows that the s.p. was and remains in the exemption scheme, in the operations of provision of health care in establishment with hospitalization, as well as in the operations/lease of real property, which is its own scheme (...).And continues on page 17/35: "It is concluded thus that, the s.p. did not waive the exemption with respect to the exempt operations of item 2) of article 9º of the VAT Code, nor could it, for lack of the requirements provided in item b) of no.1 of article 12º of the same Statute. It also could not with respect to the exempt operations of item 29) of article 12º, since it did not meet the objective conditions provided in no. 1 of article 2º attached to decree-law 21/2007 of 29.01."

r) Now, the claimant does not agree with any of the situations invoked, since in addition to verifying the requirements for waiving the exemption, the fact is that it was exercised and assumed by the Tax Authority.

s) Indeed, the Claimant carries on its activity fundamentally in the area of "Health establishment with hospitalization" since 21-02-1961 – as per Declaration of Registration for VAT purposes – Annex 1. Where it is found that it was immediately classified in "Transfers of goods and/or provision of services exempt which do not confer right to deduction – as per field 10 field 2. And thus its commercial activity proceeded in the exemption scheme in accordance with no. 2 of article 9º of the VAT Code.

t) Until on 1 March 2010, it presented at the competent Finance Service a "Declaration of Change of Activity" to support the waiver of the exemption provided for in no. 2 of article 9º of the VAT Code and as prescribed in item b) of no. 1 of article 12º of the VAT Code – Annex 1. And from the analysis of the aforementioned "Declaration of Change of Activity" the Finance Service noted that the altered fields were 09 and 11 with field 10 reserved for services. In field 09 the field 6 was filled in – "Intra-community acquisitions ... started to carry out" And in field 11 – VAT – Type of operations, field 2 – "Transfers of goods and/or provision of services exempt which do not confer right to deduction", was left blank. Altering accordingly the field relating to the "TYPE OF OPERATIONS" which in the "Registration Declaration" field 10 in field 2 had been filled in, and when altering – not filling in, it moved to the situation of a taxpayer that does not carry out "Transfers of goods and/or provision of services exempt which do not confer right to deduction"

u) This is the change that is embodied in field 10 – VAT – Type of Operations of the Registration Declaration, filled in and submitted on 26-02-1985 compared to the "Declaration of Change of Activity" filled in and submitted on 01 March 2010 which is now field 11 – VAT – "TYPE OF OPERATIONS"

v) Except that in this one, field 2 was expressly left blank.

x) Thus materialized the change of the TYPE of OPERATIONS that in the context of VAT the taxpayer intended – TO WAIVE the exemption from VAT provided in no. 2 of article 9º of the VAT Code, from 1 March 2010.

z) There is no doubt that the waiver of the exemption scheme provided for in no. 2 of article 9º of the VAT Code was in full acceptance, since in the field "TYPE OF OPERATIONS" - to the question – Exempt which do not confer the right to deduction – it is written – No – Annex 1 of the RFIT.

aa) And for firm conviction of the option for the TYPE of OPERATIONS made by the taxpayer and now claimant, the Finance Service of…, in field 10 of the "Declaration of Change of Activity" EXCLUSIVE USE OF SERVICES – in field 5 to the question – Exclusive exercise of transfers of goods and/or provision of services exempt which do not confer the right to deduction (article 9º) expressly DID NOT FILL IN, unequivocally assuming the waiver of the exemption recommended in the aforementioned article, or in other words – the taxpayer and now claimant ceased to exercise from that date 1 March 2010 the "Exclusive exercise of transfers of goods and/or provision of services exempt which do not confer the right to deduction (article 9º)"

bb) It is referred to in the RFIT, that the taxpayer now claimant should have filled in the fields of fields 12 and 13 of the "Declaration of Change of Activity"

cc) From the reading of the instructions for filling in the aforementioned "Declaration of Change of Activity" only field 13 field 1 is relevant for the option for a taxation scheme and never field 12. Which was indeed not filled in when the aforementioned "Declaration of Change of Activity" was submitted which clearly constitutes an error attributable to the services.

dd) Indeed, when the taxpayer and now claimant on 1 March 2010 went to the competent Finance Service, at the date…, to fill in and submit the "Declaration of Change of Activity", the Finance Service bound as it is by the DUTY of cooperation – article 59º of the LGT - should have provided all necessary assistance in compliance with ancillary obligations – c) of no. 3 of article 59º of the LGT, that is, in the correct completion of the aforementioned "Declaration of Change of Activity".

ee) Following the submission of the aforementioned "Declaration of Change of Activity" the now claimant immediately began the application of the general (normal) scheme for VAT purposes, proceeding to the deduction of VAT on inputs in compliance and liquidating VAT on outputs in accordance with List 1 – Goods and services subject to the reduced rate – item 2.7. Filling in accordingly and in good faith the periodic VAT declarations in accordance with the generic instructions and guidance of the AT. And so firm was the conviction of the waiver of VAT exemption that, in good faith, in the first periodic VAT declaration he submitted after the presentation of the aforementioned "Declaration of Change of Activity" and relating to the first quarter of 2010, he requested a VAT refund in the amount of €307,334.29.

ff) Immediately the AT in accordance with the principle of inquiry and in the discovery of material truth – article 58º of the LGT, initiated by service order, an inspection action on the refund request, having even communicated to the Taxpayer that it found itself in the scheme of waiver of Exemption. (cfr. Doc. attached hereto and hereby reproduced for all legal purposes).

gg) And, without ever questioning, the type of operations nor the option for a taxation scheme, it analyzed all the framing of the Taxpayer and all the attached Documentation. Documents that prove, exhaustively, that the deduction of VAT assessed in those documents, would be acceptable, if and only if, the taxpayer and now claimant was in the situation of waiver of the exemption recommended in no. 2 of article 9º of the VAT Code and in accordance with b) of no.1 of article 12º of the same statute.

hh) It is thus found that the taxpayer was subject to an external inspection, where the refund of VAT for the 1st quarter of 2010 was analyzed, such analysis producing its legal effects. Such effects by the communication made to the taxpayer naturally produced effects in the following years. There is no doubt about its classification for VAT purposes. The external inspection produced its legal and tax effects, and, to maintain the correction recommended by the AT, it openly violates the Principle of Legal Certainty that should guide the relations between taxpayers and the AT. Indeed, if the Authority instead of confirming the waiver of the Exemption had found the non-waiver and consequent no right to the refund of VAT, "today", in 2015, such a severe correction to the years 2011, 2012, 2013 and 2014 would not be under discussion. In fact, analyzing the documents in Annex 4, mentioned in the inspection report, the description refers to acquisitions of medicines at the reduced rate at the time of 5%. The respective deduction having been made, and accepted by the AT. Now the AT could only accept the deduction of VAT in a document from which a refund was being requested, only and exclusively if, before the aforementioned "Declaration of Change of Activity" the taxpayer and now claimant, was classified without margin for doubt in the NORMAL scheme of deduction/liquidation provided for in a) of no.1 of article 20º of the VAT Code

ii) In accordance with the aforementioned article 20º no. 1 a) - which is transcribed "(...) tax that has been incurred on goods or services acquired, imported or used by the taxpayer for the realization of the following operations can only be deducted: a) Transfers of goods and provision of services subject to tax and not exempt from it (...)".

jj) Now the refund request requested and initiated with the Periodic VAT Declaration of the 1st Quarter of 2010, with the consequent analysis of the records made, namely with the documentary analysis of all the documents (exhaustive) that contained deductible VAT, and with the acceptance of all these VAT deductions and which culminated in the approval of the refund request, ends up substantiating a tax act practiced by the AT, defining the tax-legal situation of the taxpayer and now claimant, before the AT as far as VAT is concerned.

kk) That is: the acceptance of the waiver of the exemption of no. 2 of article 9º of the VAT Code which is nothing more or less than what is typed in the Confirmation of Activity Data – Change of Activity – Type of Operations – Exempt which do not confer the right to deduction – NO – annex 1. In this way the facts related relating to the year 2010, will have to produce their effects for the following years. There is no doubt that the additional VAT assessments if maintained suffer from several and decisive defects because they are based on error attributable to the services – AT as regards the improper deduction of VAT.

ll) Taking into account the taxpayer's cadastral data – classification in the normal scheme by option, the express position taken by the AT on the refund request for VAT, in the year 2010, where it expressly accepted and communicated the Waiver of VAT Exemption in which the taxpayer was classified,

mm) These Facts will have to receive due attention and reading, under penalty of the AT itself "VENIRE CONTRA FACTUM PROPRIUM", with legal consequences.

nn) Article 55º of the L.G.T. provides: "The tax administration exercises its attributions in the pursuit of public interest, in accordance with the principles of legality, equality, proportionality, justice, impartiality and speed, in respect of the guarantees of taxpayers and other persons obliged to pay taxes."

oo) Therefore, pursuant to the cited normative, the AT's action to be legal, will have to be in harmony with the principles of equality, proportionality, justice, impartiality and good faith which, having their own content, are still part of the block of legality that such action must respect.

pp) "(...) The Tax Administration should refrain from implementing the legal commands when, in light of the particularities of the case, the reasons of public interest that justify its action are not verified or when a manifestly unjust result is produced, and in any case, should limit itself, in the restriction of individual rights, to what is strictly necessary to ensure the purposes it seeks, not treat the administered persons discriminatorily nor frustrate the expectations that its action in them has generated. The violation of the principle of legality, understood globally with the limitations resulting from the aforementioned principles of equality, proportionality, justice, impartiality and good faith, constitutes a defect of violation of law." Cfr Diogo Leite Campos, Benjamim Rodrigues and Jorge Lopes de Sousa, Annotated LGT, annotation to article 55º).

And they continue in annotation: "The aforementioned principles, although they have a privileged field of application in the field of discretionary power, should also be applied, at least, in all cases in which there is some margin of free appreciation by the administration, as these will also be cases in which the parameters to be considered in administrative action are not fully determined by law. In any case, what is essential for resolving this issue is to bear in mind that in the application of legality, both by the administration and by the courts, each norm that frames a certain administrative action cannot be looked at in isolation, rather it is necessary to consider the totality of the legal system, with primacy for constitutional law".

qq) For all the above, it is easy to conclude, the illegality of the corrections recommended by the Tax Authority, the same not acting in accordance with the Principle of Good Faith and Justice, in attempting to collect a tax which it knows it has no right to nor corresponds to reality. Were it not for the express reference to the temporal incidence 2011, 2012, 2013 and 2014, we could only reasonably admit that such "reclassification" would have effects from now on, ex nunc, for the future, legally possible. Never with effects ex tunc, from then on. From the beginning of the 1st quarter of 2010 and from then on over 5 years. All this, nothing more, seems bizarre to us, in light of the facts that occurred in 2010, especially the change that occurred and the subsequent inspection action, which validated everything, authorizing the actual payment of the refund requested-received and the reiterated DP's (periodic declarations, more than 40), subsequently presented in compliance by SP A….

rr) That is, in more than 40 DP's subsequently delivered every 3 months in 2010 and from then on every month over 5 years, the SP A… made clear in the respective field 20, VAT to deduct, in compliance with the waiver of the exemption carried out on 01.03.2010 and then validated by the same tax inspection.

ss) Indeed, it is not understood as bizarre and unreasonable, the reclassification for the past, because that was a matter dealt with more than 4 years ago, in that long-gone year of 2010, reclassification then confirmed in inspection procedure conducted from 06.07.2010 to 31.08.2010, by the Tax Inspection Services of the Finance Directorate of…, which thus took place, over almost 2 months, by way of the request for VAT refund of €323,025.33, of 2010-03T, presented on 17.05.2010 by SP, A…SA. But that was done and validated by the Tax Authority itself. Therefore, being, as it was, waivable such incomplete exemption and the effective waiver thereof having occurred, then validated by the same tax inspection, it naturally passes to there being place for the deduction of the VAT borne upstream (Cf. 19º and 20º of the VAT Code) and for the liquidation of VAT downstream on the value of transfers of goods and provision of services (Cf. 3º, 4º and 16º of the VAT Code). It is not otherwise conceivable in light of the Constitution of the Portuguese Republic and the Learned Doctrine and Jurisprudence in force in Portugal. Let us first see the excerpts from the preamble text, of great ethical-normative density, of Decree Law no. 398/98, 17/12 which approved and put into force the LGT on 01.01.1999. The legal norms and principles shaping the attitude, behavior and action of the tax administration and, specifically, of tax inspection.

tt) Furthermore and consistently with the NO, the Taxpayer has in its hand the following proof of confirmation of the data of the change carried out on that 01.03.2010, immediately out of the computer system, pursuant to article 35º, 2 of the VAT Code.

As per sheet 5 of annex 02 to the RFIT.

And, consistently and in compliance with the changes carried out on 01.03.2010, SP A…, requested the cited refund, which gave cause to an inspection procedure as a result of which such refund was authorized and paid and, of course, consistently and in compliance with those same changes, since then and over 5 years, more than 40 DP's (periodic declarations) of VAT were filed, delivered every 3 months in 2010 and every month from then on, pursuant to article 41º of the VAT Code, in whose field 20, VAT to deduct was recorded.

uu) For all the above, it is easy to conclude that the amount of €480,244.86€, assessed additionally by the Tax Authority, is not due.

Between the aforementioned dates 06.07.2010 and 31.08.2010, as per the 4 sheets of the certification requested on 23.07.2014 by SP A… and issued on 30.07.2014, by the Inspection Services of the Finance Directorate of…, whose fees were paid by guide no. …, in the amount of €7.88, therefore, over almost 2 months, the following inspection procedure took place:

The dispatch that ordered such "INSPECTION PROCEDURE", is dated 05.07.2010 and took the number DI 2010…, pursuant to the legal norms indicated.

The inspected taxpayer was the Taxpayer now under analysis.

And, as to the objectives, we have the following:

And As to the scope and extent,

For the SP, the respective TOC took notice,

All these excerpts appear in sheet 3/4 of the aforementioned certification.

vv) It is more than evident that this procedure observed a battery of norms of RCPIT and from the start its article 2º, 1 and 2 a), norms pursuant to which "- The tax inspection procedure aims at the observation of tax realities, the verification of compliance with tax obligations and the prevention of tax infractions" and tax inspection comprises "The confirmation of the elements declared by taxpayers and other persons obliged to pay taxes"

Pursuant to article 12º, as to the purposes, the inspection procedure is classified as a verification procedure and "information procedure aimed at compliance with the legal duties of information or opinion of which tax inspection is legally charged." And we see how in this case such procedure had as its purposes the "Consultation, collection and crossing of elements", as appears in the field 4, field 4.1 above transcribed

As to the scope and extent of the inspection procedure in question, the RCPIT, pursuant to article 14º the same may be:

a) General or multipurpose, when it has as its object the global tax situation or set of tax duties of taxpayers or other persons obliged to pay taxes;

b) Partial or univocal, when it covers only some or some taxes or some or some duties of taxpayers or other persons obliged to pay taxes.

2 - A procedure limited to consultation, collection of determined documents or elements and verification of IT systems of taxpayers and other persons obliged to pay taxes, or to the control of goods in circulation is still considered a partial procedure.

3 - As to extent, the procedure may encompass one or more taxation periods. [Note that, in this case, and as per the field 5 above transcribed, the scope of the procedure was the year 2010 and, the extent, the 1st Q of that year].

As to the team of inspectors constituted and allocated for its execution, in strict observance of article 45º of RCPIT, it appears as team chief the Tax Inspector Assessor, with no. …, G… and as IT level 2, with no. …, H…, as per field 6 above transcribed.

xx) This inspection procedure, thus framed and executed, observing its legal regime of RCPIT, had as its immediate cause a request for VAT refund, relating to the period 03T of 2010, as can be seen from the extract below:

And, the opinion of the aforementioned team of inspectors, supported by the references of the refund request in question and, above all, in the "Grounds" for its "TOTAL APPROVAL", appears ipsis verbis from the following transcription:

zz) From the transcribed substantiation, although it may seem redundant, it will be important to underline the following absolutely fundamental aspects:

It clearly validated the change made by SP A…, when it is concluded:

"Now, the taxpayer on 2010-03-01 waived the VAT exemption it was subject to (article 9º no. 2). On that date it proceeded with the regularization of VAT established in article 25º of the VAT Code relating to . . . . amounted to €331,575.05. This amount was entered in field 20 of the DP of period 10-03T and . . . "

And they add: "We verified the calculation and detected that . . . .€15,691.04 more was deducted and we informed the taxpayer in the person of its TOC. The TOC informed the company administration of those inaccuracies, which agreed with them and had him deliver a replacement periodic declaration to clear those corrections." As stated there, the amount of €15,691.04 was additionally assessed and paid in the replacement DP submitted on 27.08.2010 and, as no "other irregularities were detected, proposing its approval in full".

aaa) That is, the principle of cooperation enshrined in article 48º of RCPIT was here scrupulously observed and article 58º of the same regime was complied with.

bbb) Finally, article 62º of RCPIT, provides on the content of the final reports of Tax Inspection, and we say "reports", because the differences in content are made explicit there, depending on whether the purposes are verification or information.

In this latter case, here verified, this norm provides, in its nos. 5 and 6, as follows:

"Other types of reports may be prepared in case of inspection procedures with specific objectives, which, however, shall always include the identity of the inspected entities, the purposes of the acts, the conclusions reached and their substantiation. The inspection report shall be signed by the official or officials participating in the procedure and shall contain the opinion of the team chief who participates or coordinates, as well as the higher approval of its conclusions. "

ccc) We have paid attention, with all this detail, to the legal terms in which this inspection procedure was ordered, executed and evaluated in its final result, which occurred between the dates 06.07.2010 and 31.08.2010, by way of the refund request. Indeed, on sheet 32/35 of the same RFIT, the following appears:

Clearly it is not understood what an "atypical procedure" mentioned means.

In light of the LGT we know that, following the written form, "the tax procedure comprises the entire succession of acts directed at the declaration of tax rights, namely: a) Preparatory actions or complementary information and tax inspection" (Cf. article 54º 1 a) and 4 of the LGT) which, thereafter, finds translation and concrete development in the legal norms of RCPIT, referred to above and which were observed in this inspection procedure.

Atypical procedure!? One reads and cannot believe. And how is it possible that this passed through the "sieve" of the evaluation of its superiors, responsible for IT in the Finance Directorate of…, with the irregularities already seen?

And the same RFIT concludes:

One more time one reads and cannot believe. "without investigative character". But is not investigative character reserved for acts of fiscal criminal investigation? Never the normal inspection actions, whether dictated by way of refund requests, whether dictated by the sole reason of VAT reclassification!

Will there not be here ostensive bad faith and sacrifice of elementary guarantees of the administered and, specifically, of the situation under analysis of the now claimant.

ddd) Here and from 01.03.2010, date of delivery on paper of the Declaration of Change, in which the Taxpayer waived the VAT exemption, in the terms in which it did, waiver absolutely validated in the context of inspection here scrutinized; from then (01.03.2010), consistently and in compliance all its more than 40 DP's (periodic declarations), in field 20 include (and correctly) VAT to deduct, pursuant to article 20º of the VAT Code, in view of the waiver of the exemption carried out and validated by the tax inspection of….

eee) It is our understanding, for the reasons given, that the amount of VAT – €480,244.86€, is not due, because of the alleged "Improper Deduction", broken down into 38 amounts imputed directly to each of the 36 months of the 4 years in correction.

The formalism omitted, by oversight of the taxpayer, is limited to the completion of a box in field 1 of field 13 of the activity change declaration form (i.e. did not mark with an "X" that option);

The A… adopted an unequivocal declarative behavior of compliance with the option for taxation - behaving as a full taxpayer - in the completion of its periodic VAT declarations from the submission of the aforementioned declaration of changes, consequently, of the content of the declarative obligation it had performed defectively, since it assessed VAT on all its active operations and doing so had it appear in its invoices.

That the A…, in the context of its activity, acted materially in accordance with such behavior with respect to the obligation to assess VAT on all its active operations on a continuous basis, having effectively assessed, apportioned the tax and proceeded with its respective payment to the State coffers.

The aforementioned option by A…, enshrined in the Sixth Directive, namely in its article 28.º no. 3, item c) as to the exemption of certain operations of general interest, as transposed into article 12.º of the VAT Code cannot be restricted or subordinated to a declarative formalism to such extent that it ignores the remaining facts that unequivocally attest to such option, its actual behavior - as a full taxpayer - especially reflected in the assessment and deduction of VAT over several years, without the Fisc having corrected that situation (from 2010 to 2014).

Reason by which its right to deduction cannot be called into question exclusively by the deficient formalism declarative of such option, which implies the annulment of the VAT assessments in dispute in this appeal, for violation of the norms and principles that enshrine the right to deduction of VAT

fff) In the circumstances of the present proceedings, substance should prevail over form, and the right to deduction of VAT borne for the realization of actually taxed operations cannot be called into question exclusively by deficient declarative formalism of the option for taxation, contrary to the logic of operation of the tax and to the norms and structuring principles of the common VAT system.

ggg) Having been demonstrated the request for waiver of exemption on the part of A… through the declaration of changes, it is now important to address the issue raised by the AT regarding the impossibility of such waiver on the part of the SP for not meeting the requirements provided in item b) of no.1 of art. 12.º of the VAT Code.

hhh) The AT states in its inspection report (DOC. attached), point III-1.3.2. (page 17/35):

"It is concluded thus that, the s.p. did not waive the exemption with respect to the exempt operations of item 2) of article 9.º of the VAT Code, nor could it, for lack of the requirements provided in item b) of no. 1 of article 12.º of the same Statute." (underlined by us).

Now, item b) of no. 1 of art. 12.º of the VAT Code explicitly states that they may waive the exemption, opting for the application of the tax to their operations: "(...) b) Hospital establishments, clinics, dispensaries and similar establishments, not belonging to legal entities of public law or private institutions integrated into the national health system, which provide medical and health services and operations strictly connected with them;"

Although the AT does not explicitly specify in what way, in its opinion, A… does not meet the requirements to waive the exemption, it is our duty to analyze the aforementioned norm in order to restore objectivity and truthfulness in the analysis of the concrete case.

iii) Now, as is easily seen, is A… a private institution, could it be considered as integrated into the national health system? It does not seem so to us. Otherwise we will see by analyzing article 132.º, no.1, item b) of Directive 2006/112/CE, relating to the common system of value added tax ("Directive") and articles 9.º, no.1 and 2 and 12.º, no. 1, item b) of the VAT Code.

jjj) The limitations of the waiver of exemption provided for in art. 12.º, no.1, item b) of the VAT Code are aimed at preventing organisms that fall within the situations provided for in art. 132.º, no.1, b) of the Directive, that is, organisms of public law or organisms that operate under similar social conditions from waiving the exemption, since such waiver is not permitted by the Directive, which is not the case of A….

From this it is drawn that the Portuguese legislator assimilated the concept of "similar social conditions" to the concept of "private institutions integrated in the National Health System".

kkk) The CJEU has required that in order to be a reliable indication of assimilation to the public sector (similar conditions), the costs of the provision of services are borne in large part by the public sector (through disease insurance funds or other social security organisms).

lll) Now, the global turnover of the company now claimant was:

Turnover:

2011…………………€2,247,250

2012…………………€2,469,952

2013…………………€2,408,866

2014…………………€3,138,384

mmm) The percentage of operations carried out by the Claimant under the agreements, in the years 2011 to 2014, in the global account of its operations are those set out in the following table:

Year 2011

I…………………………€32,278

J……………………………€42,317

K…………………………€42,016

L…………………………€1,321

M……………………………€1,630

N……………………………€146

TOTAL: €119,708

Weight in the company's turnover is as follows:

5.32% on the V/Turnover

Year 2012

I…………………………€22,591

J……………………………€52,277

K…………………………€41,746

O……………………………€3,080

L…………………………€188

M……………………………€31,954

TOTAL: €152,618

Weight in the company's turnover is as follows:

6.17% on the V/Turnover

Year 2013

I…………………………€20,678

J……………………………€51,969

K…………………………€32,543

O……………………………€28,412

L…………………………€207

P……………………………€75

M……………………………€31,699

TOTAL: €165,583

Weight in the company's turnover is as follows:

6.87% on the V/Turnover

Year 2014

I…………………………€21,398

J……………………………€39,244

K…………………………€19,156

O……………………………€36,182

P……………………………€75

TOTAL: €116,055

Weight in the company's turnover is as follows:

3.69% on the V/Turnover

(cfr. Doc attached hereto and hereby reproduced for all legal purposes)

nnn) Taking into account that the percentage of operations carried out by the Claimant under the aforementioned agreements never exceeded 7% in the years 2011, 2012, 2013 and 2014, we can conclude that the costs of the provision of services of A… are only in small part assumed by Social Security organisms.

ooo) A… cannot, in these circumstances be considered as operating under social conditions analogous to those of public hospital establishments. And, consequently, cannot be qualified as a private institution integrated into the national health system, and cannot be denied its right to waive the exemption from VAT.

ppp) Concluding: Given what has been set out, and making use of the terminology of the VAT Directive, for purposes of this article 12.º, no. 1, item b) of the VAT Code, only may be considered as "private institutions not integrated into the national health system" with right to waiver, private hospital establishments that do not pursue their activity under social conditions analogous to those that apply to public hospital establishments. Which is equivalent to saying that the Claimant is covered by the option for the waiver of exemption here in question since it does not pursue its activity under social conditions analogous to the mentioned public establishments.

qqq) This refutes the arguments of the AT in its Tax Inspection Report, namely in its point III-1.3.2.2-Illegally assessed VAT, regarding the incorrect classification of A…'s operations, for having applied "to those operations, the reduced rate provided for in item a) of no.1 of article 18.º of the VAT Code, which refers to List I, attached to the aforementioned code, and by exclusion, in the item 2.7 of that List I attached."

rrr) The exercise of the right to deduction by the claimant is not, therefore, subject to any censure, nor does it emanate from any illegal or abusive practice but rather from a legitimate and protected exercise, either by the internal legal order, or by the community legal order.

Attached 140 documents.

Acceptance of the Petition and Constitution of the Arbitral Tribunal

The petition for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the AT.

Pursuant to the provision of item a) of no. 2 of article 6.º and of item b) of no. 1 of article 11.º of the RJAT, as amended by article 228.º of Law no. 66-B/2012, of 31 December, the Deontological Council designated the arbitrators of the Collective Arbitral Tribunal, who communicated acceptance of the appointment within the applicable timeframe, and notified the parties of such appointment on 2 July 2015.

The Collective Arbitral Tribunal was constituted on 20 July 2015.

Response of the Tax and Customs Authority (AT)

Following the notification in accordance with article 17º of the RJAT, the AT timely submitted its response.

It alleged in summary:

a) The Claimant has been engaging in, in addition to the activity classified under item 2) of article 9.º of the VAT Code, on a secondary basis, real estate operations, namely, the lease of real property, an activity exempt pursuant to item 29) of article 9.º of the VAT Code and, as well, activity subject and not exempt from provision of services classified in no. 1 of article 4.º of the VAT Code (namely, use of spaces by various entities and also by goods and services of A…).

b) In order to provide coverage to a greater number of patients, the Claimant established agreements/conventions with public subsystems, integrated into the National Health System [SNS]. Specifically, with the following:

(i) General Directorate of Social Protection of I…

(ii) Social Services of Q…;

(iii) Assistance in Illness Services of J…

(iv) Assistance in Illness Services of K….

c) On 26-02-1985, before Decree-Law no. 393-B/84 of 26 December, which approved the VAT Code and whose entry into force occurred on 01-01-1986, the Claimant presented a registration declaration where it declared exercising the main activity of health establishments with hospitalization, not typifying the remaining activities exercised, albeit on a secondary basis (cfr. registration declaration appearing in annex 1 to the RIT attached with the administrative file).

d) Regarding the type of operations practiced, it indicated in field 10 of the aforementioned declaration, that it would practice, in the exercise of its activity:

i. Transfers of goods and/or provision of services that confer the right to deduction (field 1 of field 10);

ii. Transfers of goods and/or provision of services exempt which do not confer the right to deduction (field 2 of field 10).

d) Configuring itself as a mixed taxpayer, the Claimant further indicated, in the aforementioned field 10, that it would not effect the deduction of tax according to actual allocation but, rather, that it would effect the deduction of the tax borne according to the pro rata deduction method, as provided for in no. 4 of article 23.º of the VAT Code.

e) In the aforementioned declaration, the Claimant did not fill in field 11 relating to "option for taxation schemes", where is marked, in particular, the option for the schemes of waiver of exemption provided for in article 12.º of the VAT Code.

f) On 01-03-2010, the Claimant proceeded with the submission of a declaration of change of activity, as provided for in article 32.º of the VAT Code, altering only fields 9 and 11 of the aforementioned declaration, which respect data relating to activity and data relating to type of operations (cfr. declaration of change of activity appearing in annex 2 to the RIT attached with the administrative file).

g) Specifically:

i. In field 09 it declared that, in the exercise of its activity, it started to carry out intra-community acquisitions of goods, marking, for that purpose, field 6.

ii. In field 11 it declared that, in the exercise of its activity, it started to effect the deduction of the tax borne according to the method of actual allocation, marking, for that purpose, fields 3 and 5.

h) In the declaration of change of activity, the Claimant did not mark any field of field 12 or 13, which are related to schemes of waiver of exemption, although referring to distinct operations.

i) Being that, and for what matters now, the Claimant did not mark in field 13 "if you intend to exercise the right of option, meeting for that the necessary conditions, indicate the scheme you choose (arts. 12.º, 55.º and 63.º of the VAT Code)", as expressly provided in the first item of the aforementioned field – field 12 is intended, exclusively, for the waiver relating to "the practice of real estate operations".

j) The heading of field 13 is as follows: "OPTION FOR TAXATION SCHEME (if you do not intend to exercise any option, proceed to the next field)".

k) In field 30, which corresponds to the heading "THIS DECLARATION CORRESPONDS TO THE TRUTH AND DOES NOT OMIT ANY INFORMATION REQUESTED", there are the signatures of the taxpayer or legal representative as well as of the certified public accountant.

l) In the context of the tax inspection procedure conducted by the Finance Directorate of…, under the Service Order no. OI2014…, to the years 2011, 2012, 2013 and 2014, whose report is attached as an administrative file and to which reference is made, giving its tenor as integrally reproduced, it was found that the Claimant:

i. Assessed tax, at the reduced rate, with respect to the operations provided for in item 2) of article 9.º of the VAT Code, that is, with respect to the medical services provided by the Claimant, as a hospital establishment with hospitalization;

ii. With respect to the real estate operations provided for in the aforementioned normative, it did not proceed with the assessment of tax (cfr. sheets 15 and 16 of the RIT).

m) On the other hand, it was found that the Claimant proceeded with the deduction of tax on the totality of goods and services acquired, including those related to the practice of exempt operations referred to above (cfr. sheet 16 of the RIT).

n) It was thus verified, in the inspection context, that, although the Claimant had declared, on 01-03-2010, the intention to deduct tax according to the method of actual allocation, in practice, it did not.

o) Being that the Claimant did not allow the Tax Administration to use such method since it did not present accounting or non-accounting elements [namely cost centers] capable of providing the correct identification and control of deductions relating to each of the activities (cfr. sheet 18 of the RIT).

p) Terms in which, in light of the factuality found, the Tax Inspection Services concluded that (cfr. sheets 16 and 17 of the RIT):

"[…] Item a) of no.1 of article 20.º of the VAT Code establishes that, only tax that has incurred on goods or services acquired by the s.p. for the realization of transfers of goods and provision of services subject to tax and not exempt from it can be deducted.

Now, the downstream operations in question, are exempt operations pursuant to items 2) and 29), both of article 9.º of the VAT Code. This exemption from tax, is considered simple or incomplete, since, the economic operator, is not obliged to assess tax in the transfers of goods or provision of services that it carries out, but, cannot, on the other hand, deduct the tax borne in the acquisitions.

Indeed, the s.p, in carrying out operations that consist of the practice of services exempt from tax, classifiable in items 2) and 29) of article 9.º of the VAT Code, is in the right to be able to waive the exemption, pursuant to item b) of no. 1 of article 12.º, in no. 4 of the same Statute, combined with the latter with decree-law 21/2007, of 29.01, by referral of no. 6, provided that it meets the requirements provided therein:

"1 - They may waive the exemption, opting for the application of the tax to their operations: […] b) Hospital establishments… not belonging to legal entities of public law or private institutions integrated into the national health system, which provide medical and health services and operations strictly connected with them […]" Or they are excepted cases in which private institutions are integrated into the National Health System."

"4-Taxpayers who lease urban real property or autonomous fractions thereof to other taxpayers, who use them, totally or predominantly, in activities that confer the right to deduction, may waive the exemption provided for in no. 29 of article 9.º".

Article 12.º of the VAT Code further establishes, in its no. 2 that, the right of option is exercised by means of the delivery at any finance service or other legally authorized location of a declaration of changes, producing effects from the date of its presentation.

And no. 3 of the same article tells us that, once such option is made, the s.p must remain in such scheme for five years.

It happens, however, that the s.p, did not make any waiver of exemption option in the declaration of changes, delivered on 01-03-2010 or in another subsequent to this. The option would have to be made in field 13 of the declaration of changes, with the s.p marking field 1 of that field "If you intend to exercise the right of option, meeting the necessary conditions, indicate the scheme you choose [articles 12.º, 55.º and 63.º of the VAT Code], as well as in field 12 of the same declaration of changes, field 1, regarding the practice of real estate operations.

From this it follows that the s.p was and remains in the exemption scheme, in the operations of provision of health care in establishments with hospitalization, as well as in the real estate operations/lease of real property, which is its own scheme.

In fact, the waiver of exemption, made possible, both by no. 1 and by no. 4, both of article 12.º, must be express, in a declaration provided for in article 32.º of the VAT Code, through the completion of fields 12 and 13 of the declaration of changes, which have the headings "PRACTICE OF REAL ESTATE OPERATIONS" and "OPTION FOR TAXATION SCHEME", respectively, since it is a derogation from exemption and has an exceptional character. In no circumstance, the waiver of exemption is susceptible of being presumed.

It is concluded thus that, the s.p did not waive the exemption with respect to the exempt operations of item 2) of article 9.º of the VAT Code, nor could it, for lack of the requirements provided in item b) of no. 1 of article 12.º, since it did not meet the objective conditions provided in no. 1 of article 2.º attached to decree-law 21/2007, of 29.01 […]".

q) In this context, and as to goods and services related to the practice of exempt operations of item 2) of article 9.º of the VAT Code, the Tax Inspection found that tax was improper ly deducted, in the global amounts of €60,379.30, €56,930.74, €65,711.67 and €18,490.14, respectively, for each of the annual periods of 2011, 2012, 2013, and January and February of 2014 (cfr. sheet 18 of the RIT).

r) Furthermore, corrections were also proposed arising from the fact that the IT Services found that, "regarding goods and/or services of mixed use, and in light of the insufficiencies of accounting and non-accounting elements, it is not feasible to apply the provisions of no. 2 of article 23.º of the VAT Code, that is, it is not possible to perform the actual allocation of goods and services used based on objective criteria that allow determining the degree of use of such goods or services in these and in other operations" (cfr. sheet 21 of the RIT).

s) Terms in which, considering that the deduction of tax should have been made not in totality but rather in the percentages of 8%, 4%, 6% and 4%, in each period of taxation of 2011, 2012, 2013 and 2014, corrections were considered to be due in the amount of €55,141.83, €93,820.36, €129,389.53 and €13,615.50 (cfr. sheets 22 and 23 of the RIT).

t) Thus, in the end, and once the regularizations that the Claimant made in favor of the State were considered, arithmetic corrections were proposed in the total amount of €489,253.90 for the years 2011, 2012, 2013 and 2014, corresponding:

i. €480,244.86 to the improper deduction of tax, in the terms referred to supra; and

ii. €9,009.04, to the failure to assess VAT, in the context of the debit of electricity expenses, given the obligation to apply the rate of 23% and not 6%, as better described in sheets 10 to 13 of the RIT.

u) Consequently, the Claimant exercised its right of hearing, which was, however, incapable of altering the proposed corrections, in accordance with the substantiation set forth in sheets 28 to 34 of the RIT, whereby the proposed corrections became final.

BY EXCEPTION

v) The Claimant, among others, comes to challenge the additional VAT assessments relating to 2011 in a total amount of €119,236.44 as well as the respective additional compensatory interest assessments.

x) However, it happens that, with respect to the year 2011, the inspection procedure resulted in, in addition to the corrections for improper deduction now under discussion, corrections in the amount of €9,009.04, relating to failure to assess VAT in the period 2011-10 (cfr. sheets 4 and 10 to 13 of the RIT).

z) Indeed, in the inspection context "it was further found that the s.p applied the reduced rate of 6% to the taxable amount of €52,994.35, which corresponds to the debit of expenses to its client R…, on 31-10-2011, incurred with electricity in prior periods. Electricity being subject from 01-10-2011, to the normal VAT rate of 23% and since the s.p improperly applied the reduced rate of 6%, in force at the date of the operation, there is failure to assess VAT, in the amount of €9,009.04 in light of the provisions of article 18.º of the VAT Code" (cfr. sheet 4 of the RIT).

aa) Thus, the additional VAT assessment no. …, in the amount of €18,169.02 and the compensatory interest assessment no. …, in the amount of €2,096.66, both relating to October 2011 (period 2011-10), respect, partially, the correction with the grounds stated above in the prior article.

bb) That is, in the present instance the corrections that are partially in the origin of the assessments supra identified are not rebutted.

cc) Consequently, the learned Tribunal cannot assess the legality of the assessments in the portion proportional to the correction in question since no argument was presented tending to impute any defect to it.

dd) Therefore, in this part, it is not given compliance with the provision of article 552.º, no. 1, item d) of CPC, a normative from which it follows that, in the petition with which the action is brought, the plaintiff must set out the essential facts that constitute the cause of action and the reasons of law that serve as the foundation for the action.

ee) There is thus an absolute lack of indication of the cause of action and of indication of the reasons of law that support the claim filed.

ff) Such unintelligibility has as a consequence the partial ineptitude of the initial petition, which, in turn, determines the nullity of the proceedings in that part, pursuant to article 186., no. 1 of CPC.

gg) Thus, verifying, an incurable dilatory exception, in this segment of the claim, the Respondent should be absolved of the instance as follows from articles 576.º, no. 2 and 577.º, item b) of CPC, ex vi article 29.º, no. 1, item e) of RJAT.

ON THE LAW

hh) According to the Claimant:

• there is the omission of the reference to the legal basis under which the subdelegation of competences was made pursuant to which the inspection tax report was superiorly approved by dispatch of the Division Chief E…– which would substantiate an incurable defect of nullity, pursuant to article 39.º, no. 12, of CPPT;

• it validly exercised the option for waiver of exemption, pursuant to article 12.º, no. 1, item b) of the VAT Code by means of the declaration of change of activity delivered at the competent Finance Service on 1 March 2010;

• The classification in the scheme of waiver of exemption was accepted by the AT in 2010, to the extent that a refund request made by the Claimant relating to the 1st quarter of 2010 was approved, terms in which there is violation of the principle of trust, certainty and justice and

• It meets the substantive requirements necessary to validly exercise the right of waiver pursuant to article 12.º, no. 1, item b), of the VAT Code, namely, by not configuring a private institution integrated into the national health system.

ii) The Claimant has no reason in its favor, so its arguments are manifestly unfounded.

A) On the legality of the dispatch that superiorly approves the conclusions set forth in the inspection tax report

jj) Contrary to what the Claimant suggests, there is no problem of omission of notification of the reverse of the sheet where the dispatches that approve the inspection report appear since, as the Claimant itself refers in its petition for arbitral ruling, having detected such a lack, it went to the Finance Service and obtained certification of the sheet omitted from the notification.

Terms in which, even if there existed a defect arising from such omission, which is not conceived and is only admitted with caution and by duty of representation, it would have to be concluded, in light of the facts, that it would have been cured.

kk) Indeed, article 37.º, no. 1 of CPPT provides that "If the communication of the decision in tax matters does not contain the substantiation legally required, the indication of the means of reaction against the notified act or other requirements required by tax laws, the interested party may, within 30 days or within the period for claim, appeal or challenge or other legal remedy that is possible from this decision, if shorter, request the notification of the requirements that have been omitted or the passage of certification that contains them, free of any payment" (highlights ours).

ll) From article 39.º, no. 12 of CPPT it states that "The act of notification shall be null in case of lack of indication of the author of the act and, in case the latter performed it in the exercise of delegation or subdelegation of competences, the capacity in which it decided, its meaning and its date".

mm) Thus, the norm only provides that, in matters of the perfection of notifications, it is penalized with nullity the situation of lack of indication of the author of the act and, in case the latter performed it in the exercise of delegation or subdelegation of competences, the capacity in which it decided, its meaning and its date.

nn) Now, in the case at hand, such requirements are fully met, namely, indication of the author of the act, practice thereof in the exercise of subdelegation of competences, meaning and date.

oo) Terms in which, contrary to what the Claimant alleges, there is no legal obligation to indicate the date of the subdelegation and the date of publication in the Official Journal, with indication of its series number (cfr. article 17.º of the petition for arbitral ruling), and much less is there a penalty for such omission with the defect of nullity.

pp) On this point, Jorge Lopes de Sousa states that "It is a requirement of the act the mention of delegation or subdelegation of powers and not also the indication of the Official Journal in which the dispatch of delegation or subdelegation was published"[1].

qq) In this same sense, let there be cited the conclusions set forth in the Award of the Central Administrative Court South of 30/04/2014 (case: 06580/13):

"I. The provision of the mandatory mentions that must always appear in the act, is enshrined in article 123º, no.1 of the CPA. In concrete, item a) of such norm refers to the indication of the authority that performed it and the mention of delegation or subdelegation of powers, when it exists. This is a mandatory mention that is in harmony with the provision of article 38º of the same statute, pursuant to which the delegated or subdelegated body must mention this quality in the exercise of delegation or subdelegation.

II. Thus, it is a requirement of the act the mention of delegation or subdelegation of powers and not also the indication of the Official Journal in which the dispatch of delegation or subdelegation was published" (highlights ours).

rr) Being certain that, if the mention to the normative statute that makes concrete the subdelegation of competences were mandatory, which it is not, the insufficiency of the notification, even so, would not lead to the nullity of the act, only granting to the notified party the right to request the notification of the omitted elements or the passage of certification that contains them, within the period fixed in no. 1 of the cited article 37.º of CPPT, and, using such faculty, the period to react (graciously or contentiously) against the tax act is counted from the notification of the requirements that had been omitted or from the passage of certification that contains them.

ss) Terms in which, as constitutes consolidated jurisprudence of the Supreme Administrative Court, "Not being exercised the faculty provided for in art. 37º no. 1 of CPPT, the aforementioned omission is irrelevant for avoiding the normal effects of the notification already made" (in this sense, among many others, cfr. Award of STA of 07/08/2015, Case 0389/15).

tt) Finally, note finally that, even if the author of the act had not mentioned, at all, that it acted within the scope of subdelegation of competences (which, as we have seen, did not occur), the fact is that, even in such circumstance, the doctrine and jurisprudence of the home country have understood that such omission constitutes only a mere formal irregularity that should be considered cured if it is demonstrated that the purpose that was intended by the legal requirement of such mention was achieved, especially, the administrative or contentious challenge of the act.

uu) After all, as is well known, the legal requirement of certain requirements in the notifications made by the Tax Administration has as its primary objective the safeguarding of the rights of defense of the taxpayer. In this sense, for clarity, there is transcribed an excerpt from the summary of the Award of the Central Administrative Court North of 01/12/2012 (case: 01138/

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