Process: 629/2017-T

Date: July 26, 2018

Tax Type: IVA

Source: Original CAAD Decision

Summary

This CAAD arbitral award (Process 629/2017-T) addresses the complex issue of VAT exemption waiver for dental medicine and odontology activities in Portugal. The case involves A... S.A., as the incorporating company following a merger, challenging VAT assessments issued to four incorporated dental clinic companies for the tax periods 2013-2016. The central dispute concerns the Tax Authority's interpretation that dental clinics could not waive the VAT exemption under article 9(1) of the Portuguese VAT Code (CIVA), arguing that the waiver provision in article 12(1)(b) applies only to services under article 9(2) – those provided in hospital settings with hospitalization capacity. The claimant contends this interpretation violates both Portuguese VAT law and EU VAT Directive principles. The case raises critical questions about the classification of dental services, the scope of exemption waivers for healthcare providers, and whether the Tax Authority's restrictive interpretation of 'hospital establishments' is legally sustainable. Additionally, the proceeding addresses procedural matters including the legitimacy of the merged entity to contest assessments, the provision of guarantees to suspend enforcement, and potential claims for compensation for undue guarantees under articles 171 of TCPP and 53 of LGT. This ruling has significant implications for dental practices and healthcare providers seeking to opt into the normal VAT regime to recover input VAT on their operational expenses.

Full Decision

ARBITRAL AWARD (consult full version in PDF)

The arbitrators Fernanda Maçãs (presiding arbitrator), Ana Teixeira de Sousa and Suzana Fernandes Costa (member arbitrators), designated by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 14-02-2018, decide as follows:

Report

A…, S.A., with registered office at …, n.º…, …– Rooms … to …, …-… Porto, with Tax Identification Number…, registered with the Finance Service of Porto –…(hereinafter "Claimant"), in the capacity of incorporating company, following a merger by incorporation operation, of the companies «B…, C…, Lda.», holder of Tax Identification Number…, «D… Lda.», holder of Tax Identification Number…, «E… Lda.», holder of Tax Identification Number…, and «F… Lda.», holder of Tax Identification Number…, came, pursuant to the provisions of paragraph a) of n.º 1 of article 2º and articles 10º et seq. of Decree-Law n.º 10/2011, of 20 January, in conjunction with paragraph a) of article 99º and paragraphs a) and d) of n.º 1 of article 102º, both of the Tax Code of Procedure and Process (TCPP), to submit a request for constitution of a collective arbitral tribunal and for an arbitral decision, with the Tax and Customs Authority (AT) as respondent.

The request for constitution of the arbitral tribunal was submitted on 30-11-2017 by the Claimant in accordance with the combined provisions of articles 2º and 10º of Decree-Law n.º 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters), with the Claimant having not proceeded to the appointment of an arbitrator.

The request for constitution of the arbitral tribunal was accepted by the Esteemed President of CAAD and automatically notified to the Tax and Customs Authority on 30-11-2018.

Pursuant to the provisions of paragraph a) of n.º 2 of article 6º and paragraph b) of n.º 1 of article 11º of LFAT, in the wording introduced by article 228º of Law n.º 66-B/2012, of 31 December, the Deontological Council designated the arbitrators of the collective arbitral tribunal who communicated their acceptance of the appointment within the applicable time period.

On 23-01-2018, the parties were duly notified of this designation and did not manifest any will to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11º n.º 1 paragraphs a) and b) of LFAT and articles 6º and 7º of the Deontological Code.

Thus, in compliance with the provisions of paragraph c) of n.º 1 of article 11º of Decree-Law n.º 10/2011, of 20 January, in the wording introduced by article 228º of Law n.º 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 14-02-2018.

The request for arbitral decision is submitted, with the aim, primarily, of declaring the illegality of the VAT assessments below, by reason of violation of law.

The Claimant raises two preliminary issues.

The first preliminary issue concerns the standing of the Claimant.

The Claimant, following a merger operation registered on 22 December 2016, as appears from Entry 12 AP… /… of the permanent commercial register certificate, incorporated into its sphere the following companies (hereinafter designated, abbreviated, as "Incorporated Companies"):

a) «B…, Lda.», holder of Tax Identification Number…;

b) «D...», holder of Tax Identification Number…;

c) «E...», holder of Tax Identification Number…; and

d) «F...», holder of Tax Identification Number….

Having succeeded them in all rights and obligations.

The Claimant is therefore the legitimate entity to contest the legality of all the assessments below identified, issued to the Incorporated Companies.

The second preliminary point concerns the non-payment of the assessments issued and provision of guarantee.

The Claimant chose not to pay the assessments issued.

The Claimant approached the AT demonstrating interest in suspending the enforcement proceedings (and likewise, requesting the joinder of all enforcement proceedings), through provision of a single guarantee in the form of a Surety Bond, with the AT requesting, through official letter, that instead four guarantees be presented – four surety bonds, one for each of the Companies.

The Claimant intends that, should the said surety bonds be accepted, the tribunal order the respondent to proceed to payment of the compensation provided for in articles 171º of TCPP and 53º of the General Tax Law (LGT), should the provided guarantee prove to be undue.

Should the said surety bonds not be accepted and another type of guarantee be requested, the Claimant maintains the request set out in the preceding point.

Finally, in the event that the Claimant proceeds to pay the tax or part thereof, it requests that recognition be given to the right to compensatory interest, calculated from the date of the mandatory payment, in accordance with articles 43º and 100º of the LGT and also article 61º of TCPP.

The Claimant seeks the annulment of the following VAT assessments:

Regarding B… the following additional VAT assessments, relating to the years 2013 to 2016:

Regarding D… the following additional VAT assessments, relating to the years 2013 to 2016:

Regarding E… the following additional VAT assessments, relating to the years 2013 to 2016:

Regarding F… the following additional VAT assessments, relating to the years 2013 to 2016:

The tax acts in question result from tax inspections carried out by the Tax Inspection Services of the AT for the years 2013 to 2016, which culminated with notification of the respective Tax Inspection Report.

The Claimant comes to request declaration of illegality and consequent annulment of the tax acts identified in articles 44º, 51º, 58º and 65º of the arbitration request, referring to the tax periods of the years 2013 to 2016, arguing that the interpretation of law carried out by the respondent is neither coherent with the provisions of the VAT Code, nor with the Community legislation that informs and harmonises this tax.

The Claimant bases the request on the following grounds:

The exemptions of article 9º of the VAT Code (VACC) are simple exemptions, incomplete, partial or which do not confer the right to deduct VAT supported.

In general, it is not possible to waive the exemptions provided for in article 9º of the VAT Code, with the cases in which this is permitted being the exception and corresponding to situations that are very particular and necessarily typified, expressly provided for in article 12º of the VAT Code.

One of the exemptions that contemplates the possibility of its waiver is, precisely, the exemption relating to the provision of medical and healthcare services and operations connected therewith effected by hospital establishments, clinics, dispensaries and similar establishments, not belonging to public law entities or to private institutions integrated into the national health system [See paragraph b) of n.º 1 of article 12º of the VAT Code].

Now in the reasoning relating to the entities incorporated into the Claimant, the AT considers that the taxable person could not waive the VAT exemption, by reason of the non-existence of a legal rule permitting it to do so, since "the waiver of the exemption provided for in paragraph b) of n.º 1 of article 12º of the VACC only applies to the exemption of n.º 2 of n.º 2 of article 9º of the VACC" and not to the exemption of n.º 1 of the same provision, where the Incorporated Company allegedly would be classified.

The AT argues that "the application of n.º 2 of the same normative provision [referring to article 9º of the VACC] depends on verification of the requirement/condition that the provision of medical assistance services must be effected in a hospital setting, and of the understanding that such service provision should be capable of being accompanied, where necessary, by the possibility of hospitalization".

The issue raised by the Tax Inspection Services was whether the Companies Incorporated into the Claimant, as clinics providing healthcare services on an outpatient basis, i.e., without the possibility of hospitalization, would be covered by the exemption provided for in n.º 2 or the exemption provided for in n.º 1 of article 9º of the VACC.

Given that the exemption provided for in n.º 2 of article 9º of the VACC permits waiver of the exemption and the exemption provided for in n.º 1 of the same article does not permit this.

The Claimant argues for the understanding that as a clinic providing healthcare service on an outpatient basis, it would be covered by the exemption provided for in n.º 2 of article 9º of the VACC;

That for this reason it was permitted the waiver of the exemption provided for in paragraph b) of n.º 1 of article 12º of the VACC;

The Claimant proceeds throughout its arbitration request to make various considerations concerning the interpretation to be given to articles 9º and 12º of the VACC, reiterating, in position differing from that conveyed by the AT, its classification within the exemption situation contemplated by n.º 2 of article 9º of the VACC permitting the waiver thereof provided for in paragraph b) of n.º 1 of the same normative collection;

To substantiate its request, the Claimant proceeded to attach an opinion on the question of waiver of VAT exemption;

The Claimant seeks, as extracted from its request:

the declaration of illegality of the underlying assessments,

the compensation provided for in articles 171º of TCPP and 53º of the LGT, should the guarantee provided prove to be undue, as well as

the right to compensatory interest calculated from the date of the mandatory payment, in accordance with articles 43º and 100º of the LGT and also article 61º of TCPP, should all or part of the tax be paid pending the present arbitration request.

In its response of 20-03-2018, the Respondent argues as follows:

As to the merits, the Respondent argues, among other things, that given that the activity of Dental Medicine and Dentistry is classified in article 9º, n.º 1, there is no possibility of waiver under paragraph b) of n.º 1 of article 12º of the VAT Code, by reason of the fact that this only applies to taxable persons exempt under n.º 2 of article 9º of the VAT Code.

According to the Respondent, the exemption provided for in n.º 1 of article 9º of the VAT Code operates independently of the legal nature of the service provider, namely, the fact that it is an individual or legal entity, since that exemption is based on paragraph c) of n.º 1 of article 132º of Directive 2006/112/EC, of the Council, of 28 November (which reformulated Directive 77/388/EEC, of the Council, of 17 May, commonly called the Sixth Directive).

In this regard, it cites the Judgment of the CJEU, of 06.11.2003, case n.º C-45/01, which reads:

"Since the exemption referred to in article 13°, A, n° 1, paragraph c), of the Sixth Directive 77/388 does not depend on the legal form of the taxable person providing the medical or paramedical services mentioned therein, the psychotherapeutic treatments provided by a private law foundation, through psychotherapists employed by it, may benefit from the said exemption."

For the AT what is at issue in this case is the provision of services in the area of Dental Medicine and Dentistry, which must be exempt, having regard to the purpose of that exemption, which is to guarantee the benefit of that service, independently of the legal nature of the service provider.

Therefore, having regard to the most elementary principles of interpretation of laws and having regard to strict compliance with the principle of neutrality, it is not possible to permit the waiver of the exemption of legal entities that carry out a specific activity, and if the same is carried out by an individual such is not permitted to them.

On the other hand, the AT argues that "the option for taxation of the operations carried out by the Claimant would only be admissible if the same were classified within the scope of n.º 2 of article 9º of the VACC and the option were previously communicated, by means of delivery of the declaration of commencement or of changes of activity, as the case may be, taking effect, always from the date of its submission" considering there to be at issue "a formal condition enunciated by the legislator as an essential/fundamental requirement for the taxable person to be able to opt for taxation of certain operations", sustaining this conclusion on the Judgment of the Southern Administrative Court of 21 May 2013, delivered in case n.º 05235/11.

The Respondent thus contends that the option for taxation of the operations carried out by the Claimant would only be admissible if the same were classified within the scope of n.º 2 of article 9º of the VAT Code and the option were previously communicated, by means of delivery of the declaration of commencement or of changes of activity, as the case may be, taking effect, always from the date of its submission.

By order of 21 March 2018, the meeting provided for in article 18º of LFAT was waived and it was decided that the case proceed with written arguments, of a successive character, within a period of 15 days. Further, 17 August 2018 was set as the deadline for the delivery of the award.

The Claimant submitted arguments on 10-04-2018 essentially citing a list of CAAD jurisprudence in cases 168/2015, 303/2015, 315/2015, 782/2015, 789/2015, 160/2016, 161/2016, 682/2016, all of them decisive in favour of the thesis sustained by the Claimant.

The Respondent submitted counter-arguments on 24-04-2018, questioning the unanimity and alignment of that jurisprudence, relating to the exercise of the right of waiver of the exemption of healthcare services, enshrined in article 12º of the VAT Code.

It mentions that it has been awaiting, for approximately one year, the Constitutional Court's ruling on this matter, which demonstrates that the question is not as simple as the Claimant and most of the decisions rendered appear to suggest.

It does not doubt that the waiver regime (constituting a faculty) should be carefully and specifically weighed having regard to the internal legal framework (admittedly divergent from the Community framework), to the detriment of vain generalizations that may collide with the neutrality of the tax.

Now, if the activity of provision of services in the area of Dental Medicine and Dentistry, carried out outside the hospital setting, is exempt from VAT, under the terms of article 9º n.º 1 of the VAT Code, whereby it is incapable of being waived, the principle of neutrality, fundamental in the common system of Value Added Tax – will be completely subverted when some are obligatorily required to fall under the exemption regime, being in open competition (in the sense that they provide the same type of services) with those who might possibly escape it through the waiver mechanism.

Determination of Issues

The Parties have legal personality and capacity, are legitimate and are represented (articles 4º and 10º, n.º 2, of the same decree-law and article 1º of Ordinance n.º 112-A/2011, of 22 March).

The companies «B…, Lda.», holder of Tax Identification Number…, «D… Lda.», holder of Tax Identification Number…, «E… Lda.», holder of Tax Identification Number…, and «F...», holder of Tax Identification Number … were incorporated into A…, S.A., Taxpayer N.º…, with registered office at …, n.º…, …, Rooms … to … … .Porto. The effects of the merger by incorporation are dated to 22.12.2016, as appears from Entry …/… of the commercial register certificate (Doc. 1 attached to the Arbitration Request). By force of the mentioned merger by incorporation operation, A… assumed the capacity of Claimant in the present case, as it became holder of all the rights and duties of the incorporated company, namely vis-à-vis the Tax and Customs Authority.

The case does not suffer from defects of nullity.

Matters of Fact

3.1. Proven Facts

The Claimant, following a merger operation registered on 22 December 2016, as appears from Entry 12 AP… /… of the permanent commercial register certificate, incorporated into its sphere the following companies (hereinafter designated, abbreviated, as "Incorporated Companies"):

a) «B…, Lda.», holder of Tax Identification Number…;

b) «D...», holder of Tax Identification Number…;

c) «E…», holder of Tax Identification Number…; and

d) «F...», holder of Tax Identification Number … (Doc. 1 attached to the Arbitration Request);

The Claimant carries out the activity of provision of medical care in the specialty Dental Medicine (CAE 86230 — Dental medicine and dentistry activities);

The AT proceeded as to B… to the assessment of additional VAT, relating to the years 2013 to 2016 in the amount of Euros 277.830,68 corresponding to additional VAT assessments in the amount of Euros 256.668,68 and Euros 21.161,68 as compensatory interest (Doc. 2 attached to the Arbitration Request);

The AT proceeded as to D... to the assessment of additional VAT, relating to the years 2013 to 2016 in the amount of Euros 171.047,51 corresponding to additional VAT assessments in the amount of Euros 159.389,49 and Euros 11.658,02 as compensatory interest (Doc. 3 attached to the Arbitration Request);

The AT proceeded as to E..., to the assessment of additional VAT, relating to the years 2013 to 2016 in the amount of Euros 66.723,33 corresponding to additional VAT assessments in the amount of Euros 61.234,82 and Euros 5.488,91 as compensatory interest (Doc. 4 attached to the Arbitration Request);

The AT proceeded as to F… Lda., to the assessment of additional VAT, relating to the years 2013 to 2016 in the amount of Euros 128.480,45 corresponding to additional VAT assessments in the amount of Euros 118.367,73 and Euros 10.112,72 as compensatory interest (Doc. 5 attached to the Arbitration Request);

In the declaration of commencement of activity, in the context of VAT, the companies incorporated into the Claimant registered themselves in the exemption regime without right to deduction (Response of the AT, as per Tax Inspection Reports);

For the four companies incorporated into the Claimant, a declaration of changes of activity was submitted in 2012, by means of which the Claimant, formally and correctly, waived the VAT exemption (fact not contested by the AT – Docs. 13, 15, 17 and 19);

The additional VAT assessments made by the AT originated from an external inspection motivated by a request for VAT refund by the entities incorporated into the Claimant (Docs. 13, 15, 17 and 19);

The external tax inspection of the Claimant, of general scope, covered the years 2013 and 2016;

The Claimant chose not to proceed with full payment of the additional VAT assessments and respective interest within the voluntary payment period, with the result that respective enforcement proceedings were instituted (Docs. 6 to 9);

The Claimant requested from the AT the suspension of the enforcement proceedings and joinder of all enforcement proceedings through provision of a single guarantee in the form of a Surety Bond (Doc. 10);

The said requests were sent to the AT on 21 November 2017, awaiting decision as to the offered surety bonds (Doc. 12);

3.2. Unproven Facts

It was not proven that the Claimant proceeded to payment of the tax in question, nor that the surety bond was formally accepted by the AT.

3.3. Reasoning for the Determination of Matters of Fact

The proven facts are based on the documents submitted with the arbitration request, in the administrative file, and on the position assumed by the parties and freely assessed by the Tribunal.

As to the Merits

4.1. FORMALIZATION OF WAIVER OF EXEMPTION

As is evident from the proven matters of fact, the four companies incorporated into the Claimant submitted a declaration of changes of activity in 2012, by means of which they formally and correctly waived the VAT exemption. This fact was not contested by the AT, and the same is evident from the tax inspection reports attached to the request as documents 13, 15, 17 and 19.

Now, if the AT considered that the option for the normal VAT regime was not in accordance with the formal requirements imposed, it would be obligatorily required to rule, within 30 days, on the declared elements (in accordance with article 35º n.º 3 of the VAT Code), as well as on any others of interest for the assessment of the situation, as is referred to in the award of CAAD in case n.º 681/2016-T.

In this case there was precisely at issue the provision of dental medicine and dentistry services in establishments open to the public, including the carrying out of medical consultations and a whole set of treatment and/or surgical acts within the scope of dental medicine, as well as complementary diagnostic tests, such as radiographs.

Should it have disagreed with the declared elements, the AT would also have to notify the Claimant, specifying the elements whose submission it deemed to be appropriate, as is required by n.º 4 of the said article 35º of the VAT Code.

Thus, given that the AT did not notify the incorporated companies of its disagreement with the declared elements, we can only conclude that the finance services did not detect any irregularity in the classification of the companies' activity in the normal VAT regime.

In these circumstances, the incorporated companies proceeded to assess VAT on all operations carried out within the scope of the activity developed, and to proceed with the deduction of VAT supported in the acquisition of goods and services, in accordance with the classification contained in the declaration of changes and accepted by the AT.

On this matter it is further worth noting that the situation described in the case is not equivalent to that under analysis in the judgment of the Southern Administrative Court of 21 May 2013, case n.º 05235/11, since here what was at issue was the exercise of a set of diverse activities, some subject and not exempt from VAT and others exempt without right to deduction – and the mixed taxable person would have "assumed inappropriate behavior incapable of enabling the assertion, conscientiously, of having acted as an 'integral taxable person'".

In the situation under analysis in the present case, the Claimant manifested its will for application of the normal VAT regime in the submission of the declaration of changes.

Article 12º n.º 2 of the VAT Code refers to the right of option being exercised by means of submission of the declaration of commencement or of changes, as the case may be, taking effect from the date of its submission.

Given that the AT did not disagree with the waiver of VAT exemption operated by the Claimant, it must be considered that the latter waived the VAT exemption, proceeding to assess VAT on the services provided and to deduct the VAT supported in the acquisition of goods and services.

4.2. CLASSIFICATION OF THE CLAIMANT'S ACTIVITY AND POSSIBILITY OF WAIVER OF VAT EXEMPTION

The issue to be decided in the present case has already been addressed in cases n.º 168/2015-T, 303/2015-T, 315/2015-T, 782/2015-T, 788/2015-T, 782/2015-T, 789/2015-T, 160/2016-T, 161/2016-T, 681/2016-T, all of CAAD.

It is thus important to decide on the classification of the Claimant's activity, in the context of VAT, and to decide if the same is capable of falling under the provisions of n.º 1 or n.º 2 of article 9º of the VAT Code (in which case there may be waiver of VAT exemption).

Let us examine the applicable legislation, namely articles 9º and 12º of the VAT Code.

Article 9º n.º 1 and 2 of the VAT Code refer to the following:

"Article 9º Exemptions in Internal Operations

The following are exempt from tax:

  1. Services provided in the exercise of the professions of physician, dentist, midwife, nurse and other paramedic professions;

  2. Medical and healthcare services and operations closely connected therewith provided by hospital establishments, clinics, dispensaries and similar establishments;"

And article 12º of the VAT Code prescribes for its part that:

"Article 12º Waiver of Exemption

1 - May waive the exemption, opting for application of tax to their operations;

b) Hospital establishments, clinics, dispensaries and similar establishments, not belonging to public law entities or to private institutions integrated into the national health system, which provide medical and healthcare services and operations closely connected therewith; (...)

2 - The right of option is exercised by means of submission, at any finance service or other legally authorized location, of a declaration of commencement or of changes, as the case may be, taking effect from the date of its submission".

These VAT exemptions are interconnected with article 132º of Directive n.º 2006/112/EC, of 28-11-2006, which establishes that:

1 - The Member States shall exempt the following operations: (...)

b) Hospitalization and medical care, as well as operations closely related thereto, provided by public law organisms or, on conditions of social analogy to those applying to the latter, by hospital establishments, medical care and diagnostic centers and other establishments of the same nature duly recognized;

c) Services of assistance provided in the exercise of medical and paramedic professions, as defined by the Member State in question;"

On the one hand, in accordance with the provisions of the said paragraph b) of n.º 1 of article 12º of the VACC it is permitted to waive the VAT exemption by hospital establishments, clinics, dispensaries and similar establishments, not belonging to public law entities or to private institutions integrated into the national health system, which provide medical and healthcare services and operations closely connected therewith. And, on the other hand, n.º 2 of article 9º of the VAT Code provides for the exemption of medical and healthcare services and operations closely connected therewith provided by hospital establishments, clinics, dispensaries and similar establishments.

Thus, it must be concluded that waiver of VAT exemption would only be possible if the activity developed by the Claimant were that of "medical and healthcare services and operations closely connected therewith provided by hospital establishments, clinics, dispensaries and similar establishments" and provided that the Claimant fell within the concept of "hospital establishments, clinics, dispensaries and similar establishments, not belonging to public law entities or to private institutions integrated into the national health system, which provide medical and healthcare services and operations strictly connected therewith".

In the AT's understanding the fields of application of paragraphs b) and c) of article 132º of Directive n.º 2006/112/EC correspond to the fields of application of n.ºs 2) and 1), respectively, of article 9º of the VACC. The AT concludes that "given that the activity of Dental Medicine and Dentistry is classified in article 9º n.º 1, there is no possibility of waiver under paragraph b) of n.º 1 of article 12º of the VAT Code, by reason of the fact that this only applies to taxable persons exempt under n.º 2 of article 9º".

Thus, for the AT, the Claimant's activity is classified in n.º 2 of article 9º of the VAT Code and not in n.º 1, and, consequently, it is not possible to waive the VAT exemption.

And as is referred to in the award of case n.º 681/2016-T, the AT's understanding of the Kügler Judgment has already been clarified by the CJEU, in the L.u.P. Judgment (of 08-06-2006, delivered in case n.º C-106/05), subsequent to the Kügler Judgment.

In the said L.u.P. Judgment it is stated that: "Article 13°, A, n.º 1, paragraph b), of Sixth Directive 77/388/EEC of the Council, of 17 May 1977, (...) must be interpreted to the effect that clinical analyses aimed at observation and examination of patients on a preventive basis, which are carried out, as those at issue in the main proceedings, by a private law laboratory external to a medical care establishment on the prescription of general practitioners, are liable to be covered by the exemption provided for by that provision as medical care provided otherwise".

In this judgment, the CJEU understood that: "since the clinical analyses are covered, having regard to their therapeutic purpose, by the concept of 'medical care' provided for in article 13°, A, n.º 1, paragraph b), of the Sixth Directive, a laboratory such as that at issue in the main proceedings must be considered an establishment of the 'same nature' as the 'hospital establishments' and the 'medical care and diagnostic centers' within the meaning of that provision".

Also in point 35 of the CJEU judgment De Fruytier, of 02-07-2015, delivered in case n.º C-334/14, in which the judgments L.u.P., C‑106/05, points 18 and 35 and CopyGene, C‑262/08, point 60, are cited, it can be read "that a private law laboratory carrying out clinical analyses must be considered an establishment 'of the same nature' as the 'hospital establishments' and the 'medical care and diagnostic centers' within the meaning of that provision, since those analyses are covered, having regard to their therapeutic purpose, by the concept of 'medical care'".

Indeed, as referred to in the decision of arbitration case 168/2015-T «it follows from the case law of the CJEU that the exemption provided for in paragraph b) of article 132º covers the services provided by entities similar to the Claimant, independently of whether the provision occurs or not in a hospital setting, an interpretation that is in manifest harmony with the text of this rule, in referring to the exemption of operations closely related to hospitalization and medical care provided by 'medical care and diagnostic centers'".

Thus, the conclusion to be drawn, as is evident in the award of CAAD cited above (case n.º 681/2016-T), is the following: in accordance with the case law of the CJEU, the exemption provided for in paragraph b) of article 132º covers the services provided by the Claimant of provision of medical care in the specialty dental medicine and dentistry, independently of whether the provision occurs or not in a hospital setting.

Regarding the classification of the Claimant's activity within the scope of the VACC, it is concluded as with the CAAD decisions previously cited, in the following terms:

As concerns article 9º of the VACC, the text of its n.º 2) does not provide explicit support for the thesis defended by the Tax and Customs Authority that only activity carried out in a hospital setting falls within it and, in particular, that clinical analysis and diagnostic services connected with hospital activities fall outside its scope. In fact, in this n.º 2) of article 9º reference is made, beyond hospital establishments, also to 'clinics, dispensaries and similar establishments'".

On the other hand, the reference to 'dispensaries' unequivocally covers the provision of healthcare services outside that hospital setting, since the meaning of 'dispensary' is that of 'a charitable establishment, for the treatment of patients with economic difficulties, giving them access to free consultations and medicines', or 'an establishment to provide, free of charge, care and medicines to poor patients who can be treated at home'".

Finally, the reference to 'similar establishments', interpreted in consonance with the parallel rule of paragraph c) of article 132º of Directive n.º 2006/112/EC, which refers to 'medical care and diagnostic centers and other establishments of the same nature', allows for the conclusion that entities of the type of the Claimant, which provides healthcare services of clinical analyses and diagnostic services in connection with hospital establishments, shall also fall within that concept. Indeed, we understand that the AT's understanding that the exemption applicable to the Claimant is not provided for in n.º 2 of article 9º of the VACC must be unfounded, and the option for waiver of VAT exemption is legitimate, in accordance with article 12º of the same Code.

Taking into account the above, the assessments issued to the Claimant suffer from the defect of violation of law, by error regarding the legal requirements.

For its part, the assessments of compensatory interest have as their legal requirement the VAT assessments with which they are integrated (n.º 8 of article 25º of the LGT), so they suffer from the same defect.

Accordingly, the Claimant's request should be judged to be well-founded and, as a result, the impugned assessments, including their respective compensatory interest, should be annulled.

4.3. PRELIMINARY REFERENCE

The Respondent, in its response, requests that a preliminary reference be ordered.

Now, the referral of the case to the CJEU, under the provisions of article 267º of the TFEU, for the purpose of defining the scope of the waiver of the said exemption regime, has already been the subject of decision in various Awards of CAAD, namely those delivered in Cases n.º 303/2015-T, n.º 315/2015-T, n.º 782/2015-T and n.º 789/2015-T.

As has been broadly evidenced, the recommendations to national judicial bodies relating to the presentation of preliminary reference cases (2012/C 338/01 of the CJEU), namely regarding the role of the Court of Justice within the scope of the preliminary reference procedure, go in the direction that the CJEU must interpret Union law or rule on its validity, and not apply this law to the factual situation underlying the main proceedings. That role is incumbent on the national judge and therefore it is not incumbent on the Court to rule on questions of fact raised within the scope of the litigation in the main proceedings or on any divergences of opinion regarding the interpretation or application of the rules of national law.".

In addition to all this, the very subject matter on which the AT seeks clarification, in generic terms, is not a matter regulated directly by European Union law, but rather left to the discretion of the Member States, which are competent to define the terms and scope of application of any possible right to waive the exemption.

Thus, under the terms of article 267º of the TFEU, the Court of Justice of the European Union would not have competence to proceed with the interpretation of domestic rules on waiver of exemption. And the same is true of the very interpretative doubts regarding the specific content of n.ºs 1 and 2 of article 9º of the VAT Code.

Finally, and as was concluded in the award of CAAD in case n.º 681/2016-T, given that there is European and national case law on the matter and the situation under analysis does not raise any real doubt as to the possibility of applying that case law to the specific case, permitting not only defining the scope of the exemption provided for in the VAT Directive and in n.ºs 1 and 2 of article 9º of the VAT Code, but also of the waiver of exemption provided for in article 12º of this Code, it falls to the national judicial bodies to interpret the specific content of the said rules.

Thus, we are not in a situation warranting a preliminary reference, so the request submitted by the AT is dismissed.

On the Claims for Compensation for Improperly Provided Guarantee and Compensatory Interest

The Claimant refers that it requested from the AT the suspension of the enforcement proceedings and joinder of all enforcement proceedings through provision of a single guarantee in the form of a surety bond, and that the said requests were sent to the AT on 21-11-2017, awaiting decision as to the offered surety bonds at the time of submission of the arbitration request.

However, as we have seen, it was not proven that, pending this action, the Claimant effectively provided guarantee in a tax enforcement proceeding.

On the other hand, it was also not proven that, pending this action, the Claimant proceeded to payment of the tax in question.

Article 43º of the LGT determines that "compensatory interest is due when it is determined, in administrative appeal or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount greater than legally due".

Thus, one of the conditions that must be satisfied for compensatory interest to arise is payment of the tax debt, as was decided in the Decision of CAAD delivered in case n.º 646/2017-T.

In these terms, given that proof has not been presented that, pending this action, payment of the tax debt was made, including compensatory interest, or any guarantee was provided, the claims are dismissed, both as to payment of compensation for improperly provided guarantee and as to payment of compensatory interest.

Decision

In these terms, and with the grounds set out, this Arbitral Tribunal decides:

to judge well-founded the claim formulated by the Claimant, in the present tax arbitration case, as to the illegality of the VAT assessments of the years 2013, 2014, 2015 and 2016, and respective assessments of interest, subject to the present arbitration request;

to judge without merit the claim for condemnation of the AT to payment of compensatory interest;

to judge without merit the claim for condemnation of the AT to payment of compensation for provision of undue guarantee.

Value of the Case

In accordance with the provisions of article 305º, n.º 2, of the Code of Civil Procedure and 97º-A, n.º 1, paragraph a), of TCPP and 3º, n.º 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at Euros 644.082,05.

Costs

In accordance with article 22º, n.º 4, of LFAT, the amount of costs is fixed at Euros 9.486,00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, charged to the Tax and Customs Authority.

Notify.

Lisbon, 26 July 2018.

The Arbitrators,

Fernanda Maçãs (President)

Ana Teixeira de Sousa (member)

Suzana Fernandes Costa (member)

Frequently Asked Questions

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What are the VAT exemption rules for dental medicine and odontology activities in Portugal?
Under Portuguese law, dental medicine and odontology services are generally VAT-exempt under article 9 of the VAT Code (CIVA). However, article 9(1) exempts services provided by medical professionals including dentists, while article 9(2) exempts services by hospital establishments and clinics. The critical distinction is that article 12(1)(b) of CIVA expressly permits waiver of the exemption only for services under article 9(2), not article 9(1). The Tax Authority interprets article 9(2) restrictively, requiring hospital settings with hospitalization capacity, which most dental clinics cannot meet. This interpretation prevents many dental practices from waiving the exemption and recovering input VAT, creating significant tax burdens on their operational costs.
How does the waiver of VAT exemption (renúncia à isenção) apply to healthcare services under Portuguese tax law?
The waiver of VAT exemption (renúncia à isenção) for healthcare services is governed by article 12 of the Portuguese VAT Code. Under article 12(1)(b), taxable persons may waive the exemption for medical and healthcare services provided by hospital establishments, clinics, dispensaries and similar facilities under article 9(2) of CIVA, provided they are not public entities or integrated into the national health system. The waiver must be communicated to the Tax Authority and allows providers to charge VAT on services while recovering input VAT on costs. However, the Tax Authority restricts this waiver to establishments capable of hospitalization, excluding most outpatient dental clinics. This interpretation conflicts with EU VAT Directive principles and creates competitive disadvantages for healthcare providers who cannot recover VAT on significant operational expenses.
Can a company claim compensation for undue guarantee (indemnização por garantia indevida) in VAT arbitration proceedings at CAAD?
Yes, under Portuguese tax law, a company can claim compensation for undue guarantee (indemnização por garantia indevida) in CAAD arbitration proceedings. Article 171 of the Tax Code of Procedure and Process (CPPT) and article 53 of the General Tax Law (LGT) establish the right to compensation when a taxpayer provides a guarantee to suspend tax enforcement proceedings and subsequently prevails in challenging the assessment. The compensation rate is set by law and runs from the date the guarantee was provided until its release. In this case, the claimant requested that if surety bonds were accepted and the assessments annulled, the tribunal order the Tax Authority to pay statutory compensation. Additionally, if the claimant pays the tax, article 43 and 100 of LGT and article 61 of CPPT provide for compensatory interest from the payment date.
How does a merger by incorporation affect the legitimacy of a party in Portuguese tax arbitration proceedings?
Under Portuguese tax law, a merger by incorporation transfers all rights and obligations from the incorporated companies to the incorporating company. In this case, A... S.A. incorporated four dental clinic companies in December 2016, as evidenced by commercial registry entries. Article 112(2) of the Tax Code establishes universal succession in tax matters, meaning the incorporating company acquires legitimacy (legitimidade) to contest tax assessments originally issued to the incorporated entities. The CAAD tribunal recognized this succession principle, accepting A... S.A.'s standing to challenge VAT assessments for periods 2013-2016 relating to all four incorporated companies. This procedural legitimacy is essential for merged entities to defend their tax positions in arbitration, ensuring that corporate restructuring does not eliminate the right to challenge unlawful assessments. The incorporating company stands in the shoes of the incorporated entities for all tax purposes.
What are the legal grounds for challenging VAT assessments through CAAD arbitration under Decree-Law 10/2011?
The legal grounds for challenging VAT assessments through CAAD arbitration are established in Decree-Law 10/2011 (RJAT - Legal Framework for Tax Arbitration). Article 2(1)(a) grants jurisdiction to tax arbitration tribunals over legality challenges to tax acts, including VAT assessments. Articles 10 and following govern the procedure for constituting the arbitral tribunal. The substantive grounds for challenge are set forth in article 99 of CPPT (illegality of the tax act) and article 102(1)(a) and (d) (substantive and procedural illegality). In this case, the claimant argued the Tax Authority violated Portuguese VAT Code provisions and EU VAT Directive principles through incorrect legal interpretation of exemption waiver rules. The arbitration request must identify the contested acts, factual and legal grounds, and desired relief. CAAD provides an alternative to judicial courts for resolving tax disputes, with decisions having the same effect as court judgments under article 24 of RJAT.