VAT Rate on Dental Prosthesis Materials Sold Separately – CAAD Arbitration 307/2015-T

ARBITRAL DECISION

The arbitrators José Poças Falcão (arbitrator president), José Ramos Alexandre and Nuno Miguel Morujão, designated by the Deontological Council of the Administrative Arbitration Center (hereinafter "CAAD") to form the arbitral tribunal, constituted on 28/7/2015, hereby agree as follows:

I. Report

1. The Claimant A…, LDA., a legal entity no. … with registered office at…, no.…, …-…, …, …-…, Lisbon, hereby requests, pursuant to article 2, no. 1, letter a) of article 10 et seq. of Decree-Law no. 10/2011, of 20 January (hereinafter referred to as "RJAT"[1]), the constitution of an arbitral tribunal, for which purpose it filed a request to that effect on 14/5/2015.

2. The claim that is the subject matter of the request for arbitral ruling consists of a request for annulment of the official VAT assessments relating to the fiscal years 2011, 2012, 2013 and 2014 and of the corresponding assessments of compensatory interest and default interest, in the total amount of € 108.473,74 (of which € 104.496,30 relating to the fiscal years 2011, 2012 and 2013, and € 3.977,44 relating to the fiscal year 2014), as well as a request for indemnification to the Claimant for all costs incurred with the suspension of the guarantee that it will provide, in light of the tax enforcement proceedings that have already been instituted.

3. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority (hereinafter "TA") on 18/5/2015.

a) The Claimant did not proceed to appoint an arbitrator, whereby, pursuant to letter a) of no. 2 of article 6 and letter b) of no. 1 of article 11 of RJAT, the President of the Deontological Council designated the undersigned arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the legal deadline.

b) On 13/7/2015, the parties were notified of the appointment of the arbitrators and raised no objection.

c) In accordance with the provision of letter c) of no. 11 of RJAT, the collective arbitral tribunal was constituted on 28/7/2015.

d) In these terms, the arbitral tribunal is regularly constituted to examine and rule on the subject matter of the proceedings.

1. To support the request for arbitral ruling, the Claimant alleges, in summary, the following:

a) In the course of its activity, the Claimant imports dental implants and abutments which it subsequently sells to dentists or dental prosthetics technicians;

b) Implants are a structure positioned surgically in the maxillary bone below the gum, "replacing" the function of the tooth root. The abutment consists of a connection or fixation structure for the dental prosthesis, inserted in the implant. Finally, on the abutment is placed a crown which aims to replace the visible part of the tooth;

c) Implants and abutments are mass-produced, as opposed to the crown, which is elaborated by dental prosthetics technicians and needs to be adjusted to the characteristics of the patient's dentition, whereby it is specifically produced for each patient;

d) According to information from the Portuguese Dental Association of 20/2/2013, "where oral rehabilitation is provided on (in the sense of 'on top of') a given implant, this will result in the need for placement of a connection piece and a prosthesis, in periods that may be temporally disconnected", adding that "the prescription of the prosthesis to be placed on the implant(s) – as it presupposes necessary diagnosis and prior guidance by the dentist – may result in an order placed by the prosthetics technician of, solely, accessory or instrumental pieces disconnected in time of acquisition from the remaining components that contribute to the final result of oral rehabilitation".

e) Furthermore, according to an Opinion of the Scientific Commission of the Portuguese Dental Association of 27/2/2014, "dental implants are medical devices placed in the bone of the maxillae with the objective of carrying out oral rehabilitation of edentulous patients, restoring the function and aesthetics of patients, and consequently their health", serving "as support for dental prostheses which without the placement of the same would not be viable", and "the clinical procedure that allows placing a prosthesis in this type of rehabilitation includes, in general terms, the placement of the implant, of a connection piece between the prosthesis and the implant. All procedures may be performed in a single moment or in a phased manner, depending on the clinical case in question, after analysis by the dentist", concluding that "there is no doubt that all devices necessary for the clinical procedure that culminates with the placement of the dental prosthesis on implants should be considered as an integral part of the same. Without any one of these components, as set out, the placement of the respective prosthesis could never be carried out".

f) On the other hand, implants and abutments can only be used within the scope of implantology, with a view to replacing all or part of the patient's tooth, and are not susceptible, given their characteristics, to any other use, as results from the Information of the Portuguese Dental Association of 20/2/2013, which states "the dental implant is a medical device for single use to which the purposes described above [restoration of masticatory and aesthetic function] are attributed, supporting oral rehabilitation, referring to letter t) of article 3 of Decree-Law no. 145/2009, 17 June, serving as support for the dental prosthesis; requiring elements designated connectors - connection pieces - also these specific accessories with medical purpose".

g) According to the TA, "dental implants applied in dentistry are nothing more than mere osteointegrable metal roots in the maxilla (upper part of the mouth) or in the mandible (lower and mobile part of the mouth) intended to serve as support or anchor of a structure of one or more artificial teeth (crown, bridge, etc.);", adding that "the remaining components, parts, pieces and accessories (namely abutments, abutments, etc.), which are the subject of isolated, autonomous or separate transaction, in addition to not being prostheses, are not apt to fulfill, considered individually, the function of replacing a part of the body or the function of the dental organ (masticatory function, verbalization and aesthetic)", and concluding that "the transmission of the said pieces (of connection or implantation of the prosthesis) are subject to the normal rate, as they do not fall within item 2.6 of List I attached to CIVA". It further states that "as A…, LDA. is a company importing materials for implants, it has perfect knowledge that the rate applied at customs is, effectively, the normal rate. It is this rate that it pays upon customs clearance of the products it acquires from third countries". Still according to the TA "note the definition of 'dental prosthesis' as a 'fixed or mobile structure consisting of one or set of artificial teeth that replaces missing teeth' (...), so as not to understand the reason why dental implants, when transacted in isolation or autonomously, that is, without the additional elements that make it, effectively, an implant (connection pieces + tooth), are considered as material of prosthesis and, consequently, subsumed under the provision of item 2.6 of List I attached to CIVA", to derive from this that "this leads us to the 'Principle of Neutrality' which, in the context of the interpretation of rates, means that materially identical situations must be subject to the same rate, under penalty of creating distortions in the normal functioning of the market".

h) The TA's position is based on the interpretative ruling of 11 May 2007, and it is now undisputed that informational circulars are not sources of law, instead embodying generic guidance issued by the tax administration, which bind neither taxpayers nor courts, and are therefore not a source of law, understood as a means of creating legal norms.

i) Notwithstanding that administrative guidance does not bind either taxpayers or courts, the TA is not thereby deprived of legitimacy to issue them. It cannot, however, make any interpretation of tax legal norms, but rather an interpretation that, respecting the general rules of interpretation of laws (article 9 of the Civil Code), is in accordance with "… the general principle of pursuit of the public interest and respect for the rights and legitimate interests of citizens that falls upon public administration (article 266 of the CRP) and which imposes upon it equal, proportional, just, impartial and good faith action".

j) According to the interpretation of the Claimant, invoking an opinion of Prof. Dr. Z…, the correct interpretation of the relevant legal norms leads to the conclusion that the reduced VAT rate is applicable in this case.

k) As to the grammatical element, the Claimant understands that according to item 2.6 of List I attached to CIVA, applicable to "orthopedic devices, surgical supports and medical hosiery, wheelchairs and similar vehicles, manually or motor-driven, for disabled persons, devices, artifacts and other prosthetic or compensatory material intended to replace, in whole or in part, any limb or organ of the human body or the treatment of fractures", there is no doubt that implants and abutments are artifacts (objects produced by mechanical arts), as they are considered prosthetic material (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 masticatory and aesthetic function of lost or fractured teeth).

l) As to the teleological element, as VAT is a tax of European origin and is found, in its essential aspects, harmonized, through Directive 2006/112/EC of the Council on the common system of value added tax (hereinafter only "Directive"), there are guidelines that should be specially taken into account. Namely, "Member States may apply one or two reduced rates" and "reduced rates apply only to supplies of goods and services of the categories set out in Annex III" (nos. 1 and 2 of article 98 of the Directive), and point 4 of the said annex refers to "medical equipment, auxiliary material and other devices normally used to alleviate or treat deficiencies (...)" and point 17 mentions that also "medical and dental treatments" may be included in the reduced rates of each State (see Annex III to the Directive). Being certain that the introduction of reduced rates is a prerogative of each state, which will establish them, if it so wishes, according to its sociopolitical objectives, in Portugal, the reduced VAT rate is applied to goods and services considered of prime necessity, there being no doubt that oral health is one of the aspects of public health. Therefore, as item 2.6 of List I attached to CIVA refers to artifacts and other prosthetic or compensatory material intended to replace, in whole or in part, any limb or organ of the human body, the legislator intended to include dental prostheses in general, without any kind of restriction. On the other hand, pursuant to nos. 1 and 2 of article 9 of CIVA, services provided in the course of the activity of a dentist are, as a rule, exempt (without prejudice to the possibility of waiver of that exemption, according to article 12 of the same act). Now, in the absence of waiver of VAT exemption, all VAT borne by the dentist in the acquisition of implants and abutments (at the maximum rate, according to the understanding that the TA has) cannot be deducted, which means that it will ultimately be passed on in the value of the medical service provision, generating a considerable increase in the costs for the user, which completely undermines the legislator's objective.

m) Additionally, implants and abutments can only be used within the scope of implantology, with a view to replacing all or part of the patient's tooth, and are not susceptible, given their characteristics, to any other use, which therefore rules out any possibility, perhaps considered by the TA, of these materials being the subject of separate sale.

n) If the TA's interpretation were to prevail, in the sense of applying the reduced rate only to situations of unit transmissions of single implant units – the same would translate into a manifest distortion of competition, thereby violating the principle of neutrality. This position of the TA would condition dentists and prosthetics technicians to acquire single units of implants, contrary to being able to acquire individually each of the respective components, which would have a competition-distorting effect, contrary to the foundations of the Directive.

o) In Case no. 429/2014-T (among others) of CAAD, the arbitral tribunal decided, unanimously, that the commercialization of abutments and implants is subject to the reduced VAT rate, in accordance with the provision of Item 2.6, of List I attached to the VAT Code. In that Case, the said arbitral tribunal sustained, in the decision relating to Case no. 429/2014-T, that: «The sense and scope of the reduced rate applied in this domain should take [into account] the good rules of hermeneutics, taking into account not only the grammatical element, but also the respective context, reason for being and purposes pursued by item 2.6, and should result in a non-restrictive interpretation», stating that "all elements of interpretation of tax norms that can be invoked for the purpose, as well as the characteristics of VAT and the interpretation that the CJEU has been making thereof, lead us to conclude that, in the present case, the reduced VAT rate provided for in item 2.6 of List I attached to CIVA should be applied to the transmission of implants, crowns and abutments now under analysis, in which terms we find in favor of the Claimant".

p) The foregoing is of particular relevance for the Claimant to contest the additional VAT assessments relating to the fiscal years 2011, 2012 and 2013. As for the assessments relating to the fiscal year 2014, the Claimant alleges that they were not the subject of any substantiation by the TA, whereby it supposes that such assessments translate to "adjustments relating to the very corrections of the years 2011 to 2013".

1. By order of 2/8/2015, the arbitral tribunal issued a notification order to the Director General of the TA to, within a period of 30 (thirty) days, submit a response, attach a copy of the administrative file and, if so desired, request the production of additional evidence.

2. The TA submitted a Response and attached the investigative file, invoking in summary the following:

a) The expert evidence produced does not corroborate the thesis propounded by the Claimant, as, regarding the destination that each of the pieces in question may have, the expert's response is not peremptory as to their exclusive use, indeed, according to his conclusion, "the prosthetic components, generally can only be used in conjunction with the respective implant" [emphasis by the Respondent].

b) It has been the understanding of the Respondent, as conveyed by the VAT Conception and Service Direction Division, that prosthetic materials are subject to the reduced rate only if they are intended for the purpose defined in the item, that is, the replacement of a part of the body with deficiency or disease or its function, as indeed results directly from the law. Such interpretation implies that goods consisting of pieces, parts and accessories of such prostheses are not covered by item 2.6, given that, in addition to not being prostheses, they are not apt to fulfill, considered individually, the function of replacing a part of the body or its function.

c) In previous binding information (information no. 1717, of September 1996, case I…….), the TA decided in the following sense: "Thus, although it is difficult to distinguish between components and complete prostheses (implants), it appears that when transacted complete [and we emphasize: the information was provided by reference to a catalog presented by the company in question, which included the prostheses proper and the other materials for their fixation, such as implants and abutments] in such a way as to constitute a unit of implant proper + connection pieces + 'tooth', constituting a unit of sale by which they may be classified within item 2.5 of List I attached to CIVA, they are subject to VAT at the reduced rate. Transmissions of the various loose components, parts and pieces, are subject to VAT at the normal rate". It therefore held that, when the taxable person invoiced the acquiree with a set of goods consisting of prosthesis, implant and connection pieces, the reduced rate would be applicable to it. However, if only implants and connection pieces were transmitted, or both, these being considered loose components, parts or pieces, the normal rate of the tax would be applicable.

d) Therefore, as has been conveyed by the Respondent, item 2.6 only covers the transmission of the article which, in itself, constitutes an artificial piece that replaces the organ of the human body or part thereof, that is, "autonomously or in a unitary manner". Thus, in implant-supported dental prosthesis, the normal rate of the tax is applied to the transmission of connection or fixation pieces, given that they do not, in themselves, objectively, fulfill the function described in item 2.6 of List I attached to CIVA.

e) It adds that "the matter here in dispute concerns the application of the reduced rate of the tax and, having regard to the fact that situations of taxation at the reduced rate constitute exceptions to the application of the normal VAT rate and, as a result, represent a deviation from the application of the general tax regime, the Court of Justice of the European Union (CJEU) has oriented itself in this matter by the application of the principle of strict interpretation", citing the Judgment of 18 January 2001, case Commission v Spain, C – 83/99 and the Judgment of 17 January 2013, also in a case of the Commission v Spain, C – 360/11.

f) This conclusion, the TA argues, is "in line with the provision of no. 4 of article 11 of the General Tax Law (LGT), which prohibits analogical integration for gaps resulting from tax rules covered in the reservation of law of the Assembly of the Republic".

g) Regarding the grammatical and teleological element of the disputed provision in question, the Respondent states that "it is not enough to be dealing with 'devices, artifacts and other prosthetic or compensatory material', being necessary that these goods are apt to replace, in whole or in part, any limb or organ of the human body" [emphasis by the Respondent].

h) The Respondent distinguishes implant from the concept of "prosthetic material", invoking the Opinion of the Portuguese Dental Association of 20/2/2013, concluding that "in implant-supported prosthesis, now in discussion, and as derives from the very concept, the implant is the mode of fixation of the prosthesis. The prosthesis, constructed or elaborated by a specialized technician, by reference to the patient to whom it is intended, consists of the piece designated by crown (artificial tooth in porcelain), which is not supplied by the taxable person".

i) From this results, according to the Respondent, that "the implant (the mode of fixation of the prosthesis) does not benefit from the same tax treatment as the prosthesis, as happens, moreover, with the components used in the elaboration of other prostheses".

j) Adding that "dental prostheses, in general, regardless of the method of application, have, in their final destination, the same tax treatment, that is, the exemption provided for in article 9 of CIVA", and that "the prosthesis, in itself, may be the subject of commercialization at earlier stages than the placement at the disposal of the patient, in which case it is subject to the reduced rate".

k) The Respondent further argues that "the question should be centered on whether item 2.6 of List I has as its purpose to tax at the reduced rate the transmission of prostheses, of whatever type, or whether the legislator intended to cover here, also, the sale of all types of fixation devices that are not a prosthesis and manufactured in series and that, when considered in isolation, namely at the moment of their transmission by suppliers such as the taxable person, do not replace a limb or an organ of the human body".

l) With respect to the grammatical element of interpretation of the rule, the Respondent emphasizes that "the legislator refers to prosthetic material and not to material for prosthesis (for application in a prosthesis), which indicates the exclusion of prosthetic connection or fixation pieces, such as those transacted by the taxable person" [emphasis by the Respondent].

m) It adds that, by reference to the text of item 2.6, "the rule restricts the application of the reduced rate to goods that are, themselves, apt for the function of replacing a limb or organ of the human body" [emphasis by the Respondent].

n) From which the Respondent concludes that, "contrary to what the Claimant argues, the thesis that item 2.6 encompasses the commercialization of all types of pieces intended for the fixation of prostheses or their connection, rather than referring to the prosthesis itself, finished product apt for replacing an organ or part of the human body, does not appear to have acceptance in the text of the law", disagreeing that dental implants are classifiable in the application of the reduced rate, seeing that "the goods in question, transacted by the Claimant, are not prosthetic materials", invoking the aforementioned opinion of the Portuguese Dental Association, according to which "such goods serve as support for the dental prosthesis". Effectively, "the implant (…) and the abutment are merely components, each performing the function for which they were designed, of support and fixation of the prosthesis, but which, of themselves, objectively considered, do not perform nor replace the function of the dental organ", and "notwithstanding that they have no other application than in dentistry, they are, only, accessory or instrumental pieces, that contribute to the final result of oral rehabilitation", being appropriate to conclude that "the transmission of the said pieces (of connection or implantation of the prosthesis) are subject to the normal rate, for lack of classification in any of the lists attached to CIVA, namely item 2.6 of List I".

o) As to the Claimant's allegation regarding the violation of the principle of neutrality and non-discrimination, the Respondent expresses its disagreement. According to the Respondent, the Directive "proposed to guarantee the neutrality of the common tax system (…) as to the origin of goods and services, so as to establish, in the course of time, a common market that allows sound competition and presents characteristics analogous to those of a true internal market", on the other hand, it also results from the Directive that "the common VAT system must, even though rates and exemptions are not completely harmonized, lead to competitive neutrality, in the sense that, within the territory of each Member State, goods and services of the same type are subject to the same tax burden, regardless of the length of the production and distribution circuit", whereby "the principle of neutrality is an important corollary of the classic legal principle of non-discrimination: 'The competitive neutrality of VAT should be understood in the sense that, within the country, on identical goods, transacted at the same price, the same tax burden must apply, regardless of the number of transactions to which the goods are subject in earlier phases and the length of the production circuit". The Respondent adds that "in recitals 18 and 19 of the judgment Commission v Spain, in case C83/99, the CJEU interpreted the provision in letter a) of no. 3 of article 12 of the Sixth Directive in the sense that the application of (one or two) reduced rates by Member States constitutes a derogation from the principle according to which the normal rate applies", insisting that "as it is a mere faculty, Member States may not provide a reduced rate for some of the transmissions of goods or services, taxing them at the normal rate", and specifying that "the principle of fiscal neutrality is opposed to a differentiation in the taxation of goods or services of identical nature, being deemed verified when the tax does not influence the consumer's choice"[2].

p) As to the issue of fiscal neutrality, invoking Pitta e Cunha, the Respondent states that "all tax today inevitably produces changes in the economy; it is understood today that the tax is 'neutral' when it operates homothetic modifications, equal for all elements of the economic environment". It also invokes Attorney General Juliane Kokott in her conclusions presented in the TNT Case (Judgment of 23 April 2009, Case C-357/07, Coll., p. I-5189), when she referred that "the principle of fiscal neutrality is opposed to goods or services that are similar, which are therefore in competition with each other, being treated differently from the point of view of value added tax (…)". In this context, it notes that "The principle of fiscal neutrality, which is the basis of the common tax system and should be taken into account in the interpretation of exemption rules, does not allow economic operators that carry out the same operations to be treated differently in relation to the collection of value added tax. (...) It includes the principle of elimination of competition distortions resulting from differentiated treatment from the point of view of value added tax (...)".

q) It concludes, with respect to neutrality, that "if we are talking about the neutrality of the taxation of different types of prosthesis we have to compare the transmission of the removable prosthesis with that of the fixed prosthesis. And not with that of the fixed prosthesis plus fixation and connection pieces".

r) Finally, the Respondent refers, citing the tax inspection report, that "as A… LDA. is a company importing materials for implants, it has perfect knowledge that the rate applied at customs is, effectively, the normal rate. It is this rate that it actually pays when customs clearing of products it acquires from third countries" [emphasis by the Respondent], adding that "the Combined Nomenclature is a fundamental piece in the commercial circuit of goods, since it is through it that the identification of goods subject to import or export takes place, with the consequent tax classification, whereby the resort to this tool, by the interpreter, strengthens the credit of the interpretation" of being that rate of taxation applicable to the transmission of goods, and that the Combined Nomenclature "has mandatory character upon its entry into EU territory". To this respect the Respondent emphasizes that "Regulation (EU) no. 111/2011, of the Commission of 7 February 2011, classifies one of the products objectively commercialized by the taxable person in the CN code 9021 29 00, as a piece of a dental implant, similarly to various accessories for dentists intended to make crowns or dental prostheses, on the basis of the grounds set out in column 3 attached to the said regulation", and that "import rights are regulated by the Common Customs Tariff (CCT), which takes into account the tariff classification (based on the Combined Nomenclature), the origin and the customs value of the goods, on the basis of which import duties are calculated. Goods, at the time of import, are classified according to said nomenclature, and customs VAT is calculated on that basis". And thus concludes that "if a good subject to import is classified according to the criteria set out in the Common Customs Tariff, to which corresponds a given VAT rate, and this good is introduced into the internal market without undergoing any transformation, it is legitimate, and even desirable from the point of view of the neutrality of the tax, that the interpreter be aided by the Combined Nomenclature, as a subsidiary criterion of interpretation of the items, so as to verify consonance with the criterion used in the customs".

s) As to the Claimant's request for recognition of the right to indemnification provided for in articles 171 of CPPT and 53 of LGT, the Respondent states that "it is manifestly unfounded seeing that no provision of guarantee took place".

1. By order of the arbitral tribunal of 24/10/2015:

a) As to the meeting of the tribunal with the parties (article 18 of RJAT), it was decided to dispense with the meeting, as it was considered that the case is not susceptible to a definition of specific procedural steps, different from those commonly followed by CAAD in the generality of arbitral cases, and given that there are no exceptions to examine and decide before knowing the claim nor apparent need for correction of the procedural pieces;

b) As to witness evidence, having analyzed the procedural documents of both parties, the tribunal considered that there is no controversy regarding the essential facts for the proper decision of the case, being sufficient the undisputed documentary evidence, whereby, weighing the futility of the requested witness interrogation diligence and having regard to the provisions of articles 16-c) of RJAT and 130 of CPC, applicable ex vi article 29-1/e) of RJAT, the request for production of witness evidence filed by the Claimant was dismissed;

c) As to final submissions, it was decided that both parties shall present, within successive periods of 10 (ten) days (beginning with the Claimant), written submissions of fact and law;

d) As to the date for rendering and notification of the final decision, 18/12/2015 was fixed as the deadline for rendering and notification of the final decision;

e) Within the scope of the principle of cooperation, the arbitral tribunal invited both parties to send to CAAD their respective pleadings in editable format (Word) in order to facilitate and shorten the tribunal's task in preparing the award; and

f) As to the remaining arbitration fee, it was decided that the Claimant shall comply with the provision of article 4-3 of the Regulations on Costs in Tax Arbitration Proceedings.

1. The parties submitted written submissions within the legal period, having in these maintained, in substance, their initial argument (with the exception of the now omitted request for indemnification, on the part of the Claimant, for costs incurred with the initially alleged guarantee that it would provide, in light of the tax enforcement proceedings instituted), expressing themselves regarding the factual matter to be deemed proven and concluding in the sense that their claim should be upheld.

2. By order of 18/12/2015, the tribunal, having weighed the provisions of article 21-1 and 2 of RJAT, extended to the limit of the minimum period the deadline for the decision, as it had not been possible to conclude the preparation of the final arbitral decision (Award), setting now as the anticipated deadline for notification of that decision to the parties, the next date of 25/1/2016.

II. Dismissal of Preliminary Issues

The tribunal is competent.

The proceedings are proper and the parties are legitimate and capable.

There are no preliminary questions and/or exceptions, alleged or of official knowledge.

The proceedings are free from nullities which would invalidate them.

The merits of the case must be examined.

III. Reasoning

III.1 Factual Matters

1. Facts Proved

With relevance for the examination and decision of the questions raised, prior and on the merits, the following facts are established and proved:

a) A…, LDA., is a company limited by shares with the following corporate object: "Wholesale distribution of medical devices, import and export of odontological medical products. Professional training" (see Report of the Tax Inspection attached to the administrative file).

b) It is a company that is a taxable person pursuant to letter a) of no. 1 of article 2 of CIVA, and for purposes of Value Added Tax is classified in the quarterly regime pursuant to letter b) of no. 1 of article 41 of CIVA;

c) On the basis of three external inspection orders – OI2014…, OI2014… and OI2014…, the TA made corrections in the VAT assessment, of which the Claimant was notified by Official Letter sent on 13/1/2015 (PA) with a copy of the Final Report.

d) In the VAT assessment, according to the Inspection Report, the TA found that "… all invoices on which VAT was assessed at the reduced rate (in 2011, 2012 and 2013) referred to components, parts, pieces and accessories, namely abutments, uclas, burs, implants, implant replicas, etc., thus products whose sale should have been subject to the normal rate and was subject to the reduced rate" (page 13 of the Report);

e) This is because the TA understands that the Claimant should have adopted the procedure established in the binding opinions issued on the matter (no. … of Sept 1996, …, of March 200 and Opinion of 11/5/2007), and in particular the most recent Opinion no. …, of 4/8/2014 of "clarification of the VAT rate applicable to transmissions of dental implants and other dental prosthesis connection or fixation pieces", from which it transcribes parts (see page 10 of the Final Report).

f) The TA made VAT corrections in transactions invoiced at the rate of 6% to the rate of 23%, which resulted in the following VAT and compensatory interest assessments (copies attached to the file):

Year 2011 - With payment deadline until 30/4/2015

VAT Assessment no.…, in the total amount payable of € 7.860,69-01/11T;

Compensatory Interest Assessment no. …, in the total amount payable of € 1.139,69 - 01/11-T

VAT Assessment no. …, in the total amount payable of € 9.494,42-02/11-T

Compensatory Interest Assessment no.…, in the total amount payable of € 1.280,84-02/11-T

VAT Assessment no.…, in the total amount payable of € 14.258,50-03/11-T

Compensatory Interest Assessment no.…, in the total amount payable of € 1.779,77-03/11-T

Year 2011 - With payment deadline of 10/4/2015

VAT Assessment no.…, in the total amount payable of € 1.505,76 – 04/11-T

Compensatory Interest Assessment no. 2015…, in the total amount of € 172,93- 04/11-T

Year 2012 - With payment deadline of 10/4/2015

VAT Assessment no.…, in the total amount payable of € 13.500,01- 01/12-T

Compensatory Interest Assessment no. 2015…, in the total amount payable of € 1.417,31-01/12-T

VAT Assessment no.…, in the total amount payable of € 3.143,48 - 02/12-T

Compensatory Interest Assessment no. 2015…, in the total amount payable of € 297,98 -02/12-T

VAT Assessment no. 2015…, in the total amount payable of € 3.438,20-03/12-T

Compensatory Interest Assessment no. 2015…, in the total amount payable of € 291,63 - 03/12/T

VAT Assessment, no. 2015…, in the total amount payable of € 7.043,88-04/12-T

Compensatory Interest Assessment no. 2015…, in the total amount payable of € 526,45 – 04/12-T

Year 2013 - With payment deadline of 10/4/2015

VAT Assessment no.…, in the total amount payable of € 6.300,76 - 01/13-T

Compensatory Interest Assessment no. 2015…, in the total amount payable of € 409,46 - 01/13-T

VAT Assessment no.…, in the total amount payable of € 14.471,68 – 02/13-T

Compensatory Interest Assessment no. 2015…, in the total amount payable of € 792,96 – 02/13-T

VAT Assessment no.…, in the total amount payable of € 5.903,49 - 03/13-T

Compensatory Interest Assessment no. 2015…, in the total amount payable of € 264,58 – 03/13-T

VAT Assessment no.…, in the total amount payable of € 8.894,78 – 04/13-T

Compensatory Interest Assessment no. 2015…, in the total amount payable of € 307,05 - 04/13-T

Year 2014 - With payment deadline of 10/4/2015

VAT Assessment no.…, in the amount of € 3.820,69 – 01/14-T

Compensatory Interest Assessment no. 2015…, € 156,75-01/01/14-T

g) The total tax assessed with reference to the years 2011, 2012, 2013 and 2014, plus compensatory interest, amounts to the total value of € 108.463,74.

h) The Claimant did not make payment, within the legal period, of the said assessed amounts, and has already been cited in some enforcement proceedings instituted against it by the TA.

i) In some of those enforcement proceedings the Claimant informed that it would, timely, request the provision of guarantee and suspension of the respective enforcement proceeding.

j) The medical devices commercialized by the Claimant are of various kinds, having in common that they are intended to be used in the treatment of anomalies and deficiencies of the teeth, mouth, jaws and related structures;

k) In the course of its activity, the Claimant imports dental implants and abutments which it subsequently sells to dentists or dental prosthetics technicians;

l) The tooth is an organ formed by root, cervix and crown;

m) The dental prosthesis, which replaces the tooth in its entirety and which involves the placement of an implant, is composed of three elements: implant, abutment and crown;

n) Each of these elements is intended to replace part of the tooth organ;

o) The implant is a structure positioned surgically in the maxillary bone below the gum, "replacing" the function of the tooth root and serving, as a rule, to support an abutment and a crown;

p) The abutment consists of a connection structure inserted between the implant and the crown, in a situation where the entire tooth organ is absent;

q) On the abutment is placed a crown which aims to replace the visible part of the tooth;

r) The crown is designed by the prosthetics technician, specifically for each patient, taking into account their morphological characteristics;

s) The surgical procedure for placing a dental prosthesis generally involves several stages. These may follow one another with greater or lesser intervals, which depends not only on the technique used but also on the characteristics of the patient;

t) Implants and abutments are not susceptible to being commercialized on a unit basis, in particular because the choice of abutment occurs at a time subsequent to implant placement, depends on the characteristics of each patient (such as gum height and width) or the manner of implant placement (being necessary to choose abutments with the appropriate angulation);

u) Similarly, single units of implants formed by implant, abutment and crown are not commercialized;

v) Implants, abutments and crowns constitute "artifacts" or "prosthetic materials".

2. Facts Not Proved

It is deemed not proved that the taxable person has incurred costs with the provision of guarantee aimed at the suspension of tax enforcement proceedings.

3. Reasoning of Decisions on Factual Matters

The facts listed and deemed proved are based on the Report of the Tax Inspection attached to the file, both with the PI and with the PA, and also on documents attached by the parties, including opinions attached to the file by the Claimant in the request for arbitral ruling.

As to the tax assessments and compensatory interest relating to the year 2014, attached to the file, no documents were attached to the case, by either party, that substantiate the reason for their existence. However, the description of the same includes references to "reversals" and "adjustments", in addition to the payment deadline coinciding with those of the assessments relating to the earlier years, leading to the conviction of this arbitral tribunal that they effectively relate to corrections relating to the inspection process carried out by the TA, which focused on the years 2011 to 2013, as the Claimant alleges.

There are no facts or documents whose truthfulness has been impugned.

III.2 Matters of Law

1. Questions to be Resolved

a) The first question concerns the first claim formulated by the Claimant, in the sense of annulment, for illegality, of the additional VAT assessments and compensatory interest, relating to 2011, 2012 and 2013, made by the TA and identified above.

b) The second question concerns the examination of the request for annulment of the assessment relating to VAT and compensatory interest, relating to the year 2014.

c) Finally, this Tribunal must examine the request for payment of indemnification, related to the costs incurred with the suspension and guarantee of the enforcement proceedings.

2. Of the Applicable Law

2.1. The first question of law to be considered in the present case concerns the first claim formulated by the Claimant, in the sense of annulment of the additional assessments, relating to 2011, 2012 and 2013, identified above, made by the TA.

The corrections made by the Respondent are based on the circumstance that it considers applicable to transmissions which have as their object dental implants and abutments, the normal VAT rate of 23%[3], when, according to the understanding of the Claimant (reflected in the self-assessment made by it), such transactions should be subject to the reduced rate of 6%[4].

The TA thus maintains that article 18, no. 1, c) of CIVA is applicable, pursuant to which the rate of 23% is applicable.

Differently, the taxable person argues that article 18, no. 1, a) of the same act is to be applied.

VAT constitutes a general tax on consumption, of an indirect and multi-phase nature and of Community origin[5], and, according to the norm just referred to,

"1 - The tax rates are as follows:

a) For imports, supplies of goods and services listed in List I attached to this act, the rate of 6%".

Pursuant to point 2.6 of the list attached to the VAT Code, goods subject to the reduced rate are represented by:

"Orthopedic devices, surgical medical support garments and medical hosiery, wheelchairs and similar vehicles, manually or motor-driven, for disabled persons, devices, artifacts and other prosthetic or compensatory material intended to replace, in whole or in part, any limb or organ of the human body or for treatment of fractures and lenses for vision correction, as well as orthopedic footwear, provided prescribed by medical prescription, under the terms regulated by the Government", and the normal rate applies only subsidiarily, that is, if a reduced rate does not apply.

The issue is thus, in summary, to determine whether dental implants and abutments represent or not "prosthetic or compensatory material intended to replace, in whole or in part, any limb or organ of the human body or for treatment of fractures and lenses for vision correction, as well as orthopedic footwear, provided prescribed by medical prescription, under the terms regulated by the Government".

2.1.1. It is important, for that purpose, in particular to determine what is meant by the concepts of prosthetic material and organ of the human body, as well as to verify whether the goods transacted are included in prosthetic material and if they are intended to replace, wholly or partially, an organ of the human body.

From the evidence produced in the case (as above set out, in the decision on factual matters), in the medical context which is considered, prosthetic material is understood as any artificial element introduced into the human body.

It emerged, on the other hand, that the tooth is an organ of the human body, consisting of three parts: root, cervix and crown.

It also results that the implant is a prosthetic structure, in the form of a screw, intended to replace the root; that the crown is molded, in a laboratory, in a personalized manner, for each patient, representing a prosthetic construction which aims to replace the natural crown and that the abutment represents a prosthetic element that ensures the connection between the implant and the crown.

From the evidence produced it results that each of the said elements (implant, abutment and crown) constitutes prosthetic material.

From each of the mentioned evidence elements it results, thus, that the said meanings are the only ones to be attributed, with precision and scientific rigor, to each of the terms under analysis (of crown, implant, abutment and prosthesis), being irrelevant the inexact meanings which, in the incorrect vernacular of the layperson, may be attributed to them, when, for example, incorrectly the entire dental reconstruction is designated as an implant or the crown is referred to as a prosthesis.

Having regard to the stated factual premises, it is verified, in the concrete case, that each 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.

It is revealed, by the foregoing, to lack any foundation, the understanding, sustained by the TA, in the sense that the goods in question are not prostheses, as well as that the same goods are not apt to fulfill, considered individually, the function of replacing a part of the human body or its function.

The goods in question thus constitute prosthetic material (and not material for prosthesis), with the function of replacing part or all of an organ of the human body, intended to promote, in particular, the proper performance of the masticatory function.

As Z… states in the opinion attached to the case, these are elements of prosthesis and not raw material used in the elaboration of prostheses, observing: "Perhaps the administration intends to say that the materials from which the three pieces above are made do not fall within List I, that is, that the pieces and materials from which manufacturers obtain the implants, the abutments and the crown that, in phases, are introduced into the oral cavity of the patient cannot benefit from the reduced rate. If that were the doctrine, everything would be correct. Indeed, the reduced rate does not extend upstream, to the materials that are then transformed into pieces of the prosthesis (…) The principle followed is, therefore, that when pieces or materials are incorporated into the process of production of dental prostheses or other similar products, the normal VAT rate will apply, because such goods are not directly intended for the purpose pursued by the prosthesis, but when the pieces, by their objective characteristics, can be applied, without being subject to subsequent transformation, in the prosthesis, then they already benefit from the application of the reduced VAT rate. Now the implants, abutments and crown that constitute the prosthesis are applied to the patient, in different phases of the procedure, without any transformation".

In these terms, such transmission finds perfect and direct legal classification in the literal element of the rule contained in point 2.6 of the list attached to the VAT Code, applying, consequently, to such transactions, the reduced rate of 6%, contemplated in article 18, no. 1, a) of the said act.

2.1.2. Equally unfounded is the interpretation, defended by the same Respondent, in the sense that the reduced rate would only apply when there was a transaction of a "single unit implant".

a) The said interpretation finds, on one hand, no support in the literal element of the rule, constituting a view that represents the adoption of a regime that is not the one legally provided, without acceptance in the legal text and incapable, therefore, of being sustainable in the context of the present dispute. In truth, and as is likewise explained particularly in Awards 429/2014-T, 530/2014-T, 67/2015-T and 188/2015-T of CAAD (which focus on the same problem), in no segment of the rule is it required that prosthetic materials be transmitted in an aggregated manner, noting, in the last mentioned decision, that: "nothing in the text of the law leads us to restrict its application to situations of transmissions of 'complete goods' of implant, in the sense that the TA intends to convey".

In the same sense, Z… refers, in an opinion in which he expresses himself on this question, that the said understanding of the TA "does not result at all from the text of the norm of CIVA. Indeed, no distinction is made there that would authorize giving the benefit of the reduced rate only to prostheses constituted by a 'single unit implant'". He further states that "it is not contained in the law and in the legislative formulation there is nothing, even imperfectly expressed, that suggests that such restriction is, in any way, contained in the legislative thinking".

b) On the other hand, such perspective, in addition to not finding acceptance in the text of the law (which, by itself, according to the provision of no. 2 of article 9 of the Civil Code[6], excludes the possibility of representing an understandable understanding) and resting on an erroneous notion of implant, would always be incapable of practical application, thus constituting, an understanding incapable of application by nature. In truth, as Z… explains in the above opinion, "the single unit implant pure and simply does not exist", whereby, if the understanding of the TA were to apply, it would result that "this type of prosthesis never benefits from a reduced rate".

In truth, as explained above in the statement of factual matters, it resulted proved, following the investigation, that the pieces used in the reconstruction of the human tooth, as a whole, are not found for sale in the market, in unitary packs.

Differently, they are sold separately. There are, for example, numerous references of abutments, acquirable from different suppliers, it being appropriate, in each case, to select the one that best suits the clinical situation of the patient undergoing treatment.

The crown, for its part, is molded, by the prosthetics technician, in a laboratory, exactly to measure and according to the characteristics of the dental structure of the patient, in accordance with the mold taken for that purpose.

On the other hand, each of the pieces under analysis is applied, in the treatment process, in temporally distinct phases, whereby it does not become necessary, nor, frequently, appropriate, the acquisition of all of them at the same time, in particular because the selection of the type of abutment to adopt only occurs in the post-surgical phase (placement of the implant).

It would not make, for these reasons, sense (and does not occur, therefore) the joint commercialization of such pieces, not transacted "single units of implant".

Not constituting these, the subject of transmission in the commercial course, the understanding is revealed to be unfounded that the reduced VAT rate of 6% would only apply when there was a case of acquisition and sale of the designated joint units.

c) Yet, even if it happened differently and the elements making up the prosthetic reconstruction of the entire tooth were sellable together, always the interpretation that the said reduced rate would apply only when such elements were acquired separately would be revealed, on one hand, inconsistent with the reason for being of the rule and, thus, with the teleological element[7] that justifies it and, on the other hand, offensive of fundamental legal principles and values.

c.1) The statutory establishment of a reduced VAT rate is justified, in the hypothesis which is considered, in order to create the possibility of more easy access, by citizens, to health care which involves resort to the materials in question.

The ultimate reason for being of the rule thus corresponds to the intention to guarantee and promote public health within the scope of oral health.

It is, moreover, that legislative intention which justifies that, within the scope of article 9 of the VAT Code, it is provided, in letter a), that there are exempt from tax "services provided in the exercise of the professions of doctor, dentist, midwife, nurse and other paramedical professions" (emphasis ours) and, in letter b), that, equally exempt from tax, are "services provided in the exercise of their activity by dental prosthetics technicians" (emphasis ours).

It being the objective of the legislator, thus, to ensure access to health care which it deems essential, it would be incomprehensible if the reduced VAT rate were applied when treatment materials were sold together and no longer when sold separately, creating, unjustifiably, in violation of the principle of equality, unequal treatment among patients equally in need of health care, when, according to the provision of article 64, no. 1 of the Constitution of the Portuguese Republic "Everyone has the right to health protection and the duty to promote and defend it" and, according to no. 3 of the same provision, "it shall be the primary responsibility of the State: a) to guarantee the access of all citizens, regardless of their economic status, to preventive, curative and rehabilitation medical care" (emphasis ours).

Such unequal treatment would be all the more striking in that, in addition to the foregoing, the patient lacks, in certain cases, only one or some of the said prosthetic materials for their treatment to be complete. In these cases, the prosthetic material becomes necessary to replace only part of the organ that the tooth represents. Thus, for example when the implant piece is embedded in the patient's maxilla only to prevent the process of bone resorption, which is not to serve as support for the application of abutment and crown. Similarly if, for example, the patient has a root, making it unnecessary to apply an implant that serves as support for the crown (prosthetic) created in the laboratory and that needs to be applied to the patient in question.

It would be incomprehensible, in these terms, that such patients, by virtue of the type of pathology of the oral cavity that affects them, should come to bear, by repercussion, the normal VAT rate, when others, equally in need, by virtue of different disease at the level of the dental system, of the application of that piece, would bear, as to the same, the reduced VAT rate, only because acquired, that one, together with others of which they also need.

This also demonstrates that each of the said prosthetic materials represents, in itself, an autonomous unit, thus of transaction subject to a reduced rate even if it were understood that this applied only to the total number of pieces involved in the treatment of oral pathology.

On the other hand, that understanding would induce patients, with lower economic capacity and in need of prostheses integrally replacing one or more teeth, to opt for traditional compact prostheses (commonly called "plates"), to benefit from a more accessible price, when that solution implies greater discomfort for the patient and lower quality of that type of alternative. With that, the effect opposite to that which the rule intends would be produced – instead of promoting the quality of health services to which, with reduced rate, citizens are intended to have access, it would foster the regression and the resort to means of oral treatment technically markedly inferior, with the aggravating circumstance that such effect would be reflected, in unequal treatment, at the level of economically disadvantaged citizens.

It would also violate the principle of uniformity of VAT, pursuant to which similar economic activities must be treated the same way, and should be, in obedience to the principle of objectivity, as is emphasized in Case no. 429/2014 – T of CAAD, applying "one single and same rule to taxable operations of the same nature, there being a presumption of similarity when the operations in question correspond to diverse variants of one single taxable operation included in one of the categories of Annex III of the VAT Directive".

c.2) The principle of equality would also be offended from the point of view of the producer and supplier of the goods in question, in that the subject that produced or sold the goods together would benefit from privileged tax treatment in relation to one that only did so separately, which does not find support in the reasons justifying the rate reduction, representing, consequently, in distortion of the rules of the European Union in force in tax matters, violation of the imposition of competitive neutrality[8] (a maxim whose importance is emphasized, also jurisprudentially, at the internal level and of the European Union, particularly in the awards rendered in case no. 429/2014-T of CAAD, in the Rompelman case (Judgment of 22 June 1993, Case 268/83), when this type of neutrality constitutes one of the aspects making up fiscal neutrality and the latter corresponds to a principle to which, as Z… notes, "the tax is particularly sensitive".

d) Nor, on the other hand, is the argument capable of sustaining the understanding defended by the Respondent, the allegation that there should be strict interpretation as to exceptions to the application of the normal VAT rate. In truth, the only defensible principle would be that, in the case of an exception regime, the interpreter cannot extend such regime to other situations, even if it considers them analogous.

It is thus forbidden to extend the benefit, legally provided, to other hypotheses not contained in the law.

However, this does not entail that the interpreter is prohibited from not applying the legal benefit to hypotheses contained in the rule in question. When he applies the statutory provision to the legal hypothesis, the interpreter merely fulfills his duty – to apply the law as legally provided -, his obligation not being (rather it being forbidden to him) to enlarge or restrict the scope of the legal regime.

The interpreter must thus proceed, not to a restrictive interpretation, but to a strict interpretation of the law, that is, to a declarative interpretation of the provision to apply, as is likewise explained in the award rendered in Case no. 171/2013-T of CAAD[9], and the administrative power cannot distort the sense of the fruit of the exercise of legislative power.

From the adequate interpretation of the rule that is examined, it results, as concluded above, that the reduced VAT rate must be applied to implant, abutment and crown, as prosthetic materials.

Maintaining the non-application of the reduced VAT rate to the prosthetic materials which are considered, in disregard of the regime legally fixed, would offend, consequently, the security and confidence that the legal wording must be able to assure to the citizens covered by the rule. Such would not represent restrictive interpretation of the rule (that being an operation in which the literal scope of the rule is restricted, if doubtful, so that it coincides with its reason for being), but improper disapplication of it, and it being certain, on the other hand, that, in the context of the provision which is considered, the legislator did not obey, nor is bound by, the contents contained in the Combined Nomenclature. Thus it is emphasized by Xavier de Basto when he clarifies that: "the Combined Nomenclature serves for statistical purposes and for application of the common customs tariff, but has no relevance in the classification of goods and services, for the purposes of Portuguese VAT", adding that the adoption of the customs classification "would be very unfriendly, not to say hostile" to taxable persons, given that it is they who, within the scope of VAT, proceed to assess the tax.

In the same sense, it is underlined, in Case 171/2013-T of CAAD, that "If it is true that according to article 98, no. 3 of the VAT Directive Member States may use the Combined Nomenclature to define with precision each category subject to the reduced rate, it is also true that the Portuguese legislator did not follow that path (nor was it obliged to)", adding further 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 enjoyed by the Portuguese legislator in the delimitation of transmissions of goods and services to which reduced VAT rates apply, 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 VAT assessment that are disputed".

Adopting identical line of argument, it is stated, in Award 429/2014-T of CAAD (in which the essential same matter that is the subject of decision in the present case is examined), that "the use of the Combined Nomenclature to define with precision each category is a mere possibility which, as such, may or may not come to be used for the purpose by Member States", it being made explicit that the "sole case in which the CIVA recurs to the Combined Nomenclature to define the scope of the tax regime of goods is provided for in its article 14, no. 1, letter i), for the purposes of determining the regime of exemption (complete or zero rate), according to which exempt are 'transmissions of supply goods placed on board warships classified by code 89060010 of the Combined Nomenclature, when they leave the country with destination to a port or anchorage located abroad'", adding: "provision not applicable in the situation at hand".

The prosthetic materials in question would always be, in any case, covered by the said nomenclature, as referred to by Xavier de Basto in the mentioned opinion: "The constituent elements of the implant, moreover, are covered by classification 9021 of the Combined Nomenclature, which covers, in its epigraph, 'articles and prosthetic appliances'".

e) In these terms, having regard to the set of factual and legal reasons adduced, the reduced VAT rate of 6% is considered applicable to the act of transmission of the prosthetic materials in which the dental implant, abutment and crown are translated, in accordance with the provision of article 18, no. 1, a) of CIVA and point 2.6 of the list attached thereto, proceeding, consequently, the impugning claim formulated by the Taxable Person, in the present case, of the assessment acts relating to 2011, 2012 and 2013, which it identifies in its request for arbitral ruling.

2.2. As to the second question of law to be considered, as it specifically respects the assessment acts relating to 2014, impugned by the Claimant also for lack of reasoning, it is appropriate to emphasize that the formal duty of reasoning is fulfilled "by the presentation of possible premises or coherent and credible reasons, while substantive reasoning requires the existence of actual premises and correct reasons capable of supporting a legitimate decision on the substance"[10], and that "the reasoning discourse must be capable of clarifying the determining reasons for the act, for which it must be a clear and rational discourse; but, insofar as its lack or insufficiency entails a formal defect, there is not, for the assessment of the formal correctness of the act, the substantive validity of the reasons adduced, but only their existence, sufficiency and coherence, in terms of making known the reasons for the decision" (see the Award of STA of 11/12/2002, case no. 1486/02). Additionally, "the duty of reasoning constitutes not only an important mainstay of administrative and tax legality but also a fundamental instrument of its contentious guarantee, in addition to being a fundamental element of its interpretation" (see the Award of TCAS of 26/6/2014, case no. 1486/02), and it should also be noted that this duty results from article 77 of LGT and article 268, no. 3 of CRP.

In the Respondent's reply the Claimant was omitted as to the allegation made by it, that the 2014 assessments were not duly reasoned.

It being certain that the Respondent's lack of reply does not represent an admission of the facts alleged by the Claimant, such lack of reply is freely appreciated by the Court (see nos. 6 and 7 of article 110 of CPPT).

The Tribunal having deemed it proved that such 2014 assessments are related to those relating to the years 2011 to 2013 (as set out above), the impugning claim formulated by the Claimant in the present case, of the assessment acts relating to 2014 which it identifies in its request for arbitral ruling, will be upheld in that such acts suffer from illegality in the same terms as the aforementioned VAT assessment acts relating to the earlier years and examined above.

2.3. As to the third question of law, no costs incurred with the provision of guarantee to the TA relating to tax enforcement proceedings having been proved, which moreover were not even quantified.

As the requirements provided for in article 53, nos. 1 and 2 of LGT are not met, the request for a ruling for indemnification is deemed unfounded.

IV. Decision

In these terms, this tribunal agrees:

a) To uphold the request for annulment of the VAT assessments and respective interest subject to impugnation in the present action, that is, the official VAT assessments relating to the fiscal years 2011, 2012, 2013 and 2014 and corresponding assessments of compensatory interest and default interest, in the total amount of € 108.463,74 (of which € 104.486,30 relating to the fiscal years 2011, 2012 and 2013, and also € 3.977,44 relating to fiscal year 2014);

b) To dismiss the request for a ruling for payment of indemnification for undue provision of guarantee; and

c) To condemn the Tax and Customs Authority in the costs of this proceeding, as follows.

V. Value of the Proceeding

In accordance with the provisions of articles 306, no. 2, and 297, no. 2 of CPC, article 97-A, no. 1, letter a) of CPPT and article 3, no. 2 of the Regulations on Costs in Tax Arbitration Proceedings, the proceeding is assigned the value of € 108.463,74.

VI. Costs

Pursuant to the provisions of articles 22, no. 4 and 12, no. 2 of RJAT, article 2, in no. 1 of article 3 and in nos. 1 to 4 of article 4 of the Regulations on Costs in Tax Arbitration Proceedings, as well as Table I attached thereto, the amount of the arbitration fee is fixed at € 3.060,00, to be paid by the Respondent.

Let it be notified.

Lisbon, 25 January 2016

The Collective Arbitral Tribunal

President

(José Poças Falcão)

Arbitrator Member

(José Ramos Alexandre)

Arbitrator Member

(Nuno Miguel Morujão)

[Text drawn up by computer, pursuant to article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by reference to article 29, no. 1, letter e) of RJAT]

[1] Acronym for Legal Framework of Tax Arbitration.

[2] See in particular, Judgments of 12 June 1979, Case Nederlandse Spoorwegen, Case 126/78, Rec., p. 2041, of 11 October 2001, Adam, Case C-267/99, Coll., p. I-7467, no. 36; of 23 October 2003, Commission/Germany, Case C-109/02, Coll., p. I-12691, no. 20, and of 26 May 2005, Kingscrest Associates and Montecello, Case C-498/03, Coll., p. I-4427, no. 41).

[3] In accordance with the provisions of articles 96 and 97 of Directive 2006/112/EC of 28 November, the normal VAT rate was thus fixed at a percentage not less than 15%.

[4] Rate fixed by the national legislator, in accordance with the possibility for such expressly admitted under articles 98 and 99 of the said Directive 2006/112/EC. According to the former: "1. Member States may apply one or two reduced rates. 2. Reduced rates apply only to supplies of goods and services of the categories set out in Annex III. Reduced rates do not apply to services provided by electronic means. 3. When applying the reduced rates provided for in no. 1 to categories relating to goods, Member States may use the Combined Nomenclature to define with precision each category". In accordance with no. 1 of the latter, "Reduced rates are fixed at a percentage of the taxable amount that may not be less than 5%". Within Annex III, point 4 is contemplated: "Medical equipment, auxiliary material and other devices normally used to alleviate or treat deficiencies, for the exclusive personal use of disabled persons, including their repair, as well as children's car seats". This point of Annex III found equivalence in the identical point of Annex H of the Sixth Directive (Directive 92/77/CEE of the Council, of 19 October 1992, implementing the principle of harmonization in VAT rates), under which reference was made to: "Medical equipment and other devices, normally used to alleviate or treat deficiencies, for the exclusive personal use of disabled persons, including their repair and children's car seats". The adoption of a reduced rate represents, for each Member State, a possibility (and not an obligation), as the CJEU emphasizes in its jurisprudence, in particular in the Judgments rendered in the cases Zweckverband zur Trinkwasserversorgung (of 3 April 2008, Case C-442/05) and Commission vs Spain (of 18 January 2011, Case C-83/99). In the same sense, see the Judgment rendered in case no. 171/2013-T of CAAD.

[5] This tax was introduced in Portugal through Decree-Law no. 394-B/94, of 26 December, in compliance with the obligation of transposition of Directive 77/388/CEE of the Council, of 17 May 1977, corresponding to Directive no. 2006/112/EC of 28 November, currently in force. An obligation that results from the fact that, in accordance with the provision of article 288 of the Treaty on the European Union, the Directive constitutes (unlike Regulation) a Community act that binds the States "as to the result to be achieved, while leaving to the national authorities competence as to the form and means".

[6] "The legislator's thinking cannot, however, be considered by the interpreter in the absence of, in the text of the law, a minimum of verbal correspondence, even if imperfectly expressed", a rule applicable in accordance with the provision of article 11 of the General Tax Law, by virtue of which the meaning of tax rules and the qualification of the facts to which such rules apply are determined according to the general rules and principles of interpretation and application of laws.

[7] On the diverse elements (literal, teleological, historical and systematic) to be considered in statutory interpretation, see J. Baptista Machado, Introduction to Law and Legitimizing Discourse, Coimbra, 1983, pp. 182 and 183.

[8] It should be noted that, pursuant to recital 7 of the VAT Directive, the VAT system "should, even though rates and exemptions are not completely harmonized, lead to competitive neutrality, in the sense that, within the territory of each Member State, goods and services of the same type are subject to the same tax burden, regardless of the length of the production and distribution circuit". That is, moreover, a condition to be observed by Member States when they opt to introduce reduced VAT rates, as referred to by the CJEU, in particular in the Judgments rendered in the cases Commission v. Germany (of 28 October 2003, Case C-109/02) and Commission v. France (of 3 May 2001, Case C-481/98). On this point, see the award rendered in case no. 171/2013-T of CAAD. Within this award, it came to be decided that the reduced VAT rate applies, whether to "a wheelchair commercialized and invoiced in a single item", or to that "in which, given the specificities of the pathologies or for reasons related to the system of internal organization of the Claimant, the various items that make up the chair are invoiced separately. In both situations it is the sale of a wheelchair, although it may have different specifications depending on the case (disability). As for the parts and components, such as batteries and motors, which are usually commercialized separately in the context of maintenance or repair of a wheelchair or 'scooter', no reasonable justification is discerned that would favor the application of a reduced rate to a new wheelchair and a normal rate to a part of that chair, for example the motor, for integration in a used wheelchair. Or, again, a normal rate taxation of the later application (to the acquisition of the wheelchair) of a part that has become necessary, by virtue of the evolution of a degenerative disease". As to the concept of fiscal neutrality, see Xavier de Basto, Taxation of Consumption and its International Coordination, CCTF, no. 164, Lisbon, 1991, pp. 39-73, Clotilde Celorico Palma, Introduction to Value Added Tax, IDEFF Notebooks, no. 1, Almedina, 6th Edition, September, 2014, pp. 19-34 and Maria Teresa Lemos, "Some Observations on the Possible Introduction of a Value Added Tax System in Portugal", CTF, no. 156, December, 1971, p. 10.

[9] On the differentiation between both types of interpretation, see Oliveira Ascensão, Law Introduction and General Theory, Almedina, 10th Ed., 1999, pp. 418-421.

[10] See Vieira de Andrade, The Duty of Express Reasoning of Administrative Acts, p. 239.