VAT Rate on Dental Implants and Pillars Sold Separately – CAAD Arbitration 78/2016-T

Arbitral Decision

The Arbitrator Dr. Filipa Barros (sole arbitrator), appointed by the Ethics Council of the Center for Administrative Arbitration ("CAAD") to form the Sole Arbitral Tribunal, constituted on 29 April 2016, decides as follows:

I. REPORT

The company A…, LDA. legal entity no.…, with registered office at Street … no.…, …-…, …, hereinafter "Claimant", comes, under the terms of Article 2, no. 1, subsection a), and Articles 10 et seq. of Decree-Law no. 10/2011, of 20 January, hereinafter referred to as "RJAT"[1], to request the constitution of an Arbitral Tribunal to rule on the illegality and consequent annulment of the VAT assessments hereinafter identified, and compensatory interest in the total amount of € 26,505.49 relating to the years 2012 and 2013:

a) VAT Assessment no.…, relating to period 201206T, in the amount of € 1,223.60, whose voluntary payment deadline expired on 30 July 2014;

b) Compensatory interest assessment no. 2014…, relating to period 201206T, in the amount of € 95.89, whose voluntary payment deadline expired on 16 September 2014;

c) VAT Assessment no.…, relating to period 201209T, in the amount of € 974.25, whose voluntary payment deadline expired on 30 July 2014;

d) Compensatory interest assessment no. 2014…, relating to period 201209T, in the amount of € 66.60, whose voluntary payment deadline expired on 16 September 2014;

e) VAT Assessment no.…, relating to period 201212T, in the amount of € 3,622.87, whose voluntary payment deadline expired on 30 July 2014;

f) Compensatory interest assessment no. 2014…, relating to period 201212T, in the amount of € 221.06, whose voluntary payment deadline expired on 16 September 2014;

g) VAT Assessment no.…, relating to period 201303T, in the amount of € 2,433.69, whose voluntary payment deadline expired on 30 July 2014;

h) Compensatory interest assessment no. 2014…, relating to period 201303T, in the amount of € 117.97, whose voluntary payment deadline expired on 16 September 2014;

i) VAT Assessment no.…, relating to period 201306T, in the amount of € 3,105.58, whose voluntary payment deadline expired on 30 July 2014;

j) Compensatory interest assessment no. 2014…, relating to period 201306T, in the amount of € 118.79, whose voluntary payment deadline expired on 16 September 2014;

k) VAT Assessment no.…, relating to period 201309T, in the amount of € 4,833.52, whose voluntary payment deadline expired on 30 July 2014;

l) Compensatory interest assessment no. 2014…, relating to period 201309T, in the amount of € 136.54, whose voluntary payment deadline expired on 16 September 2014;

m) VAT Assessment no.…, relating to period 201312T, in the amount of € 9,395.79, whose voluntary payment deadline expired on 30 July 2014;

n) Compensatory interest assessment no. 2014…, relating to period 201312T, in the amount of € 168.34, whose voluntary payment deadline expired on 16 September 2014;

o) The Claimant further alleges to have proceeded with the payment of all fines arising from the illegality imputed to it, in the total amount of €1,279.43.

To support its request, the Claimant considers, in summary, that the individual supply of pillars and dental implants, intended for dental prosthetics must, necessarily and in accordance with legal terms, be subject to the reduced VAT rate of 6%, in accordance with item 2.6 of List I of the Code of Value Added Tax (CIVA).

According to its defense, implants and pillars are not only artifacts, but naturally are considered "prosthetic material" aimed at replacing "in whole or in part any limb or organ of the human body", in the present case, an artificial tooth intended to replace the masticatory and aesthetic function of lost or fractured teeth. Consequently, it states that, in light of the letter of the law – artifacts and other prosthetic material – one can only conclude that pillars and implants are included in that normative provision, having no legal support the understanding advocated by the Tax Authority (hereinafter TA), according to which the reduced rate would apply solely to "complete prostheses".

On the other hand, it considers it proven that the existence of the so-called "unique implant unit", put forward by the TA, is purely and simply non-existent, understanding that an interpretation in that sense would result in the exclusion of the application of the reduced VAT rate to any and all artificial tooth implantation, by virtue of the application of current implantology techniques. Now, such interpretation, in addition to lacking correspondence in the letter of the law, would be contrary to the teleology of the norm, as well as to the principles of equality, legality, free competition and neutrality, and is thus entirely refuted by the Claimant.

On 26 February 2016, the request for constitution of the Arbitral Tribunal was accepted by the Honorable President of CAAD and immediately notified to the Respondent in accordance with legal terms.

The Claimant did not appoint an Arbitrator.

Thus, in accordance with and for the purposes of Article 6, no. 1, and subsection b) of Article 11, no. 1 of the RJAT, by decision of the Honorable President of the Ethics Council, duly communicated to the parties within the legally prescribed timeframes, Honorable Dr. Filipa Barros was appointed as arbitrator of the Sole Arbitral Tribunal, who communicated to the Ethics Council and to the Center for Administrative Arbitration the acceptance of the appointment within the timeframe stipulated in Article 4 of the Ethics Code of the Center for Administrative Arbitration.

In accordance with the provision of subsection c), of Article 11, no. 1 of Decree-Law no. 10/2011, of 20 January, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the Sole Arbitral Tribunal was constituted on 29 April 2016, followed by the pertinent legal procedures.

The Respondent, duly notified for this purpose, presented its response in which it defends the dismissal of the arbitral ruling request.

To do so, it invokes the reiterated and consistent administrative understanding of the VAT Services Directorate and the General Directorate of Customs since the beginning of the validity of the VAT Code, according to which, "although it is difficult to distinguish between components and complete prostheses (implants), it appears that when traded complete (...) in such a way as to constitute an implant unit proper + connection pieces + tooth constituting a sales unit by being classifiable under item 2.5 of list I attached to CIVA, they are subject to VAT at the reduced rate. The supplies of the various individual components, parts and pieces are subject to VAT at the normal rate."

Thus, the Respondent makes a distinction between the material concept of implant and that of prosthesis, the former, the implant, being merely a piece, part or accessory, used in the elaboration and fixation of the prosthesis, while the prosthesis itself configures an artificial piece capable of replacing autonomously and, in a single moment, an organ of the human body or part thereof, deserving, unlike the implant, classification under item 2.6 of list I attached to the VAT Code.

It further argues that the interpretation of item 2.6 of the VAT Code cannot ignore the community legal framework, being for this purpose fundamental to take into account the Combined Nomenclature, for purposes of interpreting the national norm, as it proceeds with the identification of goods subject to import and export, the determination of tariff classification and, consequently, the respective tax treatment, which should be in accordance with the classification criterion used by customs.

Subsequently, notified for this purpose, both parties dispensed with the holding of the meeting referred to in Article 18 of the RJAT, as well as the production of written submissions, whereby the holding of these acts was dispensed with, given that, in the case, none of the purposes legally entrusted to it were verified, and the arbitral proceedings are governed by the principles of procedural economy and the prohibition of the practice of useless acts.

Within the scope of the same order, the Tribunal accepted the request formulated by the Claimant to benefit from the expert evidence conducted in arbitral proceedings no. 530/2014 of CAAD, under Article 421, no. 1 of the Code of Civil Procedure, applicable under Article 29, no. 1, subsection e) of the RJAT.

II. PROCESS SANCTION

The Arbitral Tribunal is materially competent and is properly constituted, in accordance with Articles 2, no. 1, subsection a), 5 and 6, no. 1, of the RJAT.

The parties have legal personality and capacity, are legitimate and are properly represented, (see Articles 4 and 10, no. 2 of the RJAT and Article 1 of Ordinance no. 112-A/2011 of 22 March).

The process is not affected by nullities.

III. GROUNDS

1. Facts Established as Proven

The facts were established as proven on the basis of the documents attached in the context of the administrative process, the request for arbitral ruling, in the expert report attached to the case files by the Claimant, and in the response presented by the TA, as follows indicated.

1. The Claimant is a single-member company limited by shares engaged in the trade, import, export and representation of products in the area of dental medicine, with a focus on implantology and biomaterials, instruments for medicine and surgery, equipment and instruments for medical and dental prosthetics laboratories;

2. The Claimant is classified under the general taxation regime for corporate income tax purposes and under the normal three-monthly periodicity regime for VAT purposes;

3. In the exercise of its activity, the Claimant makes purchases on the domestic and foreign markets, its sales being channeled, almost entirely, to the domestic market;

4. The articles marketed by the Claimant are essentially medical devices used in the implantology sector, including, among others, dental implants and other prosthetic devices;

5. The Claimant's customers are dental physicians and dental prosthetics technicians, who work in implantology and use the Claimant's products for oral rehabilitation of their respective patients;

6. The Claimant applies the 6% VAT rate to dental implants and related material under item 2.6 of List I attached to CIVA;

7. Covered by the external inspection order – OI2014… – VAT corrections were made, relating to the years 2012 and 2013;

8. In the said inspection procedure, it was found that the Claimant made internal supplies of dental implants and related material intended for implantology, better described at pages 13 to 34 of the PA, which are hereby reproduced, having applied the reduced VAT rate;

9. Within the scope of that inspection procedure, corrections were made relating to the application of the reduced VAT rate (of 6% VAT under item 2.6 of List I attached to CIVA) to the said supplies of goods;

10. The said corrections amount to € 26,504.49 in the taxation periods of 2012 and 2013, including compensatory interest;

11. Notwithstanding not agreeing with the proposed corrections, the Claimant still during the inspection proceedings, chose to voluntarily regularize the irregularity imputed to it in the inspection report;

12. The Claimant presented replacement declarations and made payment of the additional VAT assessments that resulted therefrom;

13. The Claimant made payment of the assessments of compensatory interest that were subsequently notified to it;

14. The Claimant made payment of all fines arising from the illegality imputed during the inspection proceedings, in the total amount of € 1,279.43;

15. On 21 November 2014 the Claimant filed an administrative appeal claim through which it sought to have annulled the additional VAT assessments and respective compensatory interest, resulting from the application of the 6% VAT rate to components of dental prostheses;

16. The Claimant was notified of the draft decision of the administrative appeal claim, to the effect of its dismissal, and exercised its right to a hearing;

17. By letter no. …/… from the Finance Directorate of…, issued on 6 January 2016, the Claimant was notified of the definitive dismissal of the administrative appeal claim presented;

18. The Respondent's understanding is based on the Binding Information resulting from the Order of 2007.05.11, issued in proceedings T…, with the agreeing order of the Deputy Director General of Taxes, in accordance with which "the procedure adopted by the taxable person consisting of the application of a VAT rate different from the normal rate for purposes of assessing the tax due on internal supplies of dental implants and related material, lacks any legal basis, due to lack of classification of such goods under any of the items of the lists attached to CIVA";

19. The medical devices marketed by the Claimant are of various kinds, having in common the fact that they are articles of dental implantology, of which dental implants, pillars, connection components and other prosthetic devices stand out;

20. The function of oral rehabilitation through an implant is to replace a single tooth;

21. The osseointegrated implant can be rehabilitated with a crown (fixed prosthodontics on implant). If two or more implants are placed, their function can be to rehabilitate an edentulous space of two teeth to a complete arch, in a fixed or removible manner, see. Expert Report;

22. The phases involved in a surgical procedure for oral rehabilitation are: pre-surgical clinical and radiographic planning; local anesthesia; incision for exposure of the bone cortical that will serve as the entry point for the surgical preparation of the implant bed, with a sequence of specific bone drills, in accordance with the manufacturer's instructions; placement of the implant and the healing screw or pillar; suturing; Depending on the cases the implant may remain submerged or transmucosal, see. Expert Report;

23. The implant is a structure generally threaded in a manner similar to the root of a single-root tooth, whose surface is prepared for osseointegration. It presents a collar (region that is closer to the bone surface) where structures such as impression pillars, or healing pillars, or prosthetic components are coupled, see. Expert Report;

24. Dental implants are structures in pure titanium, placed in the maxilla or mandible, that replace the roots of lost teeth;

25. Dental implants thus offer a safe and permanent solution for replacing one or more teeth functioning as support pillars for unitary crowns and fixed or removable bridges, partial or total;

26. It can be said that the dental implant is prosthetic material that serves to replace a natural tooth, more specifically a titanium screw that is intended to replace the root of a natural tooth, which for any reason, was extracted;

27. The dental implant is a structure composed of three elements: implant, pillar and crown intended to replace together the tooth organ;

28. The prosthetic parts of a dental implant give the implant masticatory and functional ability, being indispensable for an implant to be rehabilitable. They serve for the fitting (screwing or cementing) of unitary crowns, bridges, complete dentures or fittings for anchoring a removable denture, see. Expert Report;

29. The pillar consists of a cylindrical structure inserted in the implant;

30. On the pillar is introduced a crown whose function is to restore, as much as possible, the original form of a tooth making it functional;

31. Implants and pillars are produced in series while the crown – elaborated by dental prosthetics technicians – needs to be adjusted to the characteristics of the patient's dentition, being specifically produced for each clinical case, see. Expert Report;

32. The surgical procedure must be executed in phases that integrate the placement of the crown on the implant performed within 72 hours after surgery (immediate aesthetic or loading, generally performed with provisional acrylic crowns), or else in a period not less than ten weeks, to ensure that there is osseointegration of the implant before it is subjected to masticatory forces, see. Expert Report;

33. The process of oral rehabilitation through an implant is divided into two phases: the placement of the dental implant in an initial phase, and placement of the pillar and crown in a later phase;

34. A prosthesis is any component that is not part of the natural dentition and aims to re-establish the masticatory function, replacing lost teeth, see. Expert Report;

35. A prosthetic piece can be a crown, a pillar or another component necessary for the fabrication of a prosthesis. A prosthesis must have in itself all the constituent parts that allow it to perform its function, see. Expert Report;

36. Prosthetic components can only be used together with the respective implant;

37. The implant could equally serve for orthodontic traction, see. Expert Report;

38. The benefits achieved with oral rehabilitation are those of conferring and optimizing the masticatory function of a patient who is partially or totally edentulous. Improvements in quality of life are related to the ability to chew, improving chewing, aesthetics and self-confidence. Prior to the emergence of dental implants, it was only possible to rehabilitate edentulous spaces in a fixed manner, by executing bridges over teeth, which implied an invasive procedure of at least two teeth. With dental implants it is possible to rehabilitate small and large edentulous areas without compromise of contiguous teeth and in a fixed manner, thus avoiding removable dentures, whose retention, in cases of great bone resorption, often becomes a problem in addition to potentially causing diminishment of taste. In cases of total edentulation, where complete dentures present major retention problems, implants came to provide an answer for which there was no solution with conventional treatments, significantly increasing patients' quality of life, see. Expert Report;

39. The implants and pillars marketed by the Claimant constitute prosthetic material, that is, material used in the creation of an artificial piece that replaces a part of the human body;

40. The implants and pillars marketed by the Claimant can only be used within implantology, aimed at replacing in whole or in part the patient's tooth;

41. On 11 February 2016, the Claimant filed the request for constitution of the Arbitral Tribunal that gave rise to the present proceedings. (see electronic request to CAAD).

1. Facts Not Established as Proven

No facts with relevance to the assessment of the matter that were not proven were found.

1. Motivation

With regard to the factual matter, the Tribunal does not have to pronounce on everything that was alleged by the parties, it being its duty to select the facts that matter for the decision and discriminate the proven matter from the unproven (see Article 123, no. 2, of CPPT and Article 607, no. 3 of CPC, applicable ex vi Article 29, no. 1, subsections a) and e), of the RJAT).

In this way, the facts relevant to the judgment of the cause are chosen and carved out according to their legal relevance, which is established in view of the various plausible solutions of the legal question(s) (see previous Article 511, no. 1, of CPC, corresponding to the current Article 596, applicable ex vi Article 29, no. 1, subsection e), of the RJAT).

It should be noted that, in the response, the Respondent considers that underlying the present case, only legal matters are under consideration.

Thus, having regard to the positions assumed by the parties, in light of Article 110, no. 7 of CPPT, the documentary evidence and the PA attached to the case files, the facts listed above were considered proven, with relevance for the decision.

1. Legal Matters

The question to be decided in the present case is whether it will be acceptable the interpretation that the TA makes of item 2.6 of List I attached to CIVA, and by virtue of which it considers that the reduced VAT rate applies only to what it designates as "complete goods that by themselves can replace a limb or organ of the human body"[2] and not any elements that are used individually.

Indeed, the TA understands that it should be considered that goods consisting of pieces, parts and accessories of those prostheses are not covered by item 2.6, given that, in addition to not being prostheses, they are not apt to fulfill, considered individually, the function of replacing a part of the body or its function.

For the TA, the ratio of item 2.6 covers only the supply "of the prosthesis, in itself, final product, in the case in question, the artificial tooth (prosthesis)".[3]

From the TA's perspective, "the titanium implant and the pillar are merely components, each performing the function for which they were designed, of support and fixation of the prosthesis, but that, in themselves, objectively considered, neither perform nor replace the function of the tooth organ."[4]

Furthermore, the TA considers that "the legislator refers to prosthetic material and not to material for prosthesis (for application in a prosthesis), which indicates the exclusion of prosthesis connection or fixation pieces, such as those traded by the taxable person."[5].

Thus, still from the same perspective, the reduced VAT rate that we are now dealing with will refer solely to "complete apparatus" being those that, by themselves, can replace an organ or limb of the human body and not any elements that are used individually or separately in the process of replacement, "objects that already find themselves in a phase in which they can be used, when acquired for the purposes of overcoming a human illness or deficiency"[6], and that, always in the opinion of the TA, "if we are talking about neutrality in the taxation of different types of prostheses we have to compare the supply of removable prosthesis with that of fixed prosthesis. And not with that of fixed prosthesis plus fixation and connection pieces."[7]

It is to be said, first and foremost, that the understanding professed by the TA is not subscribed to, in its various levels.

Indeed, the understanding according to which dental implants and pillars would be "pieces, parts and accessories" of prostheses, not being "apt to fulfill, considered individually, the function of replacing a part of the body or its function", being "merely components, each performing the function for which they were designed, of support and fixation of the prosthesis", is not subscribed to.

Indeed, such understanding appears to be contradictory in its own terms, not understanding how it is that, considering that it is proper to the concept of prosthesis "the function of replacing a part of the body or its function", can be considered, in the manner the TA does, that implants and pillars are mere means "of support and fixation of the prosthesis", since without implants and pillars, the remaining part of what is – for the TA – the prosthesis, will not, equally, be capable of ensuring individually "the function of replacing a part of the body or its function", whereby, in essence, there would be no prosthesis. Consequently, in accordance with the thesis sustained by the TA, there would be no fixed dental prostheses, since each of the elements that comprise it, considered and applied individually (it being certain that their joint application, at once, will be clinically prohibited), will not be capable of ensuring the replacement of the bodily function that they aim, together, to provide.

It is not the case, it is judged, that implants and pillars be "additions" of fixation and connection pieces, in that they do not add anything to the prosthesis, first and foremost because without them the prosthesis itself does not exist and does not fulfill its purpose.

In this way, it is considered that the prosthesis, as an object intended to ensure "the function of replacing a tooth", by means of a fixed implant, integrates the implant, the pillar and the artificial crown. It is this set, in its entirety, that ensures "the function of replacing a" tooth, and not merely one of those elements, disconnected from the others.

On the other hand, what is found is that implants and pillars ensure the replacement of part of the tooth – the root – whereby, even in the reading presented by the TA, according to which "item 2.6 covers only the supply of the article that, in itself, configures an artificial piece that replaces the organ of the human body or part thereof" (our emphasis), should be considered as being covered by the said item 2.6.

The circumstance, referred to in the Expert Report, that the root "performs not only the function of fixation of the tooth to the alveolar bone, but ensures multiple functions which, in a manifest way, are not pursued by the implant", does not preclude the said conclusion, since if only those artifacts that replace entirely all functions of the replaced part of the human body were considered prostheses, practically, no prostheses would exist, if any at all, given that the normal situation will be that, given its artificial character, the prosthesis, by definition, does not replace exactly, entirely, and in all its functions, the part of the human body in need.

Neither is the understanding, suggested by the TA, that the implant and the pillar would be, essentially, merely materials acquired for the fabrication of the prosthesis, subscribed to. It is considered, rather, that those goods are already finished parts and constitutive of the prosthesis itself, since the same have no other purpose, application or utility than their insertion into the human body, in such a way as to ensure "the function of replacing a" tooth, and that, by their very nature, the prosthesis in question has no possibility of being "completed" except when its implantation in the human body and in the course of a process that extends, substantially, over time, as proved.

Now, it is not seen how one can sustain that, whether the implant or the pillar, properly finished, be equated, for example, to raw titanium that will be transformed into the first, or to any other element, raw material, or component that, by means of a transformation process, or even of assembly, will become the prosthesis. On the contrary, it is considered that, whether the implant or the pillar, properly finished, are parts of the final prosthesis, the process of their implantation in the human body, aimed at the replacement of the tooth, not being a transformation or even assembly process, but, truly, a process of application of the prosthesis in that same body, in accordance with the medically prescribed procedures for that purpose.

Moreover, disagreement is also expressed with the reading presented by the TA, relating to the text of the norm that we are dealing with, when it refers to "the legislator refers to prosthetic material and not to material for prosthesis (for application in a prosthesis), which indicates the exclusion of prosthesis connection or fixation pieces, such as those traded by the taxable person." Indeed, it is understood that in referring to "prosthetic material", and not, simply, to "prosthesis", the legislator is, precisely, giving the opposite indication to that presented by the TA, wishing, expressly, not to limit itself solely to the prosthesis, as a singular object ("complete good" or "final product" in the terminology of the TA).

This same understanding was already unanimously adopted, with respect to a question altogether identical to that of the present case, in various arbitral proceedings, which can be consulted, for all, in proceedings 429/2014-T of CAAD[8], where it was considered in sum that:

"It is important to note that the meaning and scope of the reduced rate applied in this domain should take into consideration the good rules of hermeneutics, taking into account not only the grammatical element, but also its context, reason for being and purposes pursued by item 2.6, and should result in a declaratory interpretation (and not restrictive, contrary to what the TA sustains).

Now, from the start, the letter of the provision seems to indicate that dental implants fall within the said list, being we faced with prosthetic material intended to replace an organ of the human body, in the case, the dental apparatus.

Indeed, nothing in the letter of the law leads us to restrict its application to situations of supplies of "complete goods" of implant, in the sense that the TA wishes to convey.

Furthermore, it results from the facts established as proven that such concept does not exist as such, existing instead implants constituted by the three pieces we are now dealing with – crown, implant and pillar, which, in accordance with surgical technique, are introduced by phases in the patient's mouth, then giving rise, in their set, to an implant. In reality, these three pieces are inseparable and unusable except for the composition of an implant as a composite prosthesis.

Not existing such "complete goods" of implant, in the sense that the TA wishes to convey, the understanding of the Tax Authority ends up by denying the benefit of the reduced rate to this type of prosthesis, thus putting into question, without a rational motive that can be considered, the ratio legis that presided over the adoption of this item in the terms in which it is worded – the protection of public health. Indeed, to accept such understanding would introduce differentiated taxation rules under VAT between two types of prosthesis, which although they have different manufacturing and surgical implantation processes between them, fulfill the same objectives, in light of the applicable legal provisions, that is, in both cases it is intended to replace a tooth and improve the health and quality of life of the patient. Such fact is discriminatory, violating, from the start, namely, the provisions of Articles 5, no. 2 and 7, no. 3 of the LGT. Indeed, in accordance with the first provision mentioned, of the heading "Purposes of Taxation", taxation respects the principles of generality, equality, legality and material justice. In turn, in accordance with Article 7, no. 3, "Taxation shall not discriminate any profession or activity nor prejudice the practice of legitimate acts of a personal character, without prejudice to exceptional increases or benefits determined by economic, social, environmental or other purposes".

But we would be essentially faced with an intolerable violation of the principle of neutrality that governs this tax at the level of European Union Law, treating equal goods differently without any rational motive that can be considered, a fact that violates the rules governing this tax as well as all the jurisprudence of the CJEU to which we allude.

As is well known, in accordance with Article 11, no. 2 of the LGT, whenever, in tax norms, terms proper to other branches of law are employed, the same should be interpreted in the same sense that they have there, unless otherwise directly results from the law. In turn, in no. 3 of the said provision it is determined that, persistence of doubt about the meaning of the norms of incidence to be applied, the economic substance of the tax facts should be taken into account. Now, what the community legislator, the European Commission and the jurisprudence of the CJEU determine is that, in the use of the concepts employed for purposes of application of reduced rates, the Member States should take into account the economic effects involved so as not to put into question the essential principle of neutrality of the tax.

That is, to accept the understanding conveyed by the TA in the concrete case we would have a difference of treatment for identical realities resulting not from the VAT Directive but rather from a deficient application of the same by the Tax Authority.

It is certain that derogatory norms, as is the case of the norm that enables Member States to apply reduced rates of the tax, must be applied restrictively, but we should not confuse such fact with a selective application, a completely distinct reality that puts into question the most basic characteristics of the tax". (...)

"Indeed, contrary to what the TA alleges, there does not exist the unique implant piece in the factual sense that it wishes to give it, but only the implant constituted, as such, by implant, crown and pillar, inseparable pieces with a view to this reality.

It is only too evident that the fact that such pieces are marketed separately, as in the cited case, the mere fact of separate invoicing (with separate codes) or autonomous invoicing (in separate invoices) cannot affect the classification and qualification for VAT purposes, form prevailing over substance.

In reality, what is at issue in the present case and was proved is subsumed in the legal provision of item 2.6 of List I attached to CIVA, consisting in "… apparatus, artifacts and other prosthetic or compensation material intended to replace, in whole or in part, any limb or organ of the human body".

And, let it be reiterated, the ratio legis that leads the legislator to adopt the application of the reduced VAT rate in such situations – the protection of health – is exactly the same that leads us to this interpretation.

It should be noted, finally that, from the jurisprudence cited, even if such "complete goods" of implant supposedly existed, as the TA claims, in the sense that it wishes to convey, we would still have to recognize that the crown, the pillar and the implant would configure themselves as a single piece or, at worst, even if erroneously thus not understood, as ancillary pieces, and as such, should be taxed at the reduced rate, following the treatment of the principal operation.

That is: whether only by resort to community rules or by simple application of the good rules of hermeneutics, the result is the same – one can only conclude that in item 2.6 of List I attached to CIVA both implants constituted by a single piece and composite implants are included.

Indeed, all the elements of interpretation of the tax norms available for the purpose, as well as the characteristics of VAT and the interpretation that the CJEU has been making of the same, lead us to conclude that, in the present case, the reduced VAT rate provided for in item 2.6 of List I attached to CIVA should be applied to the supply of implants, crowns and pillars now under analysis, terms in which we rule in favor of the Claimant.

In view of the foregoing, it is concluded that the VAT assessments disputed are affected by error in their legal presuppositions, due to erroneous interpretation of this item 2.6 of List I of CIVA."

In the same sense, we can find a decision rendered in arbitral proceedings no. 530/2014-T, where it is stated that "The understanding advocated by the Respondent would create VAT taxation rules differentiated between two types of prosthesis, which although they have different manufacturing and surgical implantation processes between them, fulfill the same objectives, in light of the applicable legal provisions, that is, in both cases it is intended to replace a tooth and improve the health and quality of life of the patient.

Furthermore, a selective interpretation, which limited the possibility of applying the reduced VAT rate solely to classical prostheses, would be contrary to the general principles of the VAT Directive, violating in particular the principle of fiscal neutrality, and of uniform taxation which is opposed to similar goods or services that are in competition with each other being treated differently from the point of view of this tax."

Consequently, the reality that is at issue in the present case is subsumed in the legal provision of item 2.6 of List I attached to the VAT Code, consisting in "(...) apparatus, artifacts and other prosthetic or compensation material intended to replace, in whole or in part, any limb or organ of the human body".

It is concluded, thus, that the VAT assessments that are the object of the present case are affected by defects in their respective factual and legal presuppositions, as argued by the Claimant, and should, as such, be annulled in their entirety.

1. Compensatory Interest

The Claimant further petitioned for the condemnation of the Respondent to compensatory interest, accrued and future until the date of return of the amounts of tax unduly assessed, considering, in the present case, that there was assessment of VAT higher than due due to error attributable to the services.

In accordance with Article 43 of the General Tax Law and Article 61 of CPPT "Compensatory interest is due when it is determined, in an administrative appeal claim or judicial challenge, that there was error attributable to the services from which resulted payment of the tax debt in an amount higher than legally due".

Error attributable to the administration is understood to be the error that is not attributable to the taxpayer and is based on erroneous presuppositions of fact and of law that are not the responsibility of the taxpayer. Thus, "the right to compensatory interest covers only one of the causes of responsibility of the Tax Administration, acting as such: that originated by the payment of unduly paid taxes, which is attributable to it (...) the right to compensatory interest in favor of the taxpayer comes, as a general rule, from a duty of indemnification of the Tax Administration resulting from the forced unproductiveness of the amounts disbursed by the taxpayer."(see. António Lima Guerreiro, Annotated General Tax Law, Editora Rei dos Livros, p. 204 and 205).

Now, given the foregoing, it cannot but be considered that there was error attributable to the services, in that the self-assessments of VAT in question were consequence of the erroneous interpretation that the Respondent made regarding the provision of item 2.6 of List I attached to the VAT Code.

It is concluded, thus, by the merit of the Claimant's claim, the Claimant should be compensated through the payment of compensatory interest counted from the date of payment of the annulled tax assessments until the date of issuance of the credit note, in accordance with Article 61, nos. 2 to 5, of CPPT.

IV. DECISION

In these terms, it is decided in this Arbitral Tribunal to rule in favor of the arbitral claim formulated by the Claimant and, in consequence:

a) Annul the decision dismissing the administrative appeal claim presented by the Claimant;

b) Annul the assessment acts that are the subject of the present case;

c) In consequence, the amounts of VAT and compensatory interest assessed and paid be returned;

d) Condemn the Respondent to the payment of compensatory interest calculated in accordance with the law, and in accordance with the present arbitral decision;

e) Condemn the Respondent to the costs of the proceedings.

V. VALUE OF THE PROCEEDINGS

The value of the proceedings is fixed at € 28,120.44, in accordance with Article 97-A, no. 1, a), of the Code of Tax Procedure and Process, applicable by force of subsections a) and b) of no. 1 of Article 29 of the RJAT and of no. 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

VI. COSTS

The arbitration fee is fixed at €1,530.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the claim was entirely successful, in accordance with Articles 12, no. 2, and 22, no. 4, both of the RJAT, and Article 4, no. 4, of the said Regulation.

Let it be notified.

Lisbon, 5 July 2016

The Arbitrator

(Filipa Barros)

[1] Acronym for Legal Regime of Tax Arbitration.

[2] See point 62 of the Response.

[3] See point 65 of the Response.

[4] See point 69 of the Response.

[5] See point 53 of the Response.

[6] See point 63 of the Response.

[7] See point 86 of the Response.

[8] https://caad.org.pt/tributario/decisoes/decisao.php?s_processo=&s_data_ini=&s_data_fim=&s_resumo=implantes&s_artigos=&s_texto=&id=431. In the same sense, see the decisions of proceedings 530/2014 and 762-2014T, among others available on the same website.