CAAD 570/2018-T: Review of VAT Arbitral Decision Based on CJEU Preliminary Ruling C-581/19

ARBITRAL DECISION

The Tax and Customs Authority filed a motion for revision of the arbitral decision rendered in this proceeding, basing its action on the provisions of Article 29(1) of the Legal Regime for Arbitration in Tax Matters ("RJAT"), Article 293 of the Code of Tax Procedure and Process ("CPPT") and Articles 696 et seq. of the Code of Civil Procedure ("CPC")".

It is believed that recourse is more accurately made to the provision of Article 696, paragraph f) of the CPC, applicable by reference to the provision contained in Article 293, no. 1 of the CPPT, pursuant to the provision of Article 29, no. 1, paragraph a) of the RJAT. The rule establishing the reviewability of the decision provides that a decision that has become final may be subject to revision when "it is incompatible with a final decision of an international appellate forum binding on the Portuguese State". The proceeding of the appeal must follow the regime contained in the CPC, by reference to the rule of Article 29, no. 1, paragraph e) of the RJAT.

Following this procedure, it is necessary, first of all, to assess the admissibility of the appeal, a matter regulated in Article 699, no. 1 of the CPC, and it is incumbent upon this Court to "reject it when it has not been prepared in accordance with the previous article or when it immediately recognizes that there is no grounds for revision."

The rules governing admissibility are primarily provided for in Article 293, no. 1 of the CPPT, which establishes the time limit for filing of four years, and in the aforementioned Article 696, no. 1 of the CPC, which sets forth the grounds that may be invoked to justify the appeal, and in Article 698, no. 2, which indicates the documentation that must necessarily accompany the notice of appeal.

To assess this preliminary issue, the following must be considered:

• The decision of this Court that the Appellant seeks to revise was notified to it on 30-09-2019 and has already become final.

• The notice of appeal was filed on 05-04-2021 and registered with this Court on 07-04-2021.

• The notice of appeal is accompanied by a notification issued on 04-03-2021 by the Secretariat of the Court of Justice of the European Union ("CJEU") of the judgment rendered by this Court in the preliminary ruling case C-581/19.

• The CJEU case C-581/19, pursuant to the judgment, "concerns a request for a preliminary ruling submitted, pursuant to Article 267 TFEU, by the Tax Arbitration Tribunal (Administrative Arbitration Center — CAAD, Portugal)".

• CJEU case C-581/19 concerns "a request for a preliminary ruling on the interpretation of Article 2, no. 1, paragraph c), and Article 132, no. 1, paragraph c), of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax".

• In CJEU case C-581/19 the following decision was rendered:

On the grounds set out above, the Court of Justice (Third Chamber) hereby declares:

Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted to the effect that, subject to verification by the referring court, a nutritional monitoring service provided by a certified and qualified professional in sports institutions, and possibly as part of schemes that also include maintenance and physical well-being services, constitutes a distinct and independent supply of services and is not capable of being covered by the exemption provided for in Article 132, no. 1, paragraph c), of that directive.

Having determined the requirements for admission of the appeal, it falls to decide.

There is nothing to be objected to regarding the legitimacy of the Appellant, the timeliness of the appeal, and the formal correctness of its proceeding. It should be noted, however, that the decision sought to be revised predates the rendering of the foundation judgment; that is, it would always be necessary to demonstrate the retroactive effect of the foundation judgment.

The motion for revision is an exceptional remedy, which has strictly circumscribed grounds that may lead to its adjudication and, before that, to its admission, in accordance with the terms already stated. As mentioned, in this case, it would be necessary to invoke a decision that is incompatible with a final decision of an international appellate forum binding on the Portuguese State. It is not believed that the decision rendered by the CJEU has the characteristics that this rule clearly identifies: (i) the existence of a final domestic judicial decision; (ii) the existence of a final decision incompatible with the original decision, from an international appellate forum, binding on the Portuguese state.

The foundation judgment was rendered in the context of a preliminary ruling request made by a Tax Arbitration Tribunal operating within the CAAD. That is, the Court in which the original case was pending submitted a preliminary ruling request to the CJEU, within the scope of that body's competence to decide by way of preliminary ruling on the interpretation of a particular rule in a specific case. That is, the CJEU did not rule as an appellate forum, as this procedural means does not have that function. As can be seen in Article 267 of the Treaty on European Union ("TEU"), the CJEU is competent to decide on the interpretation of the Treaties and on the validity and interpretation of acts adopted, in this specific case by the Portuguese Republic, but it did not do so as a binding appellate forum; it did so by way of preliminary ruling at the request of the Court that was adjudicating the case. Structurally, it is not believed that the judgment rendered by the CJEU falls within the provision of Article 696, paragraph f) of the CPC. This rule refers expressly to decisions which, in the terminology of the CPC, are decisions in specific cases, based on facts and application of rules (the paradigm of a decision is contained in Article 607, nos. 2 to 5 of the CPC). As can be seen, in the foundation judgment the CJEU adopted a normative interpretation in a preliminary ruling. It should also be noted that in the rule conferring jurisdiction on the CJEU by way of appeal, which is Article 256, no. 1 of the TEU, preliminary rulings are not included, because it is not an appeal but a binding jurisdictional consultation, a jurisdiction that is distinct and which is conferred upon it by Article 256, no. 3 of the TEU. There is thus in the TEU a clear distinction between the realities treated, at the level of jurisdiction, autonomously: the review of appeals, expressed in the provision of Article 256, no. 1, and separately in the same article, preliminary issues (256, no. 3). In its allegation, the Appellant defends the admissibility of the appeal it is filing, bringing to light the judgment of the Supreme Administrative Court ("STA") of 2014-07-02, in case no. 0360/13, but does so without there being any points of contact between the underlying situations. The STA ruled on a situation in which the Portuguese State was sued before the CJEU for infringement, that is, the CJEU acted within the scope of Article 260, no. 1 of the TEU, which confers upon it the competence to "declare that a Member State has failed to fulfill an obligation incumbent upon it under the Treaties", a situation in which "that State must take the measures necessary to comply with the judgment of the Court". Now, that is not the situation sub judice. In the case at hand, the CJEU acted in the exercise of the competence conferred by Article 267, no. 1, which does not permit it to declare any failure by the Member State to comply, but only the competence necessary to decide on the interpretation of the Treaties or on the validity and interpretation of acts adopted by the institutions, bodies or agencies of the Union. Unlike what occurred in the case indicated by the Appellant, the foundation judgment sub judice did not declare any failure by the Portuguese State to comply; it merely fixed the interpretation of a particular legal rule in light of EU law. The lack of parallelism between the situations does not permit the invoked and venerable decision of the STA to be taken into account, which will perhaps be exemplary for cases that fall within identical parameters. That is definitely not the case.

On the other hand, the CJEU does not have competence to function as an appellate forum of national courts (see Articles 251 to 281 of the TEU), which does not mean that its interpretation, within the scope of preliminary ruling, is not binding on national courts in that process, even if it may become the subject of appeal to higher national courts. But these are quite different situations: (i) to address the interpretation of a rule at a time prior to the decision, or (ii) to change the meaning of a decision already final and in force in the legal order. The preliminary ruling undoubtedly fulfills the first statement, but it does not even come close to the second, which is precisely the one that permits the motion for revision.

Finally, for the foundation judgment to provide grounds for the motion for revision, it would have had to render a decision binding on the Portuguese State. As has been seen, the CJEU's interpretive decision on a particular preliminary question is undoubtedly binding on the national court in the process in which the question was raised; it will even be binding on the courts that review the decision in that process on appeal, but it does not appear that this CJEU decision is binding on the Portuguese State. If this were the case, it would be incumbent upon the Portuguese State to enact an interpretive law in the sense judged by the CJEU in that specific case. Now, Portuguese laws, or more accurately the laws of the Portuguese State, must conform to the normative instruments of the EU, in compliance with the provision of Articles 8, nos. 3 and 4 of the Constitution of the Portuguese Republic, but the Portuguese State is not obliged to enact interpretive laws based on decisions rendered in specific cases. The characteristics of generality and abstraction of the law could never conform to such a legislative process. Moreover, the supremacy of international law in general and European Union law in particular, relative to domestic law, is restricted to norms and not to a particular interpretation that a body responsible for their application makes (Articles 8, nos. 3 and 4 of the TEU).

It should be borne in mind that this same question was considered in various arbitration proceedings that operated within the CAAD, as can be seen in the judgments of the collective tribunals in the proceedings, and it can be stated that, with one or another touch of originality, this is settled jurisprudence.

In conclusion,

• The motion for revision has an exceptional nature, as results from the very letter of the law which restricts its admissibility only to the situations it lists in the article.

• The foundation judgment does not have an injunctive nature with respect to the Portuguese State. It is a decision in a preliminary ruling process, which is intended solely to establish the interpretation for application of particular rules in a specific case, and does not have legal force to impose on the Portuguese State any binding conduct, acting as an appellate forum. The decision is binding in the specific case for the courts that adjudicate the case itself, but it does not impose on the Portuguese State any action or omission of a general character. It is thus not possible to state that the foundation judgment is rendered as a final decision of an international appellate forum binding on the Portuguese State.

• The supremacy of EU law relative to domestic law has norms as its object, in accordance with Articles 8, nos. 3 and 4 of the CRP, that is, the Constitution imposes on the Portuguese State the binding nature of "provisions of the treaties governing the European Union and the norms emanating from its institutions, in the exercise of their respective competencies", but no provision imposes on the Portuguese State compliance with a particular interpretation of a particular rule made by the CJEU. It imposes it, as stated, on the court requesting the preliminary ruling and on those ad quem courts that decide on the case.

The failure to satisfy the basic requirements for admissibility of the motion for revision referred to in the preceding paragraph lead by themselves to rejection, which renders moot, as constituting a useless act, the verification of other admissibility requirements, in accordance with Articles 130 and 608, no. 2 of the CPC, pursuant to Article 29, no. 1, paragraph e) of the RJAT: (i) the retroactive effect of the interpretation of the rules in question by the CJEU, which does not appear to exist, in light of what is provided in § 46 of the foundation judgment; (ii) the actual divergence between the decision taken in this proceeding and become final and that which could result, based on the factual matter established in this proceeding, necessarily different from that which served as the basis for the arbitral decision taken in compliance with the foundation judgment (it is insisted and will always be insisted that the law based on Germanic-Roman tradition, such as that of which the Portuguese legal system is a legitimate heir, is applied to concrete facts and that jurisprudential extrapolation and doctrinal contribution are nothing more than interpretive contributions; the primary source of law is the statute and the rules of legal interpretation are enshrined in it, obviously without prejudice to the binding interpretation resulting, for the case in question, from the preliminary ruling).

On the grounds set out, it is decided not to admit the appeal, for lack of grounds justifying it.

Let it be published in accordance with the provision of Article 16, paragraph g) of the RJAT.

27 February 2024

The Arbitrator,

Nuno Maldonado Sousa

CAAD: Tax Arbitration
Case no.: 570/2018-T
Subject: VAT – Nutrition Services – Exemption – Art. 9, 1) of the VAT Code.

ARBITRAL DECISION

Nuno Maldonado Sousa, arbitrator from the CAAD lists appointed by the Deontological Council of the Administrative Arbitration Center to form the single arbitration tribunal, constituted on 29-01-2019, hereby issues the following arbitral decision in the proceeding identified above.

Report

1. A..., S.A., Tax ID ..., with registered office in ..., ..., ...-... ..., requested the constitution of an arbitration tribunal pursuant to Articles 2, no. 1, paragraph a), and 10 of the legal regime for arbitration in tax matters contained in Decree-Law no. 10/2011, of 20 January (RJAT), to review the legality of the acts assessing Value Added Tax (VAT) for the months from March 2015 to December 2015, and the assessment of compensatory interest corresponding to the tax owed for the months from February 2015 to December 2015, which it declares to have a total value of €8,517.85.

The assessments at issue in this arbitration proceeding are the following:

The defendant in this action is the TAX AND CUSTOMS AUTHORITY.

1. The request for constitution of the arbitration tribunal was accepted by the President of CAAD on 16-11-2018, and on that same day it was notified to the Tax and Customs Authority (TA).

Pursuant to Article 6, no. 1 and Article 11, no. 1, paragraph b) of the RJAT, the Deontological Council designated the undersigned as arbitrator of the arbitration tribunal with a single arbitrator, who manifested acceptance of the appointment within the statutory period. On 09-01-2019 the parties were notified of this appointment and did not manifest any intention to decline the arbitrator's appointment, in accordance with the provisions of Article 11, no. 1, paragraphs a) and b) of the RJAT and Articles 6 and 7 of the Deontological Code. In compliance with the discipline contained in Article 11, no. 1, paragraph c), of the RJAT, the arbitration tribunal was constituted on 29-01-2019. The deadline for rendering the decision was extended for two months on 07-07-2019.

1. The Claimant in this action seeks the annulment of the identified assessments, which were issued due to the rejection by the TA of its methodology for invoicing and assessing VAT, which consists of issuing to clients who are members of its gyms an invoice that includes two services in two separate items: the gym service, corresponding to the sporting part, to which it applies the standard VAT rate, and nutrition services, which it considers to be exempt from VAT. To support its claim, it argued that nutrition is a paramedical activity that is exempt from VAT and that the supplies of services specific to the profession of nutritionist should not be combined with fitness services.

It concludes that nutritional monitoring does not have an ancillary character in relation to sporting activity, and therefore there cannot be integration of gym services and nutritional monitoring services for the purposes of determining the VAT treatment.

1. The Tax and Customs Authority argued in the case that the Claimant's arguments lack merit. It specifically stated that the nutritional monitoring included in the gym membership is an activity ancillary to the use of sporting facilities and equipment, and concluded that in such circumstances the same VAT rate applicable to the principal supply of services should be applied.

Case Management

In its Response, the TA addresses the subject matter of the challenge (temporal scope) and the amount in controversy (quantification). The Claimant was invited to clarify the doubt raised and said nothing.

The wording used by the TA does not permit the assertion that it truly intended to exclude from review any of the assessments included in the period indicated by the Claimant in its Initial Petition and which is the year 2015, nor that it challenged the amount in controversy. The Tribunal considers that the TA merely noted an arithmetic discrepancy.

It is thus clear that the subject matter of the challenge consists of the VAT assessments for the year 2015, enumerated in the report of this decision, and the corresponding interest thereon, and that the value of the challenge is €8,517.85, which corresponds to the economic interest at stake, from the Claimant's perspective.

oOo

The arbitration tribunal was properly constituted, in subordination to the provisions of Articles 2, no. 1, paragraph a), and 10, no. 1 of the RJAT and is properly functioning, in compliance with Article 21, no. 1 of the same statute.

The request for an arbitral pronouncement is timely, as it was filed within the period provided for in Article 10, no. 1, paragraph a), of the aforementioned regime.

The parties are duly represented, enjoy legal personality and capacity, and have standing (Articles 4 and 10, no. 2 of the same regime and Article 1 of Ordinance no. 112-A/2011, of 22 March).

The case is not affected by any nullities and no preliminary issues were raised.

Reasoning

III (a) – Factual Findings

With relevance to the decision, the following established facts must be considered:

• The Claimant is a Portuguese legal entity, registered in ..., which conducts its principal activity in the hospitality sector with restaurant services, and has secondary activities in gym operations (fitness) and human health services (nutrition). [Initial Petition, 1st; Administrative File, p. 127]

• The Claimant is registered as a VAT taxable person, falling within the normal monthly periodicity scheme, for the principal activity of "Hotels with Restaurant", CAE 55111, and the secondary activities of "Restaurants, n.e.c.", CAE 56107, "Other human health activities, n.e.c.", CAE 86906, "Gym activities (fitness)", CAE 93130. [Administrative File, p. 127]

• The Claimant conducts its activity, with respect to sporting practice, under the brand "B...", through three gyms [Initial Petition, 3rd; Response of TA, 7th: Administrative File, p. 127]:

  • Gym C..., integrated into the hotel unit in ...;

  • Gym D..., located in the industrial park of the city of ...;

  • Gym E..., located in Chiado, Lisbon.

• The Claimant engages in health-related activities, namely awareness campaigns on the benefits and importance of consuming certain foods, both through social media and by organizing events at the hotel's restaurants. [Initial Petition, 4th]

• The Claimant provides nutrition consultations to members and non-members of the gyms mentioned in B), through professionals qualified for this purpose. [Initial Petition, 5th]

• The general assembly of the Claimant approved on 04-10-2014 an amendment to its corporate purpose, which was reworded as follows: [Initial Petition, 6th: doc. 3]

The company's purpose is:

a) the operation of the hotel industry and related activities;

b) the operation of other human health activities n.e.c.

• In 2015 the Claimant began the supply of nutrition services both to gym members and to the general public. [Initial Petition, 7th]

• The Claimant's gyms are certified by the Health Regulatory Entity ("ERS") as health care providers, and have specialized facilities of their own. [Initial Petition, 8th: docs. 5 to 7]

• Nutrition services are provided by nutritionists employed by the Claimant and consist of specialty consultations, termed "initial consultation" and "nutritional monitoring". [Initial Petition, 10th and 11th]

• Nutrition services are provided at all of the Claimant's gyms by professionals qualified in the area of nutrition. [Initial Petition, 13th]

• The Claimant applies the standard VAT rate (23%) to the sporting activity services it provides, and applies VAT exemption to the supply of nutrition services. [Initial Petition, 13th]

• To clients who are members of the gym, the Claimant issues an invoice that includes the two services in two separate items: the gym service, corresponding to the sporting part, to which it applies the standard VAT rate, and nutrition services, which it considers to be exempt from VAT. [Initial Petition, 19th: doc. 11]

• The TA conducted an inspection procedure for the Claimant's fiscal year 2015, pursuant to service order no. OI2017... of 11-08-2017, with respect to which a tax inspection report was prepared. [Response of TA, 1st: Administrative File, pp. 122-131]

• By letter dated 06-02-2018 with reference ... from the Tax Inspection Services of the Tax Authority of ..., the Claimant was notified of the tax inspection report. [Administrative File, pp. 122-131]

• In the Tax Inspection Report it is stated that information no. .../2016 from DSIFAE – Directorate of Services for Investigation of Fraud and Special Actions contains a report that determines that: [Administrative File: pp. 125-126]

This practice is understood "with the objective of [reducing the amount of VAT to be remitted to the State Treasury]", and therefore the DSIFAE Report determines that:

• All services provided by the gym, included in the membership paid by the client are subject to the standard rate provided for in paragraph c) of no. 1 of Article 18 of the VAT Code.

• VAT-exempt invoicing under Article 9 of the VAT Code is only appropriate for nutrition consultations provided in isolation, constituting an end in themselves and without association with services of a nature different from 'the supply of human health services'.

• In the Tax Inspection Report, under the chapter "III - Description of facts and grounds for arithmetic-only adjustments to the tax base", the following appears: [Administrative File: p. 130]

During the inspection procedure, it was found that the taxpayer supplies nutritional monitoring services included in gym memberships on which it did not assess VAT, treating them improperly as exempt operations under Article 9 of the VAT Code.

However, based on the legal understanding and legislation described in detail in the preceding chapters, the nutritional monitoring included in the gym membership is considered an activity ancillary to the use of sporting facilities and equipment, as such subject to the same VAT rate applicable to the principal supply of services, which is sporting activity.

Thus there is an outstanding VAT assessment in the amount of €7,801.11 on the value of the nutritional monitoring supplies included in gym memberships, to be attributed to the following tax periods:

• In the "brief description of adjustments resulting from the inspection procedure" of the Tax Inspection Report, it is stated that: [Administrative File: p. 125]

From the inspection procedure, a VAT assessment of €7,810.11 resulted, distributed among the following periods of fiscal year 2015:

• The following VAT assessments relating to the year 2015 were issued and sent to the Claimant: [Initial Petition, opening: doc. 1]

• VAT interest assessments dated 07-02-2018 relating to additional VAT assessments for 2015 were issued and sent to the Claimant: [Initial Petition, opening: doc. 1]

• On 19-03-2018, the Claimant paid the following additional VAT assessments for 2015 and corresponding interest for the same period:

• On 30-05-2018, the Claimant filed an administrative appeal requesting "The annulment of the additional VAT assessments for the period of 2015, as well as the respective interest calculation statements", the reimbursement of the amount paid, and compensatory interest. [Response of TA, 12th: Administrative File, pp. 32-54]

• On 05-01-2019, the Claimant invoked at the Tax Authority of ... the formation of a deemed denial of the administrative appeal referred to in item U) on 29-09-2018, due to it not having been notified of the final decision of that procedure by 15-11-2018, and on 16-11-2018 filed the present request for an arbitral pronouncement. [Response of TA, 13th; Administrative File, p. 1].

Unproven Facts

No proof was presented for payment of the additional VAT assessment for the period 12-2015, which reduces the total VAT payment to €6,441.27 and the interest paid to €582.06. The assessments with proof of payment are in the Administrative File, in the case file, and in document 18 of the Initial Petition.

No facts alleged with actual relevance to the proper decision of the case were considered as unproven.

Reasoning for Findings of Fact Proven and Unproven

The tribunal is not required to rule on all details of the factual matters alleged by the parties, and it is incumbent upon it to select the facts that matter to the decision and distinguish the matters it deems proven and declare those it considers unproven (cf. Article 123, no. 2 of the CPPT and Article 607, no. 3 of the CPC, applicable pursuant to Article 29, no. 1, paragraphs a) and e) of the RJAT).

Accordingly, the facts pertinent to the adjudication of the case are selected and determined in function of their legal relevance, which is established in light of the various solutions for the subject matter of the dispute in applicable law (Article 596, no. 1 of the CPC, applicable pursuant to Article 29, no. 1, paragraph e) of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of Article 110, nos. 6 and 7 of the Code of Tax Procedure and Process (CPPT) and the documentary evidence, the above-listed facts were considered proven and of relevance to the decision.

Allegations made by the parties of a merely conclusory nature were not deemed proven or unproven, even when presented as facts, as they are incapable of substantiation, and their accuracy can only be gauged in light of the reasoning of the decision on the legal matters, contained in the following chapter.

III (b) – The Law

The Subject Matter of the Dispute

The question at issue consists in determining, from the VAT perspective, whether the Claimant's supplies of services, which traditionally derive from the operation of gyms, from the perspective of sporting facilities, and nutrition services provided by the same entity, should be treated as distinct operations, subject to separate taxation, or as a single complex operation composed of several elements.

The Applicable Legal Regime

The supply of nutrition services is unanimously understood as the supply of human health services and is exempt from VAT under Article 9, no. 1 of the VAT Code.

Furthermore, the regime underlying VAT must be cited, which today is contained in Council Directive of the European Union 2006/112/EC of 28 November 2006 on the common system of value added tax, in particular Article 1 thereof, which reads as follows:

SUBJECT MATTER AND SCOPE

Article 1

1. This Directive establishes the common system of value added tax (VAT).

2. The principle of the common VAT system is to apply to goods and services a general consumption tax exactly proportional to the price of the goods and services, whatever the number of transactions occurring in the production and distribution process prior to the taxation stage.

In each transaction, the VAT, calculated on the price of the good or service at the rate applicable to that good or service, is due, with prior deduction of the amount of tax that has directly affected the cost of the various elements making up the price.

The common VAT system is applied up to and including the retail trade stage.

For a proper understanding of the jurisprudence referred to below, it is useful to cite here the rule that was contained in the sixth directive of the Council of the European Communities of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — common system of value added tax: uniform tax base, now repealed, in particular Article 2 thereof, which read:

Scope

Article 2

The following are subject to value added tax:

1. The supply of goods and the supply of services effected for consideration within the territory of the country by a taxable person acting as such;

2. The importation of goods.

It is also necessary to consider the jurisprudence of the Court of Justice of the European Union (CJEU), which in a particular case, in its judgment of 27-10-2005, in case C-41/04, stated:

(…)

1. As follows from the case-law of the Court of Justice, when a transaction consists of a number of elements and acts, all the circumstances in which the transaction in question takes place must be taken into account in order to determine, on the one hand, whether two or more distinct supplies are involved or a single supply and, on the other, if the latter is the case, how that single supply is to be classified (see, in this respect, the judgments of 2 May 1996, Faaborg-Gelting Linien, C-231/94, Rec. p. I-2395, paras. 12 to 14, and CPP, cited above, paras. 28 and 29).

2. In view of the dual circumstance that, on the one hand, Article 2(1) of the Sixth Directive provides that each transaction is normally to be regarded as distinct and independent, and that, on the other hand, a transaction which in economic terms consists of a single supply must not be artificially broken down in such a way as to impair the application of the VAT system, it follows that it is first of all necessary to identify the essential features of the transaction in question, in order to determine whether the taxable person supplies to the consumer, understood as a typical consumer, several distinct principal supplies or a single supply (see, by analogy, the judgment CPP cited above, para. 29).

3. In this regard, the Court has already held that there is a single supply in particular where one or more elements are to be regarded as the principal supply, while one or more elements are to be regarded as ancillary supplies which share the tax treatment of the principal supply (see the judgment CPP cited above, para. 30, and the judgment of 15 May 2001, Primback, C-34/99, Rec. p. I-3833, para. 45).

4. The same applies where two or more elements or acts supplied by the taxable person to the consumer, understood as a typical consumer, are so closely linked together that they form objectively a single economic supply the splitting of which would be artificial.

With regard to the specific case examined in the cited judgment, the CJEU stated:

(…)

1. As to the main proceedings, the file shows that, according to the findings of the Gerechtshof te Amsterdam, whose decision was the subject of a reference for a preliminary ruling, the transaction in issue between FDP and Levob has as its economic object the supply, by a taxable person to a consumer, of a software program functionally tailored specifically to the needs of that consumer. In this regard, and as the Dutch Government rightly submitted, it cannot be assumed, except as a matter of artificiality, that that consumer acquired from that same supplier, first, a pre-existing program which, as presented, had no utility whatsoever for the purposes of his economic activity and, subsequently, only the adaptations necessary to make that program useful for his purposes.

2. The fact that provision was made by contract for separate pricing for the supply of the basic program, on the one hand, and its adaptation, on the other, is not, as such, a determining factor. Indeed, that circumstance is incapable of affecting the close objective relationship existing between the aforementioned supplies and their integration into a single economic transaction (see, in this respect, the judgment CPP cited above, para. 31).

3. It follows that Article 2 of the Sixth Directive must be interpreted to mean that the supply of a software program and its subsequent adaptation to the specific needs of the user must, as a general rule, be regarded as a single supply for VAT purposes.

In the judgment referred to above, the CJEU stated:

On the grounds set out above, the Court of Justice (First Chamber) hereby declares:

1. Article 2(1) of Council Directive 77/388/CEE of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — common system of value added tax: uniform tax base, must be interpreted to mean that, where two or more elements or acts supplied by a taxable person to a consumer, understood as a typical consumer, are so closely linked together that they form objectively a single economic whole the splitting of which would be artificial, the totality of those elements or acts constitutes a single supply for VAT purposes.

2. This applies to a transaction in which a taxable person supplies to a consumer a standardized software program previously developed and marketed, recorded on a computer medium, and its subsequent adaptation to the specific needs of that purchaser, even though the various supplies are charged separately.

The Positions Taken in the Case

In the Tax Inspection Report, the TA bases the disputed taxation on the grounds that "the nutritional monitoring included in the gym membership is considered an activity ancillary to the use of sporting facilities and equipment, as such subject to the same VAT rate applicable to the principal supply of services, [which is] sporting activity."

In its Response, the TA invokes the jurisprudence of the European Union (EU) and argues that, to the extent relevant to the case before us, which is submitted to judgment, one must "consider that there is a single supply when two or more elements or acts supplied by the taxable person to the client are so closely linked together that they form objectively a single economic supply indivisible, whose decomposition would be artificial" (25th) and that "the transaction consisting of a single supply in the economic sense must not be artificially broken down, in order not to alter the operation of the VAT system" (26th). It thus states that "There is a single supply when one or more elements are to be regarded as the principal supply, while, conversely, other elements constitute ancillary supplies that share the tax treatment of the principal supply (27th).

If we understand the TA's position correctly, it considers that the nutritionist services acquired together and dependent on the contract for membership and use of the gym, supplied by the Claimant to its clients, constitute merely a means of obtaining better conditions for the principal service of the provider, asserting that "it is a single service (whose decomposition is artificial in character), consisting of a principal supply (the gym), albeit with ancillary supplies thereto, such as nutritional monitoring" (34th).

The Claimant opposes the TA's position using several arguments.

First, the Claimant contests the argument regarding the ancillary nature of the nutrition services supply and states that one is "only in the presence of a single supply, namely, when two or more elements or acts supplied by the taxable person to the client are so closely linked together that they form objectively a single economic supply whose decomposition would be artificial" (45th). It reinforces this idea by stating that "a supply is considered ancillary in relation to a principal supply, when it does not constitute for the clientele an end in itself, but a means of benefiting, in the best conditions, from the principal service of the provider" (47th).

For application of the principles it sets forth, the Claimant considers "that in the case under analysis, the supply of nutrition services and the operation of gyms cannot, without more, be considered a single indivisible economic supply." (50th) because "nutrition services are distinctly separate from gym services, not constituting merely ancillary supplies, but ends in themselves – promoting healthy eating habits, adapting dietary regimens to the most varied health conditions" (53rd). It completes its reasoning by stating that for a supply to be ancillary, in the sense of being bound by the tax treatment of the principal supply, "it is absolutely necessary that such linkage be so close that the separation of the two services creates a merely artificial decomposition." (65th).

It also advances other arguments to the same effect: (i) the existence in the market of establishments that provide only gym services, and others that provide only nutrition services (66th and 67th), and (ii) the lack of any reason for the TA to differentiate the tax treatment given to "external consultations" and "nutritional monitoring", as the TA accepts that nutrition consultations provided within the Claimant are effectively independent supplies and consequently exempt from VAT.

In support of its thesis, the Claimant presented a legal opinion prepared by the Distinguished Professor Clotilde Celorico Palma.

The two theories in conflict are actually the hypotheses that the jurisprudence cited has referenced for purposes of applying the VAT regime. The first hypothesis results directly from the interpretation of Article 1, no. 2 of the 2006 "VAT Directive", which states that in each transaction, the VAT is calculated on the price of the good or service at the rate applicable to that good or service, and it can be asserted with certainty that the rule is that each transaction is normally to be regarded as distinct and independent and that in each transaction, the VAT is calculated on the price of the good or service at the rate applicable to that good or service; and the second hypothesis which considers that when two or more elements or acts supplied by a taxable person to a consumer are so closely connected in the economic sense that they form objectively a whole whose decomposition would be artificial, the totality of those elements or acts constitutes a single supply.

Let us now carefully examine the established factual matters to determine from them elements that will clarify whether the situation in the case is governed by the general rule, there being independent supplies, each of them subject to the respective rules of the VAT Code, or whether there are instead elements that are so closely connected in the economic sense that their dissociation for VAT purposes would be artificial.

The factual matters illustrate the supply of nutrition services with destinataries being members and non-members of the gyms, and being provided through professionals qualified for this purpose, who are certainly individuals distinct from the professionals who oversee sporting activities. The nutrition services only began later, which allows one to infer that for this reason as well the contours of the sporting services were already properly delineated and are scientifically autonomous. It is also certain that the Claimant's gyms are certified by the Health Regulatory Entity as providers of health care, with specialized facilities of their own.

The points of coincidence between sporting services and nutrition services, according to the selection of factual matters in this case, are the contiguity of the facilities and the fact that gym members can use nutrition services under differentiated conditions.

The interpretation of the factual matters, as presented in this case, does not permit the conclusion that the two supplies—gym and nutrition—are so closely connected that their separation is artificial.

Therefore, the general rule of Article 1, no. 2 of the "VAT Directive" must be applied, subjecting each supply to its specific regime, as the Claimant seeks.

Consequently, the VAT assessments and corresponding interest must be annulled and the TA must be ordered to reimburse the amounts paid by the Claimant.

Regarding reimbursement, it shall be limited to the value of the amounts demonstrably paid, which total €6,441.27 of VAT and €582.06 of compensatory interest, totaling €7,023.33.

The Claimant also raises issues regarding violations of the principle of equality and the prevalence of substance over form, which no longer need to be analyzed.

IV – Compensatory Interest

The Claimant further requests the condemnation of the Tax and Customs Authority to pay compensatory interest at the legal rate, calculated on the amount it paid (126th), until full reimbursement of that amount.

In accordance with the provision of paragraph b) of Article 24 of the RJAT, the arbitral decision on the merits of the claim which is not subject to appeal or challenge binds the Tax Administration, in the exact terms of the success of the arbitral decision in favor of the taxpayer, obligating it to "restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been taken, adopting the acts and operations necessary for that purpose". This is in harmony with the provision of Article 100 of the General Tax Law, applicable by virtue of the provision of paragraph a) of no. 1 of Article 29 of the RJAT.

Further, pursuant to no. 5 of Article 24 of the RJAT, "payment of interest, regardless of its nature, is due, in accordance with the provisions of the General Tax Law and the Code of Tax Procedure and Process", which refers to the provision of Articles 43, no. 1, and 61, no. 5 of each of these statutes, requiring payment of compensatory interest from the date of the unduly paid tax until the date of processing of the respective credit note.

There is thus grounds, following the declaration of illegality of the assessment acts, for payment of compensatory interest, in accordance with the cited provisions of Articles 43, no. 1 of the General Tax Law and 61, no. 5 of the CPPT, calculated on the amount the Claimant unduly paid, at the legal interest rate (Articles 35, no. 10, and 43, no. 4 of the General Tax Law).

V – Decision

On the grounds set out above, the arbitration tribunal decides to render a partially favorable judgment on the claim filed in this proceeding and accordingly:

• Annuls the assessments (i) of VAT for the year 2015 identified in the report of this decision and (ii) of corresponding compensatory interest;

• Condemns the Tax and Customs Authority to reimburse to the Claimant the amount of €7,023.33, plus compensatory interest in accordance with the terms referred to in section IV of this decision;

• Condemns the Tax and Customs Authority and the Claimant to pay the costs of this proceeding in the amount of €918.00, in proportion to the failure of their respective claims, with 82.5% owed by the TA and 17.5% owed by the Claimant.

VI - Value of the Proceeding

In the present proceeding the value of €8,517.85 was declared by the Claimant, which, in its theory, corresponds to the assessments whose annulment it sought and the value the reimbursement of which it sought; the value of the proceeding is fixed at that amount, in accordance with Article 97-A, no. 1, paragraph a) of the CPPT, applicable pursuant to Article 29, no. 1, paragraphs a) and b) of the RJAT and Article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings.

VII - Costs

The value of the arbitration fee is fixed at €918.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Claimant (€161.00) and by the Respondent (€757.00), in the percentages indicated, in accordance with Articles 12, no. 2, and 22, no. 4, both of the RJAT, and Article 4, no. 4 of the aforementioned Regulation.

Let it be notified.

Lisbon, 30 September 2019

The Arbitrator,

(Nuno Maldonado Sousa)

[1] Textual reproduction from the judgment, as per document attached to the proceeding by the Appellant.

[2] Ibid.

[3] In Portuguese law, an analogous situation can be seen in the jurisdictional consultation to the Court of Conflicts, pursuant to Law no. 91/2019, of 4 September, in particular Articles 3, para. b) and 15, in which the court ad quem decides by consultation with binding effect and not by way of appeal.

[4] Commonly referred to by the acronym "RIT".

[5] Accessible at https://eur-lex.europa.eu/legal-content/PT/TXT/PDF/?uri=CELEX:31977L0388&from=PT

[6] Accessible at http://curia.europa.eu/juris/showPdf.jsf?text=&docid=58098&pageIndex=0&doclang=pt&mode=lst&dir=&occ=first&part=1&cid=1113103