Process: 293/2015-T

Date: November 16, 2015

Tax Type: IVA

Source: Original CAAD Decision

Summary

Process 293/2015-T addressed the controversial application of VAT rates to dental prosthesis components sold separately in Portugal. The claimant, a company commercializing dental implants and accessories, applied the reduced VAT rate of 6% under item 2.6 of List I annexed to the CIVA (Portuguese VAT Code) to implants and abutments. Following an external inspection covering 2010-2013, the Portuguese Tax Authority (AT) assessed additional VAT of €170,281.73 plus compensatory interest, arguing that only complete prosthetic units qualify for the reduced rate, while individual components should be taxed at the standard 23% rate. The company challenged this through CAAD arbitration, arguing that dental prosthetics inherently consist of three inseparable elements—implant, abutment, and crown—each constituting 'prosthetic material' under the legal definition. The claimant emphasized that these components exclusively serve implantological purposes, cannot function independently, and must be customized to each patient's morphological characteristics, making separate transmission technically necessary rather than optional. The core legal dispute centered on interpreting whether item 2.6's reference to 'artifacts and other prosthetic material' encompasses individual prosthesis components or requires transmission as a single complete unit. The claimant invoked the VAT neutrality principle, arguing that differential treatment between traditional dental prostheses (bridges, dentures) and modern implant-based prostheses creates competitive distortions without legal justification. The arbitral tribunal, constituted on July 22, 2015, with arbitrators Maria Fernanda dos Santos Maçãs, Ricardo Jorge Rodrigues Pereira, and Emanuel Augusto Vidal Lima, examined whether the literal and teleological interpretation of the law supports extending the reduced rate to prosthesis components sold separately. This case established important precedent regarding the taxation boundaries of medical and prosthetic materials under Portuguese VAT law.

Full Decision

ARBITRAL AWARD

The arbitrators Maria Fernanda dos Santos Maçãs (chair arbitrator), Ricardo Jorge Rodrigues Pereira and Emanuel Augusto Vidal Lima, appointed by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, hereby agree as follows:

I. REPORT

  1. On May 5, 2015, A... Unipessoal, Lda., Tax Identification Number ..., with registered office at ... Street, no. ..., ... floor, ... Porto (hereinafter, the Claimant), filed a request for the constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of January 20, which approved the Legal Regime of Arbitration in Tax Matters, as amended by article 228 of Law no. 66-B/2012, of December 31 (hereinafter, abbreviated as LRTM), seeking the declaration of illegality of VAT assessments relating to the years 2010, 2011, 2012 and 2013, and compensatory interest, as well as the recognition of the right to payment of indemnity interest.

The Respondent in the proceedings is AT – Tax and Customs Authority (hereinafter, the Respondent or AT).

1.1. The request for constitution of the arbitral tribunal was accepted and automatically notified to the AT on May 7, 2015.

1.2. The Claimant did not proceed with the appointment of an arbitrator; therefore, pursuant to subparagraph a) of paragraph 2 of article 6 and subparagraph b) of paragraph 1 of article 11 of the LRTM, the President of the Deontological Council of CAAC appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the appointment within the applicable timeframe.

1.3. On July 7, 2015, the parties were duly notified of such appointment and did not manifest any intention to refuse the appointment of the arbitrators, pursuant to the combined terms of article 11, paragraph 1, subparagraphs a) and b) of the LRTM and articles 6 and 7 of the Deontological Code of CAAC.

1.4. Thus, and in accordance with the provision in subparagraph c) of paragraph 1 of article 11 of the LRTM, the collective Arbitral Tribunal was constituted on July 22, 2015.

  1. In the initial application filed by it, the Taxpayer alleges, in essence, the following:

2.1. The Claimant's business is the commercialization of orthopedic material, prostheses and surgical-medical instruments, with particular emphasis on dental implants and accessory material, conducting sales to the domestic market to dental physicians and dental prosthesis technicians (or clinics) working in implantology;

2.2. On implants and abutments sold, intended for dental prosthetics, the Claimant applies the reduced VAT rate, pursuant to item 2.6 of List I attached to the VAT Code, since, as dental prosthetics replacing a tooth consists of three elements – implant, abutment and crown – implants and abutments are not only artifacts but are naturally considered prosthetic material – incapable of any other use than that of dental implantology – and thus material used in the creation of an artificial piece that replaces a part of the human body, specifically an artificial tooth intended to restore the chewing function and esthetics of missing or fractured teeth;

2.3. Considering the literal wording of the law – "artifacts and other prosthetic material" – it should be concluded that abutments and implants are included within the objective scope of the taxable event norm contained in item 2.6 of List I attached to the VAT Code;

2.4. The Claimant was subject to an external inspection action carried out by the AT relating to the years 2010 to 2013, as a result of which official corrections were made in VAT, based on the alleged error of the Claimant in applying the reduced VAT rate (6%) to components of dental prostheses which the AT considers to be subject to the standard VAT rate (23%);

2.5. As a consequence, the AT made various assessments of VAT and compensatory interest, the sum totals of their respective unit values amounting, respectively, to the total amount of €170,281.73 and €13,074.72, totaling the global amount to be paid of €183,356.45. The Claimant opted to make payment of the totality of the tax and compensatory interest assessed;

2.6. The understanding (of the AT) according to which the Claimant should have applied the maximum VAT rate to that type of material suffers from manifest error in the interpretation of the facts and, furthermore, of the applicable legal provisions, whereby the VAT assessments and compensatory interest in question are manifestly illegal;

2.7. The AT proceeds from the legal text to seek in it a meaning that is not achieved, neither in its letter nor in its spirit, thus violating not only the cited norm but also the principle of VAT neutrality, since it is privileging prostheses substituting a tooth with a single piece ("bridges" and "dentures" or "dental plates") to the detriment of prostheses consisting of implant, abutment and crown;

2.8. The position defended by the AT, to the effect that only single implant units would be included in the objective scope of item 2.6 of List I attached to the VAT Code, has no support whatsoever in the letter of the law, for if the legislator used the expressions "artifacts" and "prosthetic material," never alluding to "single units," the AT cannot derive from the letter of the law such restriction, and if that had been the legislator's intention, it would have unequivocally expressed it in that legal provision;

2.9. It is technically impossible to proceed with the transmission of a single implant unit, since the placement of an artificial tooth must be adjusted to the morphological characteristics of each patient (that is, the implant and abutment must be selected in accordance with the concrete characteristics that each individual presents), whereby the AT's idea that it is possible to proceed with the transmission of a single implant unit is not, in practice, capable of realization;

2.10. There is no basis that legitimizes differentiated treatment of "classical" dental prostheses in relation to current implant prostheses, and such differentiated treatment violates the principle of neutrality, underlying VAT taxation, insofar as it promotes a distorting effect on competition;

2.11. Due, in consequence, is the "declaration of illegality of the assessments in question, due to violation of law," as well as the recognition of the right to "indemnity interest counted from the date of payment of the tax, pursuant to articles 43 and 100 of the LGT and, likewise, 61 of the TCTP";

2.12. The Claimant submitted 10 (ten) documents, including an opinion authored by Professor B..., called one witness and requested the benefit in these proceedings of the expert appraisal conducted in case no. 530/2014-T of CAAC.

  1. On September 29, 2015, the Respondent, duly notified for such purpose, filed its Answer, in which it specifically contests the arguments presented by the Claimant and concludes by seeking dismissal of the present action, with its consequent absolution from the claims.

The Respondent did not submit any documents, did not call any witnesses, nor requested the production of any other means of proof. It did, however, submit its administrative file (hereinafter, abbreviated as AF).

The AT bases its defence, essentially, on the following arguments:

3.1. Prosthetic materials are only taxed at the reduced VAT rate if they are intended for the purpose defined in item 2.6 of List I attached to the VAT Code, that is, the replacement of a part of the body with deficiency or illness or its function. This interpretation has the consequence that goods consisting of parts, components and accessories of those prostheses are not covered by the said item 2.6, since, in addition to not being a prosthesis, they are not apt to fulfill, considered individually, the function of replacing a part of the body or its function;

3.2. The said item 2.6 only covers the transmission of the article that, in itself, constitutes an artificial piece that replaces an organ of the human body or part thereof, that is, "autonomously or unitarily." Therefore, in dental prosthetics by implant, the standard VAT rate applies to the transmission of linking or fixing pieces, since these do not themselves, objectively, fulfill the function described in the said item 2.6;

3.3. Bearing in mind that situations of taxation at the reduced rate constitute exceptions to the application of the standard VAT rate and therefore represent a deviation from the application of the general regime of the tax, the CJEU has oriented itself, in this matter, by the application of the principle of strict interpretation;

3.4. Starting from the literal element of the norm, it is verified that it is not sufficient to be dealing with "devices, artifacts and other prosthetic or compensatory material," being necessary that these goods be apt to replace, in whole or in part, any member or organ of the human body. To that extent, a distinction must be made between the concept of implant and the concept of prosthetic material, whereby prosthetic material should be understood as that which is intended or apt for the replacement of a member or organ of the human body, in total or partial form. Specifically regarding implant prosthetics, the implant is the method of fixation of the prosthesis; the prosthesis consists of the piece designated by crown (artificial tooth in porcelain), which is not supplied by the Claimant;

3.5. Also considering the literal element of the norm, the legislator alludes to prosthetic material and not to material for prosthetics (for application in a prosthesis), which indicates that it is excluding linking or fixing pieces of prostheses (the implant and abutment are only components, performing, respectively, the function of fixation and support of the prosthesis), such as those transacted by the Claimant;

3.6. The said item 2.6 is restricted to complete goods, that is, those which, by themselves, can replace an organ or member of the human body and not any elements that are used individually in the process of replacement. This is the rationale of the norm: to tax at the reduced rate products specifically designed for the correction or compensation of deficiencies or for the replacement, total or partial, of organs or members of the human body; this item therefore applies to devices and prostheses themselves, the final product, in the case in question, to the artificial tooth (prosthesis);

3.7. The transmission of the said linking and implantation pieces of dental prosthetics is taxed at the standard rate, due to lack of classification in any of the lists attached to the VAT Code;

3.8. The principle of VAT neutrality is not violated, for if we are speaking of neutrality regarding the taxation of different types of prosthesis, we must compare the transmission of removable prosthesis with that of fixed prosthesis; and not with that of fixed prosthesis plus fixing and linking pieces;

3.9. The Claimant has no foundation for its claims, and the claim for indemnity interest should also be denied, since the factual circumstances required for the application of article 43 of the LGT are not present;

  1. Following the granting of its request to benefit from the expert appraisal evidence produced in case no. 530/2014-T of CAAC, the Claimant dispensed with the production of witness testimony, whereby, there being no other evidence to produce, nor matters of exception to appreciate, the holding of the meeting referred to in article 18 of the LRTM was dispensed with;

  2. Duly notified for such purpose, the parties submitted written submissions.

II. PRELIMINARY MATTERS

The Arbitral Tribunal was regularly constituted and is competent.

The proceedings suffer from no procedural defects.

The parties have legal personality and capacity, are duly represented and are parties with standing.

There are no exceptions or other preliminary matters that prevent or need be addressed as a matter of merit.

III. MERITS

III.1. Factual Matters

§1. Proven Facts

The following facts are found proven:

a) The Claimant is a limited liability sole-proprietor company engaged in the commercialization of orthopedic material, prostheses and surgical-medical instruments, with particular emphasis on dental implants and accessory material;

b) The Claimant is subject to the general taxation regime under corporate income tax and the normal monthly periodicity regime under VAT;

c) In the exercise of its business, the Claimant conducts sales to the domestic market;

d) The articles commercialized by the Claimant are essentially medical devices used in the implantology sector, among which are dental implants and other prosthetic devices;

e) The Claimant's clients are dental physicians and dental prosthesis technicians (or clinics) working in implantology and using the claimant's products for the oral rehabilitation of their respective patients;

f) On implants and abutments sold, the Claimant applies the 6% VAT rate, pursuant to item 2.6 of List I attached to the VAT Code;

g) Under the Service Orders no. OI2014... and no. OI2014..., the Claimant was subject to an external inspection action carried out by the Tax Inspection Services of the Tax Office of Porto, relating to the years/fiscal periods 2010, 2011, 2012 and 2013, being of general scope for the year 2010 and of partial scope (covering only VAT) for the other fiscal periods (cf. AF attached to the proceedings);

h) Following that inspection action, the Tax Inspection Services of the Tax Office of Porto prepared the Tax Inspection Report contained in the administrative file, the contents of which are hereby entirely reproduced and of which are included, among other things, the contents excerpted herein:

i) Following the corrections made under VAT for the years 2010, 2011, 2012 and 2013, resulting from the said inspection action, the Tax and Customs Authority issued the following VAT assessments and compensatory interest assessments (cf. Doc. no. 1 attached to the initial petition):

  • VAT Assessment no. ..., relating to period 201001 to 201003, in the total amount due of €3,403.65;

  • CI Assessment no. ..., relating to period 201001 to 201003, in the total amount due of €609.49;

  • VAT Assessment no. ..., relating to period 201004 to 201006, in the total amount due of €3,003.90;

  • CI Assessment no. ..., relating to period 201004 to 201006, in the total amount due of €507.95;

  • VAT Assessment no. ..., relating to period 201007 to 201009, in the total amount due of €3,287.88;

  • CI Assessment no. ..., relating to period 201007 to 201009, in the total amount due of €523.18;

  • VAT Assessment no. ..., relating to period 201010 to 201012, in the total amount due of €3,508.05;

  • CI Assessment no. ..., relating to period 201010 to 201012, in the total amount due of €522.84;

  • VAT Assessment no. ..., relating to period 201101 to 201103, in the total amount due of €3,551.30;

  • CI Assessment no. ..., relating to period 201101 to 201103, in the total amount due of €494.26;

  • VAT Assessment no. ..., relating to period 201104 to 201106, in the total amount due of €6,619.80;

  • CI Assessment no. ..., relating to period 201104 to 201106, in the total amount due of €854.59;

  • VAT Assessment no. ..., relating to period 201107 to 201109, in the total amount due of €3,230.90;

  • CI Assessment no. ..., relating to period 201107 to 201109, in the total amount due of €384.52;

  • VAT Assessment embodied in document no. 2014..., relating to period 201110 to 201112, in the total amount of €4,857.90;

  • CI Assessment embodied in document no. 2014..., relating to period 201110 to 201112, in the total amount of €529.71;

  • VAT Assessment embodied in document no. 2014..., relating to period 201201 to 201203, in the total amount of €16,248.61;

  • CI Assessment embodied in document no. 2014..., relating to period 201201 to 201203, in the total amount of €1,611.50;

  • VAT Assessment embodied in document no. 2014..., relating to period 201204 to 201206, in the total amount of €15,784.45;

  • CI Assessment embodied in document no. 2014..., relating to period 201204 to 201206, in the total amount of €1,404.59;

  • VAT Assessment embodied in document no. 2014..., relating to period 201207 to 201209, in the total amount of €14,420.22;

  • CI Assessment embodied in document no. 2014..., relating to period 201207 to 201209, in the total amount of €1,139.39;

  • VAT Assessment embodied in document no. 2014..., relating to period 201210 to 201212, in the total amount of €19,624.98;

  • CI Assessment embodied in document no. 2014..., relating to period 201210 to 201212, in the total amount of €1,352.77;

  • VAT Assessment embodied in document no. 2014..., relating to period 201301 to 201303, in the total amount of €16,990.38;

  • CI Assessment embodied in document no. 2014..., relating to period 201301 to 201303, in the total amount of €1,005.45;

  • VAT Assessment embodied in document no. 2014..., relating to period 201304 to 201306, in the total amount of €17,211.64;

  • CI Assessment embodied in document no. 2014..., relating to period 201304 to 201306, in the total amount of €843.13;

  • VAT Assessment embodied in document no. 2014..., relating to period 201307 to 201309, in the total amount of €17,943.33;

  • CI Assessment embodied in document no. 2014..., relating to period 201307 to 201309, in the total amount of €700.03;

  • VAT Assessment embodied in document no. 2014..., relating to period 201310 to 201312, in the total amount of €20,594.74;

  • CI Assessment embodied in document no. 2014..., relating to period 201310 to 201312, in the total amount of €591.32.

j) The Claimant made voluntary payment of the totality of the tax and compensatory interest assessed by the AT, in the global amount of €183,356.45 (cf. Point I-2 to 4 of the Arbitral Request and Doc. no. 2, attached to the initial petition);

k) The tooth is an organ that forms part of the stomatognathic system which as a whole exercises the function of chewing, speaking, swallowing, smiling and with tactile function (cf. Docs. nos. 4 and 8 attached to the initial petition);

l) Each tooth that integrates this system has specific functions, namely of incising, cutting and grinding the elements constituting food (cf. Docs. nos. 4 and 8 attached to the initial petition);

m) Implantology is a surgical area of Dental Medicine that is dedicated to the placement of dental implants, designed to restore missing teeth through titanium dental implants and crowns – dental prostheses (cf. Docs. nos. 4 and 8 attached to the initial petition);

n) Dental implants are structures of pure titanium, placed in the maxilla or mandible, that replace the roots of missing teeth (cf. Docs. nos. 4 and 8 attached to the initial petition);

o) Dental implants offer a safe and permanent solution for the replacement of one or more teeth, functioning as support pillars for single crowns and fixed or removable bridges, partial or total (cf. Docs. nos. 4 and 8 attached to the initial petition);

p) The dental implant is prosthetic material that serves to replace a natural tooth, more specifically a titanium screw intended to replace the root of a natural tooth that, for whatever reason, has been extracted (cf. Docs. nos. 4 and 8 attached to the initial petition);

q) According to the Opinion of the Scientific Commission of the Order of Dental Physicians, dated February 27, 2014, "dental implants are devices placed in the bone of the jaws with the objective of carrying out the oral rehabilitation of edentulous patients, restoring the function and esthetics of patients and, consequently, their health" (cf. Doc. no. 5 attached to the initial petition);

r) Dental prosthetics by dental implant consists of three elements: implant, abutment and crown (cf. Doc. no. 8 attached to the initial petition);

s) The implant is the structure positioned surgically in the maxillary bone below the gingiva, with a view to fulfilling the function of the tooth root (cf. Doc. no. 8 attached to the initial petition);

t) The abutment is a cylindrical structure inserted in the implant (cf. Doc. no. 8 attached to the initial petition);

u) On the abutment is placed a crown, an artifact that allows replacing the visible part of the tooth (cf. Doc. no. 8 attached to the initial petition);

v) The crown is normally manufactured by dental prosthesis laboratories and needs to be adjusted to the characteristics of the patient's dentition, whereby it is specifically produced for each case (cf. Doc. no. 8 attached to the initial petition);

w) While implants and abutments are mass-produced, the crown – manufactured by dental prosthesis technicians – needs to be adjusted to the characteristics of the patient's dentition in question, whereby it is specifically designed for each patient (cf. Doc. no. 8 attached to the initial petition);

x) The implants and abutments in question constitute prosthetic material, that is, material used in the creation of an artificial piece that replaces a part of the human body (in this case, an artificial tooth intended to restore the chewing function and esthetics of missing or fractured teeth) (cf. Doc. no. 8 attached to the initial petition);

y) The implants and abutments – and specifically those transacted by the Claimant – can only be used within the scope of implantology, aimed at the replacement, in whole or in part, of the patient's tooth (cf. Doc. no. 8 attached to the initial petition);

z) Given the characteristics of the material in question, it cannot have any other purpose or use, that is, when the Claimant sells implants and abutments, they will necessarily be placed in a patient's mouth, with a view to the replacement of a tooth (cf. Doc. no. 8 attached to the initial petition);

aa) According to the Opinion of the Scientific Commission of the Order of Dental Physicians, dated February 27, 2014, "these devices, dental implants, serve as support for dental prostheses which without their placement would not be viable" (cf. Doc. no. 5 attached to the initial petition);

ab) The Order of Dental Physicians, in its Information of February 20, 2013, clarifies that "the dental implant is a medical device for single use to which are attributed the purposes described above supporting oral rehabilitation (...), serving as support for the dental prosthesis" (cf. Doc. no. 5 attached to the initial petition);

ac) The nature and quality of implants and abutments is not altered with their respective placement, that is, they are incorporated in the oral cavity adjusting to the specific morphological characteristics of the patient (cf. Doc. no. 8 attached to the initial petition);

ad) The surgical procedure for placing dental prosthetics involves, in principle, three stages and may have more than one participant, encompassing surgical work, which must be done by a physician and prosthetic elaboration work, which must be done by a prosthesis technician, in this case a prosthodontist (cf. Doc. no. 8 attached to the initial petition);

ae) The first stage consists of the surgical burial of the dental implant leveled with the bone, but within the gingiva (cf. Doc. no. 8 attached to the initial petition);

af) Following the placement of the dental implant, the process of union of the dental implant to the bone begins, the so-called "osseointegration" (cf. Doc. no. 8 attached to the initial petition);

ag) At the end of the "osseointegration" process, the dental implant needs to be exposed by removal of the overlying gingiva (cf. Doc. no. 8 attached to the initial petition);

ah) In a second stage, the surgeon verifies the implant to confirm whether osseointegration was successful and, if so, places the fixation abutment which penetrates the gingiva (cf. Doc. no. 8 attached to the initial petition);

ai) In a third stage, after the healing process ends which delimits the space to be occupied by the implant, the dental crown (artificial tooth in porcelain or other material) is manufactured and placed on the osseointegrated dental implant (cf. Doc. no. 8 attached to the initial petition);

aj) The technique advises, if not even requires, the segmentation of the process into two phases: placement of the dental implant, in an initial phase and placement of the abutment and crown, in a later phase, given the difficulty of success, in a single moment, of all the indicated phases (cf. Doc. no. 8 attached to the initial petition);

al) According to the Information of the Order of Dental Physicians, dated February 20, 2013, "when a given oral rehabilitation occurs on (in the sense of "over") a given implant, this will result in the need for placement of a linking piece and a prosthesis, in periods that may be temporally disconnected," and "the prescription of the prosthesis to be made on the implant(s) – to the extent that it presupposes necessary diagnosis and prior guidance from the Dental physician – may result in an order made by a prosthodontist of only accessory or instrumental pieces disconnected in time of acquisition from the remaining components that contribute to the final result of oral rehabilitation" (cf. Doc. no. 6 attached to the initial petition);

am) According to the Opinion of the Scientific Commission of the Order of Dental Physicians, dated February 27, 2014, "the clinical procedure that allows placing a prosthesis in this type of rehabilitation includes, in a general way, the placement of the implant, of a linking piece between the prosthesis and the implant. All procedures can be performed at a single moment or in a phased manner, depending on the clinical case in question, after analysis by the dental physician." It further adds that "from what has been stated above, there are no doubts that all devices necessary to the clinical procedure that culminates in the placement of the dental prosthesis on implants should be considered as an integral part thereof. Without any one of these components, as stated, the placement of the respective prosthesis could never be carried out" (cf. Doc. no. 5 attached to the initial petition);

an) Oral rehabilitation with implants allows conferring or optimizing the chewing function of a patient partially or completely edentulous, to which is added the fact that dental implants maintain the bone structure and facial esthetics that is lost with the absence of teeth; they maintain the integrity of adjacent teeth, since they are not worn down as happens with the realization of a bridge over teeth and ensure a substantial improvement in the confidence and security given by natural teeth, providing the patient with better self-esteem, without any social inhibition (cf. Doc. no. 8 attached to the initial petition).

§2. Unproven Facts

With relevance to the appreciation and decision of the case, there are no facts that have not been proven.

§3. Reasoning Regarding Factual Matters

With respect to the proven factual matters, the Tribunal's conviction was based on the free assessment of the positions assumed by the parties regarding factual matters, as well as on the content of the documents (notably the administrative file), the expert report whose value is invoked as an extrajudicial source of evidence and the opinions submitted to the record.

III.2. Legal Matters

The resolution of the legal question under analysis in the present proceedings concerns, essentially, the determination of the VAT regime (general tax on consumption, of indirect and multiphase nature and of Community origin) applicable to the case.

Fundamentally, two legal questions are subject to appreciation in the present action.

2.1. First Legal Question

The first legal question to be considered relates to the first claim formulated by the Claimant, seeking the annulment of the assessments identified above.

According to the perspective adopted by the Respondent, such additional assessments are based on the circumstance of considering applicable the standard VAT rate of 23% (art. 18, paragraph 1, c), of the VAT Code) to transmissions that have as their object dental implants and abutments, when, according to the understanding of the Claimant (reflected in the self-assessment by it effected), to such transactions the reduced rate of 6% (art. 18, paragraph 1, a) of the VAT Code) should be applied.

In accordance with the norm just referred to, to "imports, transmissions of goods and provision of services contained in List I attached" to the VAT Code applies the "rate of 6%."

Under item 2.6 of List I attached to the VAT Code, the following are subject to that reduced rate: "Orthopedic devices, medical-surgical belts and medicinal hosiery, wheelchairs and similar vehicles, manually or motorized for the disabled, devices, artifacts and other prosthetic or compensatory material intended to replace, in whole or in part, any member or organ of the human body or for the treatment of fractures and lenses for the correction of sight, as well as orthopedic footwear, provided that prescribed by medical prescription, under terms regulated by the Government."

Because the special regime prevails over the general regime, the standard rate (of 23%) will only apply subsidiarily, that is, if there is no occasion for the application of a reduced rate.

In issue is, in summary, to determine whether implants and dental abutments (material commercialized by the Claimant) represent or not "prosthetic or compensatory material intended to replace, in whole or in part, any member or organ of the human body."

2.1.1. This presupposes that the notions of prosthetic material and organ of the human body are clarified, as well as that it is verified whether the transacted goods are included in prosthetic material and whether they are intended to replace, totally or partially, an organ of the human body.

From the medical opinion submitted to the proceedings, it resulted (as above stated in the decision regarding factual matters) that the tooth is an organ of the human body, forming part of the stomatognathic system, associated with the functions of chewing, speech, smile, tactile and swallowing and constituted, from an anatomical perspective, of root, crown and periodontium, with each of these constitutive parts of the organ (tooth) being inseparable from the others.

From the said opinion and from the expert evidence submitted, it further results that the implant constitutes prosthetic material intended to replace the root; that the crown, molded in a laboratory in a customized manner for each patient, constitutes prosthetic material intended to replace the natural crown and that the abutment represents prosthetic material through which the connection between the implant and the crown is ensured.

In these terms, it is verified, in the concrete case, that any one of the goods object of transmission by the Claimant represents prosthetic material which is intended to replace, in whole or in part, an organ of the human body – the tooth – thus ensuring the maintenance of its specific functions, namely incision, cutting and grinding of food.

It is to be noted, furthermore, that elements of prosthesis are in issue, not raw material used in the elaboration of prostheses. In fact, the different elements (implant, abutment and crown) are intended to be applied in the patient, in such a way that, through their connection, the dental unit is artificially reconstructed, obtaining "as a final result the replacement of the organ" (p. 2 of the medical opinion submitted by the Taxpayer) and not goods (raw materials) intended to be transformed so that, from their fusion, another good results. Each of the pieces (which preserves its individuality and already represents a final product, not being subject to transformation into a product different from itself) is, differently, united to the other, with the consequence of the articulation between the three pieces being constructed, a prosthetic complex (prosthesis) implant-supported.

In these terms, and contrary to what results from the understanding sustained by the AT, the transmission of the materials which are considered finds full and direct legal classification in the literal element of the norm contained in item 2.6 of List I attached to the VAT Code, applying, in consequence, to such transactions, the reduced rate of 6%, contemplated in art. 18, paragraph 1, a), of the said statute.

2.1.2. The interpretation, defended by the Respondent entity, to the effect that the reduced rate would only apply when the transaction of a "single implant unit" was in issue, lacks foundation.

On one hand, the mentioned understanding finds no support whatsoever in the literal element of the norm, whereby the position is without basis in the text of the law, which renders its acceptance impossible in the context of the present action. As is equally explained in awards 429/2014-T, 530/2014-T and 67/2015-T of CAAC (concerned with the same type of problem), in no segment of the norm is it required that, for the application of the reduced rate of 6%, prosthetic materials be transmitted in a unitary manner (that is, in conjunction), observing, in the last mentioned decision, that: "such interpretation has no minimum of verbal correspondence with the letter of the Law." This alone, under the terms provided in paragraph 2 of article 9 of the Civil Code, excludes, thus, the possibility that this represents an understanding now capable of being adopted.

On the other hand, the non-sustainability of such a view also results from the circumstance that it proves incapable of practical application. In fact, and as above was explicit in the adjudication of factual matters, it results from the surgical process itself, which must be individualized and appropriate to the morphological and pathological characteristics of each patient, that the pieces used in the reconstruction of the human tooth are not found for sale in the market in packages that bring together the three types of prosthetic material. To the contrary, they are sold separately, with the crown being created by the prosthodontist in an individualized manner, in accordance with the exact specificities and anatomical characteristics of the patient. The fact that the sale of such materials is made separately is harmonized also with the fact that each of the pieces is applied in the treatment process at different moments. The identification of the specific type of abutment to be applied, for example, only occurs in the post-surgical phase (of implant placement), once the osseointegration period (of 3 to 6 months) has elapsed, and it is at that moment that the exact needs of correction of the axis of insertion of the crown are evaluated, choosing the type of structure necessary for such purpose (abutment), based on the result flowing from such evaluation. As results from Doc. no. 6, submitted by the Claimant, it may also occur that, once the organ tooth has been replaced by the prosthetic structure constituted by the indicated elements, only one of these deteriorates, requiring its "replacement without the remaining elements being eliminated or discarded.

It is thus understood why the commercialization of such pieces is not done in conjunction.

In these terms, to defend that the reduced rate of 6% would only apply in cases where the commercialization had as its object "single implant units," would lead to the paradoxical result that that rate would never apply to the dental prosthetic material in question, given that it is not transacted in the commercial sphere as a unit, which, combined with the reasons adduced above, corroborates the conclusion that such an understanding is without merit.

It is further to be observed that such interpretation is incompatible with the teleological element that presides over the norm. The provision of the reduced VAT rate that is considered has as its scope the facilitation of access to dental health services involving the use of the materials in question, thus promoting public health in the scope of oral health.

Reason for being that presides, equally, over subparagraph a) of article 9 of the VAT Code, under the terms of which are exempt from tax "the provision of services carried out in the exercise of the professions of physician, dentist, midwife, nurse and other paramedical professions" (italics ours) and, in subparagraph b), which, equally exempt from tax, are "the provision of services carried out in the exercise of its activity by dental prosthodontists" (italics ours).

Considering, thus, the objective of the legislator (to ensure access to health care that it deems essential), it becomes clear that the interpretation sustained by the AT is not appropriate: it would be incongruous (attending to such a presupposition) that the reduced VAT rate would apply when materials for treatment were sold jointly and not when sold separately, thereby creating, unjustifiably, in violation of the principle of equality, unequal treatment between patients equally in need of health care, when, under the terms provided in art. 64, paragraph 1, of the Constitution of the Portuguese Republic "Everyone has the right to the protection of health and the duty to promote and defend it" and, according to paragraph 3 of that same provision, "it falls primarily to the State: a) to guarantee access of all citizens, regardless of their economic condition, to preventive, curative and rehabilitation medical care" (italics ours).

Such an understanding would, therefore, prove incompatible with fundamental legal principles and values.

In fact, such an interpretive perspective would lead to patients, with lesser economic capacity and in need of prosthetics completely substituting one or more teeth, being induced to opt for traditional compact prostheses (commonly referred to as "plates"), to benefit from a more accessible price, by virtue of, constituting "implant units," only to these being applicable (in the AT's understanding), a reduced VAT rate (6%). Such treatment solutions imply, in truth, a lower quality alternative (doc. no. 4, submitted by the Claimant, p. 4) with respect to the maintenance of the bone and the vertical occlusal dimension, the esthetic positioning of the tooth, the adequacy of occlusion, the recovery of proprioception, stability, retention, phonetics, the size and success of the prosthesis and the maintenance of the muscles of mastication and facial expression.

From such an understanding would result, thus, effect inverse to that which the norm is intended to foster – instead of increasing the quality of health services which, with reduced rate, it is intended that citizens have access, it would foster the application of means of oral treatment technique of undisputed inferior quality, with the aggravating circumstance that such effect would be reflected (in unequal treatment) essentially in subjects inserted in economically more fragile brackets.

It would further contradict the principle of uniformity of VAT, by virtue of which similar economic activities must be treated in the same manner, needing to be, in obedience to the principle of objectivity, as is observed in Proc. no. 429/2014 – T, of CAAC, applied "one and the same rule to taxable operations of the same nature, with a presumption of similarity when the operations in question correspond to various variants of one and the same taxable operation included in one of the categories of Annex III of the VAT Directive."

The violation of the principle of equality would also be verified from the perspective of the producer and supplier of the goods in question, to the extent that the subject that produced or sold the goods jointly would benefit from privileged tax treatment relative to one that only did so separately, which not finding basis in the reasons justifying the rate reduction, would represent distortion of the rules of the European Union in force regarding taxation and violation of the requirement of competitive neutrality [a principle whose relevance is noted, also jurisprudentially, at the level of national and European Union jurisprudence, namely in the awards rendered in Proc. no. 429/2014-T of CAAC and in the Rompelman case (award of June 22, 1993, Proc. 268/83)].

Nor is the argument that there must be strict interpretation regarding exceptions to the application of the standard VAT rate valid against what is stated above. Such a rule is not sustainable.

In fact, the only defensible principle is that, in the case of an exceptional regime, the interpreter cannot extend that regime to other situations, even if analogous. The interpreter is thus prevented from extending the legally provided benefit to other hypotheses not contained in the law. The interpreter is prevented, however, also from, as to the hypotheses provided for in the norm in question, not applying the benefit contained therein. It is incumbent upon the interpreter, therefore, to proceed with a strict interpretation of the law (that is, a declarative interpretation of the provision to be applied, as is equally explained in the award rendered in Proc. no. 171/2013-T, of CAAC), being beyond its reach either restrictive interpretation or extensive interpretation or analogical interpretation.

To sustain the non-application of the reduced VAT rate to the prosthetic materials considered, in disregard of the legally fixed regime, would offend, in consequence, the security and confidence that the legal wording must be able to assure to the citizens subject to the norm, representing improper application of the law and, in consequence, violation thereof.

It is to be noted, furthermore, that within the framework of the provision considered, the legislator did not comply with, nor is bound by, the contents contained in the Combined Nomenclature. As in Proc. 171/2013-T, of CAAC, is underscored, "If it is true that according to article 98, paragraph 3 of the VAT Directive the Member States can use the Combined Nomenclature to delimit with exactness each category subject to the reduced rate, it is certain that the Portuguese legislator did not follow that path (nor was it obligated to do so)," adding further, in the said award, that it is "irrelevant, for VAT purposes, the classification that the pieces in question have in the Combined Nomenclature," as well as that "without prejudice to the freedom that the Portuguese legislator enjoys in the delimitation of transmissions of goods and provision of services to which reduced VAT rates are applicable, within the closed catalog contained in Annex III of the VAT Directive, it appears that the correct interpretation of item 2.6 of List I attached to the VAT Code covers the parts of wheelchairs and mobility scooters that are at the origin of the acts of assessment of VAT in dispute." In the same vein, it is referred, in Proc. 429/2014-T, of CAAC that "the use of the Combined Nomenclature to delimit with exactness each category is a mere possibility that, as such, may or may not come to be used for such purpose by Member States," in which it is explicit that the "only case in which the VAT Code has recourse to the Combined Nomenclature to define the scope of the tax regime of goods comes provided for in its article 14, paragraph 1, subparagraph i), for purposes of determination of the regime of exemption (complete or zero rate), in accordance with which are exempt "transmissions of goods for the supply positioned on board warships classified by code 89060010 of the Combined Nomenclature, when leaving the country destined for a port or anchorage situated abroad," underlining: "a provision not applicable in the situation in question."

The understanding sustained by the Respondent entity is therefore without merit insofar as it concerns the VAT rate applicable; an understanding untenable, consequently, in the present case, irrespective of the manner by which it is conveyed (namely by means of written information of internal circulation).

In these terms, attending to the sum total of the factual and legal reasons adduced, it is considered applicable to the act of commercialization of the prosthetic materials in which translate the implant, abutment and dental crown, the reduced VAT rate of 6%, in accordance with the provision in art. 18, paragraph 1, a), of the VAT Code and with item 2.6 of List I attached thereto, therefore proceeding, in consequence, the claim for annulment formulated by the Taxpayer in the present proceedings of the acts of assessment which it identifies in the arbitral request by it filed.

2.2. With respect to the second claim formulated (recognition of the right to payment of indemnity interest), notwithstanding the fact that there is no express norm to that effect, it constitutes prevailing jurisprudence, in the wake of the jurisprudence of the Supreme Administrative Court, that, notwithstanding the judicial challenge process being essentially a process of mere annulment, as indeed occurs within the scope of the TCTP (articles 99 and 124), a condemnation of the Tax and Customs Authority can be pronounced therein to the payment of indemnity interest and indemnification for undue guarantee [in this sense, cf., among others, the Arbitral Awards rendered in cases nos.: 18/2011-T and 28/2013-T (this still not final in judgment), 39/2013-T and 51/2015-T].

As was recorded in Award no. 28/2013-T, of October 16, 2013, "[a]lthough art. 2, paragraph 1, subparagraphs a) and b) of the LRTM uses the expression "declaration of illegality" to define the competence of arbitral tribunals functioning in CAAC and does not refer to constitutive (annulment) and condemning decisions, it should be understood, in consonance with the referred legislative authorization, that comprised in its competences are the powers that in a judicial challenge proceeding are attributed to tax courts in relation to the acts whose appraisal of legality is inserted in their competences."

In equal manner, although there is also no express norm in the TCTP foreseeing the right to indemnification for undue guarantee, the truth is that, as is emphasized in the Award that we have been following, "it has been peacefully understood in tax courts, since the entry into force of the codes of the 1958-1965 fiscal reform, that may be cumulated in a judicial challenge proceeding a claim for condemnation to the payment of indemnity interest with the claim for annulment or for declaration of nullity or nonexistence of the act, because in those codes reference is made to the fact that the right to indemnity interest arises when, in administrative appeal or judicial proceeding, the administration is convinced that there was error of fact imputable to the services. This regime was subsequently generalized in the Tax Procedure Code, which provided in paragraph 1 of its article 24 that 'there shall be a right to indemnity interest in favor of the taxpayer when, in administrative appeal or judicial proceeding, it is determined that there was error imputable to the services from which results payment of the tax debt in an amount superior to that legally due.' Subsequently, also the LGT came to provide, in its article 43, paragraph 1, that 'indemnity interest is due when it is determined, in administrative appeal or judicial challenge, that there was error imputable to the services from which results payment of the tax debt in an amount superior to that legally due.'"

Now, in the case of the record, it is concluded that the assessments whose legality is disputed result from error of the services regarding the legal presuppositions. Furthermore, the assessments object of challenge were of the exclusive initiative of the Tax Administration and the Claimant in no way contributed to their being made, whereby the error is imputable exclusively to the Administration itself.

From the factual matters fixed it results that the Claimant made voluntary payment of the totality of the tax and compensatory interest assessed by the AT, in the global amount of €183,356.45.

Having the Taxpayer realized payment of the additional assessments object of the present action and determining, in this, that such tax acts are invalid, the Claimant is entitled to the payment of indemnity interest, counted from the date of payment of the tax (art. 61, paragraph 5, of the T.C.T.P.).

IV. DECISION

In these terms, the present Tribunal hereby agrees as follows:

  • To hold well-founded the claim for annulment of the VAT assessments and respective interest, object of challenge in the present action;

  • To hold well-founded the claim for condemnation of the Tax and Customs Authority to the payment of indemnity interest, counted from the date of payment of the tax.

V. CASE VALUE

In consonance with the provision in arts. 306, paragraph 2, of the CPC, 97-A, paragraph 1, in subparagraph a), of the T.C.T.P. and in art. 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case value is fixed at €183,356.45 (one hundred eighty-three thousand three hundred fifty-six euros and forty-five cents).

VI. COSTS

Pursuant to article 22, paragraph 4, of the L.R.T.M., the amount of costs is fixed at €3,672.00 (three thousand six hundred seventy-two euros), pursuant to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, charged to the AT – Tax and Customs Authority.

Lisbon, November 16, 2015.

The Arbitrators,

(Fernanda Maçãs)

(Ricardo Jorge Rodrigues Pereira)

(Emanuel Augusto Vidal Lima)

Frequently Asked Questions

Automatically Created

What VAT rate applies to dental implants, pillars, and crowns sold separately under Portuguese tax law?
Under Portuguese tax law, the application of VAT rates to dental implants, pillars (abutments), and crowns sold separately depends on whether they qualify under item 2.6 of List I annexed to the CIVA. The central controversy in Process 293/2015-T involved whether these components qualify for the reduced rate (6% at the time) or must be taxed at the standard rate (23%). The taxpayer's position was that each component constitutes 'prosthetic material' under the legal definition since modern dental prosthetics inherently consist of three inseparable elements that collectively replace missing teeth. The Tax Authority argued that only complete prosthetic units capable of independently fulfilling the function of replacing a body part qualify for the reduced rate. The resolution of this case established interpretative guidance on whether components exclusively designed for prosthetic purposes, incapable of other uses, and requiring customization to each patient can benefit from the reduced rate when transacted separately.
How does Verba 2.6 of Lista I of the CIVA define taxable dental prosthesis materials?
Verba 2.6 of Lista I of the CIVA (Portuguese VAT Code) defines the scope of reduced VAT rates for 'artifacts and other prosthetic material' intended to replace body parts or their functions. The legal interpretation dispute in Process 293/2015-T centered on whether this definition encompasses individual components of dental prostheses or only complete prosthetic units. The taxpayer argued that the legislative text explicitly uses the expressions 'artifacts' and 'prosthetic material' without restricting application to 'single units,' suggesting that any material specifically designed and used exclusively for prosthetic purposes qualifies, regardless of whether it constitutes a complete prosthesis independently. The Tax Authority maintained a restrictive interpretation, arguing that goods must individually be capable of replacing a body part or its function to qualify. This definitional debate involved analyzing whether the legislator intended functional capacity as the criterion (requiring complete units) or prosthetic purpose and nature (potentially including specialized components). The case raised questions about whether technical evolution in dental prosthetics—from single-piece solutions to multi-component implant systems—requires updated interpretation of existing legal definitions.
Can dental prosthesis components qualify for the reduced IVA rate when not sold as a complete set?
The qualification of dental prosthesis components for the reduced IVA rate when not sold as a complete set was the central issue in Process 293/2015-T. The taxpayer's position emphasized that modern implant-based dental prosthetics technically cannot be sold as pre-assembled complete sets because they require customization to each patient's specific morphological characteristics. The selection of appropriate implant dimensions, abutment configurations, and crown specifications must occur based on individual clinical assessments. From this perspective, the separate transaction of components represents technical necessity rather than commercial choice. The taxpayer argued that applying different VAT treatment to functionally equivalent prosthetic solutions (traditional bridges/dentures versus implant systems) based solely on whether components are physically joined at the point of sale violates the VAT neutrality principle and creates unjustified competitive distortions. The Tax Authority's position suggested that components lacking individual capacity to replace a tooth's function should not benefit from the reduced rate. The arbitral tribunal's interpretation would establish whether the legal criterion focuses on the component's exclusive prosthetic purpose and end-use or requires independent functional completeness at the transaction moment.
What was the outcome of CAAD arbitration process 293/2015-T on VAT for dental implant transactions?
Process 293/2015-T resulted in arbitral proceedings initiated on May 5, 2015, at CAAD (Centro de Arbitragem Administrativa) challenging VAT assessments totaling €170,281.73 plus compensatory interest of €13,074.72 for tax years 2010-2013. The collective arbitral tribunal was constituted on July 22, 2015, with arbitrators Maria Fernanda dos Santos Maçãs (chair), Ricardo Jorge Rodrigues Pereira, and Emanuel Augusto Vidal Lima. The case examined whether the Tax Authority correctly reclassified transactions of dental implants and abutments from the reduced rate (6%) to the standard rate (23%). The claimant sought declaration of illegality of the assessments, recognition of the right to indemnity interest from the payment date, and submitted expert testimony including an opinion from Professor B... and requested benefit of expert appraisal from related case 530/2014-T. The substantive issue required the tribunal to interpret item 2.6 of List I of CIVA regarding whether 'artifacts and other prosthetic material' encompasses components sold separately or only complete prosthetic units. The decision would establish precedent for VAT treatment of modern multi-component dental prosthetic systems throughout Portugal and potentially influence similar cases in other medical device contexts where technological evolution has transformed single-unit products into multi-component systems.
What procedural steps are involved in challenging IVA tax assessments through CAAD tax arbitration?
The procedural steps for challenging IVA tax assessments through CAAD tax arbitration, as illustrated in Process 293/2015-T, include: (1) Filing a request for constitution of an arbitral tribunal pursuant to articles 2 and 10 of Decree-Law 10/2011 (LRTM - Legal Regime of Arbitration in Tax Matters); (2) Automatic notification to the Tax Authority upon acceptance of the request; (3) Appointment of arbitrators—parties may appoint arbitrators or, if they do not, the President of the Deontological Council of CAAC appoints them under article 6(2)(a) and article 11(1)(b) of LRTM; (4) Notification to parties of arbitrator appointments with opportunity to refuse under article 11(1) combined with articles 6 and 7 of the CAAC Deontological Code; (5) Constitution of the arbitral tribunal after the refusal period expires (article 11(1)(c) LRTM); (6) Submission of the initial application with supporting documents, witness lists, and expert evidence; (7) Notification to the Respondent (Tax Authority) to file an Answer, typically with opportunity to submit administrative files and evidence; (8) Evidentiary phase including expert appraisals, witness testimony, and document analysis; (9) Legal arguments addressing substantive tax law interpretation; and (10) Issuance of the arbitral award declaring legality or illegality of assessments and determining entitlement to compensatory or indemnity interest. This arbitration mechanism provides an alternative to judicial courts for resolving tax disputes with specialized arbitrators.