VAT Exemption Waiver for Integrated Continuing Care: CAAD Ruling 629/2014-T on Clinical and Rehabilitation Services

ENGLISH TRANSLATION

Case No. 629/2014-T

Arbitral Decision

I. Report

On 20.10.2014, the company A… – HOSPITAL …, S.A., with registered office at …, Building …, …, NIPC … filed a petition for the establishment of a singular arbitral tribunal, in accordance with the terms and effects provided in articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Tax Arbitration, hereinafter, "LFTA"), with the Tax and Customs Authority (TA) being named as respondent.

The petition for establishment of the Arbitral Tribunal was accepted by the Honorable President of CAAD on 25.08.2014 and automatically notified to the TA on 26.08.2014.

Pursuant to the provisions of article 6, paragraph 1, and article 11, paragraph 1, subsection b) of Decree-Law No. 10/2011, of 20 January, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council appointed the undersigned arbitrators to the collective arbitral tribunal, who communicated acceptance of their respective appointments within the applicable timeframe.

On 14.10.2014 the parties were duly notified of such appointments and did not express any intention to refuse the appointment of the arbitrators in accordance with article 11, paragraph 1, subsections a) and b) of the LFTA and articles 6 and 7 of the Deontological Code.

Thus, pursuant to article 11, paragraph 1, subsection c) of Decree-Law No. 10/2011, of 20 January, as amended by Law No. 66-B/2012, of 31 December, the arbitral tribunal was established on 29.10.2014.

On 02.02.2015 the first meeting of the Tribunal took place, in accordance with the terms and effects of article 18 of the LFTA, and a record thereof was drawn up, which is also attached to the case file.

On 09.03.2015 a witness examination hearing took place. At said hearing the witness called by the Claimant was examined: B…. The representatives of the Claimant and the Respondent were given the floor to make their respective oral arguments, in that order, which they did.

Pursuant to article 18, paragraph 2, of the LFTA, the Tribunal set the date of 15.04.2015 for delivery of the arbitral decision.

By order of 12.04.2015, the Tribunal extended the deadline for decision until 27.04.2015. On 27.04.2015 it extended the decision deadline for a further two months.

In this arbitral proceeding, the Claimant seeks to have declared the illegality and annulment of the additional VAT assessment notices Nos. …, …, … and … (copies of which are attached hereto as documents Nos. 1 to 4), relating to the different quarters of the year 2009, accompanied by the assessments of the respective compensatory interest (assessment Nos. …, …, … and …, attached hereto as documents Nos. 5 to 8), in the total amount of €978,908.87 and with a voluntary payment deadline until 30 June 2014 - cf. documents Nos. 1 to 8.

a) for violation of the provisions of article 12, paragraph 1, subsection b) of the VAT Code, in an interpretation consistent with the domestic legal system and the principles of legality and typicality in tax matters, with all legal consequences;

b) Or, should this not be accepted, to have declared the illegality and annulment of the aforementioned assessment acts, for violation of the provisions of article 12, paragraph 1, subsection b) of the VAT Code, in an interpretation consistent with the VAT Directive, and the principles of legality and typicality in tax matters, with all legal consequences.

c) Should this not be accepted and doubts persist regarding the provisions of article 12, paragraph 1, subsection b) of the VAT Code, in an interpretation consistent with the VAT Directive, the case should be referred to the CJEU, pursuant to the provisions of article 267 of the TFEU, in the terms suggested in article 139 of the present petition, with the further legal consequences.

d) Finally, should this not be accepted and the additional VAT assessments subject to arbitral decision be maintained, the illegality and annulment of the compensatory interest assessment acts should be declared, for failure to verify the fault requirement established in articles 35 of the LGT and 96 of the VAT Code, with all legal consequences.

I.1. The Claimant supports its petition, in summary, in the following terms:

On 29 April 2014, the A… was notified of the additional VAT assessments Nos. …, …, … and …[1] (copies of which are attached hereto as documents Nos. 1 to 4), relating to the different quarters of the year 2009, accompanied by the assessments of the respective compensatory interest (assessment Nos. …, …, … and …, attached hereto as documents Nos. 5 to 8), in the total amount of €978,908.87 and with a voluntary payment deadline until 30 June 2014 - cf. documents Nos. 1 to 8.

The aforementioned additional VAT assessments and respective compensatory interest assessments, subject to the present petition for arbitral decision, result from the correction made by the Tax and Customs Authority ("Tax Authority") following a Tax Inspection Report, notified to the A… on 4 April 2014 - cf. document No. 9, which is attached hereto and is deemed fully reproduced).

A correction that stems, simply, from the fact that the Tax Authority considered – illegally and incorrectly, as we shall see – that the A… would have ceased to meet the conditions to remain in the regime of waiver of VAT exemption by the mere fact of having entered into an agreement with the Regional Health Administration of … ("RHA …") and the Social Security Institute, I.P. ("Social Security"), relating to the provision of clinical and rehabilitation care within the scope of integrated continuous care.

The A… is a legal entity under private law, for profit, engaged in the provision of health care in the form of a health establishment with hospitalization – as indeed appears on page 2 of the Tax Inspection Report.

Its activity was initiated in April 2008, after an extended period of renovation works to the building where its hospital unit is located.

A building which, it should be noted, is owned by C…, a fact which moreover gave its name to the hospital: A….

Thus, engaging in the provision of medical and health services, the A… has the substantial part of the operations it carries out covered by the tax exemption provided for in paragraph 2 of article 9 of the VAT Code.

However, making use of the right provided in article 12, paragraph 1, subsection b) of the VAT Code, the A… exercised, in a timely and legitimate manner, the option to waive the VAT exemption – cf. document No. 10.

And it is certain that it remained in that regime of waiver of tax exemption – even by legal requirement (cf. article 12, paragraph 3, of the VAT Code) – billing VAT on its active operations, deducting VAT incurred on its passive operations and delivering the respective balance of the tax to the State, which received it[1].

It should be noted that, over the years, the A… was subject to several internal inspection procedures, two of which relating to the period in issue in the present case, which assessed the fulfillment and compliance with the requirements for the VAT refund requests it filed.

The Tax Authority always concluded, including after the presentation of a set of documents and description of the activity carried out by the A…, that the tax refund was owed, pointing out no problems with the VAT classification of the A… – see, by way of example, the notifications for presentation of documents following refund requests, the A…'s respective responses and consequent approval thereof by the Tax Authority, materialized in the respective payment (documents Nos. 11 and 12, for example, attached hereto), or the notification of the result of an inspection action, with reference to the same refund process, in which the Tax Authority concludes that from the inspection action "no tax acts or tax-related acts that would be unfavorable to it result" (cf. document No. 13, attached hereto).

During the year 2009, the A… received, for the provision of this type of care under the aforementioned agreement, a total of €403,788.99, divided according to the attached table:

These care services, in the total amount of €403,788.99, represented approximately 23.77% of the total turnover of the A… in that year 2009 (which amounted to €1,698,160.69, as evidenced by the statement of results contained in the Simplified Business Information Statement relating to that fiscal year, attached hereto as document No. 25).

It then happened that, at the end of 2013, the A… was subject to an external inspection procedure, which culminated in the preparation of the Tax Inspection Report already attached hereto as document No. 9.

Article 12, paragraph 1, subsection b) of the VAT Code provides that:

"1 - May waive the exemption, opting for the application of the tax to their operations: […]

b) Hospital establishments, clinics, dispensaries and similar establishments, not belonging to legal entities under public law or to private institutions integrated in the national health system, which provide medical and health services and operations closely related thereto;"

This subsection of the VAT Code is in its original wording, having not been amended since the approval of the Code, which took place by Decree-Law No. 394-B/84, of 26 December.

However, at the time of approval and publication of the VAT Code – it should be recalled, 26 December 1984 – and, consequently, at the time of the wording of subsection b) of paragraph 1 of article 12 of that Code as it remains today – did not exist any legal definition of the "national health system" mentioned in that same subsection.

And it is certain that, given the literal element, the expression "national health system" contains two common words, both with the "health system" (a legally defined concept), as with the "national health service" (a concept also defined by law).

However, at the time of publication of the VAT Code, the Health Framework Law had not yet been drawn up[2] and its respective legal definition of "health system"[3], a comprehensive concept for which the Tax Authority insists the VAT legislator referred to when establishing the rule in subsection b) of paragraph 1 of article 12 of the VAT Code.

Indeed, the Tax Authority overlooks the fact that the Health Framework Law and the respective legal concept of "health system", which encompasses private entities that enter into agreements with the State in the health sector, were introduced only by Law No. 48/90, of 24 August, that is, six years after the wording of the subsection of the VAT Code in question.

Wherefore, at the time of approval of subsection b) of paragraph 1 of article 12 of the VAT Code, the legislator could not have wanted to refer to the concept of "health system", that is, to the set composed of the National Health Service and the private entities that agree with it to provide health services.

Since the same would only be defined in the year 1990, more precisely, with the publication of the aforementioned Law No. 48/90.

In fact, the only concept that existed in the Portuguese legal system to which the VAT legislator could have wanted to refer when mentioning "national health system" in the VAT Code was that of "national health service", introduced by Law No. 56/79, of 15 September.

And it is certain that this concept of national health service, which existed since the VAT Code entered into force, encompassed only and exclusively the public bodies and services under the Department of Health.

Thus excluding from that legal concept private establishments, such as the A….

Thus, it is incontrovertible that the VAT legislator did not refer – indeed, nor could it have done so – in subsection b) of paragraph 1 of article 12 of the VAT Code to the broad concept of "health system", which did not exist at the time of drafting the Code and would only be established six years after its publication.

So much so that the VAT legislator itself, in the year 1998, when both concepts were already defined, that is, both that of "health system" and that of "national health service", in adding an item to Schedule I annexed to the VAT Code, makes an express reference to the waiver of exemption at issue here in the sense that such waiver covers entities "not belonging to legal entities under public law or to private institutions integrated in the National Health Service" [our emphasis].

Not institutions integrated in the "national health system", nor, much less, in the "health system".

In fact, in the Budget Law for 1999, the VAT legislator introduced, in Schedule I annexed to the Code, the following item[4]:

"2.5-A – Medical and health services and operations closely related thereto, provided by hospital establishments, clinics, dispensaries and similar establishments, not belonging to legal entities under public law or to private institutions integrated in the National Health Service, when these waive the exemption, in accordance with subsection b) of paragraph 1 of article 12 of the VAT Code"

• cf. current item 2.7 of Schedule I annexed to the VAT Code [our emphasis]

Thus, as if in an authentic interpretation, the VAT legislator expressly refers, regarding the tax rate to apply when hospital establishments or similar ones waive the exemption in accordance with subsection b) of paragraph 1 of article 12 of the VAT Code, that the hospital establishments that may do so are those not belonging to legal entities under public law or to "private institutions integrated in the National Health Service".

Not those belonging to "private institutions integrated in the national health system" - cf. terms of subsection b) of paragraph 1 of article 12 of the VAT Code, as opposed to the wording of current item 2.7 of Schedule I annexed to the Code, subsequently introduced.

Thus, in light of the historical element and the systematic element, it is manifest that the VAT legislator, in subsection b) of paragraph 1 of article 12 of the VAT Code, when referring to and refers to "national health system", is not referring to the concept of "health system", contained in the Health Framework Law which, simply, did not exist at that time.

But rather, and only, to the concept of national health service.

It is manifest that the A… is not part of the national health service, no matter how many agreements and conventions it enters into with the entities that compose it.

Indeed, despite the confusion that the Tax Authority creates in its Tax Inspection Report, the A… is not part of the National Health Service ("NHS").

This results, in an express and absolutely unequivocal manner, from various and scattered legal provisions.

Many of which, rather inexplicably, are cited by the Tax Authority itself.

Consider, first of all, the Health Framework Law, which has the status of a law of reinforced value (Law No. 48/90, of 24 August).

Pursuant to Base XII, paragraph 1, the health system consists of the National Health Service, certain public entities and private entities (and freelance professionals) that agree with the former to provide all or some of the activities of promotion, prevention and treatment in the health sector.

Naturally, with this formulation, the legislator excluded from the National Health Service these private entities which with it may agree to provide health services, as is the case with the A….

This exclusion is reinforced in paragraph 2 of the same Base, in which the legislator clarifies that it considers as covered by the National Health Service all institutions and official services providing health care that are dependent on the Ministry of Health and have their own statute.

Moreover, the Tax Authority's interpretation would lead to the absurdity that the A…, which is entirely private in nature, would be subject to the Bases contained in Chapter III ("Of the National Health Service") of this legislation, which even orders the celebration of contracts of public bond with health professionals!

Chapter IV, with the heading "Private Health Initiatives", is the chapter intended for it, in which is found, among others, the possibility of entering into conventions between private hospitals and the National Health Service (Base XLI).

Beyond all this, the very Statute of the National Health Service (approved by Decree-Law No. 11/93, of 15 January) – in perfect coherence with the Health Framework Law – defines the National Health Service as an ordered and hierarchical set of institutions and official services providing health care, functioning under the superintendence or supervision of the Minister of Health (cf. article 1 of the Statute annexed to the aforementioned Decree-Law).

Naturally, purely private entities, such as the A…, no matter how many conventions they enter into, will never function under the superintendence or supervision of the Ministry.

These entities may, purely and simply, coordinate with the National Health Service through the celebration of conventions in accordance with article 37, paragraph 1, subsection c) of the aforementioned Statute annexed to Decree-Law No. 11/93, which once again reveals the unequivocal duality between the National Health Service and private institutions that with it enter into conventions.

Private establishments and health professionals working in a liberal regime who contract in accordance with the previous number then become integrated – that is! – in the national network of health care (cf. paragraph 4 of Base XII of the Health Framework Law or article 37, paragraph 2, of the Statute of the National Health Service).

It seems that the Tax Authority considers the A… integrated into the National Health Service because it has become part of the national network for providing health care!

However, this reasoning is beset by a great terminological inconsistency:

The national network of health care and the National Health Service correspond, in the express terms of the law, to perfectly distinct concepts.[5]

As the Health Framework Law clearly states, "The national network for providing health care encompasses the establishments of the National Health Service and the private establishments and professionals in a liberal regime with whom contracts are entered into in accordance with the previous number." - cf. Base XII, paragraph 4 [our emphasis].

Whence it results, once again, the non-integration of these private establishments in the National Health Service, notwithstanding the fact that all are integrated into the national network of health services[6].

I.B. In its Response, the TA invoked, in summary, the following:

a) By Way of Preliminary Objection

The Respondent states, namely, in article 3 of its petition, that such additional assessments result from the fact that the "Tax Authority considered – illegally and incorrectly, as we shall see – that the A… would have ceased to meet the conditions to remain in the regime of waiver of VAT exemption…".

For which reason, first of all, it is important to point out that, prior to the assessment of the legality or illegality of the contested assessments, there is another question to be decided, a question which runs throughout the articulation: the Claimant wants the tribunal to assess the legality of the requirements of the right to waive the exemption which it exercised, under the provisions of subsection b) of paragraph 1 of article 12 of the VAT Code.

In other words, the first question to be decided concerns the fact of whether or not the right to waive the exemption is recognized on the part of the Claimant, given that the requirements for its recognition have been altered.

By being so, we have no doubt in affirming that, in the present case, the additional VAT assessment acts effected should be classified as consequential acts having regard to the concept, albeit restricted, adopted both by legal doctrine and by case law.

In fact, doctrine states that only those acts that were produced, or given certain content, by reason of the existence of previous supposedly valid acts that serve as their cause, basis or requirement should be classified as consequential acts.

Furthermore, case law also supports the same understanding, stating that consequential acts "are those that are intrinsically dependent on another, earlier act, such that if the primary act cannot remain in the legal system, the subsequent act also cannot subsist. The consequential act is to its predecessor as, in a syllogism, the conclusion is to its premises. This relationship of dependence is of a substantive nature and not merely formal, lying at the heart of the internal aspect of the acts, in their respective contents. In that measure, the consequential act is one whose content depends on the content of another." (Court of Audit Judgment of 17.01.2008, Appeal No. 925/07).

Thus, in the present case, the additional VAT assessment acts, pending assessment in this arbitral instance, are in a relationship of dependence on the recognition or not of the right on the part of the now Claimant to waive the VAT exemption, in accordance with article 12, paragraph 1, subsection b), of the VAT Code.

In fact, the additional assessment acts in question are in a relationship of dependence not merely formal, but of a substantive nature, in the sense that such assessments only have a reason for being by virtue of the existence of the recognition or not of a right to the now Claimant.

Thus, given this circumstance, the recognition of the right which the now Claimant has, or does not have, to waive the exemption in the terms referred to will determine, or not, the annulment of the additional tax assessments, since this depends directly and exclusively on that.

By being so, with all due respect and to the best of our opinion, the present arbitral instance is materially incompetent to know of one of the various petitions formulated in the present case, namely, whether the now Claimant has or does not have the right to waive the exemption provided in the terms of paragraph 2) of article 9, as provided in article 12, paragraph 1, subsection b), both of the VAT Code.

Now, in light of article 2 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Framework for Tax Arbitration (LFTA), the competence of arbitral tribunals comprises, among others, the assessment of claims relating to "the declaration of illegality of acts of tax assessment, self-assessment, withholding at source and payment on account" – cf. paragraph 1, subsection a).

In fact, the underlying question, which is rooted in the fact of knowing whether the Claimant should be classified under the normal VAT regime with the right to deduct VAT, does not represent an act that can be subject to assessment by this Tribunal, since it lies outside the material scope of tax arbitration as shaped by the legislator.

For it should be noted that, by requesting the annulment of the assessments in question for violation of the provisions of article 12, paragraph 1, subsection b) of the VAT Code, it is thus requesting the condemnation of the Tax Authority to recognize the right to waive the VAT exemption that it benefits from under the provisions of subsection 2) of article 9 of the VAT Code.

Effectively, the scope of competence of the arbitral tribunals established under the provisions of Decree-Law No. 10/2011, of 20 January (LFTA), does not contemplate the possibility of assessment of petitions aimed at the recognition of rights in tax matters.

A circumstance which stems from the letter of paragraph 1 of article 2 of the LFTA which, as is known, defines the types of claims that can be assessed by arbitral tribunals in tax matters.

The same follows, equally, from the comparison between the enabling legislation, under which tax arbitration was instituted – namely, when it stated that "The arbitration process in tax matters should constitute an alternative procedural means to the process of challenging judicial decisions and to the action for recognition of a right or legitimate interest in tax matters" (cf. paragraphs 2 and 4, subsection b) of article 124 of Law No. 3-B/2010, of 28 April) – and what, in fact, came to be established in the LFTA.

It thus results, unequivocally, that the legislator has opted not to contemplate (in the LFTA) the possibility of assessment of petitions aimed at the recognition of rights in tax matters.

In this measure, there is the existence of a dilatory exception, embodied in the material incompetence of the arbitral tribunal, which prevents the assessment of the petition, and, therefore, should determine the absolution of the Respondent Entity from the instance, having regard to the provisions of articles 576, paragraph 1 and 577, subsection a) of the CPC, applicable by force of article 29, paragraph 1, subsection e) of the LFTA.

b) By Way of Merits

Without prejudice to referring to and deeming fully reproduced the factuality established in the Tax Inspection Report sub judice, it is nevertheless necessary to summarize the factuality relevant for a proper decision of the case. And, it argues:

Alleging in summary, Given the historical and systematic elements, the legislator, in subsection b) of paragraph 1 of article 12 of the VAT Code, when referring to "national health system", was not referring to the concept of "health system", contained in the Health Framework Law which did not exist at that time.

However, considering that the legislator, in the VAT Code, wanted to refer to the concept of health system (which encompasses all private entities that enter into agreements with the National Health Service) or that, referring to the concept of National Health Service, the A… would be integrated therein, the Claimant cannot be considered as acting in "analogous conditions" to those of public hospital establishments within the scope of the mandatory exemption provided in subsection b) of paragraph 1 of article 132 of the VAT Directive.

Nevertheless, we hold that, in this case, the Claimant is not correct, and no defect is attributable to the contested assessments.

Effectively, the Health Framework Law (Law No. 48/90, of 24 August), came to clarify the concept of "health system", as contained in its chapter II, Base XII, which provides:

"1-The health system is constituted by the National Health Service and by all public entities that develop activities of promotion, prevention and treatment in the health sector, as well as by all private entities and all freelance professionals that agree with the former to provide all or some of those activities".

2 - The National Health Service encompasses all institutions and official services providing health care that are dependent on the Ministry of Health and has its own statute.

3-The Ministry of Health and the regional administrations may contract with private entities the provision of health care to beneficiaries of the National Health Service whenever this appears advantageous, particularly considering the binomial quality-costs, and provided that the right of access is guaranteed.

4- The national network of health care protection encompasses the establishments of the National Health Service and the private establishments and professionals in a liberal regime with whom contracts are entered into…"

5-Tendentially, the same rules should be adopted in the payment of care and the financing of health units in the national network for the provision of health care.

6- The quality control of all health care provision is subject to the same level of requirement" (our emphasis).

With regard to the integration of private entities into the "national health system", already in that law of 1979 the impossibility of complete and immediate implementation of a universal and general National Health Service was recognized, as results from article 15, which is transcribed:

"1 – Access to the services enumerated in the previous article is assured, in principle, by the establishments and services of the official NHS network.

2 – While it is not possible to guarantee all services through the official network, access will be assured by entities not integrated in the NHS on a contractual basis, or, exceptionally, through direct reimbursement of users" (our emphasis).

And, for that reason, it was provided concretely in articles 52 and 53, the coordination and the possibility of establishing conventions between the NHS and private entities, namely in the field of hospitalization and diagnostic means in cases in which the official service network does not assure health services.

In the meantime, Decree-Law No. 254/82, of 29/06, which created the RHAs (Regional Health Administrations), maintained in force article 15 of Law No. 56/79, of 15/09 and repealed articles 52 and 53 of the same Law, beginning to mention in its article 5, integrated in chapter II "Coordination with Other Services", and under the heading "Coordination with the Private Sector", that: "The RHAs coordinate with associations and social solidarity institutions and with private entities that develop business activities in the health sector, whether in an individual name or in the form of a company, conveniored or not, with a view to the effective protection of the health of individuals, families and the community, in terms to be regulated".

Now, these decrees, prior to the entry into force of the VAT Code, embody the creation of a "health system", a concept which was adopted, as stated, by the Health Framework Law, Law No. 48/90, of 24/08, specifically in Base XII, where it is determined:

"1 – The health system is constituted by the National Health Service and by all public entities that develop activities of promotion, prevention and treatment in the health sector, as well as by all private entities and all freelance professionals that agree with the former to provide all or some of those activities" (our emphasis).

Developing in Base XII, under the heading Conventions, the following provisions:

"1 – Within the framework established by paragraph 3 of Base XII, conventions may be entered into with doctors and other health professionals or private health houses, clinics or hospitals, whether at the level of primary health care or at the level of differentiated care.

2 – The law establishes the conditions for entering into conventions and, in particular, the guarantees of the entities party to the conventions".

The regulation of this Base only took place in 1998, with Decree-Law No. 97/98, of 18/04, and it is certain that, in the meantime, paragraphs 3, 4 and 5 of article 37 of Decree-Law No. 11/93, of 15/01, a regulation intended to regulate paragraph 2 of Base XII, defining the new statute of the National Health Service, also continued to provide for contracting/convention with private establishments.

Thus, considering the legislative evolution regarding the national health system, it is legitimate to conclude that, even before the entry into force of the VAT Code, and Portugal's accession to the European Economic Community, the possibility for the State to enter into conventions with private institutions for the provision of medical services, namely those provided by private hospitals, which supplemented the insufficiencies of public services, was already established.

It also results from the succession of these regulations that privately conventioneered entities never belonged to the National Health Service (entities not integrated in the NHS, as results from paragraph 2 of article 15 of Law 56/79, of 15/09), but always integrated a broader system, a concept derived from the Greek systemiun meaning "to combine", "to adjust", "to form a set" – subsuming itself to a set of interconnected elements, so as to form an organized whole when combined with the National Health Service, with the aim of guaranteeing access to health care.

And there is no doubt that this system had as its reference the set of activities operated in Portuguese territory, which justifies the characterization as being "national".

Therefore, it is easily concluded that, even before the Health Framework Law (of 1990) adopted the phrase "health system", legally enshrining it, the normal recipient of article 12, paragraph 1, subsection b) of the VAT Code, a rule in force since 01/01/1986, but approved by a Decree-Law of 26 December 1984, understood its scope: private entities that enter into conventions with the Portuguese State for the provision of medical and health services listed in paragraph 2) of article 9 of the VAT Code become integrated in the "national health system", which precludes the option for that waiver.

In conclusion, we hold that the historical and systematic elements contribute, definitively, to the conclusion stated.

And it is also certain that, currently, the concept of "national health system", contained in the VAT Code, cannot fail to be concretized in light of the provisions in the Health Framework Law regarding the concept of "health system".

As, indeed, understood the Tax Court of Lisbon, (Cf. Court of Audit Judgment, in Case No. 0576/13):

"g. Concretely, the impossibility of waiving the tax exemption encompasses not only legal entities under public law, but also entities that provide services in situations analogous to those that apply to organisms of public law, that is, hospital establishments, medical assistance and diagnostic centers and other establishments of the same nature, duly recognized, provided they are integrated in the national health system.

h. Finally, in light of the provisions of article 391 of the aforementioned Directive, the scope of the waiver of the tax exemption depends solely on the nature of the taxable persons, that is, it applies strictly to those who are not public law organisms or who, not having that nature, do not exercise their activity in analogous conditions, which are verified, in light of Community case law, when the private law organism benefits from the cost of the provision of services being borne in part by health insurance funds or by other social security organisms".

Concluding, in a situation entirely identical to that of the case at hand:

"Considering the existence of conventions/agreements with various subsystems of health of the National Health System – Social Action Institute of the Armed Forces (SAIAFF) – it is our conviction that, in accordance with subsection b) of paragraph 1 of article 12 of the VAT Code, combined with Base XII of Law No. 48/90 (Health Framework Law), the taxable person could not benefit from the right of option, should it wish to, since it became integrated in the National Health System".

In these terms it is clear, in this context, that the argument of the Claimant is manifestly unsubstantiated.

I.3. The Claimant presented its response to the preliminary objection, in the following terms:

The acts challenged before this Arbitral Tribunal are acts of additional VAT assessment (and respective compensatory interest) – cf. docs. 1 to 8.

And the petition, principal, which comes formulated in the case is that of annulment of those additional VAT assessments (and respective compensatory interest assessments), for manifest illegality thereof – cf. petition of the initial petition[7].

It is important to consider that Decree-Law No. 10/2011, of 20 January (hereinafter, "LFTA"), instituted tax arbitration limited to certain matters, listed in its article 2, having made the binding of the TA dependent on an Order of the members of the Government responsible for the areas of Finance and Justice.

The scope of tax arbitration jurisdiction is thus delimited, in the first place, by the provisions of article 2 of the LFTA.

Which encompasses, from the outset, in subsection a) of its paragraph 1, the assessment of claims directed to the declaration of illegality of acts of tax assessment.

At this point, it is unequivocal that VAT (the tax at issue in the case) falls within the concept of "tax", as explicitly stated in paragraph 2 of article 3 of the General Tax Law ("GTL"): "Taxes comprise taxes, including customs and special taxes, and other tax species created by law, namely taxes and other financial contributions in favor of public entities", and that, in light of the LFTA, is not excluded from arbitration jurisdiction.

And it is equally unequivocal that the acts whose legality is questioned in the present case are assessment acts (official assessment acts) – cf. docs. 1 to 8.

However, the competence of the Arbitral Tribunals, in a second line, is also limited by the terms in which the Tax Authority bound itself to that jurisdiction, concretized in Order No. 112-A/2011, of 22 March.

As seen in this article 2, a generic binding of those services, currently of the TA, to arbitral tribunal jurisdiction was established, in its body, having as "object the assessment of claims relating to taxes whose administration is entrusted to them as referred to in paragraph 1 of article 2" of the LFTA.

As is the case with our claim for declaration of illegality of additional VAT assessments, as we have seen.

Then, in the four subsections of this article 2, the exceptions to the rule of binding contained in the body of the article are enumerated.

However, from none of the exceptions there enumerated, results the situation invoked by the TA in the case: that the acts of assessment arbitrally challenged are consequential acts.

Note, on the one hand, that the aforementioned article 2 contains no gap in regulation, as its body encompasses all situations in which there is competence of the arbitral tribunals in light of article 2, paragraph 1, of the LFTA which are not excepted.

And, therefore, if among the exceptions listed is not indicated the non-binding of the TA when what is at issue is the assessment of the legality of additional assessment acts that it calls – in the words of the TA – consequential, the situation will necessarily have to be considered as encompassed by the rule in the body of article 2 of Order No. 112-A/2011.

On the other hand, as is a general principle of legal interpretation, "exceptional rules do not allow for analogical application" (cf. article 11 of the Civil Code), and thus the interpreter cannot transform into an exception something that normatively was included in the scope of application of the rule regime.

On the other hand still, all additional assessment acts issued following a Tax Inspection Report are always acts deriving – or, in the expression of the TA, consequential – from the issuance of that Report and its respective conclusions!

So much so that the basis for these assessment acts is embodied in the conclusions of the underlying Tax Inspection Report.

As, moreover, happens in the present case, in which the additional assessments here arbitrally challenged expressly mention, regarding their respective basis, the following: "Additional assessment made on the basis of correction effected by the Tax Inspection Services" - cf docs. 1 to 4.

Furthermore, as is undisputed, the conclusions of a Tax Inspection Report are not autonomously challengeable – see also here, the cover page of the notification of the Tax Inspection Report attached to the case as document No. 9, which expressly states that: "From this notification and its respective basis no complaint or challenge may be filed".

The same is to say that, in the tax field, preparatory acts – such as the issuance of the Tax Inspection Report, with its respective conclusions and proposed corrections – are not autonomously challengeable, and may indeed be put in question when challenging the final, ultimate act (in this case, the assessment), in accordance with the principle of unitary challenge expressed in article 54 of the Tax Procedure and Process Code ("TPPC").

Which is precisely what is done in the present case, in which the Tribunal arbitrally questions the legality of the additional VAT assessments, issued as a result of the Tax Inspection Report attached as document No. 9, which concluded – incorrectly – that the A… could not have waived the VAT exemption.

Thus, from the outset, the thesis of the TA defended in the case – which ends up translating into the consideration that, beyond the exceptions indicated in the subsections of the cited article 2 of Order No. 112-A/2011, the existence of yet another exception should be assumed: that of the assessment of the legality of tax assessment acts that it calls "consequential" – lacks normative support, and should therefore, from the outset, be dismissed.

II. CASE MANAGEMENT

1. The Tribunal is competent and is regularly constituted, in accordance with articles 2, paragraph 1, subsection a), 5 and 6, all of the LFTA.

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

3. The proceeding does not suffer from any nullities.

4. As to the preliminary objection of incompetence of the Arbitral Tribunal in its initial petition the claimant petitioned to the effect that:

To have declared the illegality and annulment of the aforementioned assessment acts, for violation of the provisions of article 12, paragraph 1, subsection b) of the VAT Code, in an interpretation consistent with the domestic legal order and the principles of legality and typicality in tax matters, with all legal consequences.

As a subsidiary matter the claimant petitioned to the effect that:

To have declared the illegality and annulment of the aforementioned assessment acts, for violation of the provisions of article 12, paragraph 1, subsection b) of the VAT Code, in an interpretation consistent with the VAT Directive, and the principles of legality and typicality in tax matters, with all legal consequences.

In its Response the TA defended itself by preliminary objection arguing the incompetence of the Arbitral Tribunal, on the following basis:

Prior to the assessment of the legality or illegality of the contested assessments, there is another question to be decided, a question which runs throughout the articulation: the Claimant wants the tribunal to assess the legality of the requirements of the right to waive the exemption which it exercised, under the provisions of subsection b) of paragraph 1 of article 12 of the VAT Code (5th Response);

And concludes that in the reading that the TA makes of the A…'s petition: By requesting the annulment of the assessments in question for violation of the provisions of article 12, paragraph 1, subsection b) of the VAT Code, it is thus requesting the condemnation of the Tax Authority to recognize the right to waive the VAT exemption that it benefits from under the provisions of subsection 2) of article 9 of the VAT Code. (16th Response).

The issue of the preliminary objection thus arises not from the petition (in legal terms) of the A… but rather from the reading that the TA makes of the A…'s petition, as indeed is understood from the 4th of the response, in which it states that:

The Respondent states, namely, in article 3 of its petition, that such additional assessments result from the fact that the "Tax Authority considered – illegally and incorrectly, as we shall see – that the A… would have ceased to meet the conditions to remain in the regime of waiver of VAT exemption…".

We believe, however, that in procedural law material incompetence is determined by comparing the rule of competence with the petition (in legal terms) which is nothing more than the remedy that the Claimant wants the tribunal to adopt. The LFTA is no exception to this principle and thus defines the rule of competence by reference to the assessment of claims (article 2-1) and not to the scrutiny of the logical-legal prerequisites of the claim, as would result from the thesis of the TA.

It results from the reading of the initial pleading of the A… that effectively it does not petition – nor should it petition – the assessment of the legality of any prior act; that is a matter of law which it falls to the arbitral tribunal to inquire into and apply.

The question of whether or not the A… meets conditions to remain in the VAT regime necessary, should such a need exist (it is necessary to ascertain whether the A… alleged facts that allow the tribunal to have knowledge on the subject) will be an incidental question which raises no problem of competence since "The tribunal competent for the action is also competent to know of the incidents that arise therein and the issues that the respondent raises as means of defense" (article 91, paragraph 1 CPC ex-vi 29, paragraph 1, subsection e) LFTA).

In the same sense, albeit on a different basis, was decided in CAAD cases No. 278/2013-T and No. 78/2014-T.

1. Thus, the conditions are met to proceed with the assessment of the merits of the petition.

III. THE QUESTION OF PRELIMINARY REFERENCE

It is therefore necessary to decide in advance on the necessity of a preliminary reference to the CJEU. The intervening parties did not request the reference, having nevertheless formulated the questions to be posed to the CJEU, should the Tribunal come to raise such a reference.

Having analyzed the matters in issue and considering the questions to be decided, the arbitral tribunal understood that it was not necessary to promote a preliminary reference to the CJEU, in accordance with the terms and grounds set out below.

Arbitral tribunals form part of the set of national courts, as expressly results from the provisions of article 209 of the Constitution of the Portuguese Republic (CPR). As such, and in the active performance of its arbitration function, given the exceptional nature of appeals from decisions of Arbitral Tribunals in tax matters, the national legislator made express in the preamble to Decree-Law No. 10/2011, that "In cases in which the arbitral tribunal is the final court of decision in tax disputes, the decision is subject to preliminary reference in compliance with §3 of article 267 of the Treaty on the Functioning of the European Union".

There is no doubt, therefore, that in case of doubt about the interpretation of European law provisions the arbitral tribunal may resort to the mechanism of preliminary reference.

Returning to the case at hand, the necessity of promoting this reference remains to be analyzed, which naturally falls to this tribunal to decide.

1. National courts are considered as common courts of the European Union legal order, given the considerable number of Community norms and acts, constituted by directly applicable or directly effective provisions, falling to the national courts of the Member States to apply them in disputes submitted to them for assessment. It falls therefore to the national courts to apply Community law, even against provisions of domestic law to the contrary.

Thus, in order to resort to the process of referring one or more questions on a preliminary basis, for interpretation of one or more legal norms of Community law, whether original or derived, it is necessary that doubts subsist about the interpretation of the text in question. Conversely, if the text is perfectly clear, it is no longer a matter of interpreting, but of applying it, which is the competence of the Court/Judge entrusted with the competence to judge the specific case by applying the law, national and/or Community, if such is the case. This understanding is widely known and defended by doctrine and case law as the "doctrine of the clear act".

Given all this, furthermore, the fact that the issues relating to understanding the concept of freedom of movement of capital, as well as that of freedom of establishment, are extensively dealt with in numerous CJEU case law, some of which was, moreover, extensively referenced by the intervening parties in the present dispute.

All this considered, this arbitral tribunal understood that no doubts subsisted regarding the interpretation of any of the norms in issue and, to that extent, what is required of this tribunal is to decide in conformity with the applicable law, national and Community, giving full application to both, as well as to the principles informing them, taking into account CJEU case law, relevant to the treatment of the matters in question.

In this conformity, this tribunal decided on the unnecessity of promoting a reference to the CJEU for interpretation of any preliminary question.

IV. FACTUAL MATTERS

IV.1. Facts Established as Proven

The following facts were established in this case:

A. By way of official letters of 29 April 2014, the A…[8] was notified of the following additional VAT assessments totaling €823,135.83 [1st IR[9] and its documents 1 to 4]:

B. By way of official letters of 29 April 2014, the A…[10] was notified of the following compensatory interest assessments totaling €155,773.04 [1st IR and its documents 5 to 8]:

C. The additional VAT assessments and the compensatory interest assessments originate in corrections made by the Tax and Customs Authority ("TA") following a Tax Inspection Report ("TIR"), notified to the A… by official letter of 2 April 2014. [2nd IR and its document No. 9 and 41st and 42nd R-TA[11]].

D. The A… is a commercial company, for profit, engaged in the provision of health care in the form of a health establishment with hospitalization. [10th IR].

E. The A… exercises as main activity "Activities of health establishments with hospitalization", to which corresponds CAE No. 86100. [29th R and TIR, p. 2 and p. 4].

F. The A…'s activity was initiated effectively in April 2008. [11th IR and TIR, p.2].

G. The A… exercised the option to waive the VAT exemption on 30-12-2003 [14th IR and its document No. 10, 32nd R-TA and TIR, p. 6].

H. The A… maintained the waiver of tax exemption and billed VAT on its active operations and deducted VAT incurred on its passive operations [15th IR].

I. On 24-08-2009 the TA transferred to the A…'s bank account the amount of €210,151.13, corresponding to the VAT refund request for the 1st quarter of 2009. [16th and 17th IR and respective document No. 12].

J. By order of 26-04-2010 the TA partially approved the A…'s VAT refund request for the period of 01-10-2009 to 31-12-2009 in the amount of €109,389.49, in the amount of €108,973.96. [16th and 17th IR and respective document No. 11].

K. By order of 06-09-2010 the TA approved the A…'s VAT refund request for the period of 01-01-2010 to 31-03-2010 in the amount of €26,825.57. [16th, 17th and 148th IR and respective document No. 11].

L. By official letter of 06-02-2012 the TA notified the A… in the following terms: [16th, 17th IR and respective document No. 13]

For your information, you are hereby notified, in accordance with article 62 of the Tax Inspection Procedure Code, that from the inspection action carried out by this Service, under the aforementioned Service Order [OI2011…], no tax acts or tax-related acts that would be unfavorable to it result.

M. The A… entered into on 06-04-2009 with the Regional Health Administration of …, I.P., ("RHA…") and with the Social Security Institute, I.P. ("Social Security"), an agreement designated as "Agreement for Medium-Duration and Rehabilitation Unit of the A…" ("Agreement"), taking effect on 23 March 2009. [21st IR and its document No. 14 and 34th R-TA].

N. The Agreement entered into between the A… the RHA… and the Social Security Institute which by virtue of its length and detail is deemed fully reproduced herein established that[12]:

Clause I (Purpose)

The purpose of this agreement is the definition of the terms and conditions under which:

a) The Institution [the A…] through the A…, provides clinical, rehabilitation and psychosocial care within the scope of the NCIC[13];

b) The RHA…, I.P. and the District Center provide technical support for the development of the care referred to in the previous subsection and the respective financial counterpart.

Clause II (Objective)

This agreement aims to create the conditions for the intervention of the Institution [the A…], directed at persons with temporary loss of autonomy, potentially recoverable, who need clinical, rehabilitation and psychosocial care, in a medium-duration hospitalization regime, due to a clinical situation resulting from the recovery of an acute process or decompensation of a chronic disease process, in accordance with the provisions of article 15 of Decree-Law No. 101/2006 of 6 June.

Clause IV (Care and Services to be Provided)

The Unit [the A…] assures, namely:

a) Daily medical care;

b) Permanent nursing care;

c) Physiotherapy, occupational therapy and speech therapy care;

d) Drug prescription and administration;

e) Psychosocial support;

f) Hygiene, comfort and food;

g) Social interaction and leisure;

h) Other services and activities inherent to the operation of the Unit.

O. In the execution of the agreement entered into between the A… and the RHA…, the A… billed VAT and reduced its amount to the financial counterpart, not increasing it to the price. [22nd IR].

P. During the year 2009 the A… received pursuant to the Agreement, a total of €403,788.99, divided as follows: [23rd IR]

Q. The services provided under the Agreement, in the period from 06-03-2009 to 31-12-2009, in the total amount of €403,788.99, represented 23.778% of the total turnover of the A… in that year 2009, which amounted to €1,698,160.69. [24th IR and its document No. 25].

R. Under Service Order No. OI2013…, of 10 January 2010, by reference to the year 2009, tax inspection proceedings were ordered to be carried out, resulting in merely arithmetic corrections in VAT in the total amount of €823,135.83, corresponding to €190,609.36, VAT improperly deducted in the 2nd, 3rd and 4th quarters of 2009 and €632,526.47 in regularizations in favor of the State). [27th R and TIR, pp. 1, 16, 25 and 26].

S. The inspection action to which the A… was subject was initiated on 08-11-2013 and ended on 17-02-2014. [25th IR and TIR, p. 1].

T. In the TIR the TA stated that the A… waived the exemption from 30-12-2003, having therefore "deducted the tax on its acquisitions and billed VAT on the provision of services" and that: [26th IR and TIR, p. 6]

This classification was correct until the moment in which it entered into, on 2009/04/06, with effect from 2009/03/23, a contract with the Regional Health Administration of …, I.P. (…) and the Social Security Institute, I.P.

U. Within the scope of the inspection proceedings the TA considered that the A… by having entered into the Agreement became considered as a private institution integrated in the national health system [38th R and 28th IR]:

V. Within the scope of the inspection proceedings the TA concluded that the A… [38th R, 29th IR and TIR, p. 9]:

(…) became part of the National Health Service, and thus could not enjoy the possibility of opting, from that moment on, for the normal VAT regime, by reason of the fact that subsection b) of paragraph 1 of article 12 of the VAT Code only permits this option to entities that are not integrated in the National Health System (…)

W. Within the scope of the inspection proceedings the TA also concluded that [39th R, 30th IR and TIR, p. 11]:

(…) the taxable person from 2009/03/23, came to be classified under the exemption regime provided for in paragraph 2 of article 9 of the VAT Code, without the right to deduction, and without the possibility of exercising the option provided in subsection b) of paragraph 1 of article 12 of the same legislation.

X. Within the scope of the inspection proceedings the TA also concluded that: [40th R-TA, 30th, 31st IR and TIR, pp. 11-12]:

a) (…) [the A…] ceased to meet the conditions of the waiver provided in subsection b) of paragraph 1 of article 12 of the VAT Code, on the part of that entity from the date the agreement came into effect (2009/03/23).

b) It should, in accordance with article 32 of the VAT Code, proceed to the filing of the statement of changes, within 15 days from the date of the change that occurred, namely 2009/03/23.

c) From the date the contract came into effect (2009/03/23), the provision of medical and health services and operations closely related thereto, shall be classified under the exemption regime provided for in paragraph 2 of article 9 of the VAT Code, without the right to deduction.

d) Cease to deduct VAT related to acquisitions of goods and services provided acquired from 2009/03/23.

e) Proceed with the regularization of VAT in accordance with paragraph 6 of article 24 and subsection g) of paragraph 3 of article 3, both of the VAT Code, at the moment of the transfer of goods from an activity subject to an exempt activity.

IV.2. Facts Established as Not Proven

No other facts with interest for the decision of the case were alleged.

IV.3. Reasoning for the Factual Findings

The determination of the facts was based on the administrative proceedings, the documents attached to the initial petition and on statements by the Claimant which are not contested by the Tax and Customs Authority.

The facts established as not proven are due to the absence or insufficiency of proof with respect thereto, in the sense of convincing the Tribunal, beyond any reasonable doubt, of their occurrence.

It is worth noting that, in order to consider established the matter of "fact established O" the testimony of witness Dr. B…, financial director of the A… since 2007, was also relevant, who with factual knowledge and sincerity manifested himself in the sense that is recorded, further clarifying in particular that the "aggregate maps" that were the source of the summary table in question are official and were extracted from the information system of the NCIC.

V. APPLICATION OF THE LAW TO THE FACTS

The Claimant comes to request the declaration of illegality and consequent annulment of the tax acts identified above, arguing that the interpretation of the Law made by the TA is not coherent either with the provisions of the VAT Code or with the Community legislation that informs and harmonizes this tax, and would therefore violate the principles of legality and typicality in tax matters. However, it is the understanding of this Tribunal that the arguments of the TA are very strong, not only from the point of view of domestic law, but also from the point of view of Community law. Let us see.

V.1. Of Interpretation Consistent with Domestic Law

It is evident that the question to be decided is, from the outset, whether, by force of the contract entered into with the Regional Health Administration of …, I.P., and with the Social Security Institute, I.P., the Claimant should be considered as a private institution integrated in the "national health system", in accordance with the terms and for the purposes of article 12, paragraph 1, subsection b) of the VAT Code. And from the analysis of the various decrees it is evident that we are before a private institution integrated in the "national health system".

a) The Health Framework Law (Law No. 48/90, of 24 August), came to clarify the concept of "health system", as contained in its chapter II, Base XII, which provides:

"1-The health system is constituted by the National Health Service and by all public entities that develop activities of promotion, prevention and treatment in the health sector, as well as by all private entities and all freelance professionals that agree with the former to provide all or some of those activities".

2 - The National Health Service encompasses all institutions and official services providing health care that are dependent on the Ministry of Health and has its own statute.

3-The Ministry of Health and the regional administrations may contract with private entities the provision of health care to beneficiaries of the National Health Service whenever this appears advantageous, particularly considering the binomial quality-costs, and provided that the right of access is guaranteed.

4- The national network of health care protection encompasses the establishments of the National Health Service and the private establishments and professionals in a liberal regime with whom contracts are entered into…"

5-Tendentially, the same rules should be adopted in the payment of care and the financing of health units in the national network for the provision of health care.

6- The quality control of all health care provision is subject to the same level of requirement" (our emphasis).

b) With regard to the integration of private entities into the "national health system", already in that law of 1979 the impossibility of complete and immediate implementation of a universal and general National Health Service was recognized, as results from article 15, which is transcribed:

"1 – Access to the services enumerated in the previous article is assured, in principle, by the establishments and services of the official NHS network.

2 – While it is not possible to guarantee all services through the official network, access will be assured by entities not integrated in the NHS on a contractual basis, or, exceptionally, through direct reimbursement of users".

And, for that reason, it was provided concretely in articles 52 and 53, the coordination and the possibility of establishing conventions between the NHS and private entities, namely in the field of hospitalization and diagnostic means in cases in which the official service network does not assure health services.

c) In the meantime, Decree-Law No. 254/82, of 29/06, which created the RHAs (Regional Health Administrations), maintained in force article 15 of Law No. 56/79, of 15/09 and repealed articles 52 and 53 of the same Law, beginning to mention in its article 5, integrated in chapter II "Coordination with Other Services", and under the heading "Coordination with the Private Sector", that: "The RHAs coordinate with associations and social solidarity institutions and with private entities that develop business activities in the health sector, whether in an individual name or in the form of a company, conveniored or not, with a view to the effective protection of the health of individuals, families and the community, in terms to be regulated".

d) Now, these decrees, prior to the entry into force of the VAT Code, embody the creation of a "health system", a concept which was adopted, as stated, by the Health Framework Law, Law No. 48/90, of 24/08, specifically in Base XII, where it is determined:

"1 – The health system is constituted by the National Health Service and by all public entities that develop activities of promotion, prevention and treatment in the health sector, as well as by all private entities and all freelance professionals that agree with the former to provide all or some of those activities" (our emphasis).

Developing in Base XII, under the heading Conventions, the following provisions:

"1 – Within the framework established by paragraph 3 of Base XII, conventions may be entered into with doctors and other health professionals or private health houses, clinics or hospitals, whether at the level of primary health care or at the level of differentiated care.

2 – The law establishes the conditions for entering into conventions and, in particular, the guarantees of the entities party to the conventions".

The regulation of this Base only took place in 1998, with Decree-Law No. 97/98, of 18/04, and it is certain that, in the meantime, paragraphs 3, 4 and 5 of article 37 of Decree-Law No. 11/93, of 15/01, a regulation intended to regulate paragraph 2 of Base XII, defining the new statute of the National Health Service, also continued to provide for contracting/convention with private establishments.

Thus, considering the legislative evolution regarding the national health system, it is legitimate to conclude that, even before the entry into force of the VAT Code, and Portugal's accession to the European Economic Community, the possibility for the State to enter into conventions with private institutions for the provision of medical services, namely those provided by private hospitals, which supplemented the insufficiencies of public services, was already established.

It also results from the succession of these regulations that privately conventioneered entities never belonged to the National Health Service (entities not integrated in the NHS, as results from paragraph 2 of article 15 of Law 56/79, of 15/09), but always integrated a broader system – a concept derived from the Greek systemiun meaning "to combine", "to adjust", "to form a set" – subsuming itself to a set of interconnected elements, so as to form an organized whole when combined with the National Health Service, with the aim of guaranteeing access to health care.

And there is no doubt that this system had as its reference the set of activities operated in Portuguese territory, which justifies the characterization as being "national".

Therefore, it is easily concluded that, even before the Health Framework Law (of 1990) adopted the phrase "health system", legally enshrining it, the normal recipient of article 12, paragraph 1, subsection b) of the VAT Code, a rule in force since 01/01/1986, but approved by a Decree-Law of 26 December 1984, understood its scope: private entities that enter into conventions with the Portuguese State for the provision of medical and health services listed in paragraph 2) of article 9 of the VAT Code become integrated in the "national health system", which precludes the option for that waiver.

And it is also certain that, currently, the concept of "national health system", contained in the VAT Code, cannot fail to be concretized in light of the provisions in the Health Framework Law regarding the concept of "health system".

As, indeed, understood the Tax Court of Lisbon, (Cf. Court of Audit Judgment, in Case No. 0576/13):

"g. Concretely, the impossibility of waiving the tax exemption encompasses not only legal entities under public law, but also entities that provide services in situations analogous to those that apply to organisms of public law, that is, hospital establishments, medical assistance and diagnostic centers and other establishments of the same nature, duly recognized, provided they are integrated in the national health system.

Concluding, in a situation entirely identical to that of the case at hand:

"Considering the existence of conventions/agreements with various subsystems of health of the National Health System – Social Action Institute of the Armed Forces (SAIAFF) – it is our conviction that, in accordance with subsection b) of paragraph 1 of article 12 of the VAT Code, combined with Base XII of Law No. 48/90 (Health Framework Law), the taxable person could not benefit from the right of option, should it wish to, since it became integrated in the National Health System".

Having regard to the foregoing, all petitions of the Claimant are prejudiced.

V.2. Of Interpretation Consistent with Community Law

Article 132, paragraph 1, subsection b) of the VAT Directive provides:

"1. The Member States shall exempt the following transactions:

[...]

b) Hospitalization and medical care, and also transactions closely related thereto, provided by bodies governed by public law or, under conditions analogous to those that apply to the latter, by hospital establishments, medical assistance and diagnostic centers and other establishments of the same nature duly recognized"

Thus being precluded, for this type of hospital establishment, the possibility of waiving the VAT exemption, in accordance with articles 377 and 391 of the VAT Directive.

In that sense, the interpretation of the TA regarding article 12, paragraph 1, subsection b) of the VAT Code, is also consonant with the VAT Directive.

That said, even if the Claimant were to argue that it does not act in "analogous conditions" to those of public hospital establishments within the scope of the mandatory exemption provided in subsection b) of paragraph 1 of article 132 of the VAT Directive, this Tribunal would rule out this understanding and, consequently, the option of the waiver would be precluded by Community law.

VI. DECISION

In light of all the foregoing, it is decided to render judgment that the petition for arbitral decision is completely without merit.

The value of the proceeding is set at €978,908.87 in accordance with article 97-A, paragraph 1, subsection a) of the TPPC, applicable by force of subsections a) and b) of paragraph 1 of article 29 of the LFTA and paragraph 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

The amount of the arbitration fee is set at €13,770.00 in accordance with Schedule I of the Regulation of Costs of Tax Arbitration Proceedings, to be borne entirely by the Claimant, in accordance with articles 12, paragraph 2, and 22, paragraph 4, both of the LFTA, and article 4, paragraph 4, of the aforementioned Regulation.

Notice is hereby given.

Lisbon, 26 June 2015

The Arbitrators

José Poças Falcão

Nuno Maldonado Sousa

Guilherme W. d'Oliveira Martins

[1] Note that, from the 3rd quarter of the year 2012, the A… was no longer in a situation of tax credit, beginning to deliver VAT to the State.

[2] Law No. 48/90, of 24 August.

[3] "The health system is constituted by the National Health Service and by all public entities that develop activities of promotion, prevention and treatment in the health sector, as well as by all private entities and all freelance professionals that agree with the former to provide all or some of those activities." - cf. chapter II, Base XI, of Law No. 48/90, of 24 August

[4] Cf. article 34, paragraph 2, of Law No. 87-B/98, of 31 December.

[5] See the definition of "health system", "National Health Service" and "national network for providing health care" advanced by Maria João Estorninho and Tiago Macieirinha, in "Health Law", Universidade Católica Editora, Lisbon 2014, p. 71 or contained in Base XII of the Health Framework Law.

[6] This concept is relevant, for example, in that private entities that form part of the national network of health services have, by that very fact, some additional obligations with respect to health care (cf., by way of example, Base II, paragraph 5, of the Health Framework Law and article 37, paragraph 2, of Decree-Law No. 11/93).

[7] Petition whose subsection a) is transcribed here: "the illegality and annulment of the aforementioned assessment acts should be declared, for violation of the provisions of article 12, paragraph 1, subsection b) of the VAT Code, in an interpretation consistent with the domestic legal order and the principles of legality and typicality in tax matters, with all legal consequences."

[8] For ease of reading this judgment, the Claimant A…, S.A., is also referred to as "A…".

[9] In this document the acronym IR is used to reference the Initial Petition of the Claimant.

[10] For ease of reading this judgment, the Claimant A…, S.A., is also referred to as "A…".

[11] In this document the acronym R-TA is used to reference the Response of the TA to the Initial Petition of the Claimant.

[12] The reproduction of certain excerpts from the "agreement" is intended solely to facilitate reading and understanding of this judgment, with reduction in the need to consult other documents and does not permit assigning greater importance to these passages relative to others that are not transcribed.

[13] National Network of Integrated Continuous Care