Process: 782/2015-T

Date: September 30, 2016

Tax Type: IVA

Source: Original CAAD Decision

Summary

This arbitral decision concerns the VAT treatment of a dental clinic that renounced the exemption under Article 12(1)(b) of the Portuguese VAT Code and opted for the normal taxation regime. The taxpayer, operating a dental medicine and odontology establishment since 2009, charged VAT on its services and deducted input VAT accordingly. Following a 2015 tax inspection triggered by a VAT refund request, the Tax Authority challenged this treatment for the 2011-2013 period, arguing the clinic should have been exempt without having validly renounced the exemption. The central legal controversy involves whether dental clinics qualify as 'medical assistance and diagnosis centres' under Article 9(2) of the VAT Code, and consequently whether they may validly waive the exemption pursuant to Article 12(1)(b). The applicant argued that the Tax Authority's restrictive interpretation violates the VAT neutrality principle by treating similar competing medical services differently, and constitutes an interpretation contra legem. The taxpayer contended that if clinical analysis laboratories are considered establishments of a 'similar nature' eligible for exemption, dental clinics must a fortiori qualify as medical assistance and diagnosis centres, thereby permitting a valid waiver of exemption. The case raises fundamental questions about the scope of VAT exemptions for healthcare services under EU and Portuguese law, the application of the neutrality principle to medical establishments, and the formal requirements for validly renouncing VAT exemptions. The arbitral tribunal's jurisdiction under the RJAT framework to review these additional VAT assessments was established, and the case potentially involves interpretation of the EU VAT Directive that may warrant a preliminary reference to the Court of Justice of the European Union.

Full Decision

Arbitral Decision

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Ana Moutinho Nascimento and Álvaro José da Silva, appointed by the Deontological Council of the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby decide:

I – REPORT

  1. On 23 December 2015, the company A…— …, LDA., legal entity no.…, with registered office at Avenue … no.…, … - … …, filed an application for the constitution of an arbitral tribunal, under the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the following additional VAT assessments, relating to the years 2011 to 2013:

  2. To substantiate its request for declaration of illegality and consequent annulment of the VAT assessments and respective compensatory interest, the Applicant alleges, in summary, that:

i. The thesis supported by the Tax Authority does not have support either in the letter or in the spirit of the norm on which it is based, and is furthermore manifestly contrary to the principles governing VAT, namely the so-called principle of neutrality which opposes the treatment of similar service provisions that are in competition with each other in a different manner from the perspective of VAT;

ii. It follows unequivocally from the letter of the law that treatments in "medical assistance and diagnosis centres" are services exempt under Article 132(b) of the VAT Directive, for which reason the opinion followed by the Tax Authority constitutes an interpretation contra legem;

iii. Hospitalization/inpatient care is not a requirement for the exemption under Article 11(1)(b) of the Sixth Directive, as clinical analysis laboratories are not establishments that provide medical services involving the hospitalization of patients, and if the norm covers clinical analysis laboratories for being establishments of the "same nature", it must also cover, a fortiori, clinics since these are more than establishments of the "same nature" and are subsumable within the concept of "medical assistance and diagnosis centres", whereby medical clinics (which include dental clinics) are exempt under Article 9(2) of the VAT Code and, as such, may renounce the exemption in accordance with the provisions of Article 12(1)(b) of the same diploma.

  1. On 28 December 2015, the application for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

  2. The Applicant did not appoint an arbitrator, therefore, under Article 6(2)(a) and Article 11(1)(a) of the RJAT, the President of the Deontological Council of CAAD appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

  3. On 16 February 2016, the parties were notified of these appointments and did not manifest any intention to refuse any of them.

  4. In accordance with the provision in Article 11(1)(c) of the RJAT, the collective Arbitral Tribunal was constituted on 2 March 2016.

  5. On 11 April 2016, the Respondent, duly notified for this purpose, filed its response, defending by exception and objection.

  6. By order of 18 June 2016, the meeting provided for in Article 18 of the RJAT was dispensed with.

  7. Written arguments having been granted a period for submission, these were presented by the parties, pronouncing on the evidence produced and reiterating and developing their respective legal positions.

  8. The period referred to in Article 21(1) of the RJAT was extended, in accordance with Article 21(2) of the same article, and a period of 30 days was fixed for delivery of the final decision.

  9. The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with Articles 2(1)(a), 5 and 6(1) of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.

The proceedings do not suffer from any nullities.

Having reviewed everything, we proceed to deliver

II. DECISION

A. MATTER OF FACT

A.1. Facts found to be proven

  1. The Applicant was engaged, at the date of the tax acts subject to the present arbitral action, in the provision of medical care in the specialty of dental medicine, and for the exercise of such activity possesses an establishment open to the public, located at Avenue …, no.…, in …, corresponding to the Activity Code (CAE) … - Dental medicine and odontology activities.

  2. The now Applicant had as its activity, on that same date, the provision of Dental Medicine and Odontology services in an establishment open to the public, including the carrying out of medical consultations and a whole set of treatment and/or surgical procedures within the scope of dental medicine, as well as complementary diagnostic examinations, such as radiographs.

  3. Since the beginning of activity, on 26/01/2009, the Applicant has been subject to the normal VAT taxation regime, with quarterly frequency, as under Article 12(1)(b) of the VAT Code, it renounced the exemption and consequently began to charge and deduct VAT.

  4. This framework was triggered by the Declaration of commencement of activity, made by verbal declaration, on 26/01/2009 at the Tax Service of … – … .

  5. As a consequence of said framework, the now Applicant subjected to VAT all operations carried out within the scope of activities developed, as well as deducted all tax borne in the acquisition of goods and services.

  6. In 2015 and following an external inspection triggered by a request for VAT refund made in the same year, the applicant was notified of the conclusion of an inspection procedure relating to VAT for the years 2011 and 2012.

  7. In both correction projects, the Tax Authority agreed on the decision to deny said refund and to make corrections to the VAT deducted in the years in question, by virtue of the applicant being subject to the normal VAT regime, when, in the Tax Authority's view, it should have been subject to the exemption regime - without prior renunciation of the exemption.

  8. The tax acts subject to the present tax arbitral action result from said tax inspection, which culminated in the notification of the respective Tax Inspection Report.

  9. The Tax Inspection Report contains, among other things, the following:

"Reiterating what was already mentioned in item 1.3.2 "Tax classification of the taxpayer", in the context of VAT, and since the commencement of activity, on 26.01.2009, the taxpayer has been subject to the normal taxation regime, with quarterly frequency.

This classification of the taxpayer was triggered by the Declaration of Commencement of Activity, made by verbal declaration (front-office), on 26.01.2009 at the Tax Service of … - … .

To this effect, the taxpayer indicated in said declaration that in the exercise of its activity it would carry out only transfers of goods and/or provision of services that confer the right to deduction.

In the same declaration, it is verified that the declarative option regarding the question "Type of Exempt Operations not conferring the right to deduction" or any of the fields of the respective Table for Option by the VAT Taxation Regime was not marked or completed, namely, the one relating to the possibility of wishing to exercise the right to option, by renouncing the exemption, provided for in Article 12(1) and (2) of the VAT Code.

We emphasize that, in accordance with Article 35 of the VAT Code, the Declaration of Commencement of Activity is presented by verbal declaration, made by the taxpayer, of all elements necessary for registration and commencement of activity, these being immediately introduced into the computer system and confirmed by the declarant, after its printing on a standardized document (Proof Document of Commencement of Activity).

It is therefore very important that at the moment of presentation of the Declaration of Commencement of Activity, made by verbal declaration (front-office), there are no doubts in the sphere of the taxpayer regarding its tax classification in the context of the different taxes to which it may be subject, as well as its future obligations arising therefrom.

As a consequence of said classification, company A… subjected to VAT all operations carried out within the scope of activities developed, as well as the right to deduct all tax borne in the acquisition of goods and services.

However, in the present case, the taxpayer's activity is the provision of Dental Medicine and Odontology services in an establishment open to the public, which is embodied in the carrying out of medical consultations and a whole set of treatment and/or surgical procedures within the scope of dental medicine, as well as complementary diagnostic examinations, such as radiographs.

Given the nature and characteristics of the services previously described, we must conclude that the taxpayer incorrectly considered that these were operations that confer the right to deduction.

And from this we move to the second point,

III.2.2 The legal classification of Odontology/Dental Medicine activity,

Article 9 of the Code of Value Added Tax (VAT Code) enumerates certain operations, which, being considered of general or social interest and with purposes of relevant importance, are covered by the exemption provided for in this article, thereby seeking to relieve, both administratively and financially, such activities.

Thus, given that the activity that the Taxpayer would effectively develop within the scope of Dental Medicine and Odontology, it should have always indicated/declared that it would carry out operations "Exempt not conferring the right to deduction", to the extent that the same is mentioned in Article 9 of the VAT Code, starting from its paragraph 1.

Let us see the respective provisions:

"Article 9 Exemptions on internal operations

The following are exempt from tax:

  1. The provision of services in the exercise of the professions of physician, dentist, midwife, nurse and other paramedical professions; (...)"

Consequently, the Taxpayer should have registered itself (registered for VAT purposes) as a taxpayer "exempt", or at least as a "mixed taxpayer", as in the exercise of its activity it would practice exempt operations that do not confer the right to deduction of tax borne, namely the provision of services in the area of Dental Medicine and Odontology.

Although during the inspection acts the Taxpayer gave the impression that the services provided by it, within the scope of Dental Medicine and Odontology would fall under Article 9(2) of the VAT Code, with possibility of renunciation, the fact is that the exemptions of Article 9 of the VAT Code, which are called simple or incomplete, are characterized by the exemption from charging in the operations carried out and on the other hand by the impossibility of exercising the right to deduction of tax borne upstream in the acquisitions of goods and services, in accordance with Article 20(1) of the VAT Code.

III.2.3. Possibility of renouncing the exemption regime and the exercise of that right.

Regarding the possibility of renouncing the exemption regime which the Taxpayer did not use, we may state the following:

a) Article 12(b) of the VAT Code provides that may renounce the exemption, opting for the application of tax to its operations "hospital establishments, clinics, dispensaries and similar establishments, not belonging to legal entities under public law or to private institutions integrated in the national health system, that carry out provision of medical and health services and operations closely related thereto".

b) The Tax Authority's interpretation, based on the case law of the CJEU (Case C-141/00, concerning the Kügler case, among others), distinguishes the exemption of Article 9(1) of the VAT Code from that of paragraph 2, considering that the first is intended to exempt services of a medical character provided outside the hospital environment, whether at the residence of the provider, the patient, or any other place, and the second is intended for the provision of assistance services in the hospital environment, including closely related operations.

c) In this sense and given the activity carried out by company A…, in the manner in which the same is provided as previously mentioned (in commercial establishments, outside the hospital environment), paragraph 2 of Article 9 of the VAT Code would not be applicable.

Nevertheless, the option for taxation of the operations carried out by the taxpayer would only be admissible if the same were classified within the scope of Article 9(2) of the VAT Code and the same were previously communicated, by means of the delivery of the Declaration of Commencement of Activity or of Amendments, as the case may be, taking effect always from the date of its presentation.

d) This is a formal condition stated by the legislator as an essential/fundamental requirement for the taxpayer to be able to opt for the taxation of certain operations.

And in this sense also goes the national case law, let us see two examples:

"The renunciation of the exemption, made possible by Article 12(1) of the VAT Code, in no circumstance is susceptible of being presumed, therefore, if the taxpayer does not present request/declaration of renunciation, it must be considered subject to the exemption regime, by, originally, its own" - cf. Decision of the Central Administrative Court of the South of 22-05-2012 in process 05235/11.

"Once it renounces the exemption, the natural or legal person in question becomes, from the moment of renunciation and never retroactively, a normal taxpayer, capable of charging and deducting tax, concerning the taxable events verified after the date on which the renunciation becomes effective, in the manner common to all non-exempt persons and hence the imperious necessity of presentation of the identified declaration, the sole legal means of activating the functioning of the mechanisms private to the action of VAT" - cf. Decision of the Central Administrative Court of the South of 21-05-2013 in process 05447/12.

III.2.4 Tax Consequences arising from inappropriate classification

As follows from the above, the Taxpayer cannot consider the activity carried out in the area of Dental Medicine and Odontology subject and not exempt from tax, as the same falls under Article 9(1) of the VAT Code.

Thus, regarding the years 2011 and 2012, and in the absence of active operations beyond those carried out within the scope of Odontology and Dental Medicine activities (operations exempt under Article 9 of the VAT Code), all VAT that the taxpayer deducted in the Periodic VAT Declarations relating to the periods 2011.03T to 2012.12T shows itself to be improperly deducted, in accordance with Article 20(1) of the VAT Code, therefore it will propose the corrections that are shown to be necessary.".

  1. The Applicant made full payment of the assessments subject to the present arbitral action, within the voluntary period fixed for this purpose.
A.2. Facts found not to be proven

1- The Applicant indicated in the declaration referred to in point 4 of the facts found to be proven, that in the exercise of its activity it would carry out transfers of goods and/or provision of services that confer the right to deduction.

A.3. Substantiation of the matter of fact proven and not proven

Regarding the matter of fact, the Tribunal does not have to pronounce on everything that was alleged by the parties, it being incumbent on it, rather, the duty to select the facts that matter for the decision and to discriminate the proven matter from the unproven (cf. Article 123(2) of the CPPT and Article 607(3) of the CPC, applicable ex vi Article 29(1), subparagraphs a) and e), of the RJAT).

Thus, the facts relevant for the adjudication of the case are chosen and delineated according to their legal relevance, which is established having regard to the various plausible solutions of the question(s) of Law (cf. previous Article 511(1) of the CPC, corresponding to the current Article 596, applicable ex vi Article 29(1), subparagraph e), of the RJAT).

Thus, having regard to the positions assumed by the parties, in light of Article 110(7) of the CPPT, the documentary evidence and the case file attached to the proceedings, the facts listed above were considered proven, with relevance to the decision.

In particular, the facts contained in points 3 to 5 result directly from what was admitted in points 31 to 33 and 35 of the Response.

The fact found not to be proven is due to the absence of any evidence that what is stated therein was verbally declared by the Applicant.

B. ON THE LAW

i. on matters of exception

The Respondent begins by questioning the material competence of the arbitral tribunal to consider the claim submitted to it, as it considers that "the first question to be decided concerns whether or not the right of renunciation of exemption on the part of the Applicant is recognized", therefore "the acts of additional VAT assessment should be qualified as consequent acts taking into account the concept, albeit restricted, adopted both by doctrine and by case law".

This same question was raised in process 168/2015-T of CAAD[1], which dealing with matter identical in all respects to that of the present case, where it was written what, with due deference, is now transcribed:

"Ordinance No. 112-A/2011, concerning acts that can be classified in accordance with Article 2, only excluded from the scope of the binding of the Tax and Customs Authority, in non-customs matters, claims relating to self-assessment acts, withholding at source and payment on account that were not preceded by recourse to the administrative avenue and claims relating to acts of determination of the taxable matter and acts of determination of the taxable base, both by indirect methods, including the decision of the revision procedure.

It is manifest that we are not in any of the situations in which Ordinance No. 112-A/2011 removes the competence of the arbitral tribunals functioning at CAAD, therefore competence must be assessed solely in light of the RJAT.

As is seen from Article 2 of the RJAT, the competence of arbitral tribunals functioning at CAAD was defined by the RJAT solely having regard to the type of acts that are the subject of claims by taxpayers and not in function of the type of questions that need to be considered to decide whether the acts are legal or illegal.

There is, in particular, no prohibition on the consideration of matters relating to the verification of the prerequisites of the right of renunciation of VAT exemption or any other questions of legality relating to the acts of the types referred to in Article 2 of the RJAT. A tax assessment that departs from the disregard of an exemption or a renunciation of exemption does not cease to be a tax act of assessment. And the claim for consideration of the legality or illegality of that underlying disregard of an act of assessment does not, therefore, cease to be consideration of a claim relating to the declaration of illegality of assessment acts, in which that disregard is materialized.

Thus, in the arbitral process, similarly to what occurs in the process of judicial challenge, any illegality can, as a rule, be attributed to acts of assessment, as follows from Article 99 of the CPPT, applicable subsidiarily.

This will not be the case only in situations where the law provides for autonomous contestability of administrative acts that are prerequisites of assessment acts, and only to that extent is the consideration of the legality of assessment acts in all aspects excluded. However, for there to be such autonomous contestability, it is necessary that there be some administrative act in tax matters, as contestability concerns acts and not legal positions assumed explicitly or implicitly as prerequisites of assessment acts but not materialized in autonomous tax acts.

The consequent acts, of which the Tax and Customs Authority speaks, are consequent on other prior tax or administrative acts and, in the case at hand, there is no record that any administrative act was carried out assessing whether the Applicant has or does not have the right to renounce VAT exemption.

That is, for there to be a limitation on the contestability of the impugned assessment acts, some administrative act would have to be carried out previously that was a prerequisite of these assessment acts, which has not occurred in the case at hand.

Therefore, being the assessment acts harmful to the interests of the Applicant and being the only acts carried out by the tax administration on the situation considered in them, its contentious contestability must be ensured on the basis of any illegality, as follows from the principle of effective judicial protection, enshrined in Articles 20(1) and 268(4) of the Constitution of the Portuguese Republic.

On the other hand, when there is no prior autonomously contestable act to an assessment act concerning its prerequisites, any previously committed illegality may be «invoked in the challenge to the final decision» (final part of Article 54 of the CPPT), therefore all questions relating to the legality of assessment acts can be considered in the tax tribunals in the process of judicial challenge, as follows from Article 97(1)(a) and Article 99 of the same Code.

In fact, in the tax tribunals, even when, having been carried out assessment acts, one is faced with a situation in which it could be more useful for the taxpayer to use the action for recognition of a right or legitimate interest (by enabling, in addition to consideration of the legality of acts, definition for the future of the taxpayer's rights), the use of the action instead of judicial challenge is a mere option, as follows from the text of Article 145(3) of the CPPT itself, when it states that «actions can only be brought whenever such procedural means is the most appropriate for ensuring full, effective and efficient protection of the right or legally protected interest». That is, what is foreseen in this norm is a limitation to the use of the action and not a limitation to the use of the judicial challenge process.

In fact, it is manifest that the judicial challenge process includes the possibility of recognition of rights in tax matters, such as the right to annulment or declaration of nullity of assessments, the right to indemnificatory interest and the right to compensation for undue guarantee, therefore the fact that recognition of rights is at issue is not an obstacle to the use of the judicial challenge process.

Thus, as the Tax and Customs Authority states, having the tax arbitral process been created as an alternative to the judicial challenge process, it is to be concluded that there is no obstacle to the legality of the assessment acts in this case being considered by this Arbitral Tribunal, as in the tax tribunals such legality could be considered in a judicial challenge process.

Therefore, regarding the request for annulment of the assessment acts, the exception of material incompetence raised by the Tax and Customs Authority is unfounded."

Seeing no reason to diverge from the learned exposition in said decision, rather subscribing fully to what was set out therein, the exception of material incompetence raised by the Respondent is deemed unfounded.

ii. on the preliminary ruling

The Respondent, in its response, requests that the proceedings be referred to the CJEU, under the provision of Article 267 of the TFEU, for the purpose of defining the scope of renunciation of the said exemption regime.

To this end it alleges that "all the case law of the CJEU, with some similarity to the case of the present proceedings, resulted from cases that are in an antagonistic position or, if you will, in a mirror position relative to the situation of the present proceedings", as "in those cases, the targeted parties sought rather to benefit from the exemption regarding the provision of medical services, when the respective tax administrations sought their subjection/taxation", therefore there will be "a need to ascertain whether the concept of 'analogous social conditions' should be assessed having regard to whether such 'implies or does not imply a violation of the principle of equal treatment relative to other operators who carry out the same services in comparable situations', e.g. in the Dornier Decision, Case C-45/01, of 6 November 2003.".

As stated in point 7 of the recommendations to national courts relating to the submission of preliminary rulings (2012/C 338/01), of the CJEU[2]:

"the role of the Court in the context of a preliminary ruling is to interpret the law of the Union or to pronounce on its validity, and not to apply this law to the factual situation underlying the main proceedings. This role falls to the national judge and, therefore, it is not for the Court to pronounce on questions of fact raised in the context of the dispute in the main proceedings nor on any differences of opinion regarding the interpretation or application of the rules of national law".

Furthermore, it is recalled, in point 12 of those same recommendations, that the preliminary ruling to that Court should not be made when:

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

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

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

Finally, as stated in point 18 of the same recommendations, "The national court can submit to the Court a request for a preliminary ruling, once it considers that a decision on the interpretation or validity is necessary to deliver its decision."

In the present case, it is not considered that a decision on the interpretation of the Community rules is necessary to deliver its decision, nor does the Respondent demonstrate this, having furthermore not even presented any specific question that demonstrates this.

On the other hand, and as will be seen below, it is understood that the available case law of the CJEU clarifies sufficiently, in terms of being able to decide on the correct interpretation of the law of the Union and its application to the factual situation of which it is aware.

In this manner, and for the above reasons, the requested preliminary ruling is dismissed.

iii. on the merits of the case

It therefore falls to this Tribunal, competent to do so, to verify the legality of the VAT assessments impugned, above identified.

Firstly, it is necessary to conclude on the legality of the decision of the Tax and Customs Authority, which classifies the activity of the Applicant, because developed outside the hospital environment, and thus not susceptible to renunciation.

It is pertinent to note, for what is at issue here, Articles 9 and 12 of the VAT Code:

Article 9

Exemptions on internal operations

The following are exempt from tax:

  1. The provision of services in the exercise of the professions of physician, dentist, midwife, nurse and other paramedical professions;

  2. Medical and health services and operations closely related thereto provided by hospital establishments, clinics, dispensaries and similar establishments;

(...)

Article 12

Renunciation of exemption

1 - The following may renounce the exemption, opting for the application of tax to their operations:

(...)

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

(...)

2 - The right of option is exercised by delivery, at any tax service or other legally authorized location, of the declaration of commencement or amendments, as the case may be, taking effect from the date of its presentation.

3 - Having exercised the right of option in accordance with the above paragraphs, the taxpayer is required to remain in the regime for which it opted for a period of at least five years, and, upon expiration of such period, should it wish to return to the exemption regime:

a) Present, during the month of January of one of the years following the year in which the period of the option regime has been completed, the declaration referred to in Article 32, which takes effect from 1 January of the year of its presentation;

b) Subject to taxation the remaining stock and proceed, in accordance with Article 24(5), to the regularization of the deduction as to fixed assets.

These exemptions are related to Article 132 of Directive No. 2006/112/EC, of 28-11-2006, namely:

  1. The Member States shall exempt the following transactions:

(...)

b) Hospital care and medical care, as well as operations closely linked thereto, provided by bodies governed by public law or, under conditions analogous to those applying to such bodies, by hospitals, medical assistance and diagnosis centres and other establishments of the same nature duly recognized;

c) The provision of assistance services in the exercise of medical and paramedical professions as defined by the Member State in question; (…)

Thus, point (b) of Article 12(1) of the VAT Code permits only renunciation of exemption for entities exempt and classified under Article 9(2) of that same code.

In the position of the Tax and Customs Authority, referring to the Kügler case (CJEU decision of 10 September 2002, delivered in Case C-141/00), it is argued that "the exemption provided for in Article 9(1) of the VAT Code operates independently of the legal nature of the service provider and, in particular, whether it is a natural or legal person and, as well, that exemption is based on point (c) of Article 132(1) of Directive 2006/112/EC of the Council, of 28 November.(…)" (Point 45 of the Response of the Respondent), and that it is intended to exempt the provision of services of a medical and paramedical character provided outside these places, whether at the private residence of the provider, at the residence of the patient, or in any other place. And, on the other hand, that Article 9(2) of the VAT Code, which exempts the provision of assistance services in the hospital environment, including closely related operations, "transposes into the internal legal order point (b) of Article 132(1) of the aforementioned Directive 2006/112/EC (…)" (Point 49 of the Response of the Respondent). Considering that the Applicant's activity is carried out outside the hospital environment, the Tax and Customs Authority comes to argue that the exemption applicable to it is in accordance with Article 9(1) of the VAT Code.

However, it does not follow from said decision that, as the Tax and Customs Authority affirms, only hospitals are covered by the scope of point (b) of Article 132 above cited.

The CJEU, in the L.u.P. decision (of 8 June 2006, delivered in case no. C-106/05), subsequent to the Kügler decision, clarified that «Article 13A(1)(b) of the Sixth Council Directive 77/388/EEC of 17 May 1977, (...) should be interpreted to the effect that clinical analyses which have as their subject the observation and examination of patients on a preventive basis, which are carried out, as are those at issue in the main proceedings, by a laboratory of private law external to a medical care establishment at the prescription of general practitioners, are capable of being covered by the exemption provided for by that provision as medical care provided by another».

In this L.u.P. decision, the CJEU understood that «since clinical analyses are covered, having regard to their therapeutic purpose, by the concept of «medical care» provided for in Article 13A(1)(b) of the Sixth Directive, a laboratory such as that at issue in the main proceedings must be considered an establishment of the «same nature» as «hospital establishments» and «medical assistance and diagnosis centres» within the meaning of that provision» (point 35).

This is reinforced by what follows from point 35 of the CJEU decision in De Fruytier, of 02-07-2015, delivered in case no. C-334/14, in which are cited the decisions in L.u.P., C‑106/05, points 18 and 35 and CopyGene, C‑262/08, point 60, «that a laboratory of private law which carries out clinical analyses must be considered an establishment «of the same nature» as «hospital establishments» and «medical assistance and diagnosis centres» within the meaning of that provision, since such analyses are covered, having regard to their therapeutic purpose, by the concept of «medical care».

It is thus sufficiently clear in this matter from the Community case law, in the sense that, as was written in the decision of arbitral process 168/2015-T, already cited, that "the exemption provided for in point (b) of Article 132 covers the services provided by entities of the types the Applicant provides, regardless of whether the provision occurs or does not occur in a hospital environment, an interpretation that is in manifest harmony with the text of this norm, as it refers to the exemption of operations closely linked to hospitalization and medical care provided to «medical assistance and diagnosis centres».".

In this manner, the Applicant possesses the subjective conditions that are fundamental to the exemption of point (b) of Article 132(1) of the Directive. Being that, as is argued by the Applicant, it is not an organism that carries out its activity under conditions analogous to those of bodies under public law.

As for its classification in national law, the Tax and Customs Authority interprets, incorrectly, the reference to "dispensaries and similar establishments" in the exemption provided for in Article 9(2) of the VAT Code. For, this reference "dispensaries and similar establishments" must be where are included other establishments in which «medical assistance and diagnosis centres and other establishments of the same nature», also in accordance with point (b) of Article 132(1) of Directive No. 2006/112/CE.

Referring again to the Decision delivered in arbitral process no. 168/2015-T:

"The reference to «dispensaries» unequivocally covers the provision of health services outside that hospital environment, as the meaning of «dispensary» is that of «a charitable establishment, for the treatment of sick patients with economic difficulties, giving them access to free consultations and medicines» (...), or «establishment to provide, free of charge, care and medicines to sick poor patients who may be treated at home» (...).

On the other hand, the reference to «similar establishments», interpreted in harmony with the parallel norm of point (c) of Article 132 of Directive No. 2006/112/CE, which refers to «medical assistance and diagnosis centres and other establishments of the same nature», allows one to conclude that entities of the type of the Applicant, which provides health services of clinical analyses and diagnosis in connection with hospital establishments, would also fall within that concept.

Thus, the thesis defended by the Tax and Customs Authority, to the effect that the exemption applicable to establishments of the type of the Applicant is not provided for in Article 9(2) of the VAT Code, has no textual support.".

Being, thus, the applicable norm Article 9(2) of the VAT Code, and because it does here allow the classification into a regime of taxation, the possibility of renunciation of the exemption provided for in Article 12(1)(b) of the VAT Code cannot be excluded.

Thus, the assessments made by the Tax and Customs Authority are affected by the defect of error in the application of the law.

This conclusion is not obstructed by the argument of the Respondent at the arbitral stage (cf. points 61 et seq. of the Response), relating to a possible violation of the principle of neutrality resulting from the option for the exemption regime enshrined in Article 12(1)(b) of the VAT Code, to the extent that this does not integrate the factual and legal grounds of the tax acts whose legality it now falls to scrutinize, given that such acts were based on the non-applicability of that norm, by considering the factual prerequisites of Article 9(1) of the VAT Code satisfied, and not those of Article 9(2) of the same article.

The Tax and Customs Authority argues, finally, that "the option for taxation of operations carried out by the Applicant would only be admissible if the same were classified within the scope of Article 9(2) of the VAT Code and the same were previously communicated, by means of delivery of the Declaration of commencement of activity or amendments, as the case may be, taking effect always from the date of its presentation" (point 73 of the Response).

Regarding the first premise of the allegation in question, it is verified, as has been seen, that the operations carried out by the Applicant are classifiable within the scope of Article 9(2) of the VAT Code.

Regarding the second premise, it is verified, as follows from the facts found to be proven, that since the beginning of activity, on 26/01/2009, the Applicant has been subject to the normal VAT taxation regime, with quarterly frequency, as under Article 12(1)(b) of the VAT Code, it renounced the exemption and consequently began to charge and deduct VAT, being that this classification was triggered by the Declaration of commencement of activity, made by verbal declaration, on 26/01/2009 at the Tax Service of … –… .

Furthermore, it is not found to be proven that the Applicant indicated in the declaration referred to in point 4 of the facts found to be proven that in the exercise of its activity it would carry out transfers of goods and/or provision of services that confer the right to deduction.

In view of the above, the Tax Authority is also not correct in this regard, and there is no similarity whatsoever between the situation of the present case and that judged by the Central Administrative Court of the South in the course of process 05235/11, as, moreover, in the respective decision it is stated that "the party challenging [the assessment] assumed inappropriate conduct, incapable of permitting the assertion, conscientiously, of having acted as an 'integral taxpayer', throughout the entire period between January 2000 and June 2006.".

The Applicant, together with the request for annulment of the tax acts subject to the present case, accumulates the request for condemnation of the Tax Authority to pay indemnificatory interest.

Given the allowability of the annulment request, the payments made by the Applicant with respect to the annulled tax acts should be reimbursed, if necessary in execution of sentence. In the case at hand, it is manifest that the illegality of the assessment acts, whose amount the Applicant paid, is imputable to the Respondent, who, by its own initiative, carried them out without legal support.

Consequently, the Applicant is entitled to indemnificatory interest, in accordance with Articles 43(1) of the LGT and 61 of the CPPT. Indemnificatory interest is due from the date of the payments shown to have been made, and calculated on the basis of the respective amount, until its full reimbursement to the Applicant, at the legal rate, in accordance with Articles 43(1) and (4) and 35(10) of the LGT, Article 61 of the CPPT and Article 559 of the Civil Code and Ordinance No. 291/2003, of 8 April (without prejudice to any subsequent amendments to the legal rate).

Furthermore, in accordance with the provision of point (b) of Article 24 of the RJAT, the arbitral decision on the merits of the claim to which no appeal or challenge lies is binding on the tax administration from the end of the period provided for appeal or challenge, the latter being required, in the exact terms of the allowability of the arbitral decision in favor of the taxpayer and up to the end of the period provided for voluntary execution of the decisions of the tax tribunals, to "restore the situation that would exist if the tax act subject to the arbitral decision had not been carried out, adopting the acts and operations necessary for this purpose", which is in line with the provision in Article 100 of the LGT [applicable by virtue of the provision of Article 29(1)(a) of the RJAT] which establishes that "the tax administration is obliged, in the event of full or partial allowability of a claim, judicial challenge or appeal in favor of the taxpayer, to immediate and full restoration of the legality of the act or situation subject to the dispute, comprising the payment of indemnificatory interest, if applicable, from the end of the period for execution of the decision".

Although Article 2(1), points (a) and (b), of the RJAT uses the expression "declaration of illegality" to define the competence of arbitral tribunals functioning at CAAD, making no reference to condemnatory decisions, it should be understood that this includes the powers that in judicial challenge proceedings are attributed to tax tribunals, this being the interpretation that harmonizes with the sense of the legislative authorization on which the Government based itself to approve the RJAT and in which is proclaimed, as a first directive, that "the tax arbitral process must constitute a procedural means alternative to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters".

The judicial challenge process, despite being essentially a process of annulment of tax acts, admits condemnation of the tax administration to pay indemnificatory interest, as is deduced from Article 43(1) of the LGT, in which it is established that "indemnificatory interest is due when it is determined, in a claim or judicial challenge, that there was error imputable to the services resulting in payment of the tax debt in an amount higher than legally due" and from Article 61(4) of the CPPT (in the wording given by Law No. 55-A/2010, of 31 December, which corresponds to paragraph 2 in the original wording), that "if the decision recognizing the right to indemnificatory interest is judicial, the payment period is counted from the beginning of the period for its voluntary execution".

Thus, Article 24(5) of the RJAT, when it states that "payment of interest, regardless of its nature, is due in accordance with the terms provided for in the general tax law and in the Code of Tax Procedure and Process" should be understood as allowing the recognition of the right to indemnificatory interest in the arbitral process. In the case at hand, it is manifest that, following the declaration of illegality and consequent annulment of the impugned assessment acts, there is ground for reimbursement of the tax, by virtue of the said Articles 24(1)(b) of the RJAT and 100 of the LGT, as this is essential to "restore the situation that would exist if the tax act subject to the arbitral decision had not been carried out", in the part corresponding to the correction that was considered illegal.

Thus, the Respondent must give execution to the present decision, in accordance with Article 24(1) of the RJAT, determining the amount to be reimbursed to the Applicant and calculating the respective indemnificatory interest, at the supplementary legal rate for civil debts, in accordance with Articles 35(10) and 43(1) and (5) of the LGT, Article 61 of the CPPT, Article 559 of the Civil Code and Ordinance No. 291/2003, of 8 April (or the diploma or diplomas that succeed it).

Indemnificatory interest is due from the dates of the payments made until the date of processing of the credit note, in which they are included (Article 61(5) of the CPPT).

C. DECISION

For these reasons, this Arbitral Tribunal decides to allow the arbitral claim filed and, in consequence:

a) Annul the assessments subject to the present tax arbitral action;

b) Condemn the Respondent to proceed with the reimbursement of the sums paid by the Applicant by virtue of the annulled tax acts, together with indemnificatory interest;

c) Condemn the Respondent in the costs of the proceedings, in the amount of €2,448.00.

D. Value of the proceedings

The value of the proceedings is fixed at €61,810.24, in accordance with Article 97-A(1)(a) of the Code of Tax Procedure and Process, applicable by virtue of Articles 29(1)(a) and (b) of the RJAT and Article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at €2,448.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Tax and Customs Authority, as the claim was totally allowed, in accordance with Articles 12(2) and 22(4), both of the RJAT, and Article 4(4) of the cited Regulation.

Let notification be made.

Lisbon, 30 September 2016

The Presiding Arbitrator

(José Pedro Carvalho - Reporter)

The Arbitrator Member

(Ana Moutinho Nascimento)

The Arbitrator Member

(Álvaro José da Silva)

[1] Available for consultation at www.caad.org.pt.

[2] Available at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2012:338:0001:0006:PT:PDF.

Frequently Asked Questions

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Can clinical analysis laboratories and medical centres waive the VAT exemption under Article 12(1)(b) of the Portuguese VAT Code?
Yes, clinical analysis laboratories and medical diagnostic centres can waive the VAT exemption under Article 12(1)(b) of the Portuguese VAT Code, provided they qualify as exempt under Article 9(2) CIVA. Article 12(1)(b) specifically permits entities providing services exempt under Article 9 to renounce the exemption and opt for normal VAT taxation. This allows healthcare providers to charge VAT on their services and deduct input VAT on acquisitions. However, the waiver must be validly exercised through proper declaration procedures, typically indicated in the commencement of activity declaration. The Tax Authority's position may challenge whether specific establishments qualify for the underlying exemption or whether the waiver was procedurally valid.
Does the VAT neutrality principle require equal treatment of similar medical and diagnostic services for exemption purposes?
The VAT neutrality principle requires that similar services in competition should receive equal VAT treatment to avoid distortions of competition. Under this principle, medical and diagnostic services that are economically similar and compete in the same market should not be treated differently for VAT exemption purposes. The applicant argued that denying dental clinics the ability to waive exemption while permitting this for clinical analysis laboratories violates neutrality, as both provide diagnostic and medical assistance services. The Court of Justice of the European Union has consistently held that the neutrality principle prevents arbitrary distinctions between comparable economic activities, requiring interpretation of exemption provisions in light of their objectives and competitive impacts.
What is the scope of the VAT exemption under Article 9(2) CIVA for medical assistance and diagnostic centres?
Article 9(2) of the Portuguese VAT Code exempts services provided by establishments such as hospitals, clinics, dispensaries, and 'medical assistance and diagnosis centres' or similar nature. This provision implements Article 132(1)(b) and (c) of the EU VAT Directive. The scope encompasses medical care, diagnosis, treatment, and related healthcare services provided by qualified professionals in appropriate facilities. The key interpretative question is whether dental clinics qualify as 'medical assistance and diagnosis centres' - the applicant argued they clearly fall within this category as they provide medical consultations, treatment, surgical procedures, and complementary diagnostic examinations. The exemption's purpose is to reduce healthcare costs, and its scope should be interpreted in accordance with EU law and the objectives of facilitating access to medical care.
How does CAAD arbitral tribunal jurisdiction apply to additional VAT assessments on healthcare services?
The CAAD (Centro de Arbitragem Administrativa) arbitral tribunal has jurisdiction over additional VAT assessments on healthcare services under Articles 2(1)(a) and 10 of the RJAT (Legal Framework for Arbitration in Tax Matters). Taxpayers may challenge the legality of VAT assessments resulting from tax inspections by filing applications for arbitral tribunal constitution within the statutory deadlines. The tribunal's competence extends to reviewing whether the Tax Authority correctly applied VAT exemption provisions and whether procedural requirements were met. In this case, the tribunal's jurisdiction was established to review additional VAT assessments for 2011-2013 arising from the Tax Authority's conclusion that the dental clinic should have been exempt rather than in the normal regime. The arbitrators examine both substantive and procedural legality of the contested acts.
When can a preliminary ruling (reenvio prejudicial) be requested in Portuguese tax arbitration involving EU VAT Directive interpretation?
A preliminary ruling (reenvio prejudicial) to the Court of Justice of the European Union may be requested in Portuguese tax arbitration when the case involves interpretation of EU law provisions, particularly the VAT Directive, and such interpretation is necessary to resolve the dispute. Under Article 267 TFEU, national courts and tribunals may (and courts of last resort must) refer questions to the CJEU when EU law interpretation is required. In VAT arbitration, preliminary references are appropriate when: (1) the correct interpretation of the VAT Directive provisions is uncertain or disputed; (2) no clear CJEU case law exists on the specific point; (3) the interpretation is determinative of the case outcome. In this case, questions concerning the scope of Article 132(1)(b) and (c) of the VAT Directive regarding medical assistance and diagnosis centres, and whether dental clinics may waive exemptions, could warrant a preliminary reference to ensure uniform EU law application.