VAT Exemption for Clinical Analysis Services Under Article 9 CIVA and Waiver Under Article 12 CIVA

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), José Nunes Barata and Catarina Siquet, appointed by the Ethics Council of the Administrative Arbitration Centre to form an Arbitral Court:

I – REPORT

1. On 18 May 2015, the company A… S.A., NIPC…, with registered office at Rua …, …, …, …, …-… Porto, submitted a request for constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviatedly referred to as RJAT), seeking the declaration of illegality of the tax assessment act (VAT and compensatory interest), in the amount of 167,194.96 euros.

2. To substantiate its request for declaration of illegality and consequent annulment of the VAT assessments and respective compensatory interest listed below, issued in the name of the incorporated company B… S.A., the Claimant alleges, in summary, that:

FIRST. – The Assessments result from an erroneous interpretation of the jurisprudence of the Court of Justice, in particular, the Kügler Judgment (Case C-141/00), which led the Finance Department of Porto to assert that article 9(2) of the VAT Code exempts medical assistance service provisions carried out solely in the hospital environment, including closely connected operations, whereas article 9(1) of the VAT Code is intended to exempt medical and paramedical service provisions supplied outside those places, whether at the private residence of the provider, at the patient's residence, or at any other location, based on article 132(1), paragraphs b) and c) of the VAT Directive, respectively.

SECOND. – The subjective scope of application of paragraphs b) and c) of article 132(1) of the VAT Directive is distinct and does not overlap, on penalty of depriving of useful content the requirement established in paragraph b) that a public body or a private body operating under social conditions analogous to those of public bodies is involved.

THIRD. – The distinction in the field of application of paragraphs b) and c) of article 132(1) of the Directive is based on the concept of body or establishment which, according to the jurisprudence of the Court of Justice, suggests the existence of an individualised (autonomous) entity performing a special function, distinguishing itself from the natural persons composing it. Therefore, paragraph b) applies to bodies or establishments, while paragraph c) applies to other entities that do not constitute bodies or establishments.

Thus, on the one hand, it is clear that paragraph b) does not contemplate only situations occurring within the hospital environment stricto sensu, but in all bodies provided for by regulation, as follows, notably, from the jurisprudence L.u.P (Case C-106/05), and which include centres of medical assistance and diagnosis. On the other hand, it is not sufficient that the medical service provision occurs in a hospital environment for the possibility of applying the exemption provided for in paragraph c) to be excluded, as follows from the Klinikum Dortmund Judgment (Case C-366/12).

It is, therefore, false that paragraph c) is intended to exempt medical service provisions occurring outside the hospital environment; rather, what is necessary is that such service provisions occur within the framework of a relationship of trust between the patient and the service provider in such a way that they are attributable to the concrete healthcare professional and not provided by a body (cf. Judgments Commission/United Kingdom (Case 353/85), §33; Dornier (Case C-45/01) §47 and Kügler (Case C-141/00), §35 and 36; Klinikum Dortmund (Case C-366/12) §33).

FOURTH. – From reading article 132(1), paragraphs b) and c) of the VAT Directive, and having regard to the jurisprudence of the Court of Justice, it must be concluded that:

• paragraph b) applies to medical service provisions provided by public law bodies or private law bodies operating under social conditions analogous to those of public law bodies (i.e., as a rule carried out without profit-making purpose), when they carry out medical service provisions occurring in hospital establishments, centres of medical assistance and diagnosis and other establishments of the same nature, in such a way that the activity is attributed to an institutional and organised entity, independent of the natural persons composing it.

• paragraph c) applies to medical service provisions, carried out within the framework of a relationship of trust between patient and provider, in such a way that the service provision is attributed to the natural person who actually carries out the service provision.

FIFTH. – Having regard to the subjective scope of application of paragraphs b) and c) of article 132(1) of the Directive, it is concluded that, in light of the VAT Directive, B… could not be exempt because:

• it did not fall within paragraph c), since, on the one hand, it had its own structure distinct from that of its shareholders and the natural persons composing it, being a body within the meaning of the VAT Directive. On the other hand, the manner in which it carried out its activity did not fall within a relationship of trust between patient and service provider, in the sense of the jurisprudence of the Court of Justice.

• it did not fall within paragraph b), since, although it was one of the bodies expressly contemplated in the provision of the rule (i.e., "diagnostic centre"), it was not a public body or a private body operating under social conditions analogous to those of public bodies. In fact, B… was a private entity pursuing profit-making objectives, with complete economic and legal independence from the Public Administration. Furthermore, the need to ensure competition in the market for clinical analysis service provision would always mean that B… could not be exempt, by application of the provision of article 134, paragraph b) of the VAT Directive.

SIXTH. – Faced with the impossibility of, in light of the VAT Directive, the Clinical Analysis activity of B… being exempt, the Assessments must be annulled as they are based on an interpretation of the internal rule contrary to the VAT Directive (vertical direct effect).

SEVENTH. – Interpreting article 9(1) and (2) of the VAT Code, having regard to the VAT Directive as well as the jurisprudence of the Court of Justice, we conclude that, even in an interpretation that disregards the formal criterion of distinction thought by the legislator (i.e., application of article 9(1) to natural persons and article 9(2) to legal persons), the truth is that article 9(2) of the VAT Code must always apply to situations where there is an institutionalised and organised means of organisation to which the service provision is attributable. In either situation, it is evident that B… fell within that statutory provision and, consequently, should have been able to waive the VAT exemption, under article 12(1), paragraph b) of the VAT Code.

EIGHTH. – In light of the principle of interpretation in conformity, imposed by Union law, internal legislation should be interpreted so as to respect the commands of the Union, so that, also by this route, one would reach the conclusion that article 9(2) of the VAT Code must be applied, since only in this way would it be possible to permit the waiver of the exemption, ensuring that B… would be subject and not exempt from VAT, as determined by the VAT Directive.

NINTH. – Both by information provided by the Tax Authority directly to the Claimant, then parent company of B…, and by consultation of administrative doctrine on the matter, the position of the Tax Authority regarding the susceptibility of waiver of the exemption by B… was always unequivocal in the sense that it could waive the VAT exemption. Consequently, without prejudice to it being legitimate for the Tax Authority to alter its understanding (this, independent of the discussion regarding the legality of the new position), it will be illegitimate and illegal, as it is contrary to the principles of good faith and legal certainty, for the Tax Authority to alter its position with retroactive effects, gravely harming B… and the Claimant.

TENTH. – There is no legal basis for the Tax Authority to assess tax deducted during the period in which the taxpayer was classified under the optional taxation scheme, and during which it assessed tax on its active operations.

This is all the more evident in that the Finance Department of Porto only draws partial effects from the reclassification of B…, in that it disregards the amounts it assessed, verifying, in the limit, an illegitimate unjust enrichment of the Tax Authority, particularly striking when the institution of waiver of exemption does not represent any tax benefit, instead being part of the logic of the functioning of the tax (which suffers, moreover, distortions when incomplete exemptions are applied).

1. On 20 May 2015, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

2. The Claimant did not proceed to appoint an arbitrator, so, under the provision of article 6(2), paragraph a) and article 11(1), paragraph a) of the RJAT, the President of the Ethics Council of the CAAD designated the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the task within the applicable period.

3. On 13 July 2015, the parties were notified of these designations and did not express willingness to refuse any of them.

4. In accordance with the provision of article 11(1), paragraph c) of the RJAT, the collective Arbitral Tribunal was constituted on 28 July 2015.

5. On 2 October 2015, the Respondent, duly notified to that effect, submitted its response requesting dismissal since the Claimant's petition should be considered unfounded, defending itself by exception and challenge.

6. By order of 16 October 2015 the meeting provided for in article 18 of the RJAT was waived.

7. Having been granted a period for the submission of written submissions, these were submitted by the parties, pronouncing themselves on the evidence produced and reiterating and developing their respective legal positions.

8. A period of 30 days was fixed for the rendering of final judgment, after the submission of submissions by the Respondent.

9. The Arbitral Tribunal is substantively competent and is regularly constituted, under articles 2(1), paragraph a), 5 and 6(1) of the RJAT.

The parties have legal standing and capacity, are legitimate and are legally represented, under articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings do not suffer from nullities.

Everything being considered, it behoves to pronounce

II. DECISION

A. MATTERS OF FACT

A.1. Facts established as proven

1. The Claimant is a limited company with private capital, for-profit purposes, whose main business activity is "clinical analysis laboratories".

2. On 1 August 2013, the merger by global transfer of assets of the incorporated company B…, S.A. to the incorporating company A…, S.A. (the Claimant) was registered.

3. As of the date of the assessments, the incorporated company B…, S.A. was already an integral part of company A…, S.A.

4. B…, S.A. began its activity on …/…/1978, with the business activity of "Clinical Analysis Laboratories".

5. For VAT purposes, it was classified on 1/1/1986 under the exemption regime under article 9 of the VAT Code, having waived the exemption under paragraph b) of article 12(1) of the same Code, with submission of a change declaration effective as of 1/7/2006.

6. From that date onwards, it was, therefore, classified under the normal VAT regime (initially quarterly and from 1/1/2008 under a monthly regime), subjecting VAT to the operations carried out within its business activity and, on the other hand, to deduct the tax borne on the acquisition of goods and services under the applicable provisions of the VAT Code.

7. In the course of the tax inspection procedure that took place between 29/9/2014 and 24/2/2015, the tax inspection services of the Finance Department of Porto, with an external service order of partial scope directed to the VAT of the periods 2010/07 to 2010/12, inclusive, understood that the Claimant improperly waived the VAT exemption in July 2006.

8. Following the inspection referred to in the previous point, the Tax and Customs Authority prepared the Tax Inspection Report (which is part of the administrative file) which includes the following:

Under article 9(1) of the VAT Code, the following are exempt from tax: "Service provisions carried out in the exercise of the professions of physician, dentist, midwife, nurse and other paramedical professions".

Given that the VAT Code does not contain any definition with regard to paramedical activities, it is necessary to resort to Decree-Law no. 261/93, of 24 July, as well as Decree-Law no. 320/99, of 11 August, since these are the decrees containing the requirements to be observed for the exercise of the respective activities.

The list attached to Decree-Law no. 261/93, of 24 July, provides:

In its item 1, the activity of Clinical and Public Health Analysis. In accordance with the description presented therein, this activity translates to "the development of activities at the level of clinical pathology, immunology, clinical haematology, genetics and public health, through the study, application and evaluation of analytical techniques and methods proper thereto, for purposes of diagnosis and screening".

In its item 2, the activity of Pathological, Cytological and Thanatological Anatomy, therein described as corresponding to "the treatment of biological tissues collected from the living or dead organism, with macroscopic and microscopic, optical and electronic observation, with a view to anatomopathological diagnosis; mounting of anatomical pieces for teaching and training purposes; execution and control of the various phases of cytological technique".

It is important to note that the exemption provided for in article 9(1) of the VAT Code operates independently of the legal nature of the service provider and, namely, whether it is a natural or legal person and, equally, that that exemption is based on paragraph c) of article 132(1) of Directive 2006/112/EC, of the Council, of 28 November (which reformulated Directive 77/388/CEE, of the Council, of 17 May, commonly referred to as the Sixth Directive).

Under article 9(2) of the VAT Code, the following are exempt: "Medical and health service provisions and operations closely connected thereto carried out by hospital establishments, clinics, dispensaries and similar establishments".

This provision transposes to the internal legal order paragraph b) of article 132(1) of the aforementioned Directive 2006/112/EC, of the Council, of 28 November, which provides that Member States shall exempt the following operations: "Hospitalisation and medical assistance, and likewise operations closely related thereto, provided by public law bodies or, under social conditions analogous to those applicable to the latter, by hospital establishments, centres of medical assistance and diagnosis and other establishments of the same nature duly recognised".

In this manner, this exemption covers medical and health service provisions (health acts) consisting of providing assistance to persons, diagnosing and treating diseases or any health anomalies and operations connected thereto, carried out by the establishments expressed in the aforementioned rule or by similar establishments (hospitalisation/admission).

On the other hand, establishments are considered similar for purposes of the aforementioned exemption, public or private establishments that diagnose and treat diseases or any other health anomaly, that is, establishments that actually carry out operations of the nature of health service provisions.

The Court of Justice of the European Communities (CJEC), in the Judgment of 10 September 2002, handed down in Case C-141/00, relating to the Kugler case (§ 36), showed that paragraphs b) and c) of article 132(1) of the VAT Directive, although they aim to regulate the exemptions applicable to medical assistance service provisions, have distinct scopes.

Whilst paragraph b) – which corresponds to article 9(2) of the VAT Code – exempts service provisions of medical assistance carried out in the hospital environment, including closely connected operations, paragraph c) – which corresponds to article 9(1) of the VAT Code – is intended to exempt medical and paramedical nature service provisions supplied outside those places, whether at the provider's private residence, at the patient's residence, or at any other location.

As mentioned previously, the activity actually carried out by the taxpayer, which benefited from VAT exemption under article 9 of the VAT Code and for which B… waived the exemption, under paragraph b) of article 12(1) of the VAT Code, consisted, essentially, in the provision of Clinical Analysis and Pathological Anatomy service provisions.

The collection of samples to be analysed was carried out, as a rule, at the central laboratory or at one of various collection units, and could equally occur at the patient's residence. Subsequently, the processing of samples to be analysed was carried out and the competent analysis report was issued. B… also carried out the processing of samples collected at collection points of other entities, including related entities, when its services were subcontracted.

It should be noted that in no case did the service provisions provided by the taxpayer involve the hospitalisation or admission of patients, and, as shown in the preceding paragraph, they were not carried out in a hospital environment.

As follows from the foregoing (…), the taxpayer cannot consider the activity carried out exempt from tax by classification under article 9(2) of the VAT Code, but only by invocation of the provision of article 9(1) of the same code.

Consequently, as it was classified under article 9(1) of the VAT Code, the taxpayer could not waive the exemption, due to the non-existence of a legal rule permitting it to do so, since the waiver of the exemption provided for in paragraph b) of article 12(1) of the VAT Code applies only to the exemption under article 9(2) of the VAT Code.

Not being able to have effected the waiver of the VAT exemption due to lack of legal ground, B… should have remained classified as an exempt taxpayer, under article 9 of the VAT Code.

Consequently, in obedience to the provision of article 20(1) of the VAT Code, it could not deduct the tax borne on the acquisition of goods and services, since in the exercise of its activity it carried out operations that did not confer the right to deduction, under that code (namely the service provisions of Clinical Analysis and Pathological Anatomy, exempt from VAT under article 9(1) of the VAT Code).

As duly explained (…), the tax borne by the taxpayer during the periods under analysis would not be deductible, so the VAT deducted must be considered as improperly deducted, under article 20(1) of the VAT Code.

It should be noted that, for the determination of the amount improperly deducted, the VAT that was regularised in favour of the taxpayer is not relevant (field 40 of the periodic VAT declarations), as it relates to corrections to tax previously assessed.

In light of the foregoing, the amounts of VAT outstanding are those calculated in Table I, totalling, in the periods under analysis, a total of € 142,553.01. (…).

It is important to note that the amounts considered in the above table of improperly deducted VAT were those recorded in the periodic VAT declarations submitted by the taxpayer with reference to those periods.(…)

1. The Claimant was notified to exercise the right to hearing on the draft Tax Inspection Report, which it did not exercise.

2. Following the inspection, the Tax and Customs Authority made the following assessments of VAT and compensatory interest:

1. On 18 May 2015, the Claimant submitted the request for arbitral ruling that gave rise to the present proceedings.

2. Included in the administrative file was: information from the tax administration of 24/6/1992, provided at the request of C…; and information no. 1943 of 16/6/1992 from the VAT Administration Services to company A…, S.A., concerning the application of the possibility of waiving VAT exemption in the activity of clinical analysis.

A.2. Facts established as not proven

None.

A.3. Substantiation of the proven and not proven matters of fact

With regard to the matters of fact, the Court does not have to pronounce on everything that was alleged by the parties; rather, it has the duty to select the facts that matter for the decision and discriminate proven from not proven matters (cfr. article 123(2) of the Code of Tax Procedure and Process (CPPT) and article 607(3) of the Code of Civil Procedure (CPC), applicable by virtue of article 29(1), paragraphs a) and e), of the RJAT).

Thus, the facts relevant to the judgment of the case are chosen and defined according to their legal relevance, which is established in light of the various plausible solutions of the legal question(s) (cfr. former article 511(1) of the CPC, corresponding to the current article 596, applicable by virtue of article 29(1), paragraph e), of the RJAT).

Thus, having regard to the positions assumed by the parties, in light of article 110(7) of the CPPT, the documentary evidence and the administrative file attached to the proceedings, the facts listed above were considered proven, with relevance for the decision, taking into account that, as was written in the Judgment of the Court of Administrative Appeals (TCA-South) of 26-06-2014, handed down in case 07148/13, "the probative value of the tax inspection report (…) may have probative force if the assertions contained therein are not challenged".

B. ON THE LAW

i. On matters of exception

The Respondent begins by questioning the material competence of the arbitral tribunal to consider the claim that was submitted to it, since, it maintains, "the first issue to be decided relates to whether or not it can be recognised that the Claimant has the right to waive the exemption, given that the prerequisites for its recognition were altered", so "the additional VAT assessment acts carried out should be qualified as consequential acts having regard to the concept, albeit a restricted one, adopted by both doctrine and jurisprudence".

This same matter was raised in case 168/2015-T of the CAAD, not yet published, which, dealing with a matter entirely identical to that of the present proceedings, stated what is now, with due respect, transcribed:

"Ordinance no. 112-A/2011, with respect to acts classifiable under article 2, only removed from the scope of the binding of the Tax Administration, in non-customs matters, claims relating to self-assessment acts, withholding acts and advance payment acts that were not preceded by recourse to the administrative route and claims relating to acts of determination of taxable matter and acts of determination of taxable matter, both by indirect methods, including the decision of the revision procedure.

It is manifest that none of the situations in which Ordinance no. 112-A/2011 removes the competence of the arbitral tribunals functioning in the CAAD is at hand, so competence must be assessed solely in light of the RJAT.

As can be seen from article 2 of the RJAT, the competence of the arbitral tribunals functioning in the CAAD was defined by the RJAT only having regard to the type of acts that are the object of the claims of taxpayers and not according to the type of questions that need to be considered to decide whether the acts are legal or illegal.

There is, in particular, no prohibition against consideration of matters relating to the verification of the prerequisites of the right to waive VAT exemption or any other questions of legality relating to the acts of the types referred to in article 2 of the RJAT. A tax assessment departing from the disregard of an exemption or a waiver of exemption does not cease to be a tax assessment act. And the claim to consideration of the legality or illegality of that underlying disregard in a tax assessment act does not, therefore, cease to be consideration of a claim relating to the declaration of illegality of assessment acts, in which that disregard is materialised.

Thus, in the arbitral proceeding, similarly to what occurs in the judicial challenge proceeding, any illegality can, as a rule, be attributed to assessment acts, as follows from article 99 of the CPPT, subsidiarily applicable.

This will only not be the case in situations where the law provides for the autonomous challengeability of administrative acts that are prerequisites of assessment acts, only to that extent being the consideration of the legality of assessment acts in all aspects removed. But, for there to be such autonomous challengeability, there must be some administrative act in tax matters, since challengeability relates to acts and not to legal positions assumed explicitly or implicitly as prerequisites of assessment acts but not materialised in autonomous tax acts.

The consequential acts, of which the Tax and Customs Authority speaks, are consequential to other previous tax or administrative acts and, in the case at hand, there is no report that any administrative act was carried out assessing whether the Claimant has or does not have the right to waive VAT exemption.

That is, for there to be a limitation on the challengeability of the assessment acts impugned, there would have to be previously carried out some administrative act that was a prerequisite of these assessment acts, which did not occur in the case at hand.

For this reason, as the assessment acts are injurious to the interests of the Claimant and being the only acts carried out by the tax administration concerning the situation considered therein, their contentiousness must be ensured with grounds in any illegality, as follows from the principle of effective judicial protection, enshrined in articles 20(1) and 268(4) of the Portuguese Constitution.

On the other hand, when there is no autonomously challengeable act prior to an assessment act dealing with its prerequisites, "any illegality previously committed can be invoked in the challenge of the final decision" (final part of article 54 of the CPPT), so all questions relating to the legality of assessment acts can be considered in tax courts in judicial challenge proceedings, as follows from article 97(1), paragraph a) and article 99 of the same Code.

In fact, in tax courts, even when assessment acts have been carried out, if one is faced with a situation in which it could be more useful for the taxpayer to use the action for recognition of a right or legitimate interest (by making it possible, in addition to consideration of the legality of acts, to define the taxpayer's rights for the future), the use of the action instead of judicial challenge is a mere faculty, as follows from the very text of article 145(3) of the CPPT, by stating that "actions can only be proposed whenever this procedural means is the most appropriate to ensure full, effective and actual protection of the right or legally protected interest". That is, what is provided for in this rule is a limitation on the use of the action and not a limitation on the use of the judicial challenge proceeding.

In fact, it is manifest that the judicial challenge proceeding includes the possibility of recognition of rights in tax matters, as are the right to annulment or declaration of nullity of assessments, the right to indemnity interest and the right to indemnification for unjust guarantee, so the fact that it involves recognition of rights is no obstacle to the use of the judicial challenge proceeding.

Thus, as the Tax and Customs Authority mentions, given that the tax arbitral proceeding was created as an alternative to the judicial challenge proceeding, it must be concluded that there is no obstacle to the legality of the assessment acts in question in this proceeding being considered by this Arbitral Tribunal, since in tax courts that legality could be considered in a judicial challenge proceeding.

For this reason, with respect to the claim for annulment of the assessment acts, the exception of material incompetence raised by the Tax and Customs Authority, on the ground that it involves recognition of a right in tax matters, is unfounded."

Not seeing reason to diverge from the learned exposition in the aforementioned judgment, instead fully subscribing to what was therein set forth, the exception of material incompetence raised by the Respondent is held to be unfounded.

ii. On the preliminary referral

The Respondent, in its response, requests that the proceeding be referred to the Court of Justice of the European Union, under the provision of article 267 of the Treaty on the Functioning of the European Union (TFEU), for purposes of defining the scope of the waiver of the aforementioned exemption regime.

To that effect, it alleges that "all the jurisprudence of the CJEU, with some similarity to the case of the present proceedings, resulted from cases that are in an antagonistic position or, if we will, in a mirror position relative to the situation of the present proceedings", since "in those cases, the targeted parties sought instead to benefit from the exemption regarding the provision of medical services, when the respective tax administrations sought their subjection/taxation", so there will be "a need to ascertain what the classification is under VAT of the clinical analysis activity carried out by the now Claimant and the possibility of waiving VAT exemption regarding that activity, since it appears to follow from the Community jurisprudence, namely in the judgments Kügler (§ 34 to 36), Dornier (§41 and 51 and point 1 of the final conclusions), L.u.P (§22 and 31) and conclusions of Advocate General Poiares Maduro relating to the latter judgment (§25, 30 and 33)".

As stated in point 7 of the Recommendations to national courts concerning the submission of preliminary ruling proceedings (2012/C 338/01), of the CJEU:

"the role of the Court in the context of a preliminary ruling proceeding is to interpret Union law or to pronounce on its validity, and not to apply this law to the factual situation underlying the main proceeding. That role is incumbent on the national court and, for this reason, it is not incumbent on the Court to pronounce on questions of fact raised in the context of the dispute in the main proceeding or on any divergences of opinion as to the interpretation or application of the rules of national law".

It is further recalled, in point 12 of those same recommendations, that the preliminary referral to the aforementioned Court should not be made when:

i. there is already jurisprudence on the matter (and when the possibly new framework does not raise any real doubt as to the possibility of applying that jurisprudence to the concrete case); or

ii. when the correct manner of interpreting the legal rule in question is unequivocal.

Consequently, it continues at point 13, "a national court may, in particular when it considers itself sufficiently clarified by the jurisprudence of the Court, decide for itself the correct interpretation of Union law and its application to the factual situation of which it is aware".

Finally, as stated in point 18 of those same recommendations, "The national court may submit a preliminary ruling request to the Court from the moment it considers that a decision on the interpretation or validity is necessary to pronounce its decision".

In the case at hand, it is not considered that a decision on the interpretation of the Community rules is necessary to pronounce its decision, nor does the Claimant demonstrate this, having not even submitted any concrete question demonstrating this.

On the other hand, and as will be seen below, it is understood that the available jurisprudence of the CJEU clarifies sufficiently, in terms of being able to decide on the correct interpretation of Union law and its application to the factual situation of which one is aware.

Finally, it is noted that the essential question – the possibility or not of the waiver of the exemption – is not directly regulated in the Community rules, which impose on Member States the obligation to exempt the operations, but do not prohibit the taxpayers from opting for the taxation regime, nor Member States from accepting that option, and it is equally certain that it does not impose on them, with the exception of the exemption relating to gold for investment (cfr. articles 348 et seq. of the Directive), the obligation to make that option available.

Thus, and for the foregoing reasons, the requested preliminary referral is refused.

iii. On the merits of the case

It falls to this Court, competent to do so, to verify the legality of the VAT assessment acts impugned, identified above.

First, it is necessary to conclude whether the decision of the Tax and Customs Authority, which classifies the activity of Laboratory B… under article 9(1) of the VAT Code, because carried out outside the hospital environment, and thus, not susceptible to waiver, is sound.

It is important to note, to what is at issue here, articles 9 and 12 of the VAT Code:

Article 9

Exemptions in internal operations

The following are exempt from tax:

1. Service provisions carried out in the exercise of the professions of physician, dentist, midwife, nurse and other paramedical professions;

2. Medical and health service provisions and operations closely connected thereto carried out by hospital establishments, clinics, dispensaries and similar establishments;

(…)

Article 12

Waiver of exemption

1 - The following may waive the exemption, opting for the application of tax to their operations:

(…)

b) Hospital establishments, clinics, dispensaries and similar establishments, not belonging to public law persons or private institutions integrated in the national health system, that carry out medical and health service provisions and operations closely connected thereto;

(…)

2 - The right to option is exercised by submission, at any tax office or other legally authorised location, of the declaration of commencement or changes, as applicable, taking effect from the date of its submission.

3 - Having exercised the right to option under the preceding articles, the taxpayer is obliged to remain in the regime it has opted for during a period of at least five years, and, at the end of such period, should it wish to return to the exemption regime:

a) Present, during the month of January of one of the years following the year in which the period of the optional regime has elapsed, the declaration referred to in article 32, which takes effect from 1 January of the year of its submission;

b) Subject to taxation the remaining inventory and proceed, under the terms of article 24(5), to the regularisation of the deduction as to fixed assets.

These exemptions are related to article 132 of Directive no. 2006/112/EC, of 28-11-2006, namely:

1. Member States shall exempt the following operations:

(…)

b) Hospitalisation and medical assistance, and likewise operations closely related thereto, provided by public law bodies or, under social conditions analogous to those applicable to the latter, by hospital establishments, centres of medical assistance and diagnosis and other establishments of the same nature duly recognised;

c) Service provisions of assistance carried out within the context of the exercise of medical and paramedical professions, as defined by the Member State in question; (…)

It is further noted, following what was already mentioned above, that the Directive in question does not impose (except for the regime relating to gold for investment) nor does it prohibit Member States from establishing a regime providing for the option of the taxation regime, in favour of taxpayers benefiting from an exemption regime.

Thus, paragraph b) of article 12(1) of the VAT Code permits only the waiver of the exemption of entities exempt classified under article 9(2) of that same code.

In the position of the Tax and Customs Authority, referring to the Kügler case (judgment of the CJEU of 10 September 2002, handed down in Case C-141/00), it is defended that "the exemption provided for in article 9(1) of the VAT Code operates independently of the legal nature of the service provider and, namely, whether it is a natural or legal person and, equally, that that exemption is based on paragraph c) of article 132(1) of Directive 2006/112/EC, of the Council, of 28 November.(…)" (Point 51 of the Response of the Respondent), and that it is intended to exempt medical and paramedical nature service provisions supplied outside those places, whether at the private residence of the provider, at the patient's residence, or at any other place. And, on the other hand, that article 9(2) of the VAT Code, which exempts medical assistance service provisions carried out in a hospital environment, including closely connected operations, "transposes to the internal legal order paragraph b) of article 132(1) of the aforementioned Directive 2006/112/EC (…)" (Point 57 of the Response of the Respondent). Considering that the Claimant's activity is carried out outside the hospital environment, the Tax and Customs Authority comes to defend that the exemption that suits it is under article 9(1) of the VAT Code.

However, it cannot be inferred from the aforementioned judgment that, as the Tax and Customs Authority asserts, only hospitals are the intended scope of paragraph b) of article 132.

The CJEU, in the judgment L.u.P. (of 8 June 2006, handed down in case no. C-106/05), subsequent to the Kügler judgment, clarified that «Article 13, A, paragraph 1, b) of the Sixth Directive 77/388/CEE of the Council, of 17 May 1977, (…) must be interpreted in the sense that clinical analyses which have as their object the observation and examination of patients on a preventive basis, which are carried out, as those at issue in the main proceeding, by a laboratory of private law external to a medical assistance establishment under the prescription of general practitioners, are susceptible of being covered by the exemption provided for by that provision as medical care provided by another».

In this L.u.P. judgment, the CJEU understood that «since clinical analyses are covered, having regard to their therapeutic purpose, by the concept of "medical assistance" provided for in article 13, A, paragraph 1, b) of the Sixth Directive, a laboratory such as the one at issue in the main proceeding must be considered an establishment "of the same nature" as the "hospital establishments" and the "centres of medical assistance and diagnosis" within the meaning of that provision» (point 35).

In support, what is derived from point 35 of the CJEU judgment De Fruytier, of 02-07-2015, handed down in case no. C-334/14, in which the judgments L.u.P., C‑106/05, points 18 and 35 and CopyGene, C‑262/08, point 60, are cited, «that a laboratory of private law which carries out clinical analyses must be considered an establishment "of the same nature" as the "hospital establishments" and the "centres of medical assistance and diagnosis" within the meaning of that provision, since those analyses are covered, having regard to their therapeutic purpose, by the concept of "medical assistance"».

Thus, it is sufficiently clear in this matter that the Community jurisprudence is to the effect that, as was written in the decision of the arbitral case 168/2015-T, already cited, which states that "the exemption provided for in paragraph b) of article 132 covers the services provided by entities of the types that the Claimant provides, independent of whether the service provision occurs or not in a hospital environment, an interpretation that is in manifest harmony with the text of this rule, as it refers to the exemption of operations closely related to hospitalisation and medical assistance provided by "centres of medical assistance and diagnosis"".

In this way, Laboratory B… possesses the subjective conditions that are fundamental to the exemption of paragraph b) of article 132(1) of the Directive. Whilst, as is defended by the Claimant, it does not fully meet all those conditions because it is not a body that carries out its activity under social conditions analogous to those of public law bodies.

As to its classification under national law, the Tax and Customs Authority interprets, erroneously, the reference to "dispensaries and similar establishments" in the exemption provided for in article 9(2) of the VAT Code. For, it should be in this reference to "dispensaries and similar establishments" that other establishments are included in which «centres of medical assistance and diagnosis and other establishments of the same nature», also under paragraph b) of article 132(1) of Directive no. 2006/112/EC are to be understood.

Reporting once more to the Judgment handed down in arbitral case no. 168/2015-T:

"The reference to «dispensaries» unequivocally covers the provision of health services outside that hospital environment, since the meaning of «dispensary» is that of «charitable establishment for the treatment of patients with economic difficulties, giving them access to free consultations and medicines» (…), or «establishment for providing, free of charge, care and medicines to poor patients who can be treated at home» (…).

On the other hand, the reference to «similar», interpreted in consonance with the parallel provision of paragraph c) of article 132 of Directive no. 2006/112/CE, which refers to «centres of medical assistance and diagnosis and other establishments of the same nature», allows one to conclude that entities of the type of the Claimant, which provides clinical analysis and diagnosis health services in connection with hospital establishments, shall also fall within that concept.

Thus, the thesis defended by the Tax and Customs Authority, that the exemption applicable to establishments of the type of the Claimant is not provided for in article 9(2) of the VAT Code, has no textual support."

Being thus the applicable rule article 9(2) of the VAT Code, and because it comes to permit classification in a taxation regime, the possibility of waiver of the exemption provided for in paragraph b) of article 12(1) of the VAT Code cannot be excluded.

Thus, the assessments carried out by the Tax and Customs Authority are defective in the vice of erroneous application of the law.

This conclusion is not obstructed by the argument of the Respondent in the arbitral proceeding (cfr. points 63 et seq. of the Response), relating to the possible breach of the principle of neutrality resulting from the option for the exemption regime established in article 12(1), paragraph b) of the VAT Code, in that this is not part of the factual and legal grounds of the tax acts whose legality now must be reviewed, given that such acts were based on the non-applicability of that rule, by considering the factual prerequisites of article 9(1) of the VAT Code to be met, and not of article 9(2) of the same article.

The Claimant accumulates, with the claim for annulment of the tax acts that are the object of the present proceedings, the claim for condemnation of the ATA to payment of indemnity interest.

Given the merits of the claim for annulment, the payments that, relative to the tax acts annulled, come to be verified as paid by the Claimant must be reimbursed, if necessary in execution of the judgment. In the case at hand, it is manifest that the illegality of the assessment acts, whose amount the Claimant paid, is imputable to the Respondent, which, on its own initiative, carried them out without legal support.

Consequently, the Claimant is entitled to indemnity interest, under articles 43(1) of the General Tax Law (LGT) and 61 of the CPPT. Indemnity interest is owed from the date of the payments that prove to have been made, and calculated on the basis of their respective amount, until their full reimbursement to the Claimant, at the legal rate, under articles 43(1) and (4) and 35(10) of the LGT, 61 of the CPPT and 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (without prejudice to any subsequent changes in the legal rate).

Furthermore, in accordance with the provision of paragraph b) of article 24 of the RJAT, the arbitral decision on the merits of the claim from which no appeal or challenge lies binds the tax administration from the end of the period provided for the appeal or challenge, and the latter must, in the exact terms of the merits of the arbitral decision in favour of the taxpayer and until the end of the period provided for the execution of sentences of the tax judicial courts, "reestablish the situation that would have existed if the tax act that is the object of the arbitral decision had not been carried out, adopting the necessary acts and operations to that effect", which is in harmony with the provision of article 100 of the LGT [applicable by virtue of the provision of paragraph a) of article 29(1) of the RJAT], which establishes that "the tax administration is obliged, in case of partial or total acceptance of a gracious claim, judicial challenge or appeal in favour of the taxpayer, to the immediate and full reconstitution of the legality of the act or situation that is the object of the dispute, including the payment of indemnity interest, if applicable, from the end of the period of execution of the decision".

Although article 2(1), paragraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals functioning in the CAAD, making no reference to condemnatory decisions, it should be understood that it comprehends in its competences the powers that in judicial challenge proceedings are attributed to tax courts, being this the interpretation that is in harmony with the sense of the legislative authorisation on which the Government based itself to approve the RJAT and in which it proclaims, as the first guideline, that "the tax arbitral proceeding must constitute a procedural means alternative to the judicial challenge proceeding and to the action for recognition of a right or legitimate interest in tax matters".

The judicial challenge proceeding, despite being essentially a proceeding of annulment of tax acts, admits condemnation of the tax administration to payment of indemnity interest, as can be inferred from article 43(1) of the LGT, in which it is established that "indemnity interest is owed when it is determined, in a gracious claim or judicial challenge, that there was error imputable to the services that resulted in payment of the tax debt in an amount higher than that legally owed" and from article 61(4) of the CPPT (in the wording given by Law no. 55-A/2010, of 31 December, which corresponds to no. 2 in the original wording), which states that "if the decision that recognised the right to indemnity interest is judicial, the payment period counts from the beginning of the period of its execution".

Thus, article 24(5) of the RJAT, by stating that "payment of interest is owed, independent of its nature, under the terms provided for in general tax law and in the Code of Tax Procedure and Process" should be understood as permitting the recognition of the right to indemnity interest in the arbitral proceeding. In the case at hand, it is manifest that, following the declaration of illegality and consequent annulment of the assessment acts impugned, there is occasion for tax reimbursement, by virtue of the aforementioned articles 24(1), paragraph b), of the RJAT and 100 of the LGT, since this is essential to "reestablish the situation that would have existed if the tax act that is the object of the arbitral decision had not been carried out", in the part corresponding to the correction that was considered illegal.

Thus, the Respondent must execute this judgment, under article 24(1) of the RJAT, determining the amount to be reimbursed to the Claimant and calculating the respective indemnity interest, at the legal rate supplementary to civil debts, under articles 35(10) and 43(1) and (5) of the LGT, 61 of the CPPT, 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (or decree or decrees that may succeed it).

Indemnity interest is owed from the dates of the payments made until the date of the processing of the credit note in which they are included (article 61(5) of the CPPT).

C. DECISION

It is therefore decided in this Arbitral Tribunal to rule the arbitral claim submitted as well-founded and, in consequence,

a) To annul the assessments and proceed to the reimbursement of the amounts paid by the Claimant in the amount of 167,194.96 euros:

b) To condemn to the payment of indemnity interest, as follows from article 100 of the General Tax Law;

c) To condemn the Respondent in the costs of the proceeding, in the amount of €3,672.00.

D. Value of the proceeding

The value of the proceeding is fixed at €167,194.96, under article 97-A(1), a) of the Code of Tax Procedure and Process, applicable by virtue of paragraphs a) and b) of article 29(1) of the RJAT and article 3(2) of the Regulation on Costs in Tax Arbitration Proceedings.

E. Costs

The amount of the arbitration fee is fixed at €3,672.00, under Table I of the Regulation on Costs of Tax Arbitration Proceedings, to be paid by the Tax and Customs Authority, since the claim was fully well-founded, under articles 12(2) and 22(4), both of the RJAT, and article 4(4) of the aforementioned Regulation.

Let it be notified.

Lisbon

27 November 2015

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator Member

(José Nunes Barata)

The Arbitrator Member

(Catarina Siquet)