CAAD Arbitral Decision 373/2018-T: VAT Review Appeal Based on CJEU Frenetikexito Ruling Under Art. 293 CPPT

ARBITRAL DECISION (consult full version in PDF)

The appointed arbitrators agree as follows:

1. The Tax and Customs Authority (AT) has requested the reconstitution of the Collective Arbitral Tribunal in the present proceedings, within the scope of filing a revision appeal, due to alleged irreconcilability of the arbitral decision with the subsequent pronouncement of the Court of Justice in case C-581/19, Frenetikexito.

2. Although the Legal Regime for Arbitration in Tax Matters (RJAT) approved by Decree-Law no. 10/2011, of 20 January, does not expressly contemplate the revision appeal of arbitral decisions (see article 25 of the RJAT), the same should be admitted, should the respective requirements be met, by subsidiary application of the provisions of article 293 of the Code of Tax Procedure and Process (CPPT), by referral of article 29, no. 1, paragraph c) of the RJAT.

3. The aforementioned provision establishes as follows:

"Article 293

Revision of the judgment

1 - A final decision may be subject to revision, on any of the grounds provided for in the Code of Civil Procedure, within the period of four years, the respective proceedings being filed as an annex to the proceedings in which the decision was delivered.

2 - (Repealed.)

3 - The revision request is presented to the court that delivered the decision to be revised, within a period of 30 days from the facts referred to in the previous number, together with the necessary documentation.

4 - If the revision is requested by the Public Prosecutor's Office, the period for presentation of the request referred to in the previous number is three months.

5 - Except as provided in this article, the revision follows the terms of the proceedings in which the decision to be revised was delivered."

1. The susceptibility of revision appeal of arbitral tax decisions is generally defended by doctrine, with reference for illustration to JORGE LOPES DE SOUSA, who, without prejudice to the non-appealability (of arbitral decisions) regarding "normal" errors or defects of arbitral decisions, considers that this solution is not defensible "in relation to those [errors and defects] especially serious, which are grounds for revision appeal of judicial decisions delivered in proceedings for challenging tax acts" - see "Revision Appeal of Arbitral Tax Decisions", CAAD Newsletter – Tax Arbitration, no. 2, 2013, Lisbon. A position seconded by CARLA TRINDADE, Legal Regime of Tax Arbitration, Annotated, Almedina, 2016, pp. 503 et seq. and by SAMUEL FERNANDES DE ALMEIDA/JOANA LOBATO HEITOR, "Revision Appeal of Decisions Delivered in (Arbitral) Tax Courts – Commentary on Ruling no. 0360/13 of the STA", CAAD Newsletter – Tax Arbitration, 2014, Lisbon.

2. It should further be noted that revision appeal is enshrined in articles 154 and 155 of the Code of Administrative Court Procedure (CPTA), so this constitutes a solution transversal to administrative and tax litigation.

3. As regards the grounds for revision appeal, the aforementioned article 293 of the CPPT refers to the provisions of the civil procedural regime which, in article 696 [CPC], contains the corresponding enumeration, with exhaustive character, providing in paragraph f) that a final decision may be subject to revision when "irreconcilable with a final decision of an international appellate body binding on the Portuguese State".

4. In the present case, the Appellant (AT) invokes, as grounds for revision, the ruling of the Court of Justice, of 4 March 2021, delivered in case C-581/19, Frenetikexito, attached to the case file, resulting from a request for preliminary ruling, and frames it within article 696, no. 1, paragraph f) of the CPC, in reaction against the arbitral decision delivered on 14 June 2019 by this Arbitral Tribunal, which became final, which upheld the request for arbitral pronouncement filed by the now Appellee. The Appellant considers that such decision incorrectly applied European Union Law and is irreconcilable with the pronouncement, on the same matter, delivered by the Court of Justice, to which the Portuguese State is bound.

5. Regarding the filing and processing of the appeal, this has its own procedure and should be presented to the court that delivered the decision to be revised, within a period of 30 days from the (final) decision of the Court of Justice (see article 293, no. 3 of the CPPT), provided that no more than 4 years have elapsed since the decision to be revised, requirements which are satisfied in the present case. Furthermore, the provisions of the CPC should be followed, by successive referral of article 29, no. 1, paragraph c) of the RJAT and article 293 of the CPPT, with the consequent need for preliminary assessment of the admissibility of the appeal, in accordance with the provisions of article 699, no. 1 of the CPC.

6. In the present situation, the legitimacy of the Appellant (as the party that lost) and the timeliness of the revision appeal are verified. However, it remains to assess its substantive grounds, a necessary step to conclude on the rescinding phase and the progression, or not, to the subsequent phase (rescissory), in which the merits of the case are re-examined.

7. In this regard, it is worth recalling that revision constitutes an extraordinary appeal aimed at challenging a final judgment and obtaining a new decision, through a new trial. It constitutes a safety valve of the system, in order to enable the remedy of a serious error or injustice committed, in a reconsideration of what was decided (see RICARDO DE OLIVEIRA E SOUSA, The Revision of Judicial Judgments in the Portuguese Legal System, Revista Julgar Online, July 2016, http://julgar.pt/wp-content/uploads/2016/07/recurso-revisao-admin.pdf).

8. The possibility of revising a judgment for incompatibility of a final national decision with a decision of an international appellate body, binding on the Portuguese State, constituted an innovation of Decree-Law no. 303/2007, of 24 August, and derived from the need to address the problem of the lack of internal means of enforcement of decisions of the European Court of Human Rights (ECtHR), as results from the preamble of the decree itself, directed at cases in which a final national decision violates the European Convention on Human Rights – see MARIA JOSÉ RANGEL DE MESQUITA, Introduction to Litigation of the European Union, Almedina, 2015, p. 219,

9. However, as noted by RICARDO DE OLIVEIRA E SOUSA, its legal provision raised interpretive doubts from the outset, namely as to the question of what should be understood by "international appellate body binding on the Portuguese State" and, with relevance to the situation under analysis, whether the pronouncements of the Court of Justice are covered.

10. On this latter question, the Supreme Administrative Court, in its ruling of 2 July 2014, in case no. 0360/13, expressed itself to the effect that "the legislator intended to extend the revision appeal not only to cases in which an internal decision is irreconcilable with a decision of the European Court of Human Rights, but also to cases in which there is irreconcilability with any final decision of an international appellate body binding on the Portuguese State", concluding that "[a] ruling delivered by the CJEU in the context of an infringement action brought against Portugal assumes a binding character for the Portuguese State and may be invoked as grounds for revision appeal under the new paragraph f) of article 771 of the Code of Civil Procedure [current 696]", provided that the other requirements are met, in particular incompatibility with a final internal decision.

11. In the present appeal, however, what is at issue is not the decision of an infringement action (article 258 TFEU), but a request for preliminary ruling (article 267 TFEU), whereby it is relevant to conclude on whether an identical inference [concerning the infringement action of a State] is transposable to the pronouncements of the Court of Justice in the typology of preliminary ruling proceedings.

12. We consider that it is not. As highlighted by the arbitral decision of 9 April 2021, delivered in case no. 169/2019-T (as well as in cases nos. 164/2019-T and 159/2019-T), which dealt with an identical question, the Court of Justice in preliminary ruling proceedings is not an appellate body. Firstly, because its decision precedes the final decision of the proceedings initiated in the national court and none of the parties has the possibility of appealing to the Court of Justice.

13. In this sense likewise points LUÍSA LOURENÇO:

"According to number 3 of article 4 of the same Treaty, it is incumbent upon the Member States to ensure compliance with the obligations arising from the Treaties and to facilitate the performance of the mission of the European Union. From this dichotomy results a need for dialogue between national and European judicial bodies, which is why the legal institute of the preliminary ruling was to be provided, not as an avenue of appeal, but rather as a special process of direct cooperation, capable of ensuring the uniformity of the legal effects of EU law norms throughout its territory." – see The Preliminary Ruling to the CJEU and the Advisory Opinions of the EFTA Court; Revista Julgar no. 35, 2018. (emphasis ours)

1. We are thus facing a collaborative mechanism distinct from the figure of the judicial appeal, a conception to which, apart from doctrine (see LUCINDA DIAS DA SILVA, The (Designated) Extraordinary Revision Appeal - 95 Bol. Fac. Direito U. Coimbra 1283, 2019), adheres the very case law of the Court of Justice which, repeatedly, has affirmed that preliminary ruling does not constitute an "avenue of appeal":

"28 To answer the question submitted, it is important to stress that the system established by article 267 TFEU in order to ensure the uniformity of the interpretation of EU law in the Member States establishes direct cooperation between the Court of Justice and national courts through a process independent of any initiative of the parties (see rulings of 10 July 1997, Palmisani, C‑261/95, Coll., p. I‑4025, no. 31; of 12 February 2008, Kempter, C‑2/06, Coll., p. I‑411, no. 41; and of 16 December 2008, Cartesio, C‑210/06, Coll., p. I‑9641, no. 90).

29 In fact, the preliminary ruling is based on a dialogue between judges, whose initiation depends entirely on the assessment made by the national court of the relevance and necessity of the said preliminary ruling (see rulings, already referred to, Kempter, no. 42, and Cartesio, no. 91)." – see ruling of the Court of Justice, of 9 November 2010, VB Pénzügyi Lízing Zrt., C-137/08.

1. This understanding is supported by the ruling of the Court of Appeal of Lisbon, of 4 July 2019, case no. 18321/16.9T8LSB.L2 6th Section, in the following terms:

"1 - A request for preliminary ruling does not serve to challenge a judicial decision;

2 - The decision to be delivered by the Court of Justice of the European Union in the context of such a request does not have the purpose of revoking judicial decisions delivered by National Courts;

3 - Such claim does not have the function of confronting any allegedly erroneous interpretation of internal norms or assessing the violation of constitutional norms of the various Member States,

4 - A preliminary question corresponds to a question/request for resolution oriented towards obtaining an answer that a national court of a Member State deems necessary to support the solution of a dispute that it is incumbent upon it to settle;

5 - Its exclusive object is EU Law and the assessment effort requested from the Court of Justice of the European Union corresponds to the interpretation or formulation of judgment concerning the validity of that Law;

6 - In the context of a preliminary ruling, the national court requests the Court of Justice of the European Union to formulate the appropriate reading of a legal norm of EU Law whose interpretation is relevant to the solution of the dispute that it is incumbent upon it to carry out; […]."

1. At this point, it is relevant to recall that revision appeal constitutes an extraordinary appeal, of exceptional nature, whose accessibility depends on meeting the requirements stated in an exhaustive manner in article 696 of the CPC, whereby a particular restraint in its field of application is required.

2. Resuming the decision delivered in arbitral case no. 169/2019-T, the Appellant not only failed to explain why the Court of Justice should be considered an appellate body, but neither the support for this qualification is apparent, which would imply a considerable "extension" of the literal meaning of paragraph f) of article 696 of the CPC. In this sense: "[s]ince these are exceptional norms that permit the elimination of the force of res judicata and the general obligation arising from it (article 205, no. 2 of the CRP), they cannot be applied analogically to situations not provided for therein (article 11 of the Civil Code), in particular, to decisions of international bodies that are not, in light of national legislation, 'appellate bodies'".

3. Accordingly, in line with the decisions delivered concerning the revision appeals in cases nos. 169/2019-T, 164/2019-T and 159/2019-T, the ruling of the Court of Justice delivered in case C-581/19, Frenetikexito, does not constitute a valid ground for revision appeal, since it is not delivered by an "international appellate body".

4. In light of the foregoing, it is concluded that the revision appeal filed by the AT should be dismissed, rendering moot the examination of the remaining legal requirements provided for in paragraph f) of article 696 of the CPC, as such examination would be futile (articles 130 and 608, no. 2 of the CPC).

Finally, it is important to note that the relevant issues submitted for examination by this Court were addressed and assessed, those not being addressed whose decision was rendered moot by the solution given to others or whose examination would be futile.

Notify and publish.

Lisbon, 21 April 2021

The Arbitrators,

Alexandra Coelho Martins

Regina de Almeida Monteiro

Maria Alexandra Mesquita

ARBITRAL DECISION

The arbitrators Dr. Alexandra Coelho Martins (presiding arbitrator), Prof. Dr. Regina de Almeida Monteiro and Dr. Maria Alexandra Mesquita (arbitrator members), appointed by the Deontological Council of the Centre for Administrative Arbitration ("CAAD") to form this Arbitral Tribunal, constituted on 17 October 2018, agree as follows:

I. REPORT

A..., S.A., collective person number..., with registered office at Street ..., ..., ..., ..., ...-... ..., within the area of the Finance Service of Oeiras ..., hereinafter referred to as "Applicant", requests the constitution of a Collective Arbitral Tribunal, in accordance with the combined provisions of articles 2, no. 1, paragraph a) and 10, no. 1, paragraph a) and no. 2 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters ("RJAT"), and articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March.

The Applicant seeks the declaration of illegality and consequent annulment of the Value Added Tax ("VAT") assessments and respective compensatory interest, relating to the years 2013 and 2014, in the total amount of € 102,436.25 (€ 89,255.23 of VAT and € 13,181.02 of compensatory interest), with the corresponding legal consequences.

The respondent party is the Tax and Customs Authority ("AT").

As grounds for its claim, the Applicant alleges defects of a formal and material nature.

It considers, on one hand, that the AT failed to sufficiently justify the Tax Inspection Report, in violation of the provisions of articles 77, no. 1 of the General Tax Law ("LGT") and 268, no. 3 of the Constitution ("CRP"), and, on the other hand, that it made an error in the premises (misinterpretation and application of law), as all nutrition services provided are classifiable under article 9, 1) of the VAT Code and, in this way, exempt from tax, and not only the isolated nutrition consultations invoiced. In the Applicant's view, the AT violated the principles of justice, fiscal proportionality and the prevalence of substance over form.

As a subsidiary argument, the Applicant invokes that if the nutrition services were subject to VAT, the tax calculation should be done "including", considering VAT included in the final price that was charged to customers, who are end consumers. The Applicant filed 18 documents and requested witness testimony.

On 7 August 2018, the request for constitution of the Arbitral Tribunal was accepted by His Excellency the President of CAAD and followed its normal procedure, namely with notification to the AT on 13 August 2018.

In accordance with articles 5, no. 3, paragraph a), 6, no. 2, paragraph a) and 11, no. 1, paragraph a), all of the RJAT, the Deontological Council of CAAD appointed the arbitrators of the Collective Arbitral Tribunal, the undersigned herein, who communicated acceptance of the appointment within the applicable period. The parties, notified of this appointment on 26 September 2018, did not object, in accordance with articles 11, no. 1, paragraphs a) and b) and 8 of the RJAT, 6 and 7 of the CAAD Code of Ethics.

The Collective Arbitral Tribunal was constituted on 17 October 2018.

On 20 November 2018, the Respondent filed a Reply, in which it defends itself through objection and argues for the dismissal and consequent acquittal of the claim. It invokes that what is at issue is not the existence and fulfillment of the necessary requirements for the provision of nutrition services, which it considered to exist and be valid, but rather its character of ancillarity to the main service provided, access and use of the gymnasium, constituting a global single provision, subject to VAT.

The Respondent requested the waiver of witness testimony and, on 22 November 2018, attached the administrative proceedings ("PA") to the case.

By order of 3 December 2018, the Arbitral Tribunal determined the holding of the meeting provided for in article 18 of the RJAT, with examination of witnesses, considering there to be matter of relevance to the decision capable of witness testimony, the meeting being rescheduled for 15 January 2019.

On 31 January 2019, the aforementioned meeting took place, and 5 witnesses presented by the Applicant were heard, who attached 2 additional documents. The Collective Arbitral Tribunal notified the parties for successive written arguments, fixing a period of 15 days and set the deadline for delivery of the decision.

Both parties presented arguments and maintained the positions previously taken.

By order of 11 April 2019, the deadline for delivery of the decision was extended, pursuant to article 21, no. 2 of the RJAT, given the complexity of the matter.

II. LEGAL CLARIFICATION

The Tribunal was regularly constituted and is competent ratione materiae, given the nature of the subject matter of the proceedings (cf. articles 2, no. 1, paragraph a) and 5 of the RJAT).

The request for arbitral pronouncement is timely, as presented within the period provided for in article 10, no. 1, paragraph a) of the RJAT.

The parties have legal standing and capacity, have legitimacy and are regularly represented (cf. articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).

The cumulation of claims is admissible, in accordance with the provisions of article 3, no. 1 of the RJAT, given that what is at issue is the assessment of identical factual circumstances and the same legal regime, in particular, the relationship of ancillarity, for VAT purposes, between the nutrition services (consultations) provided by the Applicant and the use of the gymnasium.

III. SUBSTANTIATION

1. FACTUAL MATTERS

With relevance to the decision, the following facts which are found to be proven are important:

A. A..., S.A., the Applicant herein, is a Portuguese legal entity, established in 2003, whose corporate purpose consists of the "creation, promotion and operation of health clubs, management, training and consulting in sport, physical fitness and wellness, nutrition services and other public health activities [...]". As of the date of the facts – 2013-2014 – the Applicant was registered with CAE 93192 – "OTHER SPORTS ACTIVITIES, N.E.C." – cf. Tax Inspection Report ("RIT") and copy of the permanent certificate attached by the Applicant at the meeting of article 18 of the RJAT.

B. The Applicant is classified under the normal system of monthly VAT periodicity – cf. RIT.

C. The Applicant is part of the business group called B... and operates a Health Club under the B... brand in the ... of the ..., Street ..., in Porto – cf. RIT.

D. In the course of its activities, the Applicant provides its members with gymnasium practice and various other services, such as SPA, Catering, Physiotherapy, Aesthetics and Massage – cf. witness testimony and RIT.

E. From 2013 onward, in implementation of the "Life Well" maxim, based on three pillars "move well, eat well and feel well" – exercise, nutrition, rest – the Applicant also began to provide Nutrition Services – cf. RIT and witness testimony.

F. To provide such services to members and non-members, the Applicant hired two specialized technicians – nutritionists – and equipped two Offices in its facilities dedicated exclusively to this area of activity, in which nutrition consultations are performed – cf. Documents 14 and 15, documents attached at the meeting of article 18 of the RJAT and witness testimony.

G. The terms "dietitian" and "nutritionist", "dietary" and "nutritional" are used by the Applicant interchangeably to designate respectively the professionals and services relating to the new nutrition activity area, and the professionals who perform the consultations are all registered with the Order of Nutritionists, with which the Applicant concluded a collaboration agreement – cf. witness testimony.

H. In this context, the Applicant's customers ("members") were able to subscribe to a contract called "Dietary Services Provision Contract", for the value of € 15.00 monthly – cf. RIT and witness testimony.

I. It is also possible to access nutrition services without being a member of the Applicant, although in this case under less favorable financial conditions – cf. witness testimony.

J. In the case of customer/members, under the Dietary Services Provision Contract, they are entitled to two in-person nutrition consultations and two telephone follow-ups annually. If they wish more than these consultations, they may acquire, through additional payment, isolated nutrition consultations or in packages, with the consultations being provided by the same professionals who provide the initial consultations of the Dietary Services Provision Contract and in the same facilities – cf. RIT and witness testimony.

K. To members who adhered to this new service, by subscribing to the Dietary Services Provision Contract, a discount of € 15.00 was offered in the monthly gymnasium fee. This discount is equal to the monthly fee for nutrition services, also set at € 15.00, as an incentive to adhere to the Applicant's new services – cf. RIT and witness testimony.

L. The subscription to dietary services is a condition for obtaining the commercial discount on the gymnasium monthly fee. Thus, customer/members who subscribe to nutrition services do not have to pay any additional amount for nutrition services, up to the number of consultations/telephone calls annually provided for in the contract – cf. RIT and witness testimony.

M. The Applicant, in the invoicing issued, applied to the nutrition services provided in the Dietary Services Provision Contracts concluded with its customers the VAT exemption provided for in paragraph 1) of article 9 of the VAT Code – cf. RIT and witness testimony.

N. In this context, the invoices issued to member customers who subscribed to the Dietary Services Provision Contract (in addition to the Membership Agreement relating to use of the gymnasium) contain the following mentions (description and values) – cf. PA:

"Item Description Qty. Unit Price Value % VAT

NC1MTFG2 Use of sports facilities 1 61.90 61.90 23.00

SDIET Provision of Dietary Services 1 15.00 15.00 0.00

DCOM Discount for dietary follow-up subscription 1 -15.00 -15.00 23.00

VAT Breakdown

% VAT Taxable Base VAT Amount

0.00 15.00€ 0.00€ 15.00€

23.00 38.13€ 8.77€ 46.90€

Total Invoice/Receipt

Total Taxable Base Total VAT Total Amount

53.13€ 8.77€ 61.90€

[…]"

Exempt from VAT in accordance with no. 1 of article 9 of the VAT Code

[…]"

O. Customers can continue to enjoy only the gymnasium component, without nutrition consultations – cf. RIT and witness testimony.

P. On 15 November 2017, the Tax Inspection Services initiated a tax inspection action against the Applicant, under service orders nos. OI2017.../..., dated 31 October 2017, of partial scope, covering CIT and VAT for 2013 and 2014, with the purpose of declarative control – cf. RIT.

Q. As a result of this inspection action, the Applicant was notified of the Draft Inspection Report, in which the AT concludes that the provision of dietary services by the Applicant should be considered ancillary in relation to the main service provision, consisting of the use of sports facilities (gymnasium), and, for that reason, do not benefit from the VAT exemption – cf. RIT and PA.

R. The Applicant chose not to exercise its right to a hearing, and the Final Report was issued, maintaining the corrections recommended in the Draft, with the grounds transcribed below:

"III DESCRIPTION OF FACTS AND GROUNDS FOR PURELY ARITHMETIC CORRECTIONS TO TAXABLE MATTER

III.1- ON VAT

III. 1.1 – On VAT Not Assessed – (provision of dietary services)

III.1.1.1 On the Facts

The TP [taxpayer] has as its corporate purpose the management and operation of health clubs, an activity that it develops in the gymnasium it operates under the B... brand, at the ... of ..., located at Street ..., in Porto.

Currently, in that establishment, not only the sports facilities necessary for physical activity practice are made available to the members, but also a series of other services, from which the members can benefit if they are interested, that is, in addition to the main activity (CAE), the TP develops a series of secondary activities, namely:

Table no. 8 Table no. 7: CAE codes of the taxpayer

Type Code Designation Start Date

Main CAE 93192 OTHER SPORTS ACTIVITIES, N.E.C. 06-03-2008

Secondary CAE 1 86906 OTHER HUMAN HEALTH ACTIVITIES, N.E.C. 09-04-2015

Secondary CAE 2 96022 BEAUTY INSTITUTES 09-04-2015

Secondary CAE 3 85591 VOCATIONAL TRAINING 09-04-2015

Anyone who wishes to be a customer of that gymnasium and enjoy the services made available in them must become a member of the gymnasium operated by the TP by signing an individual membership agreement Annex 2, pay an "registration fee" and pay in advance a monthly fee whose value varies according to the number of weekly visits and/or services used.

On the other hand, from 2013, in the acts of membership registration, we found the existence of customers who began to subscribe to a "Dietary Services Provision Contract" (although it may also be subscribed to subsequently).

This possibility is, however, extended to members who were already, at that date, with contracts in force.

[…]

On the other hand, we note that the nature of sales and service provisions (invoicing) is distributed, briefly, among three major areas of activity, namely:

         MSI – Invoicing (annual)

         Sporstudio (SS) – Shop (annual)

         Sporstudio (GE) – Space Management (annual)

The file "MSI – Invoicing (annual)" includes the provision of facilities and sports equipment for physical exercise practice – Gymnasium (main activity) – activity subject to VAT and not exempt from it – and some other associated activities, such as Nutrition (NUT-FIS) – considered by the TP as exempt from VAT.

By way of example, we requested some of the invoices relating to membership fees (Annex 2) and found that a paradigmatic case is that of invoices issued to customers who from 2013 subscribed to the dietary services provision contract. In them, in addition to the item "Use of sports facilities" (activity subject and not exempt), other items may appear, such as "Personal Training" (also activity subject and not exempt). However, to this or these, the item "Provision of Dietary Services" always appears, to which codes such as "SDIET" and "SDIET1" correspond, considered by the taxpayer as exempt from VAT under paragraph 1) of article 9 of the VAT Code.

Now, in the referred invoices (those for monthly membership fees of those who subscribed to the dietary services provision contract), in addition to the two items – relating to the use of sports facilities and the provision of dietary services – there is also a third item. This is a discount for subscription to this service, namely:

• "Use of sports facilities" (subject to VAT at the normal rate – 23%);

• "Provision of dietary services" (exempt from VAT under paragraph 1) of Art. 9 of the VAT Code)

A third item:

• "Discount for dietary follow-up subscription" (subject to VAT at the normal rate – 23%)

Note that the TP subjects the discount to the normal rate, when it depends on the subscription to a service that it considers exempt and when both values are exactly equal, which, in practice, makes this service free.

This very fact can be read on the website of Group B... in which it is stated that its spaces adopted a new philosophy called Life Well "based on three pillars: "move well, eat well and feel well", and in the approach to the "eat well" component, it states:

"the program has a symbolic monthly cost of 15 euros, for members. However, this amount is deducted from the club's monthly fee, making the program, in reality, free." (emphasis added)

Now, as noted, the value of the provision of dietary services, included in the invoicing, is considered exempt by the taxpayer under paragraph 1) of article 9 of the VAT Code, while the discount, in an amount equal to that of the dietary service, is subject to VAT adjustment in favor of the taxpayer at the rate of 23%, from which it follows that the amount of tax to be paid to the State, arising from invoicing to the customer of the main activity carried out (use of sports facilities), suffers a reduction through the adjustment on the invoice in favor of the TP, in the amount of 23% applied to the amount invoiced with exemption: "Provision of Dietary Services".

Through the respective invoicing, it is found that the TP considers that all services it provides in the nutrition area are exempt from VAT. That is not, however, our understanding. In fact, in the nutrition area, the taxpayer develops its activity in two aspects:

•          Provision of Dietary Services (SDIET);
  

•          Isolated Nutrition Consultations, or in packs that can go up to 6 consultations (various NUT codes).
  

If the TP itself makes this distinction (SDIET and NUT) it is because these two codes contain different contents and, in fact, from all the analysis carried out, we found that the NUT code refers to nutrition consultations, while the SDIET code refers only to "Provision of Dietary Services". This "Provision of Dietary Services" always appears associated with "Use of Sports Facilities", thus constituting an ancillary activity to this.

Proof of this are the "Dietary Services Provision Contracts" (Annex 2) from whose clauses, respectively first and third, the "ancillary" character of this aspect of dietary services is extracted in relation to the gymnasium, since access to the same is only "permitted" as long as the "Membership Agreement" (contract for "Use of Sports Facilities" - Gymnasium) (Annex 2) lasts

Clauses 1st and 3rd:

Ancillary Character:

"Hereby the first party undertakes to provide dietary and nutritional counseling services, comprised of two in-person sessions and two annual telephone follow-ups (…) – (in Clause 1st);

"The termination of the membership agreement relating to the use of sports activities automatically results in the termination of this contract (…) – (in Clause 3rd – point 3.3)

Note that it is precisely on the ancillary character of these service provisions that we focus our position and not on the failure to meet the requirements for their provision, since, in this matter, we requested elements and were thus able to verify compliance with the requirements set out in Decree-Law no. 261/93, of 24 July.

Thus, it is on the demonstration of this ancillary character of "Provision of Dietary Services" (as opposed to nutrition consultations) and on their respective classifications for VAT purposes that we will focus in the point that follows.

III.1.1.2. On the Grounds of Purely Arithmetic Corrections

III.1.1.2.1 Tax Classification

III.1.1.2.1.1 Community Law

The VAT Directive establishes, in no. 1 of its article 132, the exemption of certain service provisions in the health area.

Exempt benefit, under paragraph b), "hospitalization and medical assistance, and operations closely related to them, provided by public law organisms or, under social conditions similar to those governing these latter, by hospital establishments, medical assistance and diagnosis centers and other similar establishments duly recognized".

In turn, paragraph c) exempts "service provision of assistance provided in the exercise of medical and paramedical professions, as defined by the Member State in question".

In this regard, the CJEU (Court of Justice of the European Union) stated that the concept of medical assistance service provisions appearing in paragraph c), no. 1 of article 132 of Sixth Directive 2006/112/EC of the Council of 28 November 2006, aims at provisions that have "the purpose of diagnosing, treating and, as far as possible, curing diseases or health anomalies" (ruling of 06-11-2006, Dornier, Case C-45/01).

The understanding that the exemption provided for in paragraph c), no. 1 of article 132 of directive 2006/112/EC of the Council of 28 November 2006 operates independently of the legal form of the taxpayer providing the medical or paramedic provisions, that is, it applies both to natural persons and to legal entities, necessarily results from the interpretation of this provision required by the CJEU.

In the ruling of 10 September 2002, delivered in case C-141/00 (Kugler case, Coll. P. I-6833, no. 26) it is stated, regarding this Community provision, that it has an objective character, defining the exempt operations based on the nature of the services provided, without mentioning the legal form of the provider, whereby it suffices that they are medical or paramedic service provisions and that they are provided by persons possessing the required professional qualifications. – Ruling of 10 September 2002, delivered in case C-141/00, relating to the Kugler case, paragraphs b) and c), no. 1 of article 132 of Directive 2006/112/EC of the Council of 28 November 2006, although they aim to regulate the totality of exemptions applicable to medical service provisions in the strict sense, have very distinct scopes.

Thus, paragraph b), no. 1 of article 132 of the Directive exempts all provisions made in a hospital environment.

Whereas paragraph c), no. 1 of article 132 of the Directive is intended to exempt medical provisions provided outside that environment, both in the private home of the provider and in the home of the patient, or in any other place, that is, it applies to provisions made outside hospital organisms and in the context of a relationship of trust between the patient and the service provider, a relationship that normally takes place in the provider's office.

III.1.1.2.1.2 Internal Law

Those exemptions provided for in paragraphs c) and b), no. 1 of article 132 of Directive 2006/112/EC of the Council were transposed to internal law:

o For paragraph 1) of article 9 of the VAT Code (based on paragraph c), no. 1 of article 132 of Directive 2006/112/EC) – OUTSIDE A HOSPITAL ENVIRONMENT

o For paragraph 2) of article 9 of the VAT Code (based on paragraph b), no. 1 of article 132 of the same Directive 2006/112/EC). – IN A HOSPITAL ENVIRONMENT

Following this transposition, paragraph 1) of article 9 of the VAT Code exempts from tax, "Service provisions carried out in the exercise of the professions of physician, dentist, midwife, nurse and other paramedic professions." – OUTSIDE A HOSPITAL ENVIRONMENT

Paragraph 2 of the same article further provides that exempt from tax are, "Medical and health service provisions and operations closely related to them carried out by hospital establishments, clinics, dispensaries and similar".

From this it is understood that the exemptions provided for in paragraphs 1) and 2) of article 9 of the VAT Code concern "activities that aim to diagnose, treat and, where possible, cure diseases or health anomalies".

Both are applicable regardless of whether the services are provided by a natural person or legal entity, as well as the purpose of profit or non-profit from the exercise of these activities.

Paragraph 2) of article 9 of the VAT Code is intended to exempt assistance services carried out in a hospital environment.

The TP exempts its activities of provision of dietary services based on paragraph 1) of article 9 of the VAT Code (outside the hospital environment), as can be seen from the footnote inscription in the respective invoices (Annex 2), whereby we will refrain from discussing the concept of hospital establishment here, since it does not apply to this situation.

Therefore, we proceed to analyze the exemption applied by the TP to the provision of nutrition services, based on paragraph 1) of article 9 of the VAT Code.

Now, paragraph 1) of article 9 of the VAT Code establishes that "exempt are service provisions carried out in the exercise of the professions of physician, dentist, midwife, nurse and other paramedic professions".

Since there is no concept in the VAT Code that defines what paramedic activities are, we must resort to miscellaneous legislation to carry out their classification:

• Decree-law 261/93, of 24 July, which basically defines the academic requirements required for the exercise of the function, and;

• Decree-law 320/99, of 11 August, more specifically no. 1 of its article 3, which mentions the functional content that must necessarily comprise the "performance of activities listed in the annex to the aforementioned decree-law 261/93, of 24 July, using as a matrix the use of scientifically-based techniques for health promotion and disease prevention, diagnosis and treatment, or rehabilitation purposes." (this list includes, in particular, the activity of "dietitian").

Still regarding the concept of medical service provision provided for in paragraph 1) of article 9 of the VAT Code, it is important to recall that the Ruling of the CJEU of 14 September 2000, Case 384/98, considers as such those that consist of "providing assistance to people, diagnosing and treating a disease or any other health anomaly" (Case no. 3251, order of the SDG of Taxes, legal substitute of the Director-General, on 2012-06-28).

And it continues: "This means that service provisions that do not have this therapeutic objective (diagnosing, treating and, as far as possible, curing diseases or health anomalies) are excluded from the scope of application of the exemption, being subject to tax and not exempt from it." (emphasis added)

Now, the exemption here applied to the Provision of Dietary Services, based on paragraph 1) of article 9 of the VAT Code, is not licit because it is not, in fact, nutrition consultations sought by the user due to some need they feel in that matter, but only the "provision" of a service with characteristics of counseling to the user which only occurs if the user "seeks" that service. If they do not seek it, because they do not feel the need for it, they are equally invoiced, in the terms that we have already analyzed.

This means that service provisions that do not have a therapeutic objective, even if carried out by duly qualified paramedics, are excluded from the scope of application of the exemption. The activities of mere diet preparation integrated into food plans fall into this category. (We recall that the contract provides only "two in-person sessions" (and not consultations) and "two annual telephone follow-ups", which are designated as "dietary counseling").

In fact, if someone needs a therapeutic intervention at the nutritional level, they will seek a professional in that area, they will not enroll in a gymnasium, that is, the purpose in connection with the attendance of a gymnasium (or health club) will certainly not be to be consulted by a nutritionist.

Proof of this is the fact that this service is invoiced monthly to all users, without exception, regardless of whether they use the said consultation, meaning that all users see part of the monthly membership fee they pay for gymnasium attendance subject to VAT at the normal rate and another part of that monthly fee exempt from VAT, when the majority of those users, during the month to which that invoice relates, have no contact with the nutritionist (although they have been informed that one is available to them).

Thus, the invoicing of nutrition service provision does not benefit from the exemption provided for in paragraph 1) of article 9 of the VAT Code, being subject to taxation under the general terms of the VAT Code, since the nutritional advice services, provided as a complement to physical activity, do not fit the concept of medical service provisions or aim at medical assistance, diagnosis, treatment of diseases or any health anomalies.

Now, if the exemption provided for in paragraph 1) of article 9 of the VAT Code is not applicable, it follows from this that the provision of gymnasium services cannot be separated in the invoice from the provision of nutrition services, since the latter are part of the provision of gymnasium services, and the normal rate tax assessment should be applied to them.

In fact, the nutrition service is an ancillary service to the main service provision that constitutes the gymnasium service, in the terms developed below.

Main vs. Ancillary Provision

It follows from the spirit of the wording of article 2, no. 1, c) of Directive 2006/112/EC of the Council that each service provision should normally be considered distinct and independent and that the provision consisting of a single service, on the economic level, should not be artificially decomposed so as not to alter the functionality of VAT.

In line with this understanding comes Community case law to confirm that a provision should be considered ancillary in relation to a main provision when it does not constitute an end in itself for the clientele, but a means of enjoying better conditions of the main service provided. Thus, when there are service provisions that aim to improve the purposes pursued by gymnasia, they become susceptible of constituting "purely ancillary" or "closely related" operations.

This concept results from Community case law in the following rulings:

• Ruling of 22 October 1998 "T.P. Madgett, R.M. Baldwin and The Howden Court Hotel", Joined Cases C-308/96 and C-94/97, where the Court considered that there could be provisions that, although related to the main provision, "do not constitute (…) an end in itself, but a means of enjoying better conditions of the main service." concluding in that context that they are "provisions (…) purely ancillary to the provisions [carried out as main provisions]".

• Ruling of 25 February 1999, "Card Protection Plan Ltd", Case C-349/96, through which the CJEC established the understanding that "a provision should be considered ancillary in relation to a main provision when it does not constitute an end in itself for the clientele, but a means of enjoying better conditions of the provider's main service".

• Ruling of 27 September 2012, "Field Fisher Waterhouse LLP", case C-392/11, the Court of Justice stated that one is faced with a single provision when one or more provisions constitute a main provision and the other or others constitute one or more ancillary provisions, to which the tax treatment of the main provision applies. In particular, a provision should be considered ancillary in relation to a main provision when it does not constitute an end in itself for the clientele, but a means of enjoying, under better conditions, the provider's main service. In this sense, see the following rulings: a) CPP – Case no. C 349/96, Coll., p. I 973, no. 30, of 25 February 1999; b) Part Service, C-425/06, Coll., p. I 897, no. 52 of 21 February 2008; c) Bog and others, Cases nos. C 497/09, C 499/09, C 501/09 and C 502/09, Coll., p. I 1457, no. 54, of 10 March 2011).

• Ruling of 17 January 2013, "BGZ Leasing Sp.z o.o", Case C-224/11, where it is stated that what is "at issue is a single operation, namely, when two or several elements or acts provided by the taxpayer to the customer are so closely linked that they objectively form a single indivisible economic provision, whose decomposition would have an artificial character" and that "the operation consisting of a single provision on the economic level should not be artificially decomposed so as not to alter the functionality of the VAT system". It continues, also noting that "to determine whether the provisions supplied constitute several independent provisions or a single provision, it is important to examine the characteristic elements of the operation in question", in particular "a certain connection between them".

Still according to the case law of the Court of Justice, namely in no. 30 of this ruling that has been referenced (case C-224/11), "a provision is considered ancillary in relation to a main provision, namely, when it does not constitute an end in itself for the clientele, but rather a means of enjoying, under better conditions, the provider's main service".

This ruling is particularly relevant, in that it reinforces the idea that, to determine whether the provisions supplied constitute several independent provisions or a single provision, it is important to examine the characteristic elements of the operation in question.

III.1.1.3 From the Analysis of the Facts

In the context of the present Service Orders, and as has already been mentioned, it was found that from 2013, in the invoices issued by the taxpayer to its customers (who make membership agreements and, secondarily, dietary services provision contracts), in addition to the item "Use of sports facilities" (subject activity), other items may appear, such as "Group Gymnastics" or "Small Towel Service" (also subject activities), however, the item "Provision of Dietary Services" always appears, to which codes such as "SDIET", "SDIET1" correspond, considered by the taxpayer as exempt from VAT under paragraph 1) of article 9 of the VAT Code. There is also a third item: "Discount for dietary follow-up subscription" (subject to VAT at the normal rate – 23%)

Still considering the tax classification of dietary and nutrition services (Point III.1.1.2.1/2. Community and Internal), it should be noted that the activity of "Dietetics", notwithstanding being provided for in point 5 of the list attached to D.L. no. 261/93 of 24.07, this fact determines only that it is a paramedic activity whose exemption is provided for in paragraph 1) of article 9 of the VAT Code, provided that its exercise has a therapeutic objective to diagnose, treat and, as far as possible, cure (genesis of paragraph c) of article 132 of the VAT directive which, by transposition, gave rise to paragraph 1) of article 9 of the VAT Code, this yes, determining the conditions for the applicability of VAT exemption in the matter of health service provision).

Accordingly, it is determining for the application of the exemption provided for in paragraph 1) of article 9 of the VAT Code that what is at issue are services that consist of direct administration of health care to the user, presupposing that these are effectively carried out. If the services do not fall within the concept of medical service provisions defined in Community case law, that is, if such services do not aim at assistance to people, the making of diagnoses and the treatment of diseases or any health anomaly, but only the provision of the right to enjoy a set of services (in which medical or paramedic services may be included), they fall outside the field of application of the exemption provided for in paragraph 1) of article 9 of the VAT Code, constituting operations subject to tax and not exempt from it, capable of taxation at the normal rate provided for in article 18 of the VAT Code.

Now, in fact, the reference, in the invoice, to the provision of medical or paramedic services as part of a previously contracted monthly fee, regardless of whether these are provided or not, shows that we are not faced with services provided within the scope of medical assistance.

From the analysis of various "Membership Agreements" and "Dietary Services Provision Contracts" (Annex 2), it is understood, in particular from their first, third and fifth clauses, that access to dietary services is only possible as long as the membership agreement for the use of sports facilities exists. In fact, notwithstanding the fifth clause establishing that the termination of the dietary services provision contract does not imply the annulment of the membership agreement for the use of sports facilities, nor any alteration to the conditions subscribed by the user, the reverse, that is, the end of the membership agreement relating to the use of sports activities automatically results in the termination of the dietary services contract, which gives an ancillary character to the service provision in question, since the same is never dissociated from the membership agreement that aims at the use of sports facilities (gymnasium).

Now, a provision is considered ancillary in relation to a main provision when it does not constitute, for the clientele, an end in itself, but a means of enjoying, under better conditions, the main service of the provider.

Thus, considering the analysis carried out of the activity actually carried out by the entity, namely through the analysis of contracts, invoicing and given the criteria stated in this report on the tax classification of the operations practiced, it is considered that isolated nutrition consultations, directly invoiced to the user, should be considered exempt from VAT, under paragraph 1) of article 9 of the VAT Code, while the dietary services made available to users, invoiced as an item of the invoice relating to the gymnasium monthly fee do not warrant acceptance of the exemption provided for in paragraph 1) of article 9 of the VAT Code, because it is an ancillary service provision to the gymnasium service provision, and the tax treatment of the main provision should apply to them.

It is thus demonstrated the ancillary character of "Provision of Dietary Services" (identified by the taxpayer by various codes such as; "SDIET") as a nutritional counseling activity made available to users who subscribe to a gymnasium membership agreement, as opposed to nutrition consultations, actually provided by specialized professionals. These consultations are purchased by users, individually or in packages of up to 6 consultations, and in these cases we are faced with situations that clearly aim to "diagnose, treat and, as far as possible, cure diseases or health anomalies" of those members of the TP who feel frailties or even physical problems that may be related to nutritional and dietary issues and who resort to purchasing this service that is invoiced to them through the "NUT" code or variants thereof, depending on the number of consultations purchased.

Thus, the taxpayer should have proceeded with the assessment of VAT on "Provision of Dietary Services" (codes "SDIET" and "SDIET1"), since, regarding the same – and only to these – the conditions for benefiting from the exemption provided for in paragraph 1) of article 9 of the VAT Code are not met.

III.1.1.4 Correction Proposals (on VAT Not Assessed) – Years 2013 and 2014

As has already been mentioned throughout this report, our analysis was based on the elements and clarifications provided to us.

To determine the amount to be corrected, for VAT purposes, resulting from the non-consideration of "Provision of Dietary Services" as an exempt activity under paragraph 1) of article 9 of the VAT Code, the files "III-F Pres Serv... 2013" and "III-F Pres Serv ...2014" were worked on, depending on whether it is 2013 or 2014, highlighting the codes of articles relating to that service provision (codes "SDIET"). These files include the monthly fees paid by users for the use of sports facilities and services secondary related.

[…]

Table no. 10: Proposed correction year 2013

Year 2013 Proposed Correction

VAT Period Invoicing – Articles SDIET and SDIET1 – Provision of Dietary Services; GR. Invoice: Subs; Subfamily: NUTS (1) (Taxable Base) VAT Value (3)

Jan – 13 […] […]

[…] […] […]

Total Overall 118,004.68 € 27,141.09 €

(1) – values provided by the taxpayer

Table no. 11: Proposed correction year 2014

Year 2014 Proposed Correction

VAT Period Invoicing – Articles SDIET and SDIET1 – Provision of Dietary Services; GR. Invoice: Subs; Subfamily: NUTS

(2)

(Taxable Base) VAT Value (3)

Jan – 14 […] […]

[…] […] […]

Total Overall 327,515.48 € 75,328.54 €

(2) – values provided by the taxpayer

(3) – VAT Rate of 23%, under article 18 of the VAT Code

[…]" – cf. RIT.

S. Subsequently, the Applicant was notified of the following tax acts, in the total amount of € 102,436.25 (€ 89,255.23 of VAT and € 13,181.02 of compensatory and late-payment interest):

i. VAT Assessment no. 2018..., dated 14 April 2018, relating to period 2013/02, with the amount to be paid of € 151.80, and respective demonstration of compensatory interest assessment no. 2018..., in the amount of € 30.27, in both cases with the payment deadline set for 28 May 2018 – cf. Document 1 attached with the ppa;

ii. VAT Assessment no. 2018..., dated 14 April 2018, relating to period 2014/01, with the amount to be paid of € 10,942.75, and respective demonstration of compensatory interest assessment no. 2018..., in the amount of € 1,782.01, in both cases with the payment deadline set for 25 May 2018 – cf. Document 2 attached with the ppa;

iii. VAT Assessment no. 2018..., dated 14 April 2018, relating to period 2014/02, with the amount to be paid of € 13,296.39, and respective demonstration of compensatory interest assessment no. 2018..., in the amount of € 2,120.13, in both cases with the payment deadline set for 25 May 2018 – cf. Document 3 attached with the ppa;

iv. VAT Assessment no. 2018..., dated 14 April 2018, relating to period 2014/03, with the amount to be paid of € 6,894.75, and respective demonstration of compensatory interest assessment no. 2018..., in the amount of € 1,075.19, in both cases with the payment deadline set for 25 May 2018 – cf. Document 4 attached with the ppa;

v. VAT Assessment no. 2018..., dated 14 April 2018, relating to period 2014/05, with the amount to be paid of € 8,815.00, and respective demonstration of compensatory interest assessment no. 2018..., in the amount of € 1,317.66, in both cases with the payment deadline set for 25 May 2018 – cf. Document 5 attached with the ppa;

vi. VAT Assessment no. 2018..., dated 14 April 2018, relating to period 2014/06, with the amount to be paid of € 2,439.59, and respective demonstration of compensatory interest assessment no. 2018..., in the amount of € 356.11, in both cases with the payment deadline set for 25 May 2018 – cf. Document 6 attached with the ppa;

vii. VAT Assessment no. 2018..., dated 14 April 2018, relating to period 2014/07, with the amount to be paid of € 12,584.83, and respective demonstration of compensatory interest assessment no. 2018..., in the amount of € 1,795.66, in both cases with the payment deadline set for 25 May 2018 – cf. Document 7 attached with the ppa;

viii. VAT Assessment no. 2018..., dated 14 April 2018, relating to period 2014/08, with the amount to be paid of € 1,351.49, and respective demonstration of compensatory interest assessment no. 2018..., in the amount of € 188.39, in both cases with the payment deadline set for 25 May 2018 – cf. Document 8 attached with the ppa;

ix. VAT Assessment no. 2018..., dated 14 April 2018, relating to period 2014/09, with the amount to be paid of € 8,562.66, and respective demonstration of compensatory interest assessment no. 2018..., in the amount of € 1,164.52, in both cases with the payment deadline set for 25 May 2018 – cf. Document 9 attached with the ppa;

x. VAT Assessment no. 2018..., dated 14 April 2018, relating to period 2014/10, with the amount to be paid of € 8,621.99, and respective demonstration of compensatory interest assessment no. 2018..., in the amount of € 1,144.24, in both cases with the payment deadline set for 25 May 2018 – cf. Document 10 attached with the ppa;

xi. VAT Assessment no. 2018..., dated 14 April 2018, relating to period 2014/11, with the amount to be paid of € 4,131.22, and respective demonstration of compensatory interest assessment no. 2018..., in the amount of € 533.32, in both cases with the payment deadline set for 25 May 2018 – cf. Document 11 attached with the ppa;

xii. VAT Assessment no. 2018..., dated 14 April 2018, relating to period 2014/12, with the amount to be paid of € 4,689.01, and respective demonstration of compensatory interest assessment no. 2018..., in the amount of € 590.42, in both cases with the payment deadline set for 25 May 2018 – cf. Document 12 attached with the ppa;

xiii. VAT Assessment no. 2018..., dated 14 April 2018, relating to period 2015/01, with the amount to be paid of € 6,773.75, and respective demonstration of compensatory interest assessment no. 2018..., in the amount of € 6.69, and late-payment interest no. 2018..., in the amount of € 1,076.41, in total of € 1,083.10 of interest, in either case with the payment deadline set for 25 May 2018 – cf. Document 13 attached with the ppa.

T. This last VAT Assessment, for the period of January 2015, results from adjustments to the tax credit of 2014 – cf. Document 13 attached with the ppa.

U. In disagreement with the VAT assessments and compensatory and late-payment interest identified above, the Applicant presented to CAAD, on 6 August 2018, the request for constitution of the Collective Arbitral Tribunal that gave rise to the present proceedings.

SUBSTANTIATION

The pertinent facts for the judgment of the case were selected and determined based on their legal relevance, in light of the plausible solutions to the legal questions, in accordance with the combined application of articles 123, no. 2 of the CPPT, 596, no. 1 and 607, no. 3 of the Code of Civil Procedure ("CPC"), applicable by referral of article 29, no. 1, paragraphs a) and e) of the RJAT.

Allegations made by the parties and presented as facts, consisting of strictly conclusive assertions, insusceptible of proof and whose validity must be assessed in relation to the concrete consolidated factual matter, were not deemed proven or unproven.

With regard to the facts proven, the conviction of the arbitrators was based essentially on critical analysis of the documentary evidence attached to the case file and, whenever applicable, on the testimony of the witnesses examined, in particular the employees of the Applicant, C... (second witness examined) and D... (fourth witness examined). In the first case, the witness is a collaborator of the Applicant since 2011, having accompanied the launch of the new activity area (nutrition services) from 2013 in the various gymnasia bearing the Group's brand, including that of the Applicant. In the second case, the witness is a nutritionist of the Applicant, at the gymnasium of ..., since the start of the nutrition area in January 2013. The respective testimonies were objective, consistent and revealed detailed knowledge of the facts reported.

Witnesses E..., current Financial Director and only customer as of the date of the facts, F..., Nutritionist of the gymnasium of Constitution, in Porto, and customer/member G..., despite revealing generic knowledge of the standardized procedures of the Group in which the Applicant is part, in a sense coincident with that of the previously mentioned witnesses, did not have, with reference to the date of the facts, direct contact with the gymnasium of ..., whose matter is at issue in the present proceedings.

The testimonies were consensual in confirming the creation, in 2013, of an autonomous business area, nutrition, to add to others existing, such as SPA, Personal Training and Physiotherapy, as well as the equivalence of the terms dietitian and nutritionist, given the historical convergence of the two professions, requiring the registration of professionals with the Order of Nutritionists to be able to practice clinical practice. The witnesses described the procedures for the provision of nutrition services, carried out with the support of specific software – SANUT – which, in addition to being a repository of customer clinical data, allows the recording of consultations and interactions carried out and generates alerts aimed at systematic follow-up of customers by nutritionists.

FACTS NOT PROVEN

With relevance to the decision there are no alleged facts that should be considered unproven.

2. ON THE LAW

2.1. DELIMITATION OF ISSUES TO BE DECIDED

What is at issue is a single legal question relating to the qualification of nutrition service provisions as ancillary in relation to the services of use of sports facilities, by the Applicant's customers. The ancillary character of such services (nutrition), invoked by the AT and contested by the Applicant, will imply(ies) their loss of autonomy and the corresponding framing in the so-called "main" provision [gymnasium services], ceasing to be covered by the VAT exemption.

In this context, it is important to assess the defects of lack of substantiation and violation of law raised by the Applicant.

2.2. LACK OF SUBSTANTIATION

The Applicant invokes that the AT failed to adequately substantiate the Inspection Report to justify its position, in violation of the provisions of article 77, no. 1 of the LGT and article 268, no. 3 of the CRP. However, it does not specify any arguments to substantiate this allegation.

In this context, it is important to note that the duty of substantiation plays the primary function of allowing the recipient of the act to understand the reasons underlying the administrative decision, allowing the control of its validity, through the analysis of its respective requirements, and access to contentious protection, making known to the taxpayer the cognitive and evaluative itinerary for the AT to have decided in the manner it decided.

According to the case law of the Supreme Administrative Court ("STA"), an act should be considered "substantiated when it is inserted in a legal-normative framework perfectly cognizable by a normal recipient placed in the position of its actual recipient" – Ruling delivered in case no. 1051/09, of 17 November 2010.

Reviewing the arbitral case file, it is found that the RIT contains, with clarity and sufficient degree of detail, the arguments, factual and legal, on which the AT based the disputed VAT corrections, which relate to the alleged ancillary nature of nutrition services, in relation to gymnasium services.

These arguments, their meaning and scope, were properly understood by the Applicant, which refutes them in a substantive manner.

The defect of lack of substantiation raised by the Applicant does not hold, for the reasons exposed.

A distinct question is whether the Applicant disagrees with the substantiation because it does not consider the requirements for taxation reproduced therein to be met and which "already relates to the merits of the decision and the legality 'stricto sensu' of the act itself" (cf. Ruling of the STA, case no. 1690/13, of 23 April 2014). In this case, what is at issue is not assessing the formal defect of lack of substantiation, but the substantive validity of the tax act, for error in the requirements, which is assessed below.

2.3. THE VAT EXEMPTION APPLICABLE TO NUTRITION SERVICES - FRAMEWORK

The exercise of professional activities in the health area designated by paramedic activities is regulated by Decree-Law no.