VAT Exemption Under Article 9 CIVA for Clinical Laboratory Services – CAAD Case 435/2017-T

ENGLISH TRANSLATION

Decides, in these proceedings, Arbitrator Professor Doctor Clotilde Celorico Palma, appointed by the Ethics Council of the Administrative Arbitration Centre to form the present Arbitral Tribunal:

I. Report

1 – A…-, Lda., with registered office on Rua …, …, with the unique registration number and collective person number … (hereinafter A… or Claimant), requested, under the terms of subparagraph a) of Article 2, paragraph 1 and Articles 10 and following of Decree-Law no. 10/2011, of 20 January (hereinafter referred to as RJAT), in conjunction with the provisions of subparagraph a) of Article 99, subparagraph d) of Article 102, paragraph 1, and paragraph 2 of Article 131, all of the Code of Tax Procedure and Process (hereinafter CPPT), the constitution of an arbitral tribunal in tax matters, with a view to requesting Arbitral Pronouncement on the decision dismissing the hierarchical appeal no. …2015… filed, which concerned the administrative complaint no. …2014… filed, with reference to the assessment of Value Added Tax (hereinafter VAT) no. 2014…, in the amount of € 33,704.83 (thirty-three thousand, seven hundred and four euros and eighty-three cents), and the respective assessments of compensatory interest, relating to the year 2013, with a view to the revocation of the "dismissal of the hierarchical appeal and [...] the VAT assessments and interest in question, with all legal consequences".

2 – In support of these requests, the Claimant alleged, in summary, that there is an illegality of the additional VAT assessments and respective compensatory interest due to disregard of the application of the possibility of waiver of the exemption provided for in Article 12, paragraph 1, subparagraph b), of the Value Added Tax Code (hereinafter CIVA). Thus:

• The acts of the Tax and Customs Authority (hereinafter AT) are based on the ground that there is an error in the classification for VAT purposes, an error which, under the terms established in Article 87 of the CIVA, gave rise to the assessment in question;

• It results clearly from the law that it is possible to opt for waiver of the exemption and for the classification of A… in the normal VAT regime;

• Since its main activity is concentrated in carrying out clinical analyses, essentially collecting samples in its clinics and providing the respective subsequent treatment, the conditions required to benefit from the exemption provided for in Article 9, paragraph 1, of the CIVA are met;

• It is in its establishments that samples are collected, treatments carried out, analyses performed, diagnoses made, and medical reports prepared;

• Only in case of unavailability of patients to attend the clinics, is A… exceptionally required to travel to other collection points (at home, for example), and sample processing is always carried out in the laboratories;

• Indeed, contrary to the AT's understanding, the conditions are met to benefit from the exemption provided for in paragraph 2 of the same article, since:

• It provides services in the area of clinical analyses, which is considered an "operation closely connected with them [medical and healthcare service provisions]", in accordance with the first part of paragraph 2 of Article 9 of the CIVA;

• On the other hand, it has, for that purpose, several establishments (clinics), considered "establishment 'similar [to hospital establishments, clinics, dispensaries]", as required by the second part of paragraph 2 of Article 9 of the CIVA;

• As for the provision of "closely connected operations", to be qualified as indispensable, the ancillary operations must be of such a nature and characteristics that, without resorting to these operations, it would not be possible to ensure that the main service from which the client benefits had equivalent value, that is, for example, that it offered the same quality;

• The provision of complementary clinical analysis services is an ancillary operation, not representing an end in itself for the client, but allows ensuring that the main service - provision of medical services - is of higher quality or obtained under better conditions;

• As for the exemption of operations closely connected with medical and healthcare services of Article 9, paragraph 2, of the CIVA, the Court of Justice of the European Union (hereinafter CJEU) has ruled on several occasions in the sense of including within the scope of the same the "[...] onerous transmission of a blood collection between two clinical analysis laboratories, inserted between the collection act and the actual analysis, within the framework of a blood analysis prescribed by a healthcare professional, with a view to drawing up a diagnosis and with a therapeutic purpose." (Judgment of 11 January 2001, delivered in Case no. C-76/99, Commission v. France), contrary to what the AT defends;

• Even if it is considered that these are only analyses prescribed by healthcare professionals, the CJEU, in its Judgment of 8 June 2006, delivered in Case no. C-106/05, Case L.u.P, further extends the scope of the exemption to other situations that fall outside the standard framework of the exemption, contradicting the AT's more restrictive understanding: "[...] although 'medical assistance' and 'personal assistance service provisions' must have a therapeutic purpose, it does not necessarily follow that the therapeutic purpose of a service must be understood in a particularly restrictive sense.";

• On the other hand, regarding the concept of "similar" establishment, it is already recognized by the AT, in Dispatch no. P.I301 2006176, that the concept of "similar establishment" includes the facilities of an entity dedicated to "management of residential centres for the elderly, such as nursing homes, assisted living facilities and day centres, and the provision of integrated care services to people of any age, whether in social care centres or through home assistance.";

• Using the concept already established by the AT, if these establishments fall within the concept, clinical facilities must also fall within it by a fortiori;

• The AT, through Circular Letter no. 147532, of 20 December 1989, states in categorical terms that "Clinical analysis laboratories, whether directed by analytical doctors, pharmacists or other graduates, are considered covered by the expression 'similar', referred to in the aforementioned paragraph 2 of Article 9";

• The interpretation that the AT makes of the Klüger Judgment has nothing to do with the question now at issue, as that Judgment concerns the provision of general care and domestic economy services provided by an ambulatory care service to persons in a state of physical and economic dependence;

• Since A… benefits from the exemption provided for in paragraph 2 of Article 9 of the CIVA, it is possible to apply the waiver of exemption, under subparagraph b) of paragraph 1 of Article 12 of the aforementioned Code;

• Being covered by Article 9, paragraph 2, of the CIVA, the taxable person may waive the exemption provided for in Article 12, paragraph 1, subparagraph b), and, consequently, has the possibility of deduction of the tax borne in the acquisition of goods and services, as provided for in paragraph 1 of Article 20 of the CIVA;

• As for compensatory interest, there is also a situation of illegality of the assessment;

• Compensatory interest is intended, in accordance with the provisions of Article 35 of the General Tax Act (hereinafter LGT), to compensate for the patrimonial loss suffered by the State, as creditor, resulting from the deprivation of the amount of tax due for a certain period of time, forming an integral part of the debt and thus having the nature of an aggravation of the tax debt;

• They are "a kind of civil compensation and not a sanction";

• It results from the wording of paragraph 1 of Article 35 of the LGT that liability for compensatory interest only occurs when the delay in assessment or undue reimbursement was attributable to the taxpayer;

• There shall thus be no place for compensatory interest when, despite the delay in assessment being caused by the taxpayer's conduct and their position being erroneous, they have acted in good faith and the error is excusable, because their position is reasonable;

• Although the AT disagreed with its position, having acted in good faith, believing that it was fully complying with the applicable legislation, with no fraudulent conduct, A… proceeded to pay the total amount of the tax due;

• A… provided guarantees within the scope of the respective tax enforcement proceedings, and should therefore be indemnified, in accordance with and for the purposes of Article 53 of the LGT.

3 – In this context, the Claimant therefore requests this Tribunal:

• That it revoke the decision dismissing the hierarchical appeal filed against the dismissal of the administrative complaint;

• That it revoke the additional VAT assessments and interest that were the subject thereof;

• That it condemn the Respondent to restitution to the Claimant of the amount paid in excess, namely the VAT assessment as well as the corresponding assessments of compensatory interest, in the total amount of € 33,781.50;

• That it condemn the Respondent in indemnification for undue provision of guarantee, provided for in Articles 171 of the CPPT and 53 of the LGT.

4 - Various documents were attached to the petition.

5 – After completion of the necessary and legal procedural steps, in particular those provided for in Decree-Law no. 10/2011 and in Ordinance no. 112-A/2011, of 22 March, a Single Arbitral Tribunal was constituted on 25 September 2017, composed of Professor Doctor Clotilde Celorico Palma, appointed in accordance with Article 11, paragraph 8, of the RJAT.

6 – Upon notification in accordance with Article 17, paragraph 1, of the RJAT, the AT submitted a response, alleging, in summary, that:

• The present arbitral instance is substantively incompetent to assess whether "the Claimant has or does not have the right of waiver of the exemption provided for under subparagraph 2) of Article 9, as provided in Article 12, paragraph 1, subparagraph b), both of the VAT Code";

• In accordance with Article 2, paragraph 1, subparagraph a), of the RJAT, the competence of arbitral tribunals comprises, among others, the assessment of claims relating to "declaration of illegality of acts of tax assessment, self-assessment, withholding at source and payment on account", this scope not comprising the above question;

• It follows from the RJAT that the scope of competence of arbitral tribunals constituted under it does not contemplate the possibility of assessing claims aimed at the recognition of rights in tax matters;

• Even if this were not the case, this conclusion follows equally from the comparison between the legislative authorization act, under which tax arbitration was established - namely when it referred to "The arbitral tax process must constitute an alternative procedural means to judicial review proceedings and to the action for recognition of a right or legitimate interest in tax matters", as provided in Article 124, paragraphs 2 and 4, subparagraph b), of Law no. 3-B/2010, of 28 April;

• There is therefore an exception to jurisdiction, embodied in the material incompetence of the arbitral tribunal, which prevents examination of part of the claim;

• As for the remaining claims, the view is that there is an activity exempt from VAT regarding which the possibility of waiver of exemption is barred, so the tax borne at source could not be deducted, in accordance with paragraph 1 of Article 20, a contrario, of the CIVA;

• This understanding is in accordance with the case law of the CJEU;

• In fact, in the Judgment of 8 June 2006, Case no. C-106/95, Case L.u.P., the CJEU states that clinical analysis service provisions are, as a rule, exempt from VAT, under subparagraph c) of paragraph 1 of Article 132 of the VAT Directive, which replaced Article 13, A, paragraph 1, subparagraph c), of the Sixth Directive;

• In point 22 of the decision it argues that "[...] Article 13, A, paragraph 1, subparagraph b) of the Sixth Directive exempts services comprising a set of medical assistance services in establishments having social purposes, such as the protection of human health, whereas the same number, subparagraph c), aims at exemption of services provided outside hospital organisms, either in the private home of the service provider, in the patient's home or in any other location [...]", which contradicts the position defended by the Claimant;

• By seeking to waive the exemption, the Claimant is calling into question the objectives intended to be established in the VAT Directive, in its Article 132, paragraph 1, subparagraphs b) and c), which consist in reducing the cost of healthcare and making such care more accessible to individuals;

• As for the indemnification requested by the Claimant, it is understood that the acts of assessment do not have any defect that should dictate their annulment;

• Even if this were the case, the claim for indemnification cannot be held to be well-founded as it is connected to the claim for annulment of the tax assessment acts, as seen above;

• On the other hand, it further results from Article 53 of the LGT, in accordance with Articles 43 and 100 of the same Act, as well as from the unanimous case law of the Supreme Administrative Court (STA), that, in case of undue provision of guarantee, the interested party has the right to be indemnified for the costs incurred with the provision thereof;

• The Claimant merely alleges having constituted guarantee in order to avoid the enforcement proceedings, not demonstrating the costs it incurred with such constitution, and therefore this claim cannot be held to be well-founded.

7 – By Dispatch of 2 November 2017, the first meeting of the Tribunal with the parties was scheduled for 13 December 2017, in accordance with and for the purposes provided for in Article 18 of the RJAT, with the summoned witnesses being examined and the exception to jurisdiction referred to by the AT being discussed.

8 – In the same Dispatch of 2 November 2017, the parties were notified to submit optional successive written submissions, within ten days, after the close of evidence.

9 – On 10 January 2018, the Tribunal was notified of the submission of the Claimant's submissions, which maintained its position, alleging that "[...] all the facts [by it] alleged [...] are proven, [concluding for] the subsumption of the invoked right in accordance with the terms contained in the PI".

10 – On 15 January 2018, the Tribunal was notified of the counter-submissions presented by the Respondent, which, in addition to having maintained all its arguments, stating again that there was "[...] an activity exempt from VAT, regarding which the possibility of waiver of exemption is barred, so the tax borne at source could not be deducted, in accordance with paragraph 1 of Article 20, a contrario, of the VAT Code.", further invoked the untimeliness of the Claimant's submissions, presented 5 days after the deadline granted for that purpose, for which reason it requests the removal of the Claimant's submissions.

The AT further reserves the fact that the testimony of witness B… supports the position defended by the Respondent, given that it stated that the Claimant maintains agreements with the NHS, as well as with other entities, namely ADSE, SAD, ADM, whereby "… even if, by mere hypothesis, without conceding, it were understood that the Respondent could benefit from the right of waiver of exemption, by force of the provisions of subparagraph b), paragraph 1, of Article 12 of the CIVA, this putative right to waiver would be ruled out, given that the Claimant maintains agreements with the State."

11 - By Dispatch of 6 February 2018, the Tribunal upheld the Respondent's claim as to the untimeliness of the submissions presented by the Claimant, ordering their removal from the File.

12 - By Dispatch of 6 February 2018, the Tribunal requested that the Claimant attach to the File the Inspection Report which, by oversight, had not been annexed.

13 - By Dispatch of 9 February 2018, the date for the Decision was postponed to 12 March 2018.

14 – On 12 February 2018, the Claimant attached to the File again a document which had nothing to do with the Inspection Report, having been notified on that date to correct the oversight by 15 February 2018.

15- On 12 February 2018, the Claimant requested an extension, which was granted, to attach the Inspection Report, alleging that it had been damaged during the digitization process.

16 – On 16 February 2018, the Claimant came to invoke that "…without, however, ceasing to demonstrate full availability to cooperate with the Tribunal (…) the terms in which the impugned act is based are those which it set forth in its PI – which the AT does not contest". Having been granted a new deadline to deliver the Inspection Report, it never did so.

17 - The Respondent having been notified on 26 February 2018 to attach the Inspection Report to the proceedings, on 6 March 2018 sent the said document.

1. The Claimant came, on 7 March 2018, to request that the lack be remedied, with the Tribunal accepting the request by dispatch of 8 March 2018.

II - Case Management - Preliminary Issue - Incompetence Ratione Materiae of the Principal Claim

The Tax and Customs Authority invokes the exception of incompetence of this arbitral jurisdiction, considering that the claim for condemnation of the Tax Administration to recognize the right to waive the VAT exemption is not susceptible of assessment, as it falls outside the material scope of tax arbitration in light of the RJAT, which circumscribes the competence of Arbitral Tribunals to claims relating to "declaration of illegality of acts of tax assessment, self-assessment, withholding at source and payment on account" (cf. Article 2, paragraph 1, subparagraph a), of the RJAT).

That is, for the Respondent we are faced with a claim aimed at recognition of rights in tax matters not contemplated in the RJAT.

The question of material incompetence of arbitral tribunals has been addressed in several arbitral proceedings decided within the scope of the CAAD, in particular in the Judgments delivered in Cases no. 168/2015-T, no. 82/2015-T, no. 789/2015-T and no. 681/2016-T accessible electronically (www.caad.org.pt) and which, with the necessary adaptations, we follow.

The AT summarily argues that the central issue to be assessed is the recognition of the right to waive the exemption on the part of the Claimant, and that in the present proceedings, the additional VAT assessments made should be qualified as consequential acts taking into account the concept, albeit restricted, adopted both by doctrine and by case law. For this purpose, it considers that only acts produced or having certain content as a result of the existence of prior supposedly valid acts which serve them as a cause, basis or presupposition should be qualified as consequential acts.

The Respondent thus considers in the present case that the additional VAT assessments, pending assessment in this arbitral instance, are in a relationship of dependence on the recognition or not of the right, on the part of the Claimant, to waive VAT exemption, under the terms of Article 12, paragraph 1, subparagraph b), of the CIVA.

On 13 December 2017, at the first meeting of the Tribunal with the parties, this issue was discussed. The Claimant maintained its position, rebutting the arguments presented by the AT based on case law already established by the Arbitral Tribunal itself.

It is settled case law in the aforementioned Judgments that Ordinance no. 112-A/2011, regarding acts that can be classified under Article 2, only excluded from the scope of the AT's binding nature, in non-customs matters, claims relating to acts of self-assessment, withholding at source and payment on account that were not preceded by recourse to administrative remedies and claims relating to acts of determination of the tax base and acts of determination of the taxable base, both by indirect methods, including the decision of the revision procedure.

Since we are not dealing with any of the situations provided for by Ordinance no. 112-A/2011, which translate into the incompetence of the Arbitral Tribunal, competence must be assessed only in relation to the RJAT.

The Judgment relating to Case no. 168/2015-T states that: "The competence of arbitral tribunals operating within CAAD is defined, in the first place, by Article 2, paragraph 1, of the RJAT, which establishes the following:

1 - The competence of arbitral tribunals comprises the assessment of the following claims:

a) Declaration of illegality of acts of tax assessment, self-assessment, withholding at source and payment on account;

b) Declaration of illegality of acts of determination of the taxable base when it does not give rise to the assessment of any tax, acts of determination of the tax base and acts of determination of patrimonial values; In the second place, the competence of arbitral tribunals operating within CAAD is limited by the binding nature of the Tax and Customs Authority which, under Article 4, paragraph 1, of the RJAT, was defined by Ordinance no. 112-A/2011, of 12 March, which establishes the following, to the extent relevant here:

The services and bodies referred to in the preceding article bind themselves to the jurisdiction of arbitral tribunals operating within CAAD which have as their object the assessment of claims relating to taxes whose administration is entrusted to them referred to in paragraph 1 of Article 2 of Decree-Law no. 10/2011, of 20 January, with the exception of the following:

a) Claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account which have not been preceded by recourse to administrative remedies under Articles 131 to 133 of the Code of Tax Procedure and Process;

b) Claims relating to acts of determination of the tax base and acts of determination of the taxable base, both by indirect methods, including the decision of the revision procedure; c) Claims relating to customs duties on imports and other indirect taxes affecting goods subject to import duties; and d) Claims relating to tariff classification, origin and customs value of goods and tariff quotas, or whose resolution depends on laboratory analysis or procedures to be performed by another Member State in the context of administrative cooperation in customs matters.

The same Judgment also states that:

"As can be seen from Article 2 of the RJAT, the competence of arbitral tribunals operating within CAAD was defined by the RJAT only taking into account the type of acts that are the subject of the claims of taxpayers and not according to the type of questions that it is necessary to assess in order to decide whether the acts are legal or illegal.

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

Thus, in the arbitral process, similarly to what occurs in judicial review proceedings, any illegality may, as a rule, be attributed to acts of assessment, as follows from Article 99 of the CPPT, subsidiary applicable. This will not be the case only where the law provides for autonomous impugnability of administrative acts that are presuppositions of acts of assessment, and only to that extent is the assessment of the legality of acts of assessment excluded in all aspects.

However, for there to be such autonomous impugnability, there must be some administrative act in tax matters, as impugnability relates to acts and not to legal positions assumed explicitly or implicitly as presuppositions of acts of assessment, but not materialized in autonomous tax acts.

The consequential acts, of which the Tax and Customs Authority speaks, are consequential to other prior tax or administrative acts, and in the case in question, there is no notice that any administrative act has been performed 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 impugnability of the assessment acts impugned, there would have to be previously performed some administrative act that was a presupposition of these assessment acts, which is not the case in question.

Therefore, since the assessment acts are injurious to the interests of the Claimant and are the only acts performed by the Tax Administration on the situation assessed therein, their contentious impugnability must be ensured on the ground of any illegality, as follows from the principle of effective judicial protection, enshrined in Articles 20, paragraph 1, and 268, paragraph 4, of the CRP.

On the other hand, when there is no autonomous impugnable act prior to an act of assessment concerning its presuppositions, any illegality previously committed may «be invoked in the impugnation of the final decision» (final part of Article 54 of the CPPT), so all questions relating to the legality of acts of assessment can be assessed in tax tribunals in judicial review proceedings, as follows from subparagraph a) of paragraph 1 of Article 97 and Article 99 of the same Code.

In fact, in tax tribunals, even when assessment acts have been performed, where 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 enabling, in addition to the assessment of the legality of acts, the definition for the future of the taxpayer's rights), the use of the action instead of judicial review is a mere option, as follows from the text of Article 145, paragraph 3, of the CPPT, when it says that «actions may only be proposed whenever this procedural means is the most adequate to ensure full, effective and efficient protection of the right or legally protected interest».

That is, what is provided in this rule is a limitation on the use of the action and not a limitation on the use of judicial review proceedings.

In fact, it is manifest that judicial review proceedings include the possibility of recognition of rights in tax matters, such as the right to annulment or declaration of nullity of assessments, the right to indemnifying interest and the right to indemnification for undue guarantee, so the fact that recognition of rights is at issue is not an obstacle to the use of judicial review proceedings.

Thus, as the Tax and Customs Authority states, since the arbitral tax process was created as an alternative to judicial review proceedings, it is to be concluded that there is no obstacle to the legality of the assessment acts in this process being assessed by this Arbitral Tribunal, as in tax tribunals that legality could be assessed in judicial review proceedings.

Therefore, regarding the claim for annulment of assessment acts, the exception of material incompetence raised by the Tax and Customs Authority on the ground that recognition of a right in tax matters is at issue is dismissed.

Naturally the decision to annul the tax acts sought by the Claimant implies the assessment of the underlying tax-legal relationship. Thus, in order to conclude the illegality of the impugned tax acts and their invalidating defect, it will be necessary to evaluate whether the Claimant maintains the right to waive VAT exemption and whether it should be classified in the normal VAT regime with the right to deduction. This is the cause of action (basis) and not the claim (pretension) deduced in the dispute.

In reality, the recognition of rights and legitimate interests in tax matters is always implicit in the declaration of illegality of tax acts and only when it is disconnected therefrom (we refer to the declaration of illegality and its annulling effect) can it be configured within the scope of an action for recognition of a right, which is not the case.

In this sense, Jorge Lopes de Sousa states in Commentary on the Legal Regime of Tax Arbitration, Guide to Tax Arbitration, Coord. Nuno Villa-Lobos and Mónica Brito Vieira, Coimbra, Almedina, 2013, p.105: "the recognition of rights and legitimate interests in tax matters, outside cases where it may be underlying the declaration of legality of acts or assessment of the questions indicated in paragraph 1 of Article 2 of the RJAT, is outside the competence of arbitral tribunals".

It is manifest to us that the principal subject matter of the proceedings relates to additional VAT assessments, whose legality is questioned, which is why the competence of this arbitral tribunal is verified, under Article 2, paragraph 1, subparagraph a), of the RJAT, and the exception of incompetence of the present tribunal regarding the principal claim is dismissed.

1. The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented (cf. Articles 4 and 10, paragraph 2, of the RJAT, and Article 1 of Ordinance no. 112-A/2011, of 22 March).

2. The proceedings do not suffer from nullities and no other preliminary issues relating to the principal claim have been identified.

III – Reasoning

1 – Issues to be decided

The issues for which Tribunal pronouncement is required are essentially reduced to ascertaining whether the AT acted appropriately when it proceeded, in the manner indicated, with the additional assessments of VAT and compensatory interest, relating to the tax year 2013, on the following grounds:

• The Claimant does not fall within the provisions of Article 9, paragraph 2, of the CIVA;

• It is not permitted for the Claimant to opt for waiver of the exemption provided for under subparagraph b) of paragraph 1 of Article 12 of the CIVA.

2 – Matter of Fact

In light of the positions of the parties expressed in the pleadings and the documents forming part of the administrative file attached, the following facts pertinent to the decision of the case are found to be proven:

• A… is a public limited company constituted in 1992 which is part of the C… Clinical Analyses group and possesses several laboratories in the country;

• It is in its establishments that samples are collected, treatments carried out, analyses performed, diagnoses made, and medical reports prepared;

• Only in case of unavailability of patients to attend the clinics, is A…, exceptionally required to travel to other collection points (at home, for example), and sample processing is always carried out in its laboratories;

• The Claimant began its activity on 8 October 1992, being registered as a VAT taxable person exempt from VAT, for the exercise of the activity of "Clinical analysis laboratories", CAE 86901;

• A… was originally classified, for VAT purposes, in the exemption regime provided for in Article 9 of the CIVA;

• In 2008, the Claimant submitted a declaration of amendments in VAT, through which it waived the aforementioned exemption and opted for classification in the normal taxation regime;

• The Claimant was subject to a tax inspection action for the years 2008 to 2012, carried out under service orders no. OI2012…, OI2012…, OI2012…, by the Finance Directorate of …;

• On 29 November 2012, following the aforementioned inspection action, the Tax Inspection Services (hereinafter SIT) of the Finance Directorate of … proceeded to complete the Official Alteration Bulletin (BAO), reclassifying the Claimant as an exempt VAT taxable person, under paragraph 1 of Article 9 of the CIVA, with retroactive effect to 1 March 2008;

• As a consequence of that alteration, the SIT of the Finance Directorate of … promoted the corresponding corrections on the ground of undue VAT deduction;

• The Claimant was notified of the additional VAT assessment no. 2014…, of 8 February 2014, in the amount of €33,704.83, relating to the 2013/12 tax period;

• Subsequently, it was further notified of the assessment of compensatory interest no. 2014…, of 8 February 2014, in the amount of €76.67;

• On 20 June 2014 the Claimant established two bank guarantees with D…, respectively of €43,000.35 and €162.21 (nos. … and …), having proceeded with the payment of the corresponding Stamp Tax;

• Not agreeing with the aforementioned assessments, the Claimant filed an administrative complaint on 18 August 2014;

• On 5 November 2014 the Claimant was notified of the draft decision dismissing the administrative complaint, not having exercised its right to prior hearing;

• On 2 December 2014, the Claimant was notified of the decision dismissing the administrative complaint;

• On 5 January 2015, the Claimant filed a hierarchical appeal of the decision dismissing the administrative complaint;

• On 6 March 2015 the Claimant proceeded to pay the tax and respective interest;

• On 17 April 2017, the Claimant was notified of the decision dismissing the hierarchical appeal.

Note that regarding the matter of fact the Tribunal is not required to pronounce on everything alleged by the parties, it being incumbent upon it, instead, to select the facts that are important for the decision and to distinguish the proven matter from the unproven (cfr. Article 123, paragraph 2, of the CPPT and Article 607, paragraph 3, of the CPC, applicable ex vi Article 29, paragraph 1, subparagraphs a) and e), of the RJAT). In this way, the facts pertinent to the decision of the case are chosen and selected according to their legal relevance, which is established in view of the various plausible solutions of the question(s) of Law (cfr. former Article 511, paragraph 1, of the CPC, corresponding to current Article 596, applicable ex vi Article 29, paragraph 1, subparagraph e), of the RJAT). Thus, taking into account the positions assumed by the parties, in light of Article 110, paragraph 7, of the CPPT, the documentary evidence and the administrative file attached to the proceedings, the aforementioned facts were deemed proven, with relevance to the decision.

There are no facts relevant to the decision that have not been proven.

3 – Questions of Law

Given the aforementioned factual matter as proven, it is necessary subsequently to determine the applicable law to the facts at issue, in accordance with the questions above.

It is of particular interest to decide on the principal issue raised in the present proceedings, namely: whether the AT acted correctly when it proceeded, in the manner indicated, with the assessment of VAT and corresponding compensatory interest, concluding that the Claimant could not benefit from the exemption provided for in paragraph 2 of Article 9 of the CIVA and, consequently, could not waive such exemption, proceeding to assess and deduce the VAT in general terms.

It is therefore important to analyze this question taking into account the rules governing this tax in accordance with EU Law, and its respective transposition at the domestic level and with the interpretation administrative and judicial that has been made of the same by the Court of Justice of the European Union (CJEU).

3.1. Classification in VAT

3.1.1 Preliminary Note

The question that now occupies us has been dealt with in several Judgments of this Tribunal, in particular in the decisions delivered in Cases no. 278/2013-T, 341/2015-T, 227/2015-T, 168/2015-T, 303/2015-T, 315/2015-T, 788/2015-T, 789/2015-T, 160/2016-T and 161/2016-T.

In general, in situations similar to the AT has come to emphasize in its defense that the activity carried out in the area of clinical analyses cannot be considered exempt from tax by classification in paragraph 2 of Article 9 of the VAT Code, but only by invocation of the provisions of paragraph 1 of the same provision. For this purpose it alleges that in no case do the services provided involve hospitalization or the internment of patients, verifying that the aforementioned services are not performed in a hospital environment, a crucial requirement, according to the CJEU, for the application of the said exemption.

In the understanding it makes of the applicable rules, the Administration argues that the exemption provided for in paragraph 2 of Article 9 of the CIVA covers medical and healthcare service provisions (health acts), which consist of providing assistance to persons, diagnosing and treating diseases or any health abnormalities and the operations closely connected with them performed by the establishments expressed in the said rule or by similar hospital establishments (hospitalization or internment).

As a rule, the Tax Administration comes to invoke to support this position, as in the situation now in question, the Klüger Judgment, of 10 September 2002 (Case C-141/00) of the Court of Justice of the European Communities (CJEC) now Court of Justice of the European Union, which evidenced that the exemptions in subparagraphs b) and c) of Article 132 of the currently in force Directive 2006/112/EC, of the Council, of 28 November 2006 (ex. Sixth Directive on VAT), relating to the common system of value added tax (hereafter referred to as VAT Directive), although aiming to regulate the exemptions that apply to medical assistance services, have distinct scopes. Thus, invoking the doctrine of the aforementioned decision, the Tax Administration understands that, while the first subparagraph exempts service provisions performed in a hospital environment, including closely connected operations, subparagraph c) is intended to exempt medical and paramedical service provisions supplied outside such locations, whether in the private home of the service provider, in the patient's home, or in any other place. And it draws therefrom the interpretive effects, already mentioned above, for the provisions of paragraphs 2 and 1, respectively, of Article 9 of the CIVA, which it understands correspond to the said subparagraphs of the Directive.

As the Claimant notes, this position of the Tax Administration embodies a new understanding, an interpretative change, opposed to that which has been maintained and practiced since the beginning of the VAT's term, with several administrative dispatches going in the sense that the activity carried out by clinical analysis laboratories falls within the activity of establishments "similar" to hospital establishments, clinics and dispensaries, and is thus exempt from VAT under paragraph 2 of Article 9 of the CIVA, from which flows the possibility of waiver of exemption under the terms of Article 12, paragraph 1, subparagraph b).

In accordance with this new understanding by the AT, based fundamentally on the Klüger and L.u.P Judgments, clinics or laboratories cannot waive the exemption, given that Article 12 of the CIVA only permits waiver to hospital establishments referred to in paragraph 2 of Article 9 and a clinic or clinical analysis laboratory is not classified in that number, but rather in paragraph 1 of the aforementioned provision.

However, it is important to clarify from the outset that, in our understanding, as well as in the understanding of various authors who have analyzed such question, the interpretation that the Administration makes of the doctrine emanating from the Judgments in question is not correct, resulting from an inadequate application to the facts.

The Directive itself, in subparagraph b) of Article 132, formulates the exemption as covering "hospital establishments, medical assistance and diagnosis centers and other establishments of the same nature", which again classifies a clinical analysis laboratory, whereas the respective subparagraph c) refers only to "medical and paramedic professional assistance service provisions, as defined by the Member State in question".

It is certain that, as we shall see in more detail, the Klüger Judgment came to establish that this subparagraph c) could cover service provisions performed by legal entities and not exclusively by natural persons, but from it is not derived, contrary to what the AT intends, that in subparagraph b) are exclusively covered service provisions performed in a hospital environment. That is not the meaning of the Judgment and the conclusions the Tax Administration seeks cannot be drawn from it.

For its part, for the purposes of "determining when a private establishment can be considered as 'duly recognized' as practicing conditions analogous to those existing for public law bodies", the AT centers itself, as a rule, on the criterion of "who bears the cost of the service provisions made by the private institution".

The AT has generally understood in this context that private entities that enter into agreements or conventions with the National Health Service or with their respective subsystems are integrated in the National Health System (providing services under social conditions analogous to those of public law entities), and thus cannot waive tax exemption from the moment they enter into such conventions. On the other hand, it has come to understand that the concept of "National Health System" encompasses the public entities integrated in it, as well as private entities which, under the applicable law, have entered into agreements or conventions with the NHS or with one of the public health subsystems for the provision of health care. We also do not agree with such orientation, as we shall explain further on.

The reasoning of the Tax Administration, in wanting to pass to obligatorily exempt the service provisions made by A… under the provisions of paragraph 1 of Article 9 of the CIVA, an exemption that does not permit waiver, would come in the concrete case, unjustifiably and illegitimately, to exclude the adequate and legitimate application of the exemption provided for in paragraph 2 of the said legal provision and, consequently, to make preclude the exercise of the right to waiver, that is, the deduction of the tax borne. Such fact, contrary to what the AT argues, translates itself precisely into an increase in the cost of service provisions made, exactly the opposite effect which, as is known, underlies the creation of these exemptions and the possibility of waiver, calling into question the neutrality of the tax. Now, in the Klüger Judgment and in the subsequent CJEU case law, namely in the Case L.u.P, the reasoning of this Tribunal goes exactly in the direction of enabling the application of the exemption in question to clinical analysis laboratories.

It is therefore imperative that we focus on the following questions: (i) In the CIVA, can the exemption rule of paragraph 2 of Article 9 be read as covering only service provisions performed in a hospital environment?; (ii) What meaning should then be given to the expression, in the same provision, of "dispensaries and similar"?

Let us examine in more detail the bases of the conclusion we have reached and which we have already stated, reproducing, in the essentials and for the purposes deemed relevant, the conclusions we reached before in Cases 227/2015-T and 341/2015-T of this Tribunal.

3.1.2 The Principle of Neutrality

VAT is the most harmonized tax in the European Union. It is essentially characterized as an indirect tax of community matrix multiphase, which tends to reach every act of consumption (general tax on consumption). Operating by the tax credit method, each operator subject to taxation levies VAT on its sales or service provisions, but has the right to deduct from the tax levied the tax that burdened its acquisitions.

The principal property of the tax, which recommends it as an ideal system for taxation of consumption, is its neutrality, that is, the absence of distorting effects on the behavior of economic agents, in particular as regards the extension of production and distribution chains.

With the principle of VAT neutrality, it is intended, in particular, that this tax be neutral in its effects on the strategic options of economic agents, bearing in mind that its ultimate objective is to tax the economic capacity evidenced in acts of consumption and not the economic activity performed by the taxable persons.

The application of the principle of neutrality should be taken into consideration in the essential phases of the life of the tax, such as the rules of objective and subjective incidence, the location of operations, exemptions and the exercise of the right to deduction. In the conception, application and interpretation of the common VAT system, the legislator, the courts and the other interpreters and appliers of the norms, should take into account this fundamental principle of the tax.

The principle of neutrality is thus embodied in the VAT Directives, being systematically invoked by the Commission to oppose national legislations deemed incompatible with the norms of EU Law, as well as by the tax administrations and taxpayers of the various Member States, having been, repeatedly, applied by the CJEU.

In accordance with the understanding of the CJEU, in the interpretation of the expressions used to designate exemptions, the "principle of fiscal neutrality inherent in the common VAT system and in respect of which the exemptions provided for in Art. 13 of the Sixth Directive must be applied" should be taken into account.

We may state that this has been the principle most invoked by the Tribunal to support its decisions, appearing to us often allied to the principle of equal treatment, uniformity and the elimination of competition distortions.

The CJEU has been concerned, in particular, to ensure the neutrality of the tax burden of all economic activities, whatever their objectives or results (which, as it emphasizes, is achieved through the mechanism of deductions that frees the entrepreneur from the burden of VAT paid in his acquisitions). The principle of fiscal neutrality implies that all economic activities should be treated in the same manner. The same applies to economic operators who perform the same operations. Similar service provisions, which are thus in competition with each other, should not be treated differently from the point of view of VAT.

As noted by Advocate General Juliane Kokott in her conclusions presented in Case TNT, the principle of fiscal neutrality opposes similar goods or service provisions, which are thus in competition with each other, being treated differently from the point of view of value added tax. In this context, she notes that "The principle of fiscal neutrality, which is at the basis of the common tax system and must be taken into account in the interpretation of exemption rules, does not allow economic operators who perform the same operations to be treated differently in terms of value added tax collection. (...) It includes the principle of eliminating competition distortions resulting from differential treatment from the point of view of value added tax (...)"

3.1.3 Exemptions in the European Directive

It was with the Sixth Directive that it was sought to standardize the exemptions in internal transactions that the Member States could grant, given that in the Second Directive this matter was left to the exclusive discretion of the national legislator.

The main concern underlying the exemption regime provided for in the Sixth Directive was to establish a common list of exemptions so as to make it possible, as appears from its preamble, for own resources to be collected uniformly in all Member States.

Exemptions, however, with the exception of those relating to foreign trade, constitute a significant obstacle to the neutral functioning of the tax, as is widely recognized.

In VAT, there are two types of exemptions taking into account the possibility of exercising the right to deduction. On one hand, we have complete, total, full exemptions, or those that confer the exercise of the right to deduct the VAT borne.

In these exemptions, as the designation itself indicates, the taxable person beneficiary does not levy tax in its active operations (transfers of goods or service provisions made) and has the right to deduct the VAT borne for its performance. In the so-called incomplete, simple, partial exemptions, or those that do not confer the exercise of the right to deduct the VAT borne, such as the exemptions relating to health which concern us here, the taxable person beneficiary does not levy tax in its active operations, but does not have the right to deduct the VAT borne for its performance.

For this very reason, the community legislator came to permit, in exceptional cases, that Member States grant the right to waive certain exemptions, with taxable persons starting to apply the tax in general terms, i.e., to levy and deduct the VAT borne, so as not to increase the price of their operations. Among these cases is precisely the exemption provided for in subparagraph c) of paragraph 1 of Article 132 of the VAT Directive, transposed among us in paragraph 2 of Article 9 of the CIVA.

Essentially for reasons of a social, cultural and political nature, the VAT Directive provides a series of exemptions, which, however, apply to a set, after all, limited of services, given the broad base of VAT incidence.

In the VAT Directive, the regulation of exemptions is systematized by distinguishing "exemptions for the benefit of certain activities of general interest", "exemptions for the benefit of other activities" (internal exemptions), "exemptions related to intra-community operations and exemptions on importation", "exemptions on exportation", "exemptions applicable to international transport", "exemptions applicable to certain operations assimilated to exports", "exemptions applicable to service provisions made by intermediaries" and "exemptions applicable to operations related to international traffic in goods".

As far as exemptions in internal operations are concerned, and in particular exemptions for the benefit of certain activities of general interest, the Sixth Directive proceeded to their harmonization, seeking to achieve a limited list of exemptions, which allows a broad tax base.

The CJEU, for its part, has developed, over these years, relevant case law on the subject of exemptions in general, in particular on their respective characteristics and objectives, and, in particular, regarding the concrete situations covered in the VAT Directive. The Tribunal's case law on exemptions has been based essentially on the general principles of interpretation it has developed, in particular, the principle of strict interpretation, the principle of systematic interpretation and the principle of uniform interpretation, also emphasizing, in particular, the need to respect the principle of neutrality.

But it is important to emphasize from the outset that we are dealing with norms of European Union Law and that, as such, as the CJEU notes, "For the purposes of interpreting a provision of community law, account must be taken of its terms, as well as its context and the objectives pursued by the regulation in which it is integrated."

The principle of strict interpretation of exemptions is the one that has most frequently been invoked by the CJEU. It is settled case law that, with some nuances, exemptions must be subject to strict interpretation, both as regards service providers and as to the type of activities that should be exempt.

Bearing in mind that exemptions constitute derogations to this principle, the terms used to designate the exemptions targeted by Article 13 of the Sixth Directive must be interpreted strictly. For this purpose, given that the provisions of that article have an exhaustive character and must be expressed and precise, in its interpretation the criterion of literal interpretation should be attended to above all. As a consequence, recourse to extensive interpretations should be avoided that broaden the scope of those provisions whose wording is sufficiently precise, as such is incompatible with their objective which is to exempt only and solely the activities enumerated and described therein.

However, the interpretation of these terms must be made in conformity with the objectives pursued by the said exemptions and respect the requirements of the principle of fiscal neutrality inherent in the common VAT system. Thus, this rule of strict interpretation does not mean that the terms used to define the exemptions provided for in the aforementioned Article 132 should be interpreted in a way as to deprive them of their effects.

In the same sense, Advocate-General F. G. Jacobs, distinguishing the notions of "strict" interpretation and of "restrictive" interpretation, stated that "VAT exemptions must be strictly interpreted, but must not be minimized by way of interpretation. [...] As a corollary, the limitations of exemptions must not be interpreted restrictively, but must also not be analyzed in a way that goes beyond their terms. Both the exemptions and their limitations must be interpreted in such a way that the exemption applies to what was intended to apply and no more."

In summary, it can be stated that the CJEU understands that in the interpretation of exemption rules one should attend above all to the literal element, but that a strict interpretation can never deprive the rules of the VAT Directive of their useful effect.

As regards the systematic interpretation of exemptions, the CJEU has come to affirm that the concepts used in the norms of exemptions are autonomous concepts of community law that must be situated in the general context of the common VAT system. In these terms, it has come to emphasize that the content of exemptions cannot be freely altered by the Member States, given that autonomous concepts of community law are at issue, with the exception of the case where the Council permits it. Thus, it is settled case law that the exemptions provided for in Article 13 of the Sixth Directive constitute autonomous concepts of EU Law that aim to avoid divergences in the application of the VAT regime from one Member State to another.

It is also customary, in this context, to state that exemptions in VAT assume an objective nature, that is, for the purposes of their granting, the nature of the activity pursued is essentially relevant and not the legal nature of the entity that pursues the activity, although, in reality, such does not exactly happen as far as the exemptions that interest us for the purposes of our analysis are concerned.

The provisions of the VAT Directive are, in essence, identical to the corresponding provisions of the Sixth Directive.

3.1.4 Health Exemptions

The exemptions of general interest in the health area are contemplated in subparagraphs b) and c) of paragraph 1 of Article 132 of the VAT Directive. In addition to their introductory sentence, the exemptions provided for in Article 132, paragraph 1, subparagraphs b) and c), of Directive 2006/112 are worded identically to those of Article 13, A, paragraph 1, subparagraphs b) and c), of the Sixth Directive.

In subparagraph b), the Directive establishes that Member States must exempt "hospitalization and medical assistance, and also operations closely related thereto, ensured by public law bodies or, under social conditions analogous to those applicable to the latter, by hospital establishments, medical assistance and diagnosis centers and other establishments of the same nature duly recognized."

In turn, subparagraph c) orders the exoneration of tax of "medical and paramedic professional assistance service provisions, as defined by the Member State in question".

The objective underlying the granting of these exemptions is not to burden medical service provisions, ensuring that the benefit of medical assistance does not become inaccessible due to the increase in costs resulting from VAT taxation, i.e., to reduce medical costs for users and promote healthcare. Indeed, we are dealing with exemptions for the benefit of certain activities of general interest, specific activities intended to pursue socially useful purposes, such as medical assistance. It is settled that the common objective to both the exemptions provided in subparagraph b) and those provided in subparagraph c) is to reduce the cost of healthcare and make such care more accessible to individuals.

In order to determine which provisions susceptible to benefit from these exemptions, it is necessary to attend, not only to the literal content of the provisions, but also to the reason for the VAT exemption regimes here provided. The problem was the subject of various CJEU decisions, which are thus decisive in establishing the exact contours of health service provision exemptions.

As results from the Case Commission v. France, it is decisive, for the qualification of an activity as integrating the exemption regime of subparagraph b), the consideration of the objective pursued by that activity. In parallel and in the same way, the Tribunal has affirmed, in relation to subparagraph c), that "it is the purpose of a medical provision that determines whether it should be exempt from VAT".

In this way, according to the Tribunal, the service provisions of "medical assistance", to which subparagraph b) refers, as well as "personal assistance service provisions", in subparagraph c), are those that "have as their purpose the diagnosis, treatment and, insofar as possible, cure of diseases or health abnormalities". As the CJEU emphasized, "medical provisions made with the purpose of protecting, including maintaining or restoring, the health of persons can benefit from the exemption provided for in Article 132, paragraph 1, subparagraphs b) and c), of the VAT Directive", so "this exemption is intended for provisions that have as their purpose to diagnose, treat or cure diseases or health abnormalities or to protect, maintain or restore the health of persons". This means that the provision in question, in order to be exempt, both under subparagraph b) and under subparagraph c), must pursue a therapeutic purpose.

What is the scope of the exemptions governed by subparagraphs b) and c) of Article 132 of the VAT Directive?

Beginning with subparagraph b), it is important to verify the simultaneous fulfillment of objective requirements relating to the nature of the operations and subjective requirements relating to the quality of the entity that practices them. As for the former, the provisions supplied are: (i) hospitalization or medical assistance, or (ii) operations closely connected with hospitalization or with medical assistance. Regarding the latter: (iii) the service provider must be a public law body, or (iv) must provide the provisions under social conditions analogous to those applicable to public law bodies and, (v) must be a hospital establishment or a medical assistance and diagnosis center or other establishments of the same nature duly recognized.

Now it results from case law that Article 132, paragraph 1, subparagraph b), aims at provisions made in a hospital environment understood in a broad sense, whereas subparagraph c) of that number aims at medical provisions supplied outside that scope, whether in the private home of the service provider or in the patient's home or in any other place.

As emphasized by Advocate General Tizzano in his conclusions presented on 27 September 2001 in Case Klüger, subparagraph b) of paragraph 1 of Article 132 of the VAT Directive exempts provisions supplied in a hospital context, as well as in treatment and diagnosis centers and other recognized analogous establishments. Now, considering that the two subparagraphs of the provision in question contain all the regulation of exemptions in health assistance service provisions in the strict sense and that subparagraph b) exempts all provisions supplied in a hospital context in a broad sense, it must be concluded that the said subparagraph c) aims, in turn, to exempt medical assistance service provisions outside that scope, both in the private office of the service provider and in the patient's home, or in any other place.

The Court of Justice decided in the same sense in this Case that "subparagraphs b) and c) of Article 13, A, paragraph 1, of the 6th Directive, whose scopes are distinct, have as their purpose to regulate all exemptions of medical provisions in the strict sense. Subparagraph b) of this provision exempts all provisions made in a hospital environment, whereas subparagraph c) is intended to exempt medical provisions supplied outside that scope, whether in the private home of the service provider or in the patient's home, or in any other place".

The Court of Justice thus sees the possibility of a clear demarcation of the two exemption norms, in which the criterion of distinction is less the type of provision than the place of its realization. With this point of view, the Court of Justice follows the Case Commission v. United Kingdom. In this Case, the Court of Justice declared that provisions that, taken as a whole, are medical treatments and that are normally carried out without profit motive in bodies with a social purpose, such as, for example, the protection of human health, must be exempt under subparagraph b), whereas under subparagraph c), provisions made outside hospital bodies within the framework of a relationship based on trust between patient and service provider are exempt.

In Case Klüger, the Court of Justice further emphasizes that "the principle of fiscal neutrality opposes, in particular, economic operators who perform the same operations being treated differently in terms of VAT collection", so the said principle would be ignored if the possibility of invoking the benefit of the exemption provided for personal care provisions mentioned in Article 13, A, paragraph 1, subparagraph c), of the Sixth Directive, were dependent on the legal form under which the taxable person exercises his activity".

Thus, the CJEU concludes that the exemption in question does not depend on the legal form of the taxable person that provides the medical or paramedic service provisions mentioned therein, encompassing both natural and legal persons, an understanding that has been followed by subsequent case law.

That is, the CJEU in its Judgment of 10 September 2002 concludes for the application of the exemption to Klüger precisely to respect the principle of neutrality.

a) Concept of medical assistance

As the Court of Justice has declared, the concept of "medical assistance" which appears in Article 132, paragraph 1, subparagraph b), of the VAT Directive, and that of "personal assistance service provisions", which appears in the same number, subparagraph c), both aim at provisions that have as their purpose the diagnosis, treatment and, insofar as possible, the cure of diseases or health abnormalities including provisions that have the purpose of protecting, maintaining or restoring the health of persons.

The notion of "medical assistance" found in subparagraph b) includes, as does subparagraph c) of the same number, "medical provisions made with the objective of protecting, including maintaining or restoring the health of persons". In other words, it will encompass both curative medical assistance provisions and preventive medical assistance provisions.

However, the concept of therapeutic purpose should not be understood in an overly strict sense. Medical provisions of a preventive nature can be exonerated under Article 13, A, paragraph 1, subparagraph c). The inclusion of medical exams or treatment of a preventive nature in the concept of "medical and paramedic professional assistance service provisions" is in accordance with the objective of reducing the cost of healthcare, even when it proves that the persons in question do not suffer from any disease or health abnormality.

Examining the case law of the CJEU, it is concluded that the following operations were considered medical assistance: therapeutic care provisions integrated in an ambulatory care service provided by qualified nursing staff, psychotherapeutic treatment applied by qualified psychologists, the performance of medical exams, blood collections or other samples, in order to detect the presence of diseases, at the request of employers or insurance companies, and the issuance of medical certificates of fitness to travel, provided that the principal objective of these provisions is to protect the health of the person in question, clinical analyses that allow the observation and examination of patients before it becomes necessary to diagnose, treat or cure a possible disease, prescribed by general practitioners and performed by an external private laboratory, the extraction of cartilage cells from cartilage material collected in a human being and the subsequent multiplication thereof with a view to their reimplantation for therapeutic purposes and aesthetic interventions when these provisions have as their purpose the diagnosis, treatment or cure of diseases or health abnormalities or the protection, maintenance or restoration of the health of persons.

As provisions that were not considered medical assistance by the CJEU we have, in particular: a genetic exam performed by a doctor for the purposes of paternity investigation, general care provisions and domestic economy provisions integrated in an ambulatory care service, a physician's report on a person's state of health for the purposes of requesting a war pension or labor incapacity or with a view to the filing of an action in law relating to bodily harm, aesthetic interventions when intended for purely cosmetic purposes, and sending of kits for blood collection from the umbilical cord of newborns, including the analysis and processing of such blood and, where applicable, the preservation of the stem cells contained in such blood with a view to possible future therapeutic use.

Although "medical assistance" and "personal assistance service provisions" must have a therapeutic purpose, it does not necessarily follow that the therapeutic purpose of a provision must be understood in a particularly restrictive sense.

Thus, the Court of Justice has declared that medical provisions made for prevention purposes can benefit from an exemption under the provisions of Article 13, A, paragraph 1, subparagraphs b) or c), of the Sixth Directive. Indeed, even in cases where persons who submit to exams or other medical interventions of a preventive nature do not suffer from any disease or health abnormality, the inclusion of the said provisions in the concepts of "medical assistance" and "personal assistance service provisions" is in accordance with the objective of reducing the cost of healthcare, which is common both to the exemption provided for in Article 13, A, paragraph 1, subparagraph b), of the Sixth Directive, and to that provided in the same number, subparagraph c). Therefore, medical provisions made with the purpose of protecting, including maintaining or restoring, the health of persons benefit from the exemption provided for in Article 13, A, paragraph 1, subparagraphs b) and c), of the said Directive.

It is of particular importance to note that, as the CJEU emphasized in Case L.u.P, the performance of clinical analyses requested by a doctor forms an integral part of the medical observation of the user, without which there obviously cannot be protection of the health of persons, including both its maintenance and restoration. In other words, medical assistance, as a set of activities that are functionally intended to maintain or restore health, is a process constituted by acts aimed at the maintenance or restoration of health, which include, from the outset, acts of observation and examination and, subsequently, possibly, of diagnosis and treatment. In this sense, clinical analyses, when prescribed by a doctor, constitute medical assistance provisions.

b) Concept of hospital establishments, medical assistance and diagnosis centers and other establishments of the same nature duly recognized

The common VAT system permits, in a transitional or derogatory regime, that Member States exempt hospital establishments, medical assistance and diagnosis centers and other establishments of the same nature, even if they are not recognized as practicing conditions analogous to those of public law bodies. This is what currently appears in point 7 of part B of Annex X to the VAT Directive ("Operations that Member States may continue to exempt") - Annex which corresponds to Annex F of the Sixth Directive, where the exemption in question was provided for in the respective paragraph 10.

In the Accession Treaty of Portugal and Spain to the European Communities, it can be read that the Portuguese Republic was authorized to exempt from VAT the operations of that paragraph 10 of Annex F of the Sixth Directive. It follows from the Sixth Directive, in its Article 28, 3, b), that Member States may grant, on a transitional basis, to taxable persons the option of opting for taxation under the conditions set out in Annex G, an option that the VAT Directive maintained in the respective Article 373. The Portuguese legislator made use of both options. Thus, in Article 9, paragraph 2, of the CIVA, it incorporated the exemption of "medical and healthcare service provisions and operations closely connected thereto carried out by hospital establishments, clinics, dispensaries and similar"; and in Article 12, it granted to "hospital establishments, clinics, dispensaries and similar, not belonging to public law collective entities or to private institutions integrated in the national health system, which provide medical and healthcare service provisions and operations closely connected thereto" the option of "waiving the exemption, opting for the application of tax to its operations". That is, Portugal, under a derogatory regime contained in Article 377 of the VAT Directive, made use of the option of also exempting these private hospital establishments, that is, those that do not pursue their activity under social conditions analogous to public hospital establishments (cf. Article 377 of the VAT Directive).

In light of what has been stated, and making use of the terminology of the VAT Directive, for the purposes of this Article 12, paragraph 1, subparagraph b), of the VAT Code, only private hospital establishments that do not pursue their activity under social conditions analogous to those in force for public hospital establishments can be considered as "private institutions not integrated in the national health system" with the right to waiver. That is, the Claimant is covered by the said option of waiving the exemption if it does not pursue its activity under social conditions analogous to those of the aforementioned public establishments. Now, it happens that, lately, doubts have arisen as to the subjective scope of this waiver of exemption. Which are after all the hospital establishments, clinics, dispensaries and similar that can waive the exemption? What does the law's formula mean "not belonging to public law collective entities or to private institutions integrated in the national health system"?

It is important to emphasize from the outset that for the CJEU the provisions of clinical analyses integrate, given their purpose, the notion of medical assistance, in the sense of Article 13, A, paragraph 1, subparagraphs b) and c), of the Sixth Directive.

And does this medical assistance activity carried out by a clinical analysis laboratory integrate subparagraph b) or subparagraph c)?

The answer to this question depends on knowing whether the service provisions in question are made outside hospital establishments or similar, within the framework of a relationship of trust between the patient and the service provider in his office or at home. That is, it is based more on the consideration of the place where the activity is developed than on the nature of the activity itself.

This is an essential point for assessing the reasonableness of the Tax Administration's position throughout this process, since, as we have seen, its understanding goes in the direction that A…'s activity falls under subparagraph c) and not subparagraph b) of Article 132 of the Directive, which would correspond to paragraph 1 of Article 9 of the CIVA, thus preventing waiver of exemption. The Administration intends, as we have seen, that this understanding results from CJEU case law, in particular the Klüger Judgment.

It would be very strange if European case law could support this conclusion, since, as an undisputable fact, the very text of the Directive, in the said subparagraph b), includes in the exemption defined therein the "medical assistance and diagnosis centers and other establishments of the same nature". Clinical analysis laboratories are diagnosis centers and are obviously included literally in the hypothesis of the rule in question. Nor is it necessary to resort to the residual concept, broader and less defined, of "establishments of the same nature". It is thus inadequate that the Administration seeks to derive from EU Law the conclusion that only hospitals strictly speaking are covered by the exemption in subparagraph b). It seems that the Administration wants to restrict the scope of this provision of the Directive to establishments where patients are hospitalized. This is undeniably an interpretation contra legem, given that the text of the Directive is clear in including diagnosis centers and other establishments of the same nature. If it is true that case law admits that legal entities are covered by the exemption rule in subparagraph c) of Article 132, it is equally true that this same case law includes, as could not be otherwise, mindful of the letter of the provisions, diagnosis centers, such as clinical analysis laboratories in the exemption in subparagraph b).

This very fact, as could not be otherwise, is confirmed by European case law. Let us see, in particular, the conclusions of Advocate General Miguel Poiares Maduro presented in Case L.u.P: "a laboratory that performs clinical analyses prescribed by doctors – and therefore, in the terms I have described, which performs 'medical assistance' provisions in the sense of subparagraph b) – also integrates this subparagraph when it refers to 'medical assistance and diagnosis centers and other establishments of the same nature duly recognized'".

In this same Case L.u.P, the Tribunal concludes that since clinical analyses are covered, taking into account their therapeutic purpose, by the concept of "medical assistance" provided for in Article 13, A, paragraph 1, subparagraph b), of the Sixth Directive, a laboratory such as the one involved in the main proceedings should be considered an establishment of the "same nature" as the "hospital establishments" and "medical assistance and diagnosis centers" within the meaning of that provision.

The same conclusion also appears to us in Case CopyGene in which the CJEU concludes that a private stem cell bank could be considered as an establishment "duly recognized" for the purposes of the exemption in question.

In summary, we conclude that the understanding that the Tax Administration seeks to derive from CJEU case law on the classification in VAT of A… is inadequate. A…, being a diagnosis center, is obviously, in our view, inserted in the exemption in subparagraph b) and not in that of subparagraph c) of the cited Article 132.

The same conclusion is drawn from paragraphs 1 and 2 of Article 9 of the CIVA, which contain the exemption rules now in question. Let us recall these two provisions.

Paragraph 1 exempts "service provisions carried out in the exercise of the professions of doctor, dentist, midwife, nurse and other paramedic professions", while paragraph 2 exonerates "medical and healthcare service provisions and operations closely connected thereto carried out by hospital establishments, clinics, dispensaries and similar".

In paragraph 2, the national legislator dealt with the exemption of hospital establishments in a broad sense, using comprehensive terminology. In addition to hospital establishments, in the strict sense, including clinics, the law orders there to exempt "dispensaries and similar", which ultimately contemplates the "medical assistance and diagnosis centers and other establishments of the same nature" referred to in subparagraph b) of Article 132 of the Directive, and perhaps even broader, since the term "dispensary", used in national legislation, can encompass health prevention establishments.

In Article 12 of the CIVA, for its part, as we have already mentioned, the legislator wished to grant the right to waive the exemption to hospital establishments, clinics, dispensaries and similar. In accordance with the wording in force at the date of the events, the following was determined as regards the option of waiver:

"Article 12 – Waiver of exemption

1 - May waive the exemption, opting for the application of tax to its operations: (...) b) Hospital establishments, clinics, dispensaries and similar, not belonging to public law collective entities or to private institutions integrated in the national health system, which provide medical and healthcare service provisions and operations closely connected thereto; (...)"

There is thus no foundation whatsoever for attempting that A… cannot waive the exemption. In light of the applicable legal texts, it performs medical assistance service provisions essentially in a hospital environment, understood in a broad sense, not presupposing such services hospitalization or internment, contrary to what the Tax Administration seeks to convey. A… is a "diagnosis center", a "dispensary" or a similar establishment and not a professional who provides services in a strict relationship of personal trust with the patient.

Indeed, we are, just as in Case L.u.P, dealing with a laboratory that performs clinical analyses prescribed by doctors, that is, "medical assistance and diagnosis centers and other establishments of the same nature duly recognized", which perform medical assistance services.

In fact, independent of questioning the soundness of CJEU case law in applying the exemption rule contained in subparagraph b) of paragraph 1 of Article 132 of the VAT Directive to natural persons and its transposition by the national legislator, the fact is that this rule applies to medical assistance service provisions realized essentially in a hospital environment, understood as any establishment covered and not necessarily a hospital, not presupposing hospitalization or internment of patients. With this understanding, the fact that the claimed exemption is from paragraph 2 of Article 9 of the CIVA instead of paragraph 1, and the fact that under Portuguese law it is possible to waive the former but not the latter, becomes entirely relevant.

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