VAT Exemption for Curricular Enrichment Activities in Education – CAAD Case 603/2015-T

TAX ARBITRATION CASE LAW

Case No. 603/2015-T

Decision Date: 2020-10-18

VAT

Value of Claim: €220,511.43

*Subject Matter: VAT – Education/Teaching; Connected Services Provision – Reform of Arbitration Decision (attached to decision). Replaces arbitration decision of 26 April 2016

ARBITRATION DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Paulo Lourenço and Marcolino Pisão Pedreiro, designated by the Ethics Council of the Administrative Arbitration Centre to form an Arbitration Tribunal, hereby agree:

I – REPORT

1. On 17 September 2015, A..., S.A., legal entity no. ..., with registered office at ..., ..., ...-..., Porto, filed a request for constitution of an arbitration tribunal pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011 of 20 January, which approved the Legal Regime of Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012 of 31 December (hereinafter, abbreviated as LRAT), seeking a declaration of illegality of self-assessment acts for VAT relating to all quarters of the years 2009 to 2012, as well as the 1st, 2nd and 3rd quarters of 2013, in the amount of €220,511.43.

2. To support its claim, the Claimant alleges, in summary, that:

a. The enrichment activities programme in the 1st cycle of basic education, provided for in Administrative Order No. 14460/2008 (revoked by Administrative Order No. 9265-B/2013 of 15 July), arose as a consequence of the Government's policy of transferring attributions and competencies to local authorities.

b. In this regard, said administrative order concerns only enrichment activities in the 1st cycle of basic education, since it was precisely and solely in this area that the competence of the National Education System was transferred to the Municipalities.

c. The enrichment activities, referenced in Administrative Order No. 14460/2008, integrate the objectives of the National Education System, regardless of whether they are provided to students of pre-school education, the three cycles of basic education and/or secondary education.

d. The activities developed within B... correspond to those listed in the above-mentioned administrative order on which the tax authority bases itself for purposes of applying the VAT exemption – this aspect is confirmed by the tax authority itself, corroborating that such activities benefit from VAT exemption.

e. The activities in question – regardless of the cycle of education in which they are provided – have as their objective, on the one hand, enriching/complementing the students' academic curriculum and, on the other, improving the quality of teaching and learning for them, thereby achieving the objectives foreseen for the National Education System.

f. Under Decree-Law No. 152/2013, private and cooperative education institutions – such as A... – have pedagogical autonomy and the right to offer subjects of curriculum enrichment or supplementation.

g. Additionally, applying VAT exemption to activities developed within the 1st cycle of basic education while seeking to tax the same activities when provided to students of the remaining cycles of schooling would be contrary to the Law, would generate crudely differentiated treatment, would create a serious distortion of the tax rules and would violate the principle of equality.

h. Conclusively, there should be no doubt that activities carried out within B..., in pre-school education, 2nd and 3rd cycles of basic education and secondary education – just as in 1st basic education – constitute operations that benefit from the exemption provided in No. 9 of Article 9 of the VAT Code.

i. Thus, the tax authority should proceed with the restitution of VAT self-assessed in excess in the amount of €220,511.43.

j. Subsidiarily, and even if it were considered that the activities of B... would not benefit from VAT exemption, there would nonetheless be tax (self-)assessed by the Claimant in excess.

k. Specifically, the VAT should have been calculated as an integral part of the consideration received from the students, so that in that case, the excess VAT paid would have amounted to €24,304.93.

1. On 21-09-2015, the request for constitution of the arbitration tribunal was accepted and automatically notified to the Tax Authority.

2. The Claimant did not proceed with the nomination of an arbitrator, so, pursuant to the provisions of subparagraph a) of No. 2 of Article 6 and subparagraph a) of No. 1 of Article 11 of the LRAT, the President of the Ethics Council of the CAAC designated the undersigned as arbitrators of the collective arbitration tribunal, who communicated acceptance of the appointment within the applicable timeframe.

3. On 13-11-2015, the parties were notified of these designations and did not manifest any intention to challenge any of them.

4. In compliance with the provision of subparagraph c) of No. 1 of Article 11 of the LRAT, the collective Arbitration Tribunal was constituted on 30-11-2015.

5. On 12-01-2016, the Respondent, duly notified for this purpose, submitted its response defending itself solely by impugning, and also raising the question of the necessity of a preliminary reference to the CJEU.

6. The Claimant was given the opportunity to exercise the right to be heard with regard to the question of preliminary reference raised, and availed itself of this opportunity to submit legal arguments.

7. Given that there was no need for additional evidence production beyond the documentary evidence already incorporated in the proceedings, nor matters of exception on which the parties needed to pronounce themselves, and taking into account that in arbitration proceedings the general procedural principles of procedural efficiency and prohibition of futile acts apply, and that the Claimant, despite not being notified for this purpose, had already submitted its legal arguments pursuant to subparagraphs c) and e) of Article 16 and No. 2 of Article 29, both of the LRAT, the holding of the meeting referred to in Article 18 of the LRAT was dispensed with, and the Tax Authority was given the possibility of, if it wished, submitting written arguments, which it did.

8. A deadline of 30 days was set for the pronouncement of the final decision, following the submission of arguments by the Tax Authority, which deadline was extended by a further 30 days and subsequently by a further seven days.

9. A final decision was rendered which was the subject of challenge to the Administrative Court of the Southern Region, filed by the Tax and Customs Authority.

10. By judgment of 09-07-2020, that Court decided:

"To declare the present challenge well-founded and, consequently, declare the nullity of the arbitration decision issued in the context of case 603/2015-T, due to improper pronouncement, and order the return of the proceedings to the CAAC, to, if nothing prevents it, issue a new decision, remedied of the specific irregularities identified"

1. Consequently, the proceedings were returned to this Arbitration Centre to comply with what was decided by the Administrative Court.

2. The parties were given the opportunity to pronounce themselves prior to the reformation of the decision.

3. The Arbitration Tribunal is materially competent and is regularly constituted, pursuant to Articles 2, No. 1, subparagraph a), 5 and 6, No. 1, of the LRAT.

The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to Articles 4 and 10 of the LRAT 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 consideration of the merits of the case.

All considered, it behoves us to pronounce

II. DECISION

A. FACTUAL MATTERS

A.1. Facts Established as Proven

1. The self-assessments in question in this arbitration action were presented in the context of the voluntary correction that the Claimant chose to make, pursuant to the provision of Article 58 of the Tax Procedure and Process Code, following the conclusions reached by the Tax Inspection Services in the course of tax inspection procedures carried out for the periods between 2009 and 2012, carried out under Service Orders No. OI2013... (2009), OI2013... (2010), OI2013... (2011) and OI2013... (2012).

2. In the course of said inspection actions, the treatment under VAT of the transfers of goods and provision of services carried out by the Claimant was analyzed.

3. The Claimant was established by public deed on 17/09/1993, having as its object the "operation and management of private establishments of basic and secondary education".

4. The Claimant provides, and provided as of the date of the tax acts at issue, services in the field of pre-school education, basic education and secondary education.

5. According to a declaration issued on 25/03/2007 by the Regional Directorate of Education of the North (DREN), the Claimant constituted a private education establishment, which operates under Definitive Authorization No. 543, pursuant to an Administrative Order issued on 03/02/1994, and fell within the objectives of the Education System pursuant to No. 2 of Article 3 of Law No. 9/79 and Nos. 1 and 2 of Article 8 of Decree-Law No. 553/80 (Law of Bases and Statute of Private and Cooperative Education respectively of 19 March and 21 November).

6. For VAT purposes, the Claimant fell within the normal regime of quarterly periodicity with the type of operations "mixed with actual allocation of part of the assets" insofar as it exercised not only exempt activities which do not confer the right to deduction, pursuant to subparagraph 9) of Article 9 of the VAT Code, embodied in activities with the object of teaching and connected services (namely provision of food), but also taxable activities which confer the right to deduction, embodied in provision of services that can be classified under No. 1 of Article 4 of the VAT Code.

7. In the course of the inspection procedures carried out, the Tax Authority found that, in the periods in question, the Claimant provided services to students in the areas of "Educational Component", "Extracurricular Activities" and also "Other Services".

8. The said "Extracurricular Activities" (B...) comprised, namely, the following provision of services:

i. In 2009: music, study hall, arts, painting, languages, toy making, catechesis and drama;

ii. In 2010: music, study hall, arts, painting, languages, toy making, C...-fitness, and drama;

iii. In 2011: music, study hall, arts, painting, languages, toy making, C...-fitness, and drama.

iv. In 2012: music, study hall, arts, painting, languages, toy making, C...-fitness and drama;

1. These activities were considered by the Claimant to be exempt from VAT pursuant to subparagraph 9) of Article 9 of the VAT Code, which in the invoices issued in connection with the activities described in the preceding point, until mid-2013, did not mention VAT.

2. However, the Tax Inspection Services considered that they would instead be subject to VAT at the standard rate, and could not benefit from said exemption because they were not considered to be connected with teaching, pursuant to and for the purposes of said exemption, in that, in sum, pursuant to the cited rule, only exempt are transfers of goods or provision of services that have a character of complementarity in relation to the activity of teaching proper, such as accommodation, food, transport and teaching materials to students.

3. Not conforming to the understanding of the Tax Authority, the Claimant submitted a request for administrative review, seeking the self-assessments relating to the periods between the years 2009 and 2012, and also for the 1st and 2nd quarter of 2013.

4. In the course of said procedure, once notified to exercise its right to be heard, in light of the draft decision, the Claimant did not pronounce itself.

5. The final decision issued was one of partial grant, restituting to the Claimant the amount of €90,798.62, based on the reasoning contained in the Information prepared on 30-12-2014 by the Finance Directorate of Porto.

6. The partial grant concerned the correction made with respect to the 1st cycle, in that, taking into account the provision of Administrative Order No. 14460/2008 of 26 May 2008, it was concluded that enrichment activities, as defined therein, are legally integrated in the objectives of the National Education System, and consequently can benefit from the exemption in question.

7. Therefore, the correction made by the Tax Inspection Services was maintained with respect to enrichment activities carried out in pre-school education, 2nd and 3rd cycle of basic education and secondary education.

8. From the voluntary corrections made, there resulted additional delivery of VAT to the State in the amounts of €37,376.63, €39,550.38, €51,230.10 and €53,097.72 for the years 2009, 2010, 2011 and 2012 respectively.

9. Furthermore, outside the scope of the inspection actions carried out, in accordance with the indications given by the tax authority, the Claimant also corrected (voluntarily) the VAT declarations for the 1st and 2nd quarters of 2013, resulting in a value of VAT to be additionally paid of €38,848.06.

10. With reference to the 3rd quarter of the year 2013, the Claimant reported tax assessed in the respective periodic VAT declaration (delivering it to the State) in the amount of €408.54.

A.2. Facts Established as Not Proven

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

A.3. Justification of Established and Not Established Factual Matters

With regard to the factual matters, the Tribunal does not need to pronounce on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and distinguish the established matters from the not established ones (see Article 123, No. 2, of the Tax Procedure and Process Code and Article 607, No. 3 of the Civil Procedure Code, applicable by virtue of Article 29, No. 1, subparagraphs a) and e) of the LRAT).

Thus, the facts relevant for the judgment of the case are chosen and defined in function of their legal relevance, which is established in attention to the various plausible solutions of the legal question(s) (see former Article 511, No. 1, of the Civil Procedure Code, corresponding to current Article 596, applicable by virtue of Article 29, No. 1, subparagraph e) of the LRAT).

Thus, taking into consideration the positions assumed by the parties, in light of Article 110/7 of the Tax Procedure and Process Code, the documentary evidence and the proceedings filed with the record, the facts listed above were considered proven, with relevance for the decision, taking into account that, as was written in the Judgment of the Administrative Court of the Southern Region of 26-06-2014, issued in case 07148/13, "the probative value of the tax inspection report (...) may have probative force if the assertions contained in it are not challenged".

B. ON THE LAW

In its Response, the Tax Authority requests "the preliminary reference to the Court of Justice of the European Union, pursuant to the provision of Article 267 of the TFEU, so that it may pronounce itself on the question of whether enrichment activities such as those discussed in these proceedings (activities of music, study hall, arts, painting, languages, toy making, C...-fitness, catechesis and drama) have or do not have classification within the scope of the exemption enshrined in Article 132, subparagraph i) of the VAT Directive, being considered as school teaching activities or activities closely connected with it".

As stated in point 7 of the recommendations to national courts, relating to the presentation of preliminary ruling references (2012/C 338/01), of the CJEU:

"the role of the Court in the context of a preliminary ruling reference consists in interpreting the law of the Union or pronouncing itself on its validity, and not in applying this law to the factual situation underlying the main proceedings. This role is incumbent upon the national court and, for this reason, it is not for the Court to pronounce on questions of fact raised in the context of the dispute in the main proceedings or on any divergence of opinion regarding the interpretation or application of national law rules".

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

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

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

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

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

The first filtering criterion for the merit of the question formulated, from the perspective of its presentation, as a preliminary reference, to the CJEU, relates to its usefulness for deciding the case. That is, only if the answer to the question formulated is necessary to render a decision on the issues presented to the Tribunal to decide, should that question be presented to the CJEU.

Now, with all due respect to other opinions, it is understood that this is not the case with the question at issue.

In fact, and as will be seen below, with regard to the assessment of the legality of the act that is the immediate object of this arbitration action, the answer to the question formulated will add nothing, insofar as that act is based not on the interpretation of the Community Directive, but on that of a rule of national law – Article 9/9) of the VAT Code – and on the understanding, arising from such interpretation, that such rule accepts as services having teaching as their object only those relating directly to subjects comprised in the curricula of the National Education System, for the cycle of studies of the recipients of the service.

Now, to determine whether such understanding is correct or not, the answer to the question formulated is not necessary, as will be seen, and most certainly because the meaning of that answer is clearly apparent.

On the other hand, with regard to the assessment of the legality of the acts that form the indirect object of this arbitration action, there is also, as will be seen, an insufficiency of factual elements that would allow for their annulment, so that, also from this perspective, the answer to the question formulated would add nothing.

Thus, and for the reasons set out, the suggested preliminary reference will not be made.

Accordingly, the legal question to be resolved in these proceedings relates directly to the interpretation and application of subparagraph 9) of Article 9 of the VAT Code which provides that:

"The following are exempt from tax:

1. Services having teaching as their object, as well as transfers of goods and provision of services connected therewith, such as the provision of accommodation and food, carried out by establishments integrated in the National Education System or recognized as having equivalent objectives by the competent ministries;".

The rule in question expressly establishes a subjective requirement, which requires that these be "establishments integrated in the National Education System or recognized as having equivalent objectives by the competent ministries", and an objective requirement, which presupposes that there are in question "services having teaching as their object, as well as transfers of goods and provision of services connected therewith".

As the Respondent rightly summarizes in the proceedings, "the disputed question does not arise as to the subjective requirement of the exemption in question, in particular, the characteristics that the economic operator must have to benefit from the exemption established in No. 9 of Article 9 of the VAT Code (...), but rather as to the objective requirement thereof, more specifically, as to the enrichment activities that are concretely practiced".

Correctly framed in this way, the question presented for resolution by this Tribunal cannot, however, support the next moment on which the legal position of the Respondent is based, which postulates that "the issue to be decided in these proceedings consists in determining whether such extracurricular activities (...), provided in the context of pre-school education, as well as in the context of the 2nd and 3rd cycle of basic education and secondary education, are or are not connected with teaching pursuant to and for the purposes provided in No. 9 of Article 9 of the VAT Code."

In fact, the objective requirement identified in subparagraph 9) of Article 9 of the VAT Code is not exhausted in services connected with teaching, also encompassing, first and foremost, the very "services having teaching as their object".

Thus, correctly framed as the issue to be decided in these proceedings, it will be concluded that it consists in determining whether the extracurricular activities in question, provided to students of pre-school education, and of the 2nd and 3rd cycle of basic education and secondary education, are or are not services having teaching as their object, or connected with it, pursuant to and for the purposes provided in subparagraph 9) of Article 9 of the VAT Code.

Properly framed the issue to be decided, let us then examine the bases of the tax act which constitutes the primary object of this dispute (the decision on the administrative review request submitted by the Claimant).

As well summarized in the response submitted in these proceedings, "the Tax Inspection Services understood, in sum, that enrichment activities do not form part of the school curriculum and are not enshrined in the objectives of the National Education System, having instead an optional character.", in that "The enrichment activities of the 1st cycle of basic education listed in Nos. 9 and 10 of Administrative Order No. 14460/2008 of 26 May are considered integrated in the objectives of the National Education System, and, as such, are covered by the exemption provided in No. 9 of Article 9 of the VAT Code;".

With all due respect, it is considered that the Tax Authority, on the matter at issue, fell into a reasoning error that arises from the circumstance that, faced with provision of services that are offered by the National Education System and are exempt from VAT, it considered them connected with teaching not on the basis of an objective criterion, as required, but on the basis of a criterion based on the quality of the recipients of the service (subjective, therefore).

In fact – and here the Tax Authority diverges from what it itself, from the outset, identified as being the epicenter of the dispute – we cannot forget that we are dealing with an objective requirement, so the services in question must meet the requirements legally presupposed by the exemption in themselves, independently not only of who provides them but also of who receives them.

That is: services will or will not be exempt (given that, as seen, the subjective requirement for this is met) according to their own nature, and not according to the recipients thereof, from which it follows from the outset that it will be irrelevant for the case the situation of the services in question in the context of the 1st Cycle of education, or any other.

The focus must therefore be not on whether the service provision occurs in one or another cycle of education, but rather on whether it has the nature of a service having teaching as its object, or connected with it, a question of an objective nature and for which the cycle of education in question will be irrelevant.

The interpretation of the rule in subparagraph 9) of Article 9 of the VAT Code cannot, on the other hand, by virtue of the command of Article 8 of the Constitutional Republic Law, separate itself from its Community source, so the densification of its content should be done in light of the indicated rule of the VAT Directive, since the rule in question is a direct reflection of the rule of Article 132/1/i) of that Directive, a rule which states that Member States exempt, among other things, the provision of services relating to "education of children and young people" and to "school or university education".

Contrasting then the rule of the Directive with Article 9 of the VAT Code, it is verified that the former imposes the exemption of services having as their object "Education of children and young people, school or university education, training or retraining", in addition to "provision of services and (...) supply of goods closely related thereto", while the latter refers only to "services having teaching as their object" (subparagraph 9)), and to "Services having vocational training as their object" (subparagraph 10)) and the respective provision of services and transfers of goods connected therewith.

This regulatory framework shows, then, that, not being in any way expressly reflected the Community requirement for exemption of services having as their object "education of children and young people", it will be necessary, by virtue of interpretation in conformity with Community law, to consider that such services are covered by the concept of "services having teaching as their object", used by national law, on pain of, forthwith, non-conformity thereof with Community law and, consequently, constitutional law.

On the other hand, taking into account subparagraph 11) of Article 9 of the VAT Code, which corresponds directly to subparagraph j) of No. 1 of Article 132 of the Directive, and which exempts "Services consisting of lessons provided on a personal basis on matters of school or higher education", it is verified that the legislator (national and Community) expressly restricted the services therein provided to those that concern "matters of school or higher education", from which it follows that – contrary to what underlies all the reasoning of the Tax Authority on the matter at issue – if the legislator wanted, in any way, to restrict the normative provision of subparagraph 9) (or, for that matter, subparagraph j) of No. 1 of Article 132 of the Directive) in the same terms as it did in subparagraph 11), it would obviously have said so, so it must be concluded that that provision (of subparagraph 9) of Article 9 of the VAT Code) is not, in any way, limited to services relating to teaching "on matters of school or higher education", which moreover is consistent with the generic purpose of the exemption in question, which aims to foster education of children and young people.

It is thus verified that the legislator in the rules in question (Article 9/11) of the VAT Code and 132/1/j) of the Directive) dispenses with the subjective requirement required by subparagraph 9) of Article 9 of the VAT Code and by subparagraph i) of No. 1 of Article 132 of the Directive (official education establishment or equivalent), but adds a restriction to the scope of the subjects taught (subjects of education, it is understood, official, school or higher).

Hence those rules of subparagraph 9) of Article 9 of the VAT Code and subparagraph i) of No. 1 of Article 132 of the Directive, by not containing such a restriction, will emphasize the "official" character of the subject providing the service. That is, being the subjects providing the services "establishments integrated in the National Education System or recognized as having equivalent objectives by the competent ministries", from a fiscal point of view, it will be at their disposal the educational content to make available to their users, whether or not it is contained in the curricula of the National Education System. Put another way, within what is objectively the provision of teaching/education services, the "establishments integrated in the National Education System or recognized as having equivalent objectives by the competent ministries" may freely elect, from a fiscal point of view, which ones they intend to provide to their users, not being restricted by the official "matters of school or higher education".

On the other hand, it is further verified that the said subparagraph 11) of Article 9 of the VAT Code, restricting the exemption to teaching of "matters of school or higher education", does not restrict it as a function of cycles or years of study. Hence, unless there be a better opinion, "lessons provided on a personal basis on matters" that do not form part of the cycle of education, or the year, of the recipients thereof, will continue to be exempt (for example: lessons in French or Spanish to a child of the first cycle, or even of pre-primary education). Being so, as it appears to be, it will not be understood how subparagraph 9) of Article 9 of the VAT Code, interpreted in light of subparagraph g) of No. 1 of Article 132 of the Directive, could restrict the exemption enshrined therein to matters that form part of the curricula of the National Education System of the official cycle of education in question.

Hence, basing the decision on the administrative review request on the fact that "With regard to extracurricular activities (referred to above and offered by A...), as the very name indicates, they do not form part of the school curriculum (rather they consist of an enrichment whose attendance is neither curricular nor compulsory for all students but rather optional for each of the same students) and therefore are not enshrined in the objectives of the National Education System, so they do not benefit from the exemption in subparagraph 9) of Article 9 of the VAT Code nor in any other exemption referred to in Article 9 of the VAT Code, so these operations are subject to VAT and not exempt from it, there being grounds for the assessment of tax on those operations", it must be concluded that such tax act suffers from an error of law, in that it unjustifiably restricts the concept of teaching services for purposes of subparagraph 9) of Article 9 of the VAT Code to services relating to matters that "form part of the school curriculum".

In fact, and as we have just seen, nothing in the applicable regulatory framework allows it to be reasonably concluded that the concept of teaching services by "establishments integrated in the National Education System or recognized as having equivalent objectives by the competent ministries" is limited to teaching of matters that "form part of the official school curriculum", so that, by basing itself on such understanding, the decision on the administrative review request suffers from an error in the legal premises, and must, as such, be annulled.

Moving now to the plane of the indirect object of this arbitration proceeding, it will be necessary then to verify whether the services in question in this arbitration proceeding are or are not qualifiable as services having teaching as their object, or connected with it, in terms of making it possible to take, from now on, a position on the legality of the assessments of the respective tax.

As follows from the facts established as proven, the following services are in question in these proceedings: music, study hall, arts, painting, languages, toy making, C...-fitness, catechesis and drama.

Once properly analyzed the services in question, it must be concluded, forthwith, that they do not present themselves as services connected with teaching, in light of any of the hermeneutically acceptable criteria for determining the content of such a concept.

In fact, the Court of Justice, in various judgments (C-45/01, C-394/04, C-434/05), has come to understand that a service is ancillary when it does not constitute for the clientele an end in itself, but a means of benefiting from the main service, and Article 134 of the Directive states that services that are not indispensable to the carrying out of the exempt operations are excluded from the exemption, while the Court of Justice has come to establish jurisprudence to the effect that indispensable are the ancillary operations that have a nature and characteristics such that, without resorting to them, it would not be possible to ensure that the main service (in this case, teaching) had an equivalent value.

Thus, although, in the matter of education, the Court of Justice of the European Union has already stated, namely in the judgment of 20 June 2002 (C-287/00, Commission/Germany), that it is not necessary to have a strict interpretation of the exemption, as it is considered that it is intended to ensure less expensive access to services linked to education, the truth is that in the same judgment it is stated, with regard to research activities, that although the carrying out of such projects may be considered very useful for university education, it is not indispensable for achieving the objective pursued by it, namely, in particular, training students to enable them to pursue a professional activity. Community jurisprudence has thus come to require a relationship of complementarity between the services provided and the teaching activity, in such a way that only the ancillary services and transfers that are indispensable for the provision of teaching or education services for children and young people can be considered ancillary.

Also in the Administrative Arbitration Centre there is already jurisprudence supporting that operations connected with the main activity can only benefit from the exemption if they are indispensable to the carrying out of those exempt operations, as well as that they constitute a means of benefiting, under the best conditions, the provider's main service (see arbitration decision No. 132/2015T of 26 November 2015), and national legal writing has also pronounced itself to the effect that for them to be qualified as indispensable, the ancillary operations must be of a nature and characteristics such that, without resorting to them, it would not be possible to ensure that the main service which the client benefits from had an equivalent value, that is, for example, offering the same quality.

Thus, there being no doubt, as there is none, that these are not services connected with teaching (of matters that form part of the curricula of the National Education System), this conclusion does not dispense with the need to ascertain whether the services in question are not integrated in the first part of the objective requirement with which we are concerned, that is, to ascertain whether those services are or are not services (not ancillary or connected but directly) relating to "education of children and young people" or to "school or university education".

Now, the answer to this question – it is believed – cannot but be affirmative, at least for some of the services in question.

That is, by divorcing the exemption in subparagraph 9) of Article 9 of the VAT Code from services relating to teaching "on matters of school or higher education", as has already been set out above, and restoring to it the meaning which it is considered due to it, as encompassing services relating to "education of children and young people" and/or to "school or university education", independently of the cycle of education in which [the conclusion which imposes itself with greatest firmness is that, at least, some of the services now in question are services having teaching as their object, in that broad sense, in conformity with the Community Directive.

In fact, services relating to teaching music, arts and painting, languages and drama directly integrate the content of subjects taught in various cycles of study, thus constituting, unequivocally, services of teaching and education of children and young people, not being relevant, as has been seen, not only for lack of legal basis for so doing, but also from the systematic interpretation of the applicable rules, the fact that they do not form part of the curricula of official education for the cycles of study of the recipients, or even the "matters of school or higher education".

Also the teaching of toy making, insofar as it is reduced to the teaching of crafts, corresponding to the subject matter of disciplines of visual and technological education (or the old manual and workshop work), may also be integrated into the concept of teaching or education services for children or youth.

Catechesis activities, likewise, could be reduced to teaching services, pursuant to and for the purposes of subparagraph 9) of Article 9 of the VAT Code, insofar as they are reduced to theological teaching/religious and moral education, or not, insofar as they essentially translate into activities of worship or religious practice.

Also activities of C...-fitness, insofar as they translate into provision of services for teaching physical education, could also be regarded as teaching services, pursuant to and for the purposes of Article 9/9 of the VAT Code.

Finally, study hall activities should likewise be analyzed in light of both the concrete type of service provision in question (provision of space and supervision; provision of passive support for study; actual imparting of knowledge) and the content of the subjects to which they relate.

It happens, however, that this Tribunal does not have the elements that would allow it, on the one hand, to establish with quantitatively exact terms the amounts of tax that relate to activities that present themselves, beyond any reasonable doubt, as teaching services (music, arts and painting, languages and drama), pursuant to and for the purposes provided by Article 9/9) of the VAT Code, and, on the other, to define with the same degree of certainty that the remaining activities are configured or not as services of such a kind (toy making, catechesis and C...-fitness, study hall).

In this framework, this Tribunal cannot proceed, in whole or in part, to annul the VAT self-assessment acts that form the indirect object of this dispute, so that the arbitration claim is deemed not well-founded, in that part.

C. DECISION

We hereby decide in this Arbitration Tribunal to render the arbitration claim partially well-founded and, in consequence:

a) Annul the decision on the administrative review request submitted by the claimant, which constitutes the immediate object of this arbitration action;

b) Declare the arbitration claim not well-founded in the remaining part;

c) Condemn the parties to bear the costs of the proceedings, in proportion to their respective degree of non-success, fixing in the amount of €2,142.00 the amount chargeable to the Claimant, and in the amount of €2,142.00 the amount chargeable to the Respondent.

D. Value of the Proceedings

The value of the proceedings is set at €220,511.43, pursuant to Article 97-A, No. 1, a) of the Tax Procedure and Process Code, applicable by virtue of subparagraphs a) and b) of No. 1 of Article 29 of the LRAT and No. 2 of Article 3 of the Costs Regulations in Tax Arbitration Proceedings.

E. Costs

The amount of the arbitration fee is set at €4,284.00 pursuant to Table I of the Regulations of the Costs of Tax Arbitration Proceedings, to be paid by the parties in proportion to their respective degree of non-success, as set out above, since the claim was partially well-founded, pursuant to Articles 12, No. 2, and 22, No. 4, both of the LRAT, and Article 4, No. 4, of the cited Regulations.

Let notification be made.

Lisbon, 18 October 2020

The Presiding Arbitrator
(José Pedro Carvalho - Rapporteur)

The Arbitrator Member
(Paulo Lourenço)

The Arbitrator Member
(Marcolino Pisão Pedreiro)

ARBITRATION DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Paulo Lourenço and Marcolino Pisão Pedreiro, designated by the Ethics Council of the Administrative Arbitration Centre to form an Arbitration Tribunal, hereby agree:

I – REPORT

1. On 17 September 2015, A…, S.A., legal entity no. …, with registered office at …, …, …-…, …, filed a request for constitution of an arbitration tribunal pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011 of 20 January, which approved the Legal Regime of Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012 of 31 December (hereinafter, abbreviated as LRAT), seeking a declaration of illegality of self-assessment acts for VAT relating to all quarters of the years 2009 to 2012, as well as the 1st, 2nd and 3rd quarters of 2013, in the amount of €220,511.43.

2. To support its claim, the Claimant alleges, in summary, that:

a. The enrichment activities programme in the 1st cycle of basic education, provided for in Administrative Order No. 14460/2008 (revoked by Administrative Order No. 9265-B/2013 of 15 July), arose as a consequence of the Government's policy of transferring attributions and competencies to local authorities.

b. In this regard, said administrative order concerns only enrichment activities in the 1st cycle of basic education, since it was precisely and solely in this area that the competence of the National Education System was transferred to the Municipalities.

c. The enrichment activities, referenced in Administrative Order No. 14460/2008, integrate the objectives of the National Education System, regardless of whether they are provided to students of pre-school education, the three cycles of basic education and/or secondary education.

d. The activities developed within B… correspond to those listed in the above-mentioned administrative order on which the tax authority bases itself for purposes of applying the VAT exemption – this aspect is confirmed by the tax authority itself, corroborating that such activities benefit from VAT exemption.

e. The activities in question – regardless of the cycle of education in which they are provided – have as their objective, on the one hand, enriching/complementing the students' academic curriculum and, on the other, improving the quality of teaching and learning for them, thereby achieving the objectives foreseen for the National Education System.

f. Under Decree-Law No. 152/2013, private and cooperative education institutions – such as A… – have pedagogical autonomy and the right to offer subjects of curriculum enrichment or supplementation.

g. Additionally, applying VAT exemption to activities developed within the 1st cycle of basic education while seeking to tax the same activities when provided to students of the remaining cycles of schooling would be contrary to the Law, would generate crudely differentiated treatment, would create a serious distortion of the tax rules and would violate the principle of equality.

h. Conclusively, there should be no doubt that activities carried out within B…, in pre-school education, 2nd and 3rd cycles of basic education and secondary education – just as in 1st basic education – constitute operations that benefit from the exemption provided in No. 9 of Article 9 of the VAT Code.

i. Thus, the tax authority should proceed with the restitution of VAT self-assessed in excess in the amount of €220,511.43.

j. Subsidiarily, and even if it were considered that the activities of B… would not benefit from VAT exemption, there would nonetheless be tax (self-)assessed by the Claimant in excess.

k. Specifically, the VAT should have been calculated as an integral part of the consideration received from the students, so that in that case, the excess VAT paid would have amounted to €24,304.93.

1. On 21-09-2015, the request for constitution of the arbitration tribunal was accepted and automatically notified to the Tax Authority.

2. The Claimant did not proceed with the nomination of an arbitrator, so, pursuant to the provisions of subparagraph a) of No. 2 of Article 6 and subparagraph a) of No. 1 of Article 11 of the LRAT, the President of the Ethics Council of the CAAC designated the undersigned as arbitrators of the collective arbitration tribunal, who communicated acceptance of the appointment within the applicable timeframe.

3. On 13-11-2015, the parties were notified of these designations and did not manifest any intention to challenge any of them.

4. In compliance with the provision of subparagraph c) of No. 1 of Article 11 of the LRAT, the collective Arbitration Tribunal was constituted on 30-11-2015.

5. On 12-01-2016, the Respondent, duly notified for this purpose, submitted its response defending itself solely by impugning, and also raising the question of the necessity of a preliminary reference to the CJEU.

6. The Claimant was given the opportunity to exercise the right to be heard with regard to the question of preliminary reference raised, and availed itself of this opportunity to submit legal arguments.

7. Given that there was no need for additional evidence production beyond the documentary evidence already incorporated in the proceedings, nor matters of exception on which the parties needed to pronounce themselves, and taking into account that in arbitration proceedings the general procedural principles of procedural efficiency and prohibition of futile acts apply, and that the Claimant, despite not being notified for this purpose, had already submitted its legal arguments pursuant to subparagraphs c) and e) of Article 16 and No. 2 of Article 29, both of the LRAT, the holding of the meeting referred to in Article 18 of the LRAT was dispensed with, and the Tax Authority was given the possibility of, if it wished, submitting written arguments, which it did.

8. A deadline of 30 days was set for the pronouncement of the final decision, following the submission of arguments by the Tax Authority, which deadline was extended by a further 30 days and subsequently by a further seven days.

9. The Arbitration Tribunal is materially competent and is regularly constituted, pursuant to Articles 2, No. 1, subparagraph a), 5 and 6, No. 1, of the LRAT.

The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to Articles 4 and 10 of the LRAT 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 consideration of the merits of the case.

All considered, it behoves us to pronounce

II. DECISION

A. FACTUAL MATTERS

A.1. Facts Established as Proven

1. The self-assessments in question in this arbitration action were presented in the context of the voluntary correction that the Claimant chose to make, pursuant to the provision of Article 58 of the Tax Procedure and Process Code, following the conclusions reached by the Tax Inspection Services in the course of tax inspection procedures carried out for the periods between 2009 and 2012, carried out under Service Orders No. OI2013… (2009), OI2013… (2010), OI2013… (2011) and OI2013… (2012).

2. In the course of said inspection actions, the treatment under VAT of the transfers of goods and provision of services carried out by the Claimant was analyzed.

3. The Claimant was established by public deed on 17/09/1993, having as its object the "operation and management of private establishments of basic and secondary education".

4. The Claimant provides, and provided as of the date of the tax acts at issue, services in the field of pre-school education, basic education and secondary education.

5. According to a declaration issued on 25/03/2007 by the Regional Directorate of Education of the North (DREN), the Claimant constituted a private education establishment, which operates under Definitive Authorization No. …, pursuant to an Administrative Order issued on 03/02/1994, and fell within the objectives of the Education System pursuant to No. 2 of Article 3 of Law No. 9/79 and Nos. 1 and 2 of Article 8 of Decree-Law No. 553/80 (Law of Bases and Statute of Private and Cooperative Education respectively of 19 March and 21 November).

6. For VAT purposes, the Claimant fell within the normal regime of quarterly periodicity with the type of operations "mixed with actual allocation of part of the assets" insofar as it exercised not only exempt activities which do not confer the right to deduction, pursuant to subparagraph 9) of Article 9 of the VAT Code, embodied in activities with the object of teaching and connected services (namely provision of food), but also taxable activities which confer the right to deduction, embodied in provision of services that can be classified under No. 1 of Article 4 of the VAT Code.

7. In the course of the inspection procedures carried out, the Tax Authority found that, in the periods in question, the Claimant provided services to students in the areas of "Educational Component", "Extracurricular Activities" and also "Other Services".

8. The said "Extracurricular Activities" (B…) comprised, namely, the following provision of services:

i. In 2009: music, study hall, arts, painting, languages, toy making, catechesis and drama;

ii. In 2010: music, study hall, arts, painting, languages, toy making, C…, and drama;

iii. In 2011: music, study hall, arts, painting, languages, toy making, C…, and drama.

iv. In 2012: music, study hall, arts, painting, languages, toy making, C… and drama;

1. These activities were considered by the Claimant to be exempt from VAT pursuant to subparagraph 9) of Article 9 of the VAT Code, which in the invoices issued in connection with the activities described in the preceding point, until mid-2013, did not mention VAT.

2. However, the Tax Inspection Services considered that they would instead be subject to VAT at the standard rate, and could not benefit from said exemption because they were not considered to be connected with teaching, pursuant to and for the purposes of said exemption, in that, in sum, pursuant to the cited rule, only exempt are transfers of goods or provision of services that have a character of complementarity in relation to the activity of teaching proper, such as accommodation, food, transport and teaching materials to students.

3. Not conforming to the understanding of the Tax Authority, the Claimant submitted a request for administrative review, seeking the self-assessments relating to the periods between the years 2009 and 2012, and also for the 1st and 2nd quarter of 2013.

4. In the course of said procedure, once notified to exercise its right to be heard, in light of the draft decision, the Claimant did not pronounce itself.

5. The final decision issued was one of partial grant, restituting to the Claimant the amount of €90,798.62, based on the reasoning contained in the Information prepared on 30-12-2014 by the Finance Directorate.

6. The partial grant concerned the correction made with respect to the 1st cycle, in that, taking into account the provision of Administrative Order No. 14460/2008 of 26 May 2008, it was concluded that enrichment activities, as defined therein, are legally integrated in the objectives of the National Education System, and consequently can benefit from the exemption in question.

7. Therefore, the correction made by the Tax Inspection Services was maintained with respect to enrichment activities carried out in pre-school education, 2nd and 3rd cycle of basic education and secondary education.

8. From the voluntary corrections made, there resulted additional delivery of VAT to the State in the amounts of €37,376.63, €39,550.38, €51,230.10 and €53,097.72 for the years 2009, 2010, 2011 and 2012 respectively.

9. Furthermore, outside the scope of the inspection actions carried out, in accordance with the indications given by the tax authority, the Claimant also corrected (voluntarily) the VAT declarations for the 1st and 2nd quarters of 2013, resulting in a value of VAT to be additionally paid of €38,848.06.

10. With reference to the 3rd quarter of the year 2013, the Claimant reported tax assessed in the respective periodic VAT declaration (delivering it to the State) in the amount of €408.54.

A.2. Facts Established as Not Proven

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

A.3. Justification of Established and Not Established Factual Matters

With regard to the factual matters, the Tribunal does not need to pronounce on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and distinguish the established matters from the not established ones (see Article 123, No. 2, of the Tax Procedure and Process Code and Article 607, No. 3 of the Civil Procedure Code, applicable by virtue of Article 29, No. 1, subparagraphs a) and e) of the LRAT).

Thus, the facts relevant for the judgment of the case are chosen and defined in function of their legal relevance, which is established in attention to the various plausible solutions of the legal question(s) (see former Article 511, No. 1, of the Civil Procedure Code, corresponding to current Article 596, applicable by virtue of Article 29, No. 1, subparagraph e) of the LRAT).

Thus, taking into consideration the positions assumed by the parties, in light of Article 110/7 of the Tax Procedure and Process Code, the documentary evidence and the proceedings filed with the record, the facts listed above were considered proven, with relevance for the decision, taking into account that, as was written in the Judgment of the Administrative Court of the Southern Region of 26-06-2014, issued in case 07148/13, "the probative value of the tax inspection report (...) may have probative force if the assertions contained in it are not challenged".

B. ON THE LAW

In its Response, the Tax Authority requests "the preliminary reference to the Court of Justice of the European Union, pursuant to the provision of Article 267 of the TFEU, so that it may pronounce itself on the question of whether enrichment activities such as those discussed in these proceedings (activities of music, study hall, arts, painting, languages, toy making, C…, catechesis and drama) have or do not have classification within the scope of the exemption enshrined in Article 132, subparagraph i) of the VAT Directive, being considered as school teaching activities or activities closely connected with it".

As stated in point 7 of the recommendations to national courts, relating to the presentation of preliminary ruling references (2012/C 338/01), of the CJEU:

"the role of the Court in the context of a preliminary ruling reference consists in interpreting the law of the Union or pronouncing itself on its validity, and not in applying this law to the factual situation underlying the main proceedings. This role is incumbent upon the national court and, for this reason, it is not for the Court to pronounce on questions of fact raised in the context of the dispute in the main proceedings or on any divergence of opinion regarding the interpretation or application of national law rules".

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

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

iv. when the correct way of interpreting the legal rule in question is unequivocal.

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

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

The first filtering criterion for the merit of the question formulated, from the perspective of its presentation, as a preliminary reference, to the CJEU, relates to its usefulness for deciding the case. That is, only if the answer to the question formulated is necessary to render a decision on the issues presented to the Tribunal to decide, should that question be presented to the CJEU.

Now, with all due respect to other opinions, it is understood that this is not the case with the question at issue.

In fact, and as will be seen below, with regard to the assessment of the legality of the act that is the immediate object of this arbitration action, the answer to the question formulated will add nothing, insofar as that act is based not on the interpretation of the Community Directive, but on that of a rule of national law – Article 9/9) of the VAT Code – and on the understanding, arising from such interpretation, that such rule accepts as services having teaching as their object only those relating directly to subjects comprised in the curricula of the National Education System, for the cycle of studies of the recipients of the service.

Now, to determine whether such understanding is correct or not, the answer to the question formulated is not necessary, as will be seen, and most certainly because the meaning of that answer is clearly apparent.

On the other hand, with regard to the assessment of the legality of the acts that form the indirect object of this arbitration action, there is also, as will be seen, an insufficiency of factual elements that would allow for their annulment, so that, also from this perspective, the answer to the question formulated would add nothing.

Thus, and for the reasons set out, the suggested preliminary reference will not be made.

Accordingly, the legal question to be resolved in these proceedings relates directly to the interpretation and application of subparagraph 9) of Article 9 of the VAT Code which provides that:

"The following are exempt from tax:

1. Services having teaching as their object, as well as transfers of goods and provision of services connected therewith, such as the provision of accommodation and food, carried out by establishments integrated in the National Education System or recognized as having equivalent objectives by the competent ministries;".

The rule in question expressly establishes a subjective requirement, which requires that these be "establishments integrated in the National Education System or recognized as having equivalent objectives by the competent ministries", and an objective requirement, which presupposes that there are in question "services having teaching as their object, as well as transfers of goods and provision of services connected therewith".

As the Respondent rightly summarizes in the proceedings, "the disputed question does not arise as to the subjective requirement of the exemption in question, in particular, the characteristics that the economic operator must have to benefit from the exemption established in No. 9 of Article 9 of the VAT Code (...), but rather as to the objective requirement thereof, more specifically, as to the enrichment activities that are concretely practiced".

Correctly framed in this way, the question presented for resolution by this Tribunal cannot, however, support the next moment on which the legal position of the Respondent is based, which postulates that "the issue to be decided in these proceedings consists in determining whether such extracurricular activities (...), provided in the context of pre-school education, as well as in the context of the 2nd and 3rd cycle of basic education and secondary education, are or are not connected with teaching pursuant to and for the purposes provided in No. 9 of Article 9 of the VAT Code."

In fact, the objective requirement identified in subparagraph 9) of Article 9 of the VAT Code is not exhausted in services connected with teaching, also encompassing, first and foremost, the very "services having teaching as their object".

Thus, correctly framed as the issue to be decided in these proceedings, it will be concluded that it consists in determining whether the extracurricular activities in question, provided to students of pre-school education, and of the 2nd and 3rd cycle of basic education and secondary education, are or are not services having teaching as their object, or connected with it, pursuant to and for the purposes provided in subparagraph 9) of Article 9 of the VAT Code.

Properly framed the issue to be decided, let us then examine the bases of the tax act which constitutes the primary object of this dispute (the decision on the administrative review request submitted by the Claimant).

As well summarized in the response submitted in these proceedings, "the Tax Inspection Services understood, in sum, that enrichment activities do not form part of the school curriculum and are not enshrined in the objectives of the National Education System, having instead an optional character.", in that "The enrichment activities of the 1st cycle of basic education listed in Nos. 9 and 10 of Administrative Order No. 14460/2008 of 26 May are considered integrated in the objectives of the National Education System, and, as such, are covered by the exemption provided in No. 9 of Article 9 of the VAT Code;".

With all due respect, it is considered that the Tax Authority, on the matter at issue, fell into a reasoning error that arises from the circumstance that, faced with provision of services that are offered by the National Education System and are exempt from VAT, it considered them connected with teaching not on the basis of an objective criterion, as required, but on the basis of a criterion based on the quality of the recipients of the service (subjective, therefore).

In fact – and here the Tax Authority diverges from what it itself, from the outset, identified as being the epicenter of the dispute – we cannot forget that we are dealing with an objective requirement, so the services in question must meet the requirements legally presupposed by the exemption in themselves, independently not only of who provides them but also of who receives them.

That is: services will or will not be exempt (given that, as seen, the subjective requirement for this is met) according to their own nature, and not according to the recipients thereof, from which it follows from the outset that it will be irrelevant for the case the situation of the services in question in the context of the 1st Cycle of education, or any other.

The focus must therefore be not on whether the service provision occurs in one or another cycle of education, but rather on whether it has the nature of a service having teaching as its object, or connected with it, a question of an objective nature and for which the cycle of education in question will be irrelevant.

The interpretation of the rule in subparagraph 9) of Article 9 of the VAT Code cannot, on the other hand, by virtue of the command of Article 8 of the Constitutional Republic Law, separate itself from its Community source, so the densification of its content should be done in light of the indicated rule of the VAT Directive, since the rule in question is a direct reflection of the rule of Article 132/1/i) of that Directive, a rule which states that Member States exempt, among other things, the provision of services relating to "education of children and young people" and to "school or university education".

Contrasting then the rule of the Directive with Article 9 of the VAT Code, it is verified that the former imposes the exemption of services having as their object "Education of children and young people, school or university education, training or retraining", in addition to "provision of services and (...) supply of goods closely related thereto", while the latter refers only to "services having teaching as their object" (subparagraph 9)), and to "Services having vocational training as their object" (subparagraph 10)) and the respective provision of services and transfers of goods connected therewith.

This regulatory framework shows, then, that, not being in any way expressly reflected the Community requirement for exemption of services having as their object "education of children and young people", it will be necessary, by virtue of interpretation in conformity with Community law, to consider that such services are covered by the concept of "services having teaching as their object", used by national law, on pain of, forthwith, non-conformity thereof with Community law and, consequently, constitutional law.

On the other hand, taking into account subparagraph 11) of Article 9 of the VAT Code, which corresponds directly to subparagraph j) of No. 1 of Article 132 of the Directive, and which exempts "Services consisting of lessons provided on a personal basis on matters of school or higher education", it is verified that the legislator (national and Community) expressly restricted the services therein provided to those that concern "matters of school or higher education", from which it follows that – contrary to what underlies all the reasoning of the Tax Authority on the matter at issue – if the legislator wanted, in any way, to restrict the normative provision of subparagraph 9) (or, for that matter, subparagraph j) of No. 1 of Article 132 of the Directive) in the same terms as it did in subparagraph 11), it would obviously have said so, so it must be concluded that that provision (of subparagraph 9) of Article 9 of the VAT Code) is not, in any way, limited to services relating to teaching "on matters of school or higher education", which moreover is consistent with the generic purpose of the exemption in question, which aims to foster education of children and young people.

It is thus verified that the legislator in the rules in question (Article 9/11) of the VAT Code and 132/1/j) of the Directive) dispenses with the subjective requirement required by subparagraph 9) of Article 9 of the VAT Code and by subparagraph i) of No. 1 of Article 132 of the Directive (official education establishment or equivalent), but adds a restriction to the scope of the subjects taught (subjects of education, it is understood, official, school or higher).

Hence those rules of subparagraph 9) of Article 9 of the VAT Code and subparagraph i) of No. 1 of Article 132 of the Directive, by not containing such a restriction, will emphasize the "official" character of the subject providing the service. That is, being the subjects providing the services "establishments integrated in the National Education System or recognized as having equivalent objectives by the competent ministries", from a fiscal point of view, it will be at their disposal the educational content to make available to their users, whether or not it is contained in the curricula of the National Education System. Put another way, within what is objectively the provision of teaching/education services, the "establishments integrated in the National Education System or recognized as having equivalent objectives by the competent ministries" may freely elect, from a fiscal point of view, which ones they intend to provide to their users, not being restricted by the official "matters of school or higher education".

On the other hand, it is further verified that the said subparagraph 11) of Article 9 of the VAT Code, restricting the exemption to teaching of "matters of school or higher education", does not restrict it as a function of cycles or years of study. Hence, unless there be a better opinion, "lessons provided on a personal basis on matters" that do not form part of the cycle of education, or the year, of the recipients thereof, will continue to be exempt (for example: lessons in French or Spanish to a child of the first cycle, or even of pre-primary education). Being so, as it appears to be, it will not be understood how subparagraph 9) of Article 9 of the VAT Code, interpreted in light of subparagraph g) of No. 1 of Article 132 of the Directive, could restrict the exemption enshrined therein to matters that form part of the curricula of the National Education System of the official cycle of education in question.

Hence, basing the decision on the administrative review request on the fact that "With regard to extracurricular activities (referred to above and offered by A…), as the very name indicates, they do not form part of the school curriculum (rather they consist of an enrichment whose attendance is neither curricular nor compulsory for all students but rather optional for each of the same students) and therefore are not enshrined in the objectives of the National Education System, so they do not benefit from the exemption in subparagraph 9) of Article 9 of the VAT Code nor in any other exemption referred to in Article 9 of the VAT Code, so these operations are subject to VAT and not exempt from it, there being grounds for the assessment of tax on those operations", it must be concluded that such tax act suffers from an error of law, in that it unjustifiably restricts the concept of teaching services for purposes of subparagraph 9) of Article 9 of the VAT Code to services relating to matters that "form part of the school curriculum".

In fact, and as we have just seen, nothing in the applicable regulatory framework allows it to be reasonably concluded that the concept of teaching services by "establishments integrated in the National Education System or recognized as having equivalent objectives by the competent ministries" is limited to teaching of matters that "form part of the official school curriculum", so that, by basing itself on such understanding, the decision on the administrative review request suffers from an error in the legal premises, and must, as such, be annulled.

Moving now to the plane of the indirect object of this arbitration proceeding, it will be necessary then to verify whether the services in question in this arbitration proceeding are or are not qualifiable as services having teaching as their object, or connected with it, in terms of making it possible to take, from now on, a position on the legality of the assessments of the respective tax.

As follows from the facts established as proven, the following services are in question in these proceedings: music, study hall, arts, painting, languages, toy making, C…, catechesis and drama.

Once properly analyzed the services in question, it must be concluded, forthwith, that they do not present themselves as services connected with teaching, in light of any of the hermeneutically acceptable criteria for determining the content of such a concept.

In fact, the Court of Justice, in various judgments (C-45/01, C-394/04, C-434/05), has come to understand that a service is ancillary when it does not constitute for the clientele an end in itself, but a means of benefiting from the main service, and Article 134 of the Directive states that services that are not indispensable to the carrying out of the exempt operations are excluded from the exemption, while the Court of Justice has come to establish jurisprudence to the effect that indispensable are the ancillary operations that have a nature and characteristics such that, without resorting to them, it would not be possible to ensure that the main service (in this case, teaching) had an equivalent value.

Thus, although, in the matter of education, the Court of Justice of the European Union has already stated, namely in the judgment of 20 June 2002 (C-287/00, Commission/Germany), that it is not necessary to have a strict interpretation of the exemption, as it is considered that it is intended to ensure less expensive access to services linked to education, the truth is that in the same judgment it is stated, with regard to research activities, that although the carrying out of such projects may be considered very useful for university education, it is not indispensable for achieving the objective pursued by it, namely, in particular, training students to enable them to pursue a professional activity. Community jurisprudence has thus come to require a relationship of complementarity between the services provided and the teaching activity, in such a way that only the ancillary services and transfers that are indispensable for the provision of teaching or education services for children and young people can be considered ancillary.

Also in the Administrative Arbitration Centre there is already jurisprudence supporting that operations connected with the main activity can only benefit from the exemption if they are indispensable to the carrying out of those exempt operations, as well as that they constitute a means of benefiting, under the best conditions, the provider's main service (see arbitration decision No. 132/2015T of 26 November 2015), and national legal writing has also pronounced itself to the effect that for them to be qualified as indispensable, the ancillary operations must be of a nature and characteristics such that, without resorting to them, it would not be possible to ensure that the main service which the client benefits from had an equivalent value, that is, for example, offering the same quality.

Thus, there being no doubt, as there is none, that these are not services connected with teaching (of matters that form part of the curricula of the National Education System), this conclusion does not dispense with the need to ascertain whether the services in question are not integrated in the first part of the objective requirement with which we are concerned, that is, to ascertain whether those services are or are not services (not ancillary or connected but directly) relating to "education of children and young people" or to "school or university education".

Now, the answer to this question – it is believed – cannot but be affirmative, at least for some of the services in question.

That is, by divorcing the exemption in subparagraph 9) of Article 9 of the VAT Code from services relating to teaching "on matters of school or higher education", as has already been set out above, and restoring to it the meaning which it is considered due to it, as encompassing services relating to "education of children and young people" and/or to "school or university education", independently of the cycle of education in which [the conclusion which imposes itself with greatest firmness is that, at least, some of the services now in question are services having teaching as their object, in that broad sense, in conformity with the Community Directive.

In fact, services relating to teaching music, arts and painting, languages and drama directly integrate the content of subjects taught in various cycles of study, thus constituting, unequivocally, services of teaching and education of children and young people, not being relevant, as has been seen, not only for lack of legal basis for so doing, but also from the systematic interpretation of the applicable rules, the fact that they do not form part of the curricula of official education for the cycles of study of the recipients, or even the "matters of school or higher education".

Also the teaching of toy making, insofar as it is reduced to the teaching of crafts, corresponding to the subject matter of disciplines of visual and technological education (or the old manual and workshop work), may also be integrated into the concept of teaching or education services for children or youth.

Catechesis activities, likewise, could be reduced to teaching services, pursuant to and for the purposes of subparagraph 9) of Article 9 of the VAT Code, insofar as they are reduced to theological teaching/religious and moral education, or not, insofar as they essentially translate into activities of worship or religious practice.

Also activities of C…, insofar as they translate into provision of services for teaching physical education, could also be regarded as teaching services, pursuant to and for the purposes of Article 9/9 of the VAT Code.

Finally, study hall activities should likewise be analyzed in light of both the concrete type of service provision in question (provision of space and supervision; provision of passive support for study; actual imparting of knowledge) and the content of the subjects to which they relate.

It happens, however, that this Tribunal does not have the elements that would allow it, on the one hand, to establish with quantitatively exact terms the amounts of tax that relate to activities that present themselves, beyond any reasonable doubt, as teaching services (music, arts and painting, languages and drama), pursuant to and for the purposes provided by Article 9/9) of the VAT Code, and, on the other, to define with the same degree of certainty that the remaining activities are configured or not as services of such a kind (toy making, catechesis and C…, study hall).

In this framework, this Tribunal cannot proceed, in whole or in part, to annul the VAT self-assessment acts that form the indirect object of this dispute, so that the arbitration claim is deemed not well-founded, in that part.

C. DECISION

We hereby decide in this Arbitration Tribunal to render the arbitration claim partially well-founded and, in consequence:

d) Annul the decision on the administrative review request submitted by the claimant, which constitutes the immediate object of this arbitration action;

e) Determine, under subparagraph a) of No. 1 of the LRAT, that, in substitution for that act, a new one be issued in conformity with the now decided, that is, with the interpretation that teaching/education services provided by "establishments integrated in the National Education System or recognized as having equivalent objectives by the competent ministries", for purposes of subparagraph 9) of Article 9 of the VAT Code, are not restricted to teaching of matters that "form part of the official school curriculum" of the recipients, so that the teaching of music, arts and painting, languages and drama constitute, for purposes of the aforementioned rule, services having teaching as their object, the same applying to activities of toy making, catechesis, C…, and study hall, insofar as they consist essentially and respectively of teaching crafts, theology/religious and moral education and physical education;

f) Declare the arbitration claim not well-founded in the remaining part;

g) Condemn the parties to bear the costs of the proceedings, in proportion to their respective degree of non-success, fixing in the amount of €2,142.00 the amount chargeable to the Claimant, and in the amount of €2,142.00 the amount chargeable to the Respondent.

D. Value of the Proceedings

[Document continues with remaining sections on process value and costs following the same structure as the first decision]