VAT Exemption for Gym and Nutrition Services: CAAD Arbitration on Service Packages (454/2017-T)

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Adelaide Moura and António Pragal Colaço, appointed by the Ethics Council of the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby issue the following

ARBITRAL DECISION

I – REPORT

On 28 July 2017, A…, UNIP. LDA., NIPC …, with registered office at Rua de …, …-… …– …, filed a request for the constitution of an arbitral tribunal, under the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by article 228 of Law No. 66-B/2012, of 31 December (hereinafter, briefly designated RJAT), seeking the declaration of illegality of the tax act embodied in the additional VAT assessments Nos. 2017…, 2017…, 2017…, 2017…, 2017… and 2017…, in the amount of €59,752.10 and in the compensatory interest assessments Nos. 2017…, 2017…, 2017…, 2017…, 2017… and 2017…, in the amount of €1,777.68.

To substantiate its request, the Claimant alleges, in summary:

• Defect of lack of substantiation of the inspection report which leads to the illegality of the assessment acts based on article 268, no. 3 of the Constitution of the Portuguese Republic, article 77, no. 1 of the General Tax Law and article 153, no. 1 of the CPA under article 2 of the GTL;

• Violation of the principle of legality, typicality and exhaustiveness by the fact that the grounds presented in the inspection report make an extensive interpretation of the law;

• Illegality of the VAT assessment acts and respective compensatory interest assessment, due to error in the qualification of income in the interpretation of article 9, no. 1 of the VAT Code.

On 31-07-2017, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

The Claimant did not proceed to appoint an arbitrator, whereby, under the provisions of paragraph a) of no. 2 of article 6 and paragraph a) of no. 1 of article 11 of the RJAT, the President of the Ethics Council of CAAD designated the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

On 28-09-2017, the parties were notified of such designations and did not manifest any intention to challenge any of them.

In accordance with the provisions of paragraph c) of no. 1 of article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 19-10-2017.

On 23-11-2017, the Respondent, duly notified for this purpose, presented its response defending itself solely by impugning.

On 11-12-2017, the meeting referred to in article 18 of the RJAT was held, where witnesses presented by the Claimant were examined at the hearing / Under the provisions of paragraphs c) and e) of article 16, and no. 2 of article 29, both of the RJAT, the holding of the meeting referred to in article 18 of the RJAT was dispensed with.

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

A period of 30 days was set for the delivery of final decision, after the submission of the Respondent's submissions.

The Arbitral Tribunal is substantively competent and is regularly constituted, in accordance with articles 2, no. 1, paragraph a), 5 and 6, no. 1, of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with articles 4 and 10 of the RJAT and article 1 of Ordinance No. 112-A/2011, of 22 March.

The proceedings do not suffer from nullities.

Thus, there is no obstacle to the adjudication of the case.

All considered, it behooves to deliver

II. DECISION

A. STATEMENT OF FACTS

A.1. Facts found to be proven

• The Claimant is, and was in 2015 and 2016, a sole proprietorship limited company, dedicated to the provision of services related to sports and registered to carry out the following activities: main CAE – 93139 - fitness gymnasium activities and various SECONDARY CAE 93293 – organization of tourist animation activities, CAE 93192 – other sports activities, N.E, CAE 93294 – other entertainment and recreational activities, N.E. and CAE 86906 – other human health activities, N.E. (this last one since 18-01-2017).

• The Claimant was, and was in 2015 and 2016, included in the general regime for determination of taxable profit and the normal VAT regime with quarterly periodicity.

• The Claimant is dedicated, and was in 2015 and 2016, to the provision of services related to sports, making available to its clients a space for the practice of sports, composed of various cardiovascular and weight-lifting machines, studios, a swimming pool area for swimming and hydrogymnastics, an area with jacuzzi, saunas, Turkish bath, as well as a space dedicated to non-sports services such as aesthetics center, medical offices, relaxation areas, solarium, bar/restaurant, babysitting and private parking.

• To attend the Claimant's establishment, clients became members of the same, by signing an accession contract, paying an enrollment fee and paying a monthly fee, paid in advance, by direct bank transfer or electronic banking, whose value depended on the number of weekly visits, the services acquired, and whether or not it had loyalty.

• The services/tariffs practiced by the Claimant in 2015 and 2016 were as follows:

• …GOLD CARD, value €60.00 including the following services: Cardio – Weight-lifting; Fitness Classes; Hydrogymnastics; Turkish Bath + Sauna + Jacuzzi; Nutritional Accompaniment; Physical Assessment + Continuous Training Plan; Towel + Bathrobe for access; Personal Locker; Private Parking;

• …VIP CARD, value €50.00, including the following services: Cardio – Weight-lifting; Fitness Classes; Hydrogymnastics; Turkish Bath + Sauna + Jacuzzi; Nutritional Accompaniment; Physical Assessment + Continuous Training Plan; Towel for access;

• …WELLNESS CARD, value €40.00, including the following services: Free bathing; Hydrogymnastics; Turkish Bath + Sauna + Jacuzzi; Nutritional Accompaniment; Continuous Anamnesis; Towel for access;

• A… CARD, value €35.00 including the following services: Cardio – Weight-lifting; Fitness Classes; Turkish Bath + Sauna + Jacuzzi; Nutritional Accompaniment; 1st Physical Assessment + Training Plan; Towel for access;

• PEAK CARD, value €25.00 including the following services: Cardio – Weight-lifting; Fitness Classes; Turkish Bath + Sauna; 1st Nutritional consultation; 1st Physical Assessment + Training Plan;

• …OPTIONAL FREE CARD, value €35.00 including the following services: Cardio – Weight-lifting; Fitness Classes; Hydrogymnastics; Turkish Bath + Sauna +; 1st Nutritional consultation; 1st Physical Assessment + Training Plan; Anamnesis; Towel;

• … WELLNESS CARD, value €25.00 including the following services: Free bathing; Hydrogymnastics; Turkish Bath + Sauna + Jacuzzi; 1st Nutritional consultation; Anamnesis;

• OPTIONAL … CARD, value €25.00 including the following services: Cardio – Weight-lifting; Fitness Classes; Turkish Bath + Sauna; 1st Nutritional consultation; 1st Physical Assessment + Training Plan;

• These values were practiced for members who opted for a 12-month loyalty contract.

• When the member opted for a mere accession contract, an additional amount of €10.00 was added to free tariffs and an amount of €5.00 to tariffs for twice a week, as shown in the following table:

• Clients who contracted the "…Gold", "…Vip", "…Wellness" and "…" cards benefited from the possibility of having nutritional support, with the right to one consultation per month.

• The majority of the Claimant's clients – approximately 600, corresponding to about 60% of its clientele – subscribed to one of the referred plans.

• It was up to the client, through the services made available to them, to decide which tariff best suited them, and whether to use all or part of the services that the Claimant made available to them.

• The client could enjoy only the gymnasium component, without the nutrition consultation.

• Likewise, the client could contract nutrition services not included in their subscription, with such services being paid separately, directly to the Claimant, for a value of €20.00 or €25.00 per consultation, depending on whether the client was a "member" or not of the Claimant's establishment.

• During the period in question, at least 148 individual nutrition consultations were contracted with the Claimant.

• In the plans in which nutritional support was not included, the Claimant offered its clients a free nutrition consultation.

• In the billing relating to those plans (which did not include nutritional support), the Claimant did not discriminate any nutrition services, and assessed VAT on the entirety of the monthly amount, including in that relating to the month in which the consultation was used.

• In the years under analysis, the Claimant did not have any nutritionist as an employee in its payroll and, therefore, subcontracted the company "B…, Lda.", by means of the conclusion of a service provision contract, on 20-04-2015, by which "B…, Lda" undertook to ensure the nutrition service through individual consultations with specialized professionals, to all members who have the right to this service in their plan.

• Under that contract, the Claimant undertook to pay a monthly fee in the amount of €300.00, regardless of the volume of clients.

• During the years 2015 and 2016, all nutrition consultations were provided by the nutritionist C… who was part of the personnel of the company "B…, Lda".

• The aforementioned C…, in the periods in question, received, in the service of its employer entity, a monthly salary of approximately €750.00, comprising a weekly schedule of 40 hours, which included the hours in which it provided services at the Claimant's facilities.

• The aforementioned company "B… Lda", in the years under examination, charged a value of €30.00 for each nutrition consultation with C…, at its facilities.

• The schedule made available by the Claimant for nutrition consultations, at its facilities, to its clients, in the years under examination, consisted of two afternoons per week, from 14:00 to 21:00 hours, and two Saturdays per month, from 09:00 to 14:00 hours.

• On average, two consultations were held in each hour made available for this purpose.

• In the Claimant's accounting, payments are recognized in the amounts of €2,100 and €3,600 to the company "B…, Lda", relating to the years 2015 and 2016, respectively.

• Nutrition service consultations were conducted in person with the client, although some clarifications were occasionally given by telephone and nutrition plans could be sent by e-mail.

• The nutrition service provisions provided by the Claimant were directly billed to the client, discriminating activities exempt or not exempt from VAT.

• The invoices issued and communicated by the Claimant to the Tax and Customs Authority either contain only a single component, subject to the normal VAT rate (23%) or exempt, if relating exclusively to nutritional accompaniment services, or two components, one subject to the normal VAT rate (23%), and another exempt from VAT, corresponding to nutritional accompaniment services.

• In the years 2015 and 2016, the Claimant invoiced clients for nutritional accompaniment €79,410.20 and €180,251.00, respectively.

• All clients who subscribed to cards/tariffs that included nutritional support started to have mentioned in the invoices issued by the Claimant from 01-04-2015, as a consequence of the breakdown of the monthly fee, a part relating to Nutritional Accompaniment, and another relating to the gymnasium service proper, subject to the normal VAT rate.

• In the documents issued by the Claimant there is no discrimination whatsoever that separates services related to "nutrition in a clinical sense" from "hygiene and food safety control".

• The vast majority of the Claimant's expenses are associated with the sector subject to VAT, with expenses allocated to the exempt sector corresponding only to the values paid to the company "B…, Lda", due for services provided by the nutritionist.

• The Claimant, in the periods 2015 and 2016, was not registered with the ERS.

• The Claimant was subject to an external inspection procedure, of partial scope, through Service Order No. OI2017… and OI2017…, respectively for the years 2015 and 2016, which aimed to control the declarative situation of the taxpayer and the classification of operations carried out by it in the context of VAT.

• The Claimant was notified of the draft Tax Inspection Report, proposed by the Tax Inspection Services of the Finance Directorate of ….

• In the draft inspection report the following correction was proposed, for the years 2015 and 2016, respectively:

• The Claimant was also notified, under article 60 of the RCPITA and article 60 of the GTL, to exercise, if it wished, its right to a hearing, which it did on 06-04-2017, alleging, in summary, the following:

• The services provided by dietitians, as well as by nutritionists, whether provided directly to the user or provided to any entity with which they contract their services, are covered by the exemption provided for in article 9, no. 1 of the VAT Code;

• The nutrition activity cannot be viewed as an ancillary activity to that of the gymnasium, since it is an activity that functions in an individualized manner to that one, and it is possible to do gymnasium without nutritional accompaniment, just as it is possible to have nutritional accompaniment without gymnasium.

• Through official letter No. … of 18-04-2017 the Tax Inspection Services notified the Claimant of the Final Tax Inspection Report which contains the following:

• The Claimant was notified of assessments Nos. 2017…, No. 2017…, No. 2017…, No. 2017…, No. 2017… and No. 2017…, with a total amount of tax payable of €59,752.10 being determined.

• The Claimant was also notified of compensatory interest assessments Nos. 2017…, No. 2017…, No. 2017…, No. 2017…, No. 2017… and No. 2017…, in the total amount of €1,777.68.

A.2. Facts found not to be proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Substantiation of the proven and unproven statement of facts

With regard to the statement of facts, the Tribunal does not have to rule on everything that was alleged by the parties, but rather has the duty to select the facts that matter to the decision and to discriminate the proven from the unproven (cf. article 123, no. 2, of the CPPT and article 607, no. 3 of the CPC, applicable under article 29, no. 1, paragraphs a) and e), of the RJAT).

In this way, the facts relevant to the adjudication of the case are chosen and delimited based on their legal relevance, which is established in view of the various plausible solutions to the legal question(s) (cf. previous article 511, no. 1, of the CPC, corresponding to the current article 596, applicable under article 29, no. 1, paragraph e), of the RJAT), including the instrumental facts that resulted from the discussion of the case (article 5/2/a) of the CPC).

Thus, taking into account the positions assumed by the parties, in light of article 110/7 of the CPPT, the documentary and testimonial evidence, the statements of the parties, and the administrative case record attached to the proceedings, the facts listed above were considered proven, with relevance to the decision.

In particular, the facts found to be proven in points 3, 9, 10, 12, 14, 15, 19 to 22 and 24, are based on the testimonial evidence produced, which demonstrated direct knowledge thereof and presented itself as coherent and unequivocal, with special weight given to the testimony of C…, regarding the facts that directly concern it (nutritional support services).

Allegations made by the parties that were presented as facts, consisting of strictly conclusive statements, incapable of proof and whose veracity is to be determined in relation to the concrete statement of facts consolidated above, were not considered as proven or unproven.

Facts alleged by the parties that were incompatible with the facts found to be proven were not considered as unproven.

B. ON THE LAW

The principal issue at stake in this arbitral action is to decide whether the nutrition services provided by the Claimant should be considered an ancillary provision in relation to the main provision (gymnasium), forming with it a single "complex operation", and for that reason, taxed as a single provision at the normal VAT rate of 23%, as the Tax Authority contends, or whether they are severable provisions, individually taxable, as the Claimant understands.

Indeed, as mentioned in the Respondent's submissions, it is necessary to "clarify, whether as the Respondent understands, what is at issue in the case are complex service provisions, whose decomposition would be artificial in character, or whether, on the contrary, as the Claimant argues, such provisions are perfectly capable of being separated for the purposes of classification in the context of VAT."

Now, anticipating the conclusion that will be reached below, it is considered that the answer to the question formulated should go in the second of the indicated directions, namely that the provision of nutrition services by the Claimant is, in this case, capable of being separated from the provisions that make up its main activity.

Indeed, with relevance to the aforementioned conclusion, it is determined in the case, in summary, that:

• The Claimant effectively made nutritional accompaniment/nutrition services available to its clients, normally on two afternoons per week, from 14:00 to 21:00 hours, and two Saturdays per week, from 09:00 to 14:00 hours;

• Such services were essentially provided at the Claimant's facilities;

• The Claimant had tariffs that included a monthly nutritional accompaniment consultation, and others that did not include such accompaniment;

• In this second group of tariffs, the Claimant offered its clients a free nutritional accompaniment consultation, with the invoice for the monthly amount relating to the month in which it occurred being identical to that of the others, that is, making no mention of nutrition services and assessing VAT at 23% on the entirety of the invoiced amount;

• The Claimant also made available individual nutrition consultations, at the price of €20.00 per consultation for "members" of its establishment, and €25.00 per consultation for non-members;

• In the billing relating to tariffs that included a nutritional accompaniment consultation, the Claimant discriminated an amount of €20.00, relating to nutrition services, on which it did not assess VAT, and assessed VAT at 23% on the remainder.

Beyond the foregoing, it was also determined that:

• To provide nutrition services to its clients, the Claimant subcontracted the services of a nutritionist to a company that is engaged in the provision of health care services;

• For said services it agreed to payment of a fixed monthly sum of €300.00, to said company that provided it with the nutritionist's services;

• Said company charged €30.00 per consultation, at its facilities, with the same nutritionist;

• Said nutritionist earned in the service of its employer entity a monthly salary of approximately €750.00, corresponding to a weekly schedule of 40 hours.

In light of the aforementioned factual data, the first conclusion to be drawn is that, in this case, the nutrition services were effectively provided, so the finding set forth in the Tax Inspection Report is not valid, according to which the consultations in question would be non-face-to-face, namely by email and telephone.

Furthermore, and as the reading of the Tax Inspection Report makes evident, the corrections sub iudice are based on the conclusion that the provision of nutrition services "is an ancillary service provision, which does not constitute for the clientele an end in itself, but a means of benefiting from the main service of the provider in better conditions".

Now, with all due respect, it is considered that this conclusion is not properly substantiated in the factuality found during the tax inspection.

First and foremost, the main argument expounded therein is that "Nutritional accompaniment is inserted in a monthly fee that allows access to a broad set of services offered".

This circumstance, while relevant as evidence that one may be dealing with a single compensation of complex character, will not, in our judgment, be sufficient per se to conclude that this is so.

Indeed, within current commercial practices, it is not unusual, but rather current, for economic operators to diversify horizontally their activity and to amalgamate service provisions into "packages", whose subscription assures advantages at the price level for the respective clientele, in relation to their dispersed contracting.

These are the cases, for example, of the so-called telecommunications operators (with "packages" of mobile, fixed and television communications), banking entities ("packages" of safer banking services), transport operators ("package" of railway and car rental journeys), tourism (with packages for all tastes, including trips, transfers, sports and leisure activities, babysitting, insurance, etc.), of the real estate sector (cession of space with various associated services), and it is only on a case-by-case basis that it can be determined whether the various services are or are not associable, constituting a single provision or several, autonomous ones.

On the other hand, nothing indicates that, in this case, the provision of nutritional accompaniment services allows one to benefit from the other "gymnasium" services in better conditions, and it is rather indicated that the use of the other services in question in this case will occur in an identical manner for subscribers of plans with and without nutritional accompaniment, as well as for ad hoc users of those services.

Thus, nothing indicates that users of Cardio-Weight-lifting equipment, Fitness Classes, Hydrogymnastics, Turkish Bath, Sauna and Jacuzzi enjoy these respective services in a different manner, depending on whether or not they frequent nutritional accompaniment, contrary to what would happen, for example, with the use of Physical Assessment and Continuous Training Plan services (which are intended to determine better use of the equipment), or with the provision of Towel and Bathrobe, Personal Locker or Private Parking (which would contribute to greater "comfort" in the use of services).

Possibly, the judgment made by the Tax Authority will be based on an imprecise determination of the nature of the "gymnasium" services, in general and provided by the Claimant, with perhaps the corresponding service provisions having been taken as result provisions (that is, as aiming to ensure better physical condition, weight loss, etc.).

Now, in our judgment, those services will in reality be, it is believed, means provisions, with the provider being solely obliged to provide the means apt to those results, independently of whether or not the same are obtained.

Thereby disconnecting the results which, as a rule, will motivate subjectively, in general, the Claimant's clients to contract with it, from what are the obligations of the latter in the contracts that it concludes with them, and, in particular, with regard to the "gymnasium" services, it will become evident, it is believed, that nutrition services, or the lack thereof, in no way impair the concrete use of those other services, which, as mentioned, everything indicates will occur in the same terms whether or not there is nutritional accompaniment.

It is true that the "sale" of nutritional accompaniment services seeks to exploit that same subjective motivation of gymnasium service clients, and will surely benefit from the concentration of clientele that values the results that might result from either one or the other service, or both together, but which neither one, nor the other, nor both together, ensure or guarantee.

However, such exploitation of "common" clientele to both services will not, either, be determinative for concluding the existence of a single provision, especially when it is indicated, as is the case and has just been seen, that neither one conditions the conditions in which the other is enjoyed.

In the Tax Inspection Report, the following circumstances were further weighed:

• In the inputs, expenses are allocated, practically in their entirety, to the sectors subject to VAT, so that, in the outputs, price formation must maintain this criterion;

• There are unnamed contracts established with clients, without discrimination of values, therefore the counterperformances emerging from them are subject to the normal VAT rate;

• In the periods under analysis (2015 and 2016) the Claimant was not registered with the ERS.

Before anything else, it must be noted in this respect that none of these circumstances corroborates or undermines the fundamental basis of the corrections made, which is, as seen, the conclusion that the provision of nutrition services "is an ancillary service provision, which does not constitute for the clientele an end in itself, but a means of benefiting from the main service of the provider in better conditions".

Indeed, neither the volume of inputs, nor the discrimination or not of price, nor the registration with the ERS, say anything of relevance regarding the concrete content of the provisions, in particular regarding whether any of them allows the other to be enjoyed in better conditions.

Furthermore, it is noted that:

• The understanding that price formation must obey a criterion of proportionality with respect to inputs for the provisions to which it relates has no legal foundation, all the more so since in the Tax Inspection Report it is expressly stated that "in the inputs, expenses are correctly allocated to the sectors subject to VAT and to the exempt sector" and that "with regard to the nutrition activity, the inputs (expenses with production factors) that are recognized in the accounting, are the services provided by the "nutritionist" to the taxpayer, operations considered exempt from VAT under the provisions of no. 1 of article 9 of the VAT Code";

• Likewise, also lacking legal foundation, with no standard being cited to validate it, is the understanding that when there is no discrimination of values in contracts, the counterperformances emerging from them will be subject to the normal VAT rate, with such discrimination being only required in invoicing;

• The non-registration of the Claimant with the ERS, if necessary, will not impair, for lack of a legal norm from which this follows, the nature of the service provided, and its respective classification in the context of VAT, it being further certain that the Tax Authority itself, in the Tax Inspection Report, does not even draw any conclusion from the aforementioned absence of registration.

In the arbitral proceedings, and to counter the Claimant's argument, the Respondent mentions that the majority of the nutritional accompaniment consultations contracted were not effectively provided, as concluded from the contrast between the number of the Claimant's clients with plans that provide such accompaniment, and the number of monthly hours contracted for the nutritionist's service.

Now, as rightly notes the Claimant, and was mentioned in the party statement, we are dealing with a business model that, similarly to, for example, telecommunications operators, is based on the "sale" of the availability of services, irrespective of their actual use by clients, and this model is a relevant factor in its profitability.

Hence, the Claimant's obligations are reduced to making the nutrition service available to clients who, in any manner, contract it, which, in this case, was shown to occur abundantly.

The Respondent itself, in fact, ends up granting that "the fact that consultations were or were not provided is not relevant to the classification that the Respondent makes of the operation" and that "to assess this, it is irrelevant to know in detail the plans that the A… offers to its clients, the loyalties and, even, whether or not the consultations were actually provided", concluding that "What must be assessed is whether clients, by joining plans that include nutritional accompaniment (the only ones at issue in this case), do so in a logic of joint contracting of several autonomizable services, or, on the contrary, do so with the perspective of benefiting from the main provision in better conditions", a question to which an answer has already been given above.

The aforementioned answer does not entail, it is believed, any violation of the principle of neutrality, contrary to what is sustained by the Respondent, insofar as the Claimant's competitors will be on equal footing with it, provided that they carry out their activity in the same terms as it does, being free to organize themselves, structure themselves and offer services in the same way as the Claimant, and, in that case, having the right to the same tax treatment.

The Respondent further argues that "the difference from the "…card" to the "peak card" (article 11 of the Claimant's submissions), is €10 (35 to 25) and excludes from the latter the services of nutritional accompaniment, use of jacuzzi and towel for access", concluding "from this, that the Claimant is not only artificially decomposing the operation, but is attributing to the nutritional accompaniment consultation a value that is not reflected in its tariff list (€20)", because "if the services of nutritional accompaniment, use of jacuzzi and towel for access determine a difference of €10 in the tariff list, never could one of these 3 services that together are worth €10 difference be worth double that value."

Notwithstanding that it does not directly relate to the fundamental question to be decided in this arbitral process, and the basis of the corrections made, which, as seen, is reduced to knowing whether the provision of nutritional accompaniment services serves to ensure better conditions for the enjoyment of "gymnasium" service provisions, the consideration referred to ends up touching on the cornerstone of the tax treatment of the situation in question, as well as similar situations, which is why it shall be dealt with.

Indeed, what the Respondent ends up pointing out, and what the Tax Authority could, in this case, legitimately question, relates to the valuation, at the level of the Claimant's invoicing, of the nutritional accompaniment services that it provides to its clients.

Not at issue, in this perspective, is either the effectiveness of the provision of services (if they had not been provided, one would be dealing with simulated invoicing), nor the ancillary character thereof (it will not be the economic value attributed to a provision that will reveal whether it permits or is intended to ensure enjoyment in better conditions of another provision[1]), but the possible indication of a situation of fraud or tax evasion, through the manipulation of the economic values of the provisions, in order to obtain advantages from the tax point of view.

Now, in the case, this does not happen, and it is indicated that the pricing at the level of invoicing of the nutritional accompaniment services by the Claimant has economic substance.

Indeed, it is verified that the Claimant contracted 16 (approximately 40%) of the 40 weekly hours that the nutritionist who ensured the services in question was obliged to provide to its employer entity, undertaking to pay €300.00 monthly to this entity, which bore a monthly salary of approximately €750.00 (thus corresponding the value paid by the Claimant to approximately 40% of the nutritionist's salary).

Being certain that a net gain in the entity that ceded the nutritionist to the Claimant is not evidenced (notwithstanding that, in the event it does not have the capacity to ensure the permanent occupation of the latter during the entirety of its working hours, an actual gain is verified), it is nonetheless certain that nothing indicates any fraudulent situation, or that, in any manner, the contracted price is out of line with the value of the services made available.

On the other hand, it is also verified that the Claimant practiced prices of €20.00 and €25.00 for individual consultations, depending on whether they were "member" or "non-member" clients, when the same services at the facilities of the nutritionist's employer entity were priced at €30.00 per consultation.

Without ceasing to be impressive the commercial profit obtained by the Claimant with the contracting and commercialization in the context of its establishment of the nutritional accompaniment services, of which the Tax Inspection Report gives account, the fact is that it is not possible to conclude that the Claimant proceeded to an artificial inflation of the value of the nutritional accompaniment services, nor, even less, that the value fixed by the Claimant is out of line or does not, in any manner, correspond to market values for the services in question.

Hence, the only question that could be raised would be whether the value in the promotional pricing of the "packages" commercialized by the Claimant is or is not acceptable from a tax perspective, a question which, as seen, was raised by the Respondent in its submissions.

In this respect, it must first be noted that, were that the case, the procedure that would be imposed on the Tax Authority would be the correction of the values to those which, according to the applicable tax rules, would be adequate, and not their total disregard.

Furthermore, and in any case, it is not considered that the Claimant's action in question is abusive, or in any other manner fiscally reprehensible. Indeed, being certain that the Claimant could, in the promotional pricing of the "packages" it commercializes, proceed to a distribution of prices different from that which it effected, one cannot fail to consider that the one it effected still falls within its margin of freedom of commercial action.

In the Respondent's submissions, there is also mentioned, with relevance to the question under discussion, item 3.1 of List II attached to the VAT Code, relating to "Food and beverage service provisions, with the exclusion of alcoholic beverages, soft drinks, juices, nectars and carbonated waters or waters treated with carbon gas or other substances", in the wording given by Law No. 7-A/2016, of 30 March, which provides that:

"When the service incorporates elements subject to different rates for which a single price is fixed, the taxable value must be divided among the various rates, based on the proportional relationship between the price of each element of the operation and the total price that would be applied according to the price table or proportionally to the normal value of the services that make up the operation. If such division is not effected, the highest rate applies to the entire service."

From the Respondent's perspective, "item 3.1 of List II attached to the VAT Code underwent a legislative amendment which came precisely to allow such decomposition in the case of menus, because before this legislative amendment, such decomposition was not permitted, for the reasons already set out."

Now, with all due respect, it is considered that the Respondent is not right in the assertion transcribed.

Indeed, the service of alcoholic beverages, soft drinks, juices, nectars and carbonated waters or waters treated with carbon gas or other substances, within the framework of a food menu, is effectively part of a complex unitary provision, and it is notoriously different to enjoy the main provision accompanied, for example, by water or wine, whereby one can here affirm that the service of the aforementioned beverages is intended to provide better (from the perspective of those consuming them) conditions in the enjoyment of the basic provision, which is the served meal.

Thus, the main service in such cases is not that relating to the service of alcoholic beverages, soft drinks, juices, nectars and carbonated waters or waters treated with carbon gas or other substances, but the service of the meal in general, that service which is taxed at the intermediate rate.

Hence, had it not been for the provision of the referred item 3.1, the overall provision would be taxed by the rate corresponding to the main or fundamental provision, in accordance with the understanding set forth in the Tax Inspection Report, that is, by the intermediate rate, contrary to what is sustained by the Respondent in its submissions and what came to be enshrined in that item 3.1.

In the situation at issue in this arbitral action, we are not dealing with a case analogous to that of menus, referred to by the Respondent and to which the norm in question applies, since not only is the service "main" identified by the Tax Authority taxed at the highest rate (contrary to menus, therefore), but also, as seen above, nothing indicates that nutritional accompaniment conditions, in any manner, the enjoyment of "gymnasium" services, with this taking place in the same manner whether or not there is such accompaniment.

Thus, not being at issue, accordingly, purely ancillary provisions, in the absence of a norm like that of the referred item 3.1 of List II attached to the VAT Code, by force of the principle of VAT neutrality, the decomposition of the prices is required, with the freedom of economic operators prevailing, in the absence of legal provision to the contrary, within what are acceptable market prices, and the lack of, or incorrect, decomposition will not entail the application of the "highest rate to the entire service", precisely because there is no single complex provision at issue and because there is no legal provision to that effect, but the obligation of the Tax Authority to assess the tax, by direct or indirect methods, in accordance with the rate applicable to each service.

Thus, and in light of the foregoing, the assessments which are the object of this arbitral action being in error as to the facts, and consequently as to the law, they should be annulled, with the arbitral claim formulated being valid, and the consideration of the remaining questions raised by the Claimant being rendered moot.

C. DECISION

Accordingly, in this Arbitral Tribunal we decide to fully uphold the arbitral claim formulated and, in consequence:

• To annul the additional VAT assessments Nos. 2017…, 2017…, 2017…, 2017…, 2017… and 2017…, in the amount of €59,752.10 and compensatory interest assessments Nos. 2017…, 2017…, 2017…, 2017…, 2017… and 2017…, in the amount of €1,777.68;

• To condemn the Respondent in the costs of the proceedings, in the amount fixed below.

D. Value of the proceedings

The value of the proceedings is fixed at €61,499.78, in accordance with article 97-A, no. 1, a), of the Code of Tax Procedure and Process, applicable by force of paragraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The value of the arbitration fee is fixed at €2,448.00, in accordance with Table I of the Regulation of Costs of Tax Arbitration Proceedings, to be paid by the Respondent, since the claim was fully upheld, in accordance with articles 12, no. 2, and 22, no. 4, both of the RJAT, and article 4, no. 4, of the cited Regulation.

Let it be notified.

Lisbon 02 April 2018

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator Member

(Adelaide Moura)

The Arbitrator Member

(António Pragal Colaço)

ARBITRAL DECISION

The Tax and Customs Authority filed a petition for revision of the arbitral decision delivered in this case, under article 696, paragraph f) of the CPC, to which article 293, no. 1, of the CPPT refers, which establishes that the decision which has become final may be subject to revision when "it is irreconcilable with a final decision of an international appellate body binding on the Portuguese State".

In this case, the decision which the Tax and Customs Authority invokes as the basis for the petition for revision is a decision of the Court of Justice of the European Union (CJEU) rendered in a preliminary ruling case, in case No. C-581/19, attached to the proceedings.

As the CPPT does not provide for the processing of petitions for revision in the phase prior to their admissibility, the regime of civil proceedings will apply subsidiarily, by force of the provisions of article 29, no. 1, paragraph e), of the RJAT.

Therefore, in accordance with article 699, no. 1, of the CPC, a preliminary decision on the admissibility of the petition must be rendered: "the court to which the petition is directed dismisses it when it has not been prepared in accordance with the foregoing article or when it immediately recognizes that there is no ground for revision".

In the case in question, "there is no ground for revision", as it is manifest that the ruling of the CJEU invoked by the Tax and Customs Authority is not rendered by "an international appellate body".

In fact, first and foremost, there is no appeal that can be taken to the CJEU from Portuguese judicial decisions, whereby it cannot be considered an international appellate body for the purposes of Portuguese procedural law, which is what is to be applied.

Moreover, even if it is understood that decisions delivered by the CJEU in enforcement actions brought by the European Commission against Portugal under article 258 of the TFEU may be grounds for petition for revision (as held by the Supreme Administrative Court in the judgment of 02-07-2014, case No. 0360/13), in the case of CJEU rulings in preliminary rulings there is not an action of that kind, whereby there is no reason to apply that jurisprudence.

The CJEU in preliminary ruling proceedings is not an appellate body, as its decision precedes the final decision of the national proceedings and none of the parties in the case has the possibility of appealing to the CJEU.

Moreover, beyond being evident, it is settled in the doctrine and jurisprudence that the interventions of the CJEU in preliminary ruling proceedings are not assumed in the capacity of an appellate body, but rather as collaboration between judges, as the CJEU itself has affirmed:

– 28 Note that, in this respect, article 234 EC1 does not constitute a means of appeal for the parties in a dispute pending before a national court and it is not therefore sufficient that one of the parties claims that the dispute raises a question of validity of community law for the court in question to be obliged to consider that a question is raised within the meaning of article 234 EC2

– 9 Indeed, preliminary rulings rest on a dialogue between judges, the beginning of which depends entirely on the assessment which the national court makes of the relevance and necessity of that referral (judgments of the CJEU Kempter, of 12-02-2008, case C-2/06, no. 41; Cartesio, C-210/06, no. 90; and VB Pénzügyi Lízing Zrt., of 09-11-2010, case C-137/08);

– "The relationship between national courts and the CJEU is reference-based. It is not an appeal system. No individual has a right of appeal to the CJEU. It is for the national court to make the decision to refer. The CJEU will rule on the issues referred to it, and the case will then be sent back to the national courts, which will apply the Union law to the case at hand" ( 3 );

– "In accordance with no. 3 of article 4 of the same Treaty, it is incumbent upon Member States to ensure the execution of 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 preliminary ruling would come to be provided for, not as a means of appeal, but as a special process of direct cooperation, capable of ensuring the uniformity of the legal effects of EU law norms throughout its territory" ( 4 );

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

2 - The decision to be rendered by the Court of Justice of the European Union in such a petition does not aim to revoke judicial decisions rendered by National Courts;

3 - Such a claim does not function to confront any allegedly erroneous interpretation of internal norms or to assess violation of constitutional norms of the various Member States;

4 - A preliminary question corresponds to a question/request for solution aimed at obtaining an answer which a national judicial body of a State of the Union deems necessary to support the solution of a dispute which it must decide;

5 - Its exclusive subject matter is European Union Law and the evaluation effort requested from the Court of Justice of the European Union corresponds to the interpretation or formulation of assessment concerning that Law;

6 - Within a preliminary ruling petition, the national judicial body asks the Court of Justice of the European Union to formulate the appropriate reading of a legal norm of European Union Law whose interpretation is relevant to the solution of the dispute which it must implement" ( 5 )

Moreover, the Tax and Customs Authority in the petition it filed does not even explain what the reason or legal ground is for the CJEU to be considered an appellate body.

The grounds for revision of judgment provided for in article 696 of the CPC, applicable by referral of article 293, no. 1, of the CPPT and 29, no. 1, paragraph e), of the RJAT are exhaustive, as results from the express tenor of that article 696: "a final judgment can only be subject to revision when ...".

Being exceptional norms that permit the elimination of the force of res judicata and the general obligation that flows from it (article 205, no. 2, of the CRP), they cannot be applied analogically to situations not foreseen therein (article 11 of the Civil Code), in particular, to decisions of international bodies that are not, in the face of national legislation, "appellate bodies".

By the foregoing, the petition for revision filed by the Tax and Customs Authority is dismissed, as it is manifest that there is no ground for revision, in particular the ground invoked, as the CJEU decision invoked was not rendered by an international appellate body.

Since the petition for revision is to be dismissed on this ground, the consideration of other requirements of the petition for revision under paragraph f) of article 696 of the CPC is rendered moot, as being futile (articles 130 and 608, no. 2, of the CPC), in particular the questions of whether the CJEU decision rendered in case No. C-581/19 is irreconcilable with the arbitral decision delivered in this case and whether it should be considered binding on the Portuguese State for the purposes of that norm.

Lisbon, 14-07-2021

The Arbitrators

(José Pedro Carvalho)

(Adelaide Moura)

(António Pragal Colaço)