VAT Exemption for Specialized Nursing Services Under Article 9(1) CIVA – CAAD Case 708/2014-T

ARBITRAL AWARD

The Arbitrator José Pedro Carvalho (President), the Arbitrator Paulo Ferreira Alves and the Arbitrator Filipa Barros (arbitrator-assessors), designated by the Deontological Council of the Administrative Arbitration Centre (CAAD) to form the Arbitral Tribunal, constituted on 13 November 2014, agree as follows:

I – REPORT

A – PARTIES

On 10 November 2014, A… LDA., legal entity no. …, with registered office at …, no. … R/C DTO - …-. Lisbon, hereinafter referred to as Claimant or taxable person, requested, pursuant to the terms and effects of articles 2 and 10, both of Decree-Law no. 10/2011, of 20 January, the establishment of this Collective Arbitral Tribunal, with the Tax and Customs Authority (AT) being the respondent (which succeeded the General Directorate of Taxes, through Decree-Law no. 118/2011, of 15 December), hereinafter referred to as Respondent or AT.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD, and the Arbitral Tribunal was duly established on 13-10-2014, to hear and decide the subject matter of the present proceedings, and was automatically notified to the Tax and Customs Authority on 13-10-2014, as evidenced in the respective minutes.

The Claimant did not appoint an arbitrator, therefore, pursuant to the provisions of no. 1 of article 6 and of sub-paragraph b) of no. 1 of article 11 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 designated as arbitrators His Honour Dr. José Pedro Carvalho (President), His Honour Dr. Paulo Ferreira Alves and Her Honour Dr. Filipa Barros, with the appointment having been accepted in accordance with legal provisions.

On 27-11-2014 the parties were duly notified of this designation, and did not express any intention to refuse it, in accordance with article 11 no. 1, sub-paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

In accordance with the provisions of sub-paragraph c) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was duly constituted on 15-12-2014.

Thus, the arbitral tribunal is duly constituted, being materially competent, pursuant to articles 2, no. 1, sub-paragraph a), and 30, no. 1, of Decree-Law no. 10/2011, of 20 January.

The hearing provided for in article 18 of the RJAT was held on 20/03/2015, at the Administrative Arbitration Centre of CAAD, at Avenida Duque de Loulé, no. 72-A, in Lisbon, at 14:30, where the following witnesses presented by the Claimant were heard: Witness B… in the capacity of Clinical Director of the Nursing Centre A…., and Witness C… in the capacity of President of the Specialty College in Maternal and Obstetric Health.

The parties presented their arguments in writing.

The parties have legal personality and capacity, are legitimate and are legally represented (articles 4 and 10, no. 2, of the same decree and article 1 of Regulation no. 112-A/2011, of 22 March).

The proceedings do not suffer from defects that would invalidate them.

B – CLAIM

The Claimant seeks a declaration of illegality of the tax assessment acts for Value Added Tax nos. …, …, …, …, …, …, 2014 …, 2014 …, 2014 …, 2014 …, 2014 …, 2014 ..., 2014 …, 2014 …, and for Corporate Income Tax no. 2014 …, which set total tax payable at €76,336.10 (seventy-six thousand three hundred and thirty-six euros and ten cents).

C – GROUNDS FOR CLAIM

To substantiate its request for arbitral decision, the Claimant alleges, with a view to obtaining a declaration of illegality of the tax assessment acts for Value Added Tax (VAT) nos. …, …, …, …, …, …, 2014 …, 2014 …, 2014 …, 2014 …, 2014 …, 2014 …, 2014 …, 2014 …, and for Corporate Income Tax (CIT) no. 2014 …, in summary, the following:

The claimant argues that the tax assessment acts for VAT and CIT relate to the fiscal years 2011 and 2012.

As regards the tax assessment acts for VAT for the year 2011, these are respectively:

And for the year 2012:

The Claimant argues that the determination of VAT allegedly missing in the amount of €66,172.01, to which is added the VAT resulting from modification of the pro rata deduction, additional amount of €13,785.02, totalling €79,957.02.

To the VAT assessed are added compensatory interest in the total value of €6,924.88, such that the total value of tax and increases assessed amounts to €76,336.10.

The Claimant states that within the scope of CIT, the tax assessment act no. 2014 … was issued relating to the tax period of the year 2011, with a tax amount of €3,653.02, to which are added compensatory interest totalling €3,957.78.

Therefore, the total value of taxes (VAT and CIT and respective interest) amounts to €76,336.10, as the Claimant alleges.

The Claimant argues that it is a limited liability company established in 2007, and has as its business purpose: "childbirth preparation courses, post-partum preparation courses, yoga for pregnant women, pilates for pregnant women, baby massage, pediatric consultations, psychology consultations, speech therapy, psychotherapy, nutrition consultations, provision of maternal and child nursing care, namely performance of the heel prick test, assessment of the baby's weight, breastfeeding support and care for the mother in the puerperium, massages, physiotherapy, commercialization of childcare articles."

The Claimant further states that its activities correspond to the CAE's – (Economic Activity Codes) Primary, … and Secondary CAE …, in accordance with the Portuguese Classification of Economic Activities.

And that it is licensed as a private healthcare unit - nursing centre, pursuant to Decree-Law 279/2009 of 6/10, being holder of licenses no. …/2011 and …/2014, issued by the Regional Health Authority (ARS) of Lisbon and Vale do Tejo, IP, and is registered with the Health Regulatory Authority (ERS) as a healthcare provider since 2009, with two establishments: Centre E… - registration E… valid until 06/11/2014, whose technical director is Nurse B…, C. P. …-…-…; and Clinic F… - registration no. E…, valid until 06/11/2014, whose medical director is Dr. D… - Physician with specialty in Pediatrics C. P. ….

The Claimant further states that it is subject to the normal quarterly regime for VAT and the general taxation regime for CIT.

As regards VAT, the claimant alleges that it carries out taxable operations that confer the right to deduct VAT borne upstream, as well as operations that do not confer this right to deduction, pursuant to articles 19 and 20 of the VAT Code (CIVA), and therefore deducts tax on a pro rata basis.

In the scope of its activity, the Claimant states that it carries out some sales of residual value, of children's storybooks, energy cereal bars, breastfeeding support products, and other products related to the exercise of its economic activity, in the context of preparation for childbirth and breastfeeding.

The Claimant further states that its most relevant activity consists in the provision of the following services: Childbirth and Parenthood Preparation Courses; Post-Partum Recovery; Pediatric Consultations; Psychology Consultations; Nutrition Consultations; Nursing Consultations provided by nurses ...; Maternal and child nursing care, namely performance of the heel prick test, assessment of the baby's weight, breastfeeding support and care for the mother in the puerperium.

Moreover, it argues that it has as providers of these services, Nurses hired with specific technical and professional qualifications for the exercise of the profession, namely for possessing a Degree in Nursing with specialty in Maternal and Obstetric Health, in accordance with the terms established in Law no. 9/2009, of 4 March.

The Claimant argues that Law no. 9/2009, of 4.3 confirms in its Annex II, point 5.2 that the title of "Midwife" is equivalent in Portugal to the profession of "Nurse Specialist in Maternal and Obstetric Health".

The Claimant bases its position on the argument that it has proven that it effectively provided the specialized nursing services in question, by Graduates with the appropriate qualifications to prepare and deliver childbirth preparation and parenthood courses, being legally qualified to conduct them as it actually had the human resources endowed with the technical and scientific qualifications for that purpose.

Moreover, it argues that it was requested several times by Higher Education Schools for requests to provide Clinical Internship Teaching in courses.

The Claimant argues that it proves that it is an entity qualified to receive this Clinical Trial training for students in the 3rd year of the Nursing Degree, possessing both the courses that allow this practice to be acquired, and the professionals qualified to teach them.

As for the question of the grounds for the corrections made, the Claimant maintains its position, in the sense of not accepting the classification made by the AT services regarding the provision of services, relating to childbirth preparation courses, as it considers that the classification made by the AT inspection services of its activity is incorrect and also for another relevant set of reasons.

The Claimant indicates as reasons for its non-acceptance of the classification made by the AT, since its activity developed consists in the provision of three basic types of services: Childbirth and Parenthood Preparation Courses comprise a birth preparation program, designed, supervised and delivered by nurses .../Midwives, in accordance with Directive 35/2005/CE, with Regulation no. 127/2011 of 18/02 and with Recommendation no. …/2012 of the Specialty College of Nursing in Maternal and Obstetric Health of the Order of Nurses.

It further states that the said program consists of informative nursing consultations and monitoring of pregnancy, by the preparation of the birth plan, exercises for pelvic floor toning and positioning techniques during labour and expulsion period, breathing and relaxation techniques, aimed at the prevention, detection, diagnosis and treatment of risks and anomalies during pregnancy with a view to a healthy delivery, as well as the promotion of maternal and child health, includes nursing consultations in the pre and post-partum period, including breastfeeding consultations, early diagnosis test and assessment of the baby and the puerperal woman, and allows access to the "SOS" information line that operates 24 hours a day 365 days a year, with assistance provided by nurses ....

The second service, relating to childbirth preparation classes which include the following services provided to the client: monthly monitoring or according to the needs of the user, regarding the anatomy and physiology of labour, exercises for pelvic floor toning and positioning techniques during labour and expulsion period, breathing and relaxation techniques, and includes nursing consultations in the pre and post-partum period, including breastfeeding consultations, early diagnosis test and assessment of the baby and the puerperal woman, and allows access to the "SOS" information line that operates 24 hours a day 365 days a year, with assistance provided by nurses ....

And the third service, Post-Partum Recovery, which includes the following services provided to the client: nursing support in breastfeeding and post-partum recovery, exercises for pelvic floor toning, nursing consultations, in coordination with the pediatric consultation and with auxiliary diagnostic means (e.g., heel prick test), services also provided by the taxpayer, aimed at the prevention, detection, diagnosis and treatment of risks and anomalies in the puerperium period (post-partum), includes nursing consultations in the pre and post-partum period, including breastfeeding consultations, early diagnosis test and assessment of the baby and the puerperal woman, and allows access to the "SOS" information line that operates 24 hours a day 365 days a year, with assistance provided by nurses ....

The Claimant argues that the classification it has given to the services it provides – exempt from VAT pursuant to no. 1 of article 9 of CIVA - is exactly the same as that given by the generality of Portuguese service providers of the same Economic Activity Code that provide this same type of service.

Which in its view means that the VAT classification of the provision of services made by the aforementioned A… Lda. is in line with the classification made in this tax by other companies in the market globally considered.

The Claimant alleges, in the light of article 9 no. 1 of CIVA, and in accordance with the case law of the Court of Justice of the European Union, that the provision of services relating to Childbirth and Parenthood Preparation Courses, childbirth preparation classes and post-partum recovery services, carried out in the context of the exercise of paramedical professions, provided that certain requirements required by the Member States are met, regardless of the nature of the service provider, are exempt from VAT in accordance with article 9 of CIVA.

Moreover, it contends that it complies with all legal requirements regarding midwifery nursing services provided by it.

The Claimant alleges that it provides services specific to Nurses specializing in maternal health, obstetrics and gynecology, which constitute nursing acts, specific to the profession, which can only be performed by professionals registered with the Order of Nurses holding the academic and professional qualifications that enable them to perform them.

It argues that these services are economic operations that constitute service provisions made in the full exercise of the nursing profession, which fall under article 9 no. 1 of CIVA, and are exempt from it, as they are services specific to nursing activity as they materialize the specific competencies of the nurse specialist in maternal health nursing, obstetrics and gynecology, to whom falls the design, planning, coordination, supervision, implementation and evaluation of programs of complete preparation for childbirth and responsible parenthood.

Moreover, the Claimant further argues, regarding these same service provisions, that the Order of Nurses, through the Office of the Dean, by means of Official Letter …/…, no. …, requested the VAT Administration Services that a characterization in VAT of nursing acts be carried out, including those performed by Nurses specializing in maternal health, obstetrics and gynecology, and should therefore be considered as falling under no. 1 of article 9 of CIVA and be exempt from VAT in accordance with the terms provided therein.

The Claimant further alleges that the structure of the courses taught complies with the conditions set out both in Recommendation no. …/2012 and in Opinion no. …/2014, insofar as the courses it teaches include, in their structure, an initial consultation, specialized, conducted by a nurse specialist in maternal health and obstetrics for assessment of the expectations and needs of the woman/couple; preparation for childbirth/delivery and parenthood will always have the objective of enabling the woman/couple to experience and live a gratifying and comfortable delivery; and therefore such courses have a theoretical component, covering all aspects mentioned in the said Recommendation and a practical component, in the same terms.

Whereby it is demonstrated, in the Claimant's view, that the services provided are nursing assistance services in healthcare integrated in the said courses and, as they comply with all requirements demanded, they fall under no. 1 of article 9 of CIVA, being therefore exempt from tax, with all legal effects.

The Claimant presented its arguments in writing, in which it argued that it proved and demonstrated by means of witness evidence, documentary evidence and in accordance with the scope of its request for arbitral constitution, the classification of its service provisions under VAT, and that these services are in line with the classification made under this tax by other companies in the market globally considered exempt from VAT in accordance with article 9 no. 1 of CIVA, and therefore should be considered as exempt on those grounds.

The Claimant concludes the substantiation of its claim and in its arguments, arguing that the act of VAT assessment and other legal additions is defective due to error regarding the factual assumptions and error regarding the legal assumptions and violation of law, and needs to be entirely annulled.

D – RESPONSE OF THE RESPONDENT

The Respondent, duly notified for that purpose, presented its response in a timely manner in which, in abbreviated summary, it alleged the following:

The Respondent argues that the tax inspection report (RIT) reveals other corrections whose grounds differ from those which the Claimant invokes in its request for arbitral decision, in particular that the operations carried out in the context of childbirth preparation and post-partum recovery courses are exempt from VAT pursuant to no. 1 of article 9 of CIVA.

The Respondent further argues that, in accordance with an opinion appended to the final report, within the scope of the said inspection action it was found that:

"[…] 2. During the fiscal year 2011. The taxpayer A…, Lda., did not proceed to assess the VAT due for various services provided in the context of 'childbirth preparation courses' in accordance with the provisions of no. 1 of article 9 of CIVA.

However, and as explicitly set out in detail in the report, although these services are related to the healthcare sector, and even though taught by competent professionals in that area, namely specialist nurses and pediatrician, because they exceed the scope of the said exemption, being subject to taxation at the standard rate in force in accordance with sub-paragraph c) of no. 1 of article 18 of CIVA.

A…, Lda., is a mixed taxpayer that applied the pro-rata in fiscal year 2011. The subjection to VAT of services provided related to childbirth determines the recalculation of the percentage of VAT deduction, in accordance with article 23 of CIVA, which amounts to 13,785.05, value corrected to the taxable income for CIT […]"

The Respondent argues that the arguments presented by the Claimant, regarding the benefit of the exemption provided in no. 1 of article 9 of CIVA for childbirth/birth preparation courses and post-partum recovery, are manifestly unfounded.

The Respondent equally argues that the exemption is intended to exempt service provisions made in the exercise of the professions of physician, dentist, midwife, nurse and other paramedical professions. However, in order for the exemption to apply to the services in question, it is necessary that they involve the establishment of diagnoses, treatment or prevention of diseases.

The Respondent further alleges that the Claimant, in the context of the said courses, does not conduct clinical monitoring of the pregnancy, does not ensure the diagnosis of possible diseases, and also, in the context of these courses, the Claimant does not conduct treatment of diseases that may arise during pregnancy.

The Respondent further states that the services provided by the Claimant in the context of childbirth and parenthood preparation courses and post-partum courses do not have as their objective the diagnosis or treatment of diseases or any other health anomaly.

The Respondent alleges that the said courses are essentially directed at teaching parents physical exercises for pelvic floor toning and positioning techniques during labour, breathing and relaxation techniques and post-partum recovery exercises.

The Respondent further states that none of the courses advertised by the Claimant on its website makes reference to any diagnostic and treatment service for diseases or any health anomaly.

And that the courses are not intended to ensure clinical monitoring of pregnancy.

The respondent argues that the services provided in the context of the said courses, despite being related to the healthcare area, exceed the objective scope of application of the exemption provided in no. 1 of article 9 of CIVA, being subject to taxation at the standard rate in force in accordance with sub-paragraph c) of article 18 of CIVA.

The Respondent presented its arguments in writing, in which it maintained its argument as described in its response, and argued that from the production of witness evidence carried out at the request of the Claimant, it results that the factual grounds underlying the corrections made by the Tax Inspection Services are not susceptible to being affected, in particular.

The Respondent further argued that it was not proven that the childbirth and parenthood preparation courses, as well as post-partum courses, taught by the Claimant, have as their objective the diagnosis or treatment of diseases or any other health anomaly, as would be required for them to fall under article 9, no. 1, of CIVA.

The Respondent concludes its substantiation by concluding that the present request for arbitral decision should be judged unfounded, all with the due and legal consequences.

E – FACTUAL FINDINGS

Before proceeding to the examination of these questions, it is necessary to present that the relevant factual matter for its respective understanding and decision was carried out on the basis of documentary and witness evidence, taking into account the alleged facts.

In terms of relevant factual matter, the present tribunal accepts as proven the following facts:

1. The Claimant was notified of the tax assessment acts for additional Value Added Tax nos.:

a. …, relating to the VAT period 1103T, in the amount to be assessed of €7,819.09;

b. …, relating to the VAT period 1103T, for payment of compensatory interest in the amount of €931.44;

c. …, relating to the VAT period 1106T, in the amount to be assessed of €28,113.88;

d. …, relating to the VAT period 1106T, for payment of compensatory interest in the amount of €3,065.57;

e. …, relating to the VAT period 1109T, in the amount to be assessed of €23,259.55;

f. …, relating to the VAT period 1109T, for payment of compensatory interest in the amount of €2,301.74;

g. 2014 …, relating to the VAT period 1203T, in the amount to be assessed of €691.33;

h. 2014 …, relating to statement of account correction for VAT period 1203T, in the amount to be assessed of €89.02, referring to interest;

i. 2014 …, relating to the VAT period 1206T, in the amount to be assessed of €2,260.43;

j. 2014 …, relating to statement of account correction for VAT period 1206T, in the amount to be assessed of €250.74, referring to interest;

k. 2014 …, relating to the VAT period 1209T, in the amount to be assessed of €1,925.62;

l. 2014 …, relating to statement of account correction for VAT period 1209T, in the amount to be assessed of €179.95, referring to interest;

m. 2014 …, relating to the VAT period 1212T, in the amount to be assessed of €1,383.54;

n. 2014 …, relating to statement of account correction for VAT period 1212T, in the amount to be assessed of €106.42, referring to interest;

1. The Assessment Acts referred to fixed a value of VAT tax payable for the year 2011 of €59,192.52, and for the year 2012 in the amount of €6,260.92, totalling €65,491.27 increased by compensatory interest in the amount of €6,298.75 for the year 2011 and €626.13 for the year 2012 in the total compensatory interest of €6,924.88, totalling an amount to be assessed by the Claimant in the amount of €72,378.32.

2. The Claimant was notified of the additional tax assessment act for Corporate Income Tax no. 2014 …, relating to the period 2011, which fixed additional CIT tax to be assessed of €3,653.02.

3. The Claimant was thus notified for the payment of taxes (VAT and CIT and respective interest) in the total amount of €76,031.34 (€72,378.32 + €3,653.02).

4. Pursuant to Service Order no. OI…, of 30/01/2012, the Claimant was subject to external and general scope inspection procedure with reference to the year 2011.

5. Having been notified to exercise the right of prior hearing regarding the draft report, the Claimant did not exercise its right of prior hearing.

6. In the final report of the inspection procedure the AT concluded for the corrections in VAT, leading to the assessments above identified.

7. In the report it was further concluded that the correction should be made in CIT, regarding fiscal year 2011, leading to the corresponding assessment also above identified, with the following grounds:

"As mentioned in point 4.2.1, in light of the corrections in VAT and the recalculation of the percentage of tax deduction, the taxpayer will be able to deduct the VAT borne in full, thus the amounts carried to expenses and accounted for in account 68122-Value added tax (non-deductible), will have to be added in Table 07, of Form 22."

1. The Claimant is a limited liability company established in the year 2007, and has as its business purpose: "childbirth preparation courses, post-partum preparation courses, yoga for pregnant women, pilates for pregnant women, baby massage, pediatric consultations, psychology consultations, speech therapy, psychotherapy, nutrition consultations, provision of maternal and child nursing care, namely performance of the heel prick test, assessment of the baby's weight, breastfeeding support and care for the mother in the puerperium, massages, physiotherapy, commercialization of childcare articles."

2. The Claimant develops its activity corresponding to the CAE's – (Economic Activity Codes) Primary …-… and Secondary CAE …-…, in accordance with the Portuguese Classification of Economic Activities.

3. The Claimant is licensed as a private healthcare unit - nursing centre, pursuant to Decree-Law 279/2009 of 6/10, being holder of licenses no. …/2011 and …/2014, issued by the Regional Health Authority (ARS) of Lisbon and Vale do Tejo, IP, and is registered with the Health Regulatory Authority (ERS) as a healthcare provider since 2009, with two establishments:

a. Centre E…- registration E… valid until 06/11/2014, whose technical director is Nurse … B…, C. P. …-…-…; and

b. Clinic F… - registration no. E…, valid until 06/11/2014, whose medical director is Dr. D… - Physician with specialty in Pediatrics C. P. ….

1. Among its collaborators, the Claimant has physicians and nurses with specific technical and professional qualifications for the exercise of the profession, by possessing degrees in nursing with specialty in Maternal and Obstetric Health, which pursuant to Law no. 9/2009 of 4 March, qualifies them to exercise the activity of "Midwife".

2. In the scope of its activity, the Claimant carries out some sales of residual value, of children's storybooks, energy cereal bars, breastfeeding support products, swimming classes for babies and other products related to the exercise of its main economic activity.

3. In the context of its main activity of preparation for childbirth and breastfeeding, the Claimant centers its most relevant activity in the provision of the following services:

a. Childbirth and Parenthood Preparation Courses;

b. Post-Partum Recovery;

c. Pediatric Consultations;

d. Psychology Consultations;

e. Nutrition Consultations;

f. Nursing Consultations provided by nurses ...;

g. Maternal and child nursing care, namely performance of the heel prick test, assessment of the baby's weight, breastfeeding support and care for the mother in the puerperium.

1. The Claimant is subject to the normal quarterly regime for VAT and the general taxation regime for CIT.

2. The Claimant accounted as an expense of fiscal year 2011, in question, the total amount of €52,761.23 for services provided to it by Nurses specializing in maternal and child health.

3. In the inspection report, the AT understood that the operations carried out by the Claimant in the context of childbirth preparation and post-partum recovery, under the designations "Childbirth and Parenthood Preparation Courses", "Childbirth Preparation Classes", "Post-Partum Recovery Services", are not exempt under no. 1 of article 9 of CIVA and should have been taxed at the standard rate in force in accordance with sub-paragraph e) of no. 1 of article 18 of CIVA (23%).

4. Furthermore, the inspection detected that the Claimant provided "Baby Swimming" services, and considered that these did not fall within the said exemption, and should be taxed at the VAT rate of 23%, in accordance with sub-paragraph c) of no. 1 of article 18 of CIVA, due to lack of classification in the different items of the Lists Annexed to CIVA, and was therefore also subject to correction, covering the following invoices:

[Details of invoices omitted as per original redaction pattern]

1. Also regarding the service provided, which is reported in invoice no. FT … of 23/12/2011, with the description "Training - Seminar", and the value of €360.00, since it was not the case of an entity recognized as having competence in the fields of vocational training, by the competent ministry, as determined by no. 10 of article 9 of CIVA, correction was also made, and the standard rate of tax was applied, corresponding to €82.80 of VAT.

2. The "Childbirth and Parenthood Preparation Courses" comprise a birth preparation program, designed, supervised and delivered by nurses .../Midwives.

3. The program consists of informative nursing consultations and monitoring of pregnancy, by the preparation of the birth plan, exercises for pelvic floor toning and positioning techniques during labour and expulsion period, breathing and relaxation techniques, aimed at the prevention, detection, diagnosis and treatment of risks and anomalies during pregnancy with a view to a healthy delivery, as well as the promotion of maternal and child health.

4. Nursing consultations in the pre and post-partum period are included, including breastfeeding consultations, the assessment of the baby and the puerperal woman, the performance of examinations using auxiliary diagnostic means namely, Pinard stethoscope, Doppler – Portable Digital Detector, CTG (cardiotacograph) – for graphical recording of fetal heart rate and uterine contractions, measurement of uterine height to assess baby growth during pregnancy, and in the post-partum period, aimed at preventing and treating pathologies such as mastitis and fissures and inverted nipples, promoting healthy breastfeeding, and the performance of the heel prick test on the baby.

5. The contracting of the service in question allows access to the "SOS" information line that operates 24 hours a day 365 days a year, with assistance provided by nurses ... (Maternal, Obstetric and Gynecological Health Nursing).

6. "Childbirth Preparation Classes" include the following services provided to the client:

a. Monthly monitoring or according to the needs of the user regarding the anatomy and physiology of labour, exercises for pelvic floor toning and positioning techniques during labour and expulsion period, breathing and relaxation techniques;

b. Nursing consultations in the pre and post-partum period, including breastfeeding consultations, early diagnosis test and assessment of the baby and the puerperal woman.

c. Access to the "SOS" information line that operates 24 hours a day 365 days a year, with assistance provided by nurses ....

1. "Post-Partum Recovery Services" included the following services provided to the client:

a. Nursing support in breastfeeding and post-partum recovery, exercises for pelvic floor toning, nursing consultations, in coordination with the pediatric consultation and with auxiliary diagnostic means (such as heel prick test), aimed at the prevention, detection, diagnosis and treatment of risks and anomalies in the puerperium period (post-partum);

b. Nursing consultations in the pre and post-partum period, including breastfeeding consultations, early diagnosis test and assessment of the baby and the puerperal woman;

c. Allows access to the "SOS" information line that operates 24 hours a day 365 days a year, with assistance provided by nurses ....

1. Portuguese companies in the same sector as the Claimant - Hospital G…- qualify the services provided by them, identical to those referred to, as exempt from VAT in accordance with the said article 9 of CIVA (incomplete exemption).

2. From the Claimant's website (http://www.....com), it appears, among other things, that the childbirth and parenthood preparation course is "comprised of theoretical-practical sessions, where our team will address various issues related to pregnancy, childbirth and baby care."

3. In the description of the 8 theoretical-practical sessions it can be read, among other things, that: "It is comprised of 7 theoretical-practical sessions, once a week (…) plus a gymnastics class for pregnant women."

4. As for the post-partum classes, it can be read, among other things, that: "1 week of classes (5 classes) where you will begin your physical recovery."

5. Regarding the course designated "Post-Partum Recovery", the same includes, among other things, recovery gymnastics classes, body assessment sessions, baby sitting services and walks.

F – UNPROVEN FACTS

Of the facts of interest for the decision of the case, contained in the challenge, all subject to concrete analysis, those not contained in the factuality above described were not proven.

G – ISSUES FOR DECISION

Given the positions of the parties assumed in the arguments presented, the central issue to be resolved is the following, which must therefore be examined and decided:

The preliminary question alleged by the Respondent of the exception of lack of competence of the arbitral tribunal to hear the arbitral claim.

The declaration of illegality of the tax assessment acts for Value Added Tax nos. …, …, …, …, …, …, 2014 …, 2014 …, 2014 …, 2014 …, 2014 …, 2014 …, 2014 …, 2014 …, and for Corporate Income Tax no. 2014 … alleged by the Claimant.

D – EXCEPTION OF LACK OF COMPETENCE OF THE ARBITRAL TRIBUNAL TO HEAR THE CLAIM

In the present Arbitral Proceedings, the Respondent raises the procedural exception of lack of competence of the arbitral tribunal in accordance with article 552 of the CPC, applicable subsidiarily in accordance with article 29, no. 1, sub-paragraph e) of the RJAT.

The Respondent argues its position by alleging that the constitution of an Arbitral Tribunal for the examination of the legality of a diversity of VAT assessments and also for the assessment of CIT no. 2014 …, such that, once the claim presented has been reviewed, it is not possible to identify any reference to the CIT assessment mentioned, and instead there is a complete absence of substantiation, by the Claimant, regarding the same. A fact which, moreover, is corroborated by the content of the last point of the conclusions prepared by the Claimant.

Thus, the Respondent alleges that in accordance with article 552 of the CPC, applicable ex vi article 29, no. 1, sub-paragraph e) of the RJAT, in the initial petition the Plaintiff must not only state the essential facts that constitute the grounds for the claim but also the legal reasons that serve as the basis for the action.

The Respondent concludes that there exists a procedural exception that prevents the tribunal from hearing the claim, and therefore the Respondent should be absolved of the proceedings, in view of the provisions of articles 576, no. 1 and 577, sub-paragraph b) of the CPC, applicable ex vi article 29, no. 1, sub-paragraph e) of the RJAT.

In response to the Exception invoked by the Respondent, the Claimant, duly notified for that purpose, in summary, alleged the following:

The exception raised by the AT lacks foundation and sense because, although the classification under VAT of the operations that constitute the object of the present action is in dispute, from that classification, defended in the Examination Report by the inspection agents, resulted equally, in a direct and consequential manner, corrections of CIT in the terms described on page 19 of that Report, where it reads: "As mentioned in point 4.2.1, in light of the corrections in VAT and the recalculation of the percentage of tax deduction, the taxpayer will be able to deduct the VAT borne in full, thus the amounts carried to expenses and accounted for in account 68122-Value added tax (non-deductible), will have to be added in Table 07, of Form 22."

The Claimant further argues that the corrections in CIT are instrumental to that classification under VAT, but have as their direct and immediate grounds such changes in classification, as they were considered in the Examination Report and based on the qualification that was in that same report.

It is not therefore true the alleged absence of substantiation regarding the correction under CIT, what happens is that this correction presents itself as merely instrumental or ancillary in relation to the corrections under VAT and, to that extent, has no autonomous grounds.

Thus, the Claimant argues that there is nothing inept or strange about the reference to the correction and assessment under CIT, to the extent that it has as its grounds or direct cause the classification corrections under VAT, contested in the initial petition, and that, once the Claimant is given reason regarding the classification under VAT of these operations, the CIT correction ceases to make sense, disappearing as a mere direct effect of that recognition.

The Claimant concludes by arguing that there is thus no omission on the part of the claimant in the allegation of the facts that constitute the grounds for the claim in the present action, since the Grounds for the claim, or cause petendi, denotes the set of facts to which the claimant attributes the legal effect it desires.

Let us examine:

In the preamble of its initial Request, the Claimant requests arbitral decision on the following acts:

i. VAT assessments nos. …, …, …, …, …, …, 2014 …, 2014 …, 2014 …, 2014 …, 2014 …, 2014 …, 2014 …, 2014 … for 2011 and 2012; and

ii. CIT assessment no. 2014 … for 2011.

The Claimant proceeds, in articles 1, 3 and 4 of its initial Request, repeating the identification of all those tax acts, including the one relating to CIT, adding their respective amounts and the corresponding compensatory interest.

And the Claimant refers, in article 13 of the same Request, that "it is subject to (…) the general taxation regime for CIT".

The Claimant concludes its initial Request, requesting that:

"it be declared that the tax assessment acts impugned, above identified, are invalid, and that these assessments be annulled, with all legal consequences."

There can thus be no doubt that, contrary to what the Respondent argues, once the claim presented has been reviewed, it is possible to identify (by reference to the preamble and articles indicated of the Initial Request) the appropriate reference to the CIT assessment whose annulment is sought by the Claimant.

It will be another matter to determine whether or not the legal grounds for fact and law are properly alleged, in the sense of the annulment sought. This question, in fact, does not have a preliminary nature as to the merits, but rather can only be resolved, precisely, within the scope of that examination of the merits.

Nor is there, contrary to what the AT alleges, any lack of grounds for the claim. In fact, the Claimant alleges facts and invokes norms which, in its understanding, will support the legal solution it wishes to be given to the case. Whether or not this happens is a matter relating to the merits of the case, and not to the existence or otherwise of grounds for the claim.

Thus, and in light of the foregoing, the exception raised by the AT should be dismissed.

H – LEGAL MATTERS

Classification under VAT

1. Programs for Childbirth and Parenthood Preparation

First, and from the point of view of VAT, it is important to examine whether article 9 no. 1 of the VAT Code applies to the services provided by the Claimant which, in substance, carries out the activity of carrying out childbirth and parenthood preparation courses, as well as post-partum recovery activities, pediatric consultations, psychology, nutrition, nursing consultations provided by nurses ..., and maternal and child nursing care, which include, in particular, the performance of the heel prick test, the assessment of the baby's weight, breastfeeding support and care for the mother in the puerperium (Economic Activity Codes (CAE) Primary …-… and Secondary CAE …-…).

It should be added that the Claimant is a limited liability company that is licensed as a private healthcare unit – Nursing Centre, pursuant to Decree-Law 279/2009 of 6/10, being holder of licenses issued by the Regional Health Authority of Lisbon and Vale do Tejo, which qualify it to develop its activity through two establishments registered with the Health Regulatory Authority, as a healthcare provider since 2009, namely:

a) Centre E… for which technical responsibility falls to nurse ... B…

b) Clinic F… whose medical director is Dr. D…, physician with specialty in pediatrics.

Among its collaborators, the Claimant has physicians and nurses with specific technical and professional qualifications for the exercise of the profession, by possessing degrees in nursing with specialty in Maternal and Obstetric Health, which pursuant to Law no. 9/2009 of 4 March, qualifies them to exercise the activity of "Midwife".

The Tax and Customs Authority (AT) considered that these services should be subject to VAT, on the grounds that, although neither the licensing nor the qualification of the technical staff serving the Claimant to perform such functions is contested, it was not proven that the services in question ensure the establishment of diagnoses, treatment or prevention of diseases, conditions necessary for the application of the exemption provided in no. 1 of article 9 of the VAT Code.

In this context, the AT emphasizes that childbirth preparation courses and post-partum, could be taught entirely without any act having the characteristics of diagnosis, treatment or prevention of diseases, these assuming an accessory nature in relation to the core of the Claimant's activity. Thus, in the AT's view, it was demonstrated that the Claimant's services are fundamentally translated into "teaching parents physical exercises for pelvic floor toning, positioning techniques during labour, breathing and relaxation techniques, sharing of information and post-partum recovery exercises."

In our opinion, the AT is not correct, and there are several elements of evidence produced in the case and interpretive aids that point precisely in the opposite direction to its argument.

For this purpose, it is important to take into account the rules governing VAT in accordance with European Union Law, with its transposition at the internal level and with the administrative and judicial interpretation that has been conducted on the same, especially by the Court of Justice of the European Union (CJEU). In fact, it is universally understood that the case law of the CJEU has a binding character for national Courts, when it concerns questions relating to European Union Law.

Let us examine the question starting with the applicable legal provisions.

Article 9 of the VAT Code lists certain operations which, being considered of general or social interest and with important purposes, are covered by the exemption provided in this article, seeking to relieve, both administratively and financially, the activities identified therein.

In accordance with no. 1 of article 9 of the VAT Code, the following are exempt from tax, "The provision of services provided in the exercise of the professions of physician, dentist, midwife, nurse and other paramedical professions."

In its literal formulation, article 9 no. 1 of the VAT Code provides no support for the restriction that the AT seeks to introduce in order to exclude from VAT exemption, services provided by entities such as the Claimant, licensed as private healthcare units, which have among their collaborators midwife nurses and pediatrician physicians, being qualified for the development of pre-partum preparation programs and post-partum monitoring, whose medical and healthcare nature results directly from the law.

It is known that among the general principles of interpretation of law, contained in the Civil Code, is that which prohibits the interpreter from considering "the legislative thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed."

Also in the interpretation of tax rules the general rules and principles of application and interpretation of laws are observed, as results from no. 1 of article 11 of the General Tax Law.

The reference to the alleged content of the courses and activities practiced by the Claimant in the sense that they are theoretical-practical sessions limited to teaching physical exercises for pelvic floor toning, positioning techniques during labour, breathing and relaxation techniques and post-partum recovery exercises, which would exclude, in the AT's view, the application of the VAT exemption to the Claimant, appears to be out of step with a reasonably broad range of activities described by Witness B…, with therapeutic, diagnostic and preventive nature provided to its users.

As evidenced by the evidence, the Claimant carries out the evaluation and clinical monitoring of the pregnant client and the baby both through the performance of nursing consultation and through the provision of an assistance line that operates 24 hours a day, 365 days a year, which users can resort to, whose assistance is provided by midwife nurses, as well as through the performance of examinations using auxiliary diagnostic means namely, Pinard stethoscope, Doppler – Portable Digital Detector, CTG (cardiotacograph) – for graphical recording of fetal heart rate and uterine contractions, measurement of uterine height to assess baby growth during pregnancy, and in the post-partum period, nursing and breastfeeding consultations, preventing and treating pathologies such as mastitis and fissures and inverted nipples, promoting healthy breastfeeding, and the performance of the heel prick test on the baby.

The AT also invokes the case law of the CJEU, drawing from it that the concept of "healthcare assistance services" is not suitable for an interpretation that includes medical interventions conducted with an objective other than to treat, diagnose and, to the extent possible, cure diseases or health anomalies, considering that the courses and activities developed by the Claimant escape this concept, presenting similarities, from the outset of a commercial nature, with childbirth preparation courses provided by entities not certified for the purpose, in particular, gymnasiums and hairdressers.

It is not understood, however, in what way it would be reasonable to presume that the provision of gymnastics and baby-sitting services constitutes the main operation in the view of their recipients, while healthcare preparation and pre-partum and post-partum monitoring services would constitute a means that allows recipients to benefit in better conditions from the service provider's main service, without constituting for them an end in itself.

Indeed, in the context set out, the cognitive and evaluative line proposed by the AT appears unreasonable. For this, regard should be had to the factual situation demonstrated at the hearing by the witnesses of the Claimant, to the technical abilities it possesses in the context of maternity care, to its legal and regulatory framework, and finally, to the characterization of the economic activity it pursues, described in a particularly detailed manner in its pleadings.

Moreover, with regard to the nature of the activity pursued by the Claimant, it should be said that the monitoring provided during pregnancy and post-partum, including the type of diagnoses and medical examinations performed on the mother and baby, is materially identical to routine monitoring promoted by maternity units of hospital establishments. Consequently, the Claimant pursues an activity of maternity assistance, embodied in the practice of medical services, as defined by CJEU case law.

A different tax treatment between the Claimant and hospital establishments that provide childbirth preparation programs and post-partum assistance in conditions analogous to those of the Claimant, apart from having no support in the legal text, would violate the principles of neutrality that underpin consumption taxation.

As referred to in one of the recitals of the VAT Directive (Recital 7), the common VAT system should lead to competitive neutrality, "in the sense that, in the territory of each Member State, goods and services of the same type are subject to the same tax burden, regardless of the length of the production and distribution circuit."

It further results from European Union case law that the requirement for correct and simple application of exemptions does not allow Member States to prejudice the objectives pursued by the Sixth Directive (current Directive 2006/112/EC), in particular the principle of reduction of healthcare costs aimed at by article 132 no. 1, sub-paragraphs b) and c), preventing equivalent operations from being subject to a different VAT regime depending on where they are carried out.

Therefore, the VAT system is opposed to arbitrary discrimination, and the discrimination that would result from the interpretation advocated by the AT appears arbitrary and likely to generate a distortion of competition.

It should be added that the set of services for clinical monitoring of pregnancy and medical assistance to motherhood provided by authorized establishments aims to contribute to the protection of human health, even when carried out, as is the case in the present proceedings, outside hospital units, and develop within the framework of a relationship of trust between the patient and the service provider, in line with the interpretation that CJEU case law has been making of the exemption provided in sub-paragraph c) of no. 1 of article 132 of the VAT Directive.

Now, contrary to what the AT thinks, it resulted from the evidence that the Claimant promotes a type of personalized, integrated and continued monitoring of its clients being able to its intervention to cover the entire period of pregnancy (excluding childbirth) until the completion of the post-partum recovery process.

Also on this point, it is worth recalling CJEU case law on the scope to be attributed to the therapeutic purposes of a service provision. The CJEU clarified that, although "medical assistance" and "personal assistance services" must have a therapeutic purpose, it does not necessarily follow that the therapeutic purpose of a service must be understood in a particularly narrow sense. Thus, medical services provided for preventive purposes may benefit from an exemption under article 13, A, no. 1, sub-paragraph c), of the Sixth Directive (current sub-paragraph c) of no. 1 of article 132 of the VAT Directive). In fact, even in cases where it appears that persons who are subject to examinations or other medical interventions of a preventive nature do not suffer from any disease or health anomaly, the inclusion of the said services in the concepts of "medical assistance" is in accordance with the aforementioned objective of reducing the cost of healthcare, which is common to both the exemption provided in article 132, no. 1, sub-paragraph b), and that provided in the same number, sub-paragraph c).

Therefore, the CJEU understands that medical services provided for the purpose of protecting, including maintaining or restoring, the health of persons, within the framework of which the Claimant's service provisions are included, benefit from the said exemption.

It thus follows that the second of the conditions listed relating to the medical nature of the services provided by the Claimant in the context of childbirth preparation programs and post-partum assistance has been satisfied.

It should be noted, finally, that in accordance with the cited case law, even if the Claimant within the context of childbirth preparation programs and post-partum assistance provides walking services, recovery gymnastics, as well as baby-sitting services while the client is assisted by the nurse, we would still have to recognize the complementary nature that such services perform within the scope of the main service provision, constituting accessory services which, as such, must follow the treatment of the main operation.

Thus, based on the facts accepted as proven, the interpretation of the applicable tax rules, the characteristics of VAT and the interpretation conveyed by the CJEU, leads us to conclude that in the present case the VAT exemption contained in article 9 no. 1 of the VAT Code should apply, giving the Claimant reason.

Based on the foregoing it is concluded that the disputed VAT assessments nos. …, …, 14014194, …, …, …, 2014 …, 2014 …, 2014 …, 2014 …, 2014 …, 2014 …, 2014…, 2014 … for 2011 and 2012 suffer from error regarding the factual assumptions and legal assumptions and should be annulled with the other legal consequences, except insofar as such assessments refer to VAT lacking regarding services provided by the Claimant for baby swimming and training/seminars (identified in point 2 below), with the assessment subsisting in that part.

1. Baby Swimming Classes and Training/Seminar Services

In accordance with the factual matter accepted as proven (see points 18 and 19), in addition to the childbirth and parenthood preparation programs, above analyzed, the Claimant invoiced in fiscal year 2011, baby swimming services and "Training-Seminar" services, on which VAT was not assessed.

Notwithstanding, the Claimant acknowledges the erroneous tax treatment given to these service provisions, and thus being the case, in the matter at hand, it is not disputed that the baby swimming services and "Training-Seminar" services provided by the Claimant are subject to VAT at the standard rate in force at the date of provision, of 23%.

Consequently, the Respondent should be given reason regarding the legality of the corrections made in this area, in the amount of €20.13, contained in the VAT assessments (additional assessment no. … and …) and compensatory interest (assessment no. … and …), and such assessments should subsist only partially, as well as regarding the legality of the compensations resulting from the corrections in question, relating to the last quarter of 2011 (period 1112T).

Classification under CIT

As results from the evidence, the AT proceeded to the correction under CIT, regarding fiscal year 2011, resulting in the assessment of that tax, whose annulment is requested, as a consequence of the corrections under VAT and the recalculation of the percentage of tax deduction.

Given the annulment of the VAT assessments determined above, it will consequently be necessary to annul, to the same extent, the CIT assessment impugned, which is so determined.

J – DECISION

Therefore, having regard to all the foregoing, the present Arbitral Tribunal decides to judge the present arbitral claim partially upheld, and consequently annuls the tax acts subject of the present proceedings, with the exception of the part in which they reflect the corrections corresponding to baby swimming classes and training/seminar services, above described, corresponding to a total VAT value of €143.18, increased by the respective compensatory interest.

The parties are condemned in the costs of the proceedings, in proportion to their non-success, fixing in €5.30 the part to be borne by the Claimant and €2,442.70, the part to be borne by the Respondent.

The value of the proceedings is set at €76,336.10 having regard to the economic value of the proceedings assessed by the value of the disputed tax assessments, and in accordance therewith the costs are fixed, in the respective amount of €2,448.00 (two thousand four hundred and forty-eight euros), to be borne by the Claimant and Respondent, in the terms set out above, in accordance with article 12, no. 2 of the Tax Arbitration Regime, article 4 of the RCPAT and Table I annexed to the latter. – no. 10 of art. 35, and nos. 1, 4 and 5 of art. 43 of the LGT, articles 5, no.1, sub-paragraph a) of the RCPT, 97-A, no. 1, sub-paragraph a) of the CPPT and 559 of the CPC).

Notify.

Lisbon, 1 June 2015.

The Arbitrators

José Pedro Carvalho
(arbitrator-president)

Paulo Ferreira Alves
(arbitrator-assessor)

Filipa Barros
(arbitrator-assessor)