VAT on Clinical Analyses: Exemption Waiver and Preliminary Ruling at CAAD (789/2015-T)

ARBITRAL DECISION

The arbitrators Dr.ª Fernanda Maçãs (presiding arbitrator), Dr.ª Mariana Gouveia de Oliveira and Dr. Emanuel Augusto Vidal Lima (member arbitrators), designated by the Deontological Council of the Centre for Administrative Arbitration to constitute the Arbitral Tribunal, constituted on 02-03-2016, agree as follows:

1. REPORT

A…, S.A., NIPC…, with registered office at Rua…, …, …, Room…, …, …-…, …, as the incorporating company of Laboratory … B…, S.A. ("Laboratory B…") (hereinafter referred to as "Applicant"), came, pursuant to paragraph a) of article 10.1 and paragraph a) of article 5.3, both of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as "RJAT"), to request the constitution of an Arbitral Tribunal with a view to the declaration of illegality and consequent annulment of the following VAT assessments and interest charges, relating to the tax years 2011 to 2013, in the total amount of €840,876.46 (the "Assessments") hereinafter indicated:

The Applicant concludes its request by requesting the annulment of the contested assessments and the condemnation of the Tax Authority to reimburse the incorrectly paid amounts, plus the corresponding compensatory interest, in accordance with article 43 of the General Tax Code.

The Respondent is the TAX AUTHORITY AND CUSTOMS AUTHORITY ("TA").

The request for constitution of the arbitral tribunal was accepted by the President of the CAAD and automatically notified to the TA on 30-12-2015.

Pursuant to paragraph a) of article 6.2 and paragraph b) of article 11.1 of the RJAT, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council designated the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of their appointment within the applicable deadline.

On 16-02-2016 the parties were duly notified of this designation, and neither party manifested any intention to refuse the designation of the arbitrators, in accordance with the combined provisions of article 11.1 paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

Thus, in conformity with the provision in paragraph c) of article 11.1 of the RJAT, as amended by article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 02-03-2016.

The TA responded by raising a dilatory exception of material incompetence, on the grounds that the case involves recognition of a right in tax matters, specifically the right to opt out of VAT exemption of the Applicant, and requesting that a preliminary reference be made to the Court of Justice. As to the merits, the TA argues that the request for arbitral pronouncement should be dismissed.

The Applicant submitted a response to the exception and to the request for preliminary reference.

By order of 29-04-2016, the hearing envisaged in article 18 of the RJAT was dispensed with and it was decided that the proceedings would continue with submissions. It was further established that the deadline for pronouncement of the award would be 2 September 2016.

The parties submitted their submissions.

The parties possess legal personality and capacity, are legitimate and are represented (articles 4 and 10.2 of the same legislation and article 1 of Order No. 112-A/2011, of 22 March).

The proceedings contain no irregularities.

It is necessary to consider primarily the exception of material incompetence.

2. THE QUESTION OF MATERIAL INCOMPETENCE OF THIS TRIBUNAL ON THE GROUNDS THAT THE CASE INVOLVES RECOGNITION OF A RIGHT IN TAX MATTERS

The TA argues that this Arbitral Tribunal is materially incompetent to examine the request for arbitral pronouncement because it considers that the examination of the legality of the assessments presupposes a prior decision on the legality of the conditions of the right to opt out of exemption which the Applicant exercised, in accordance with paragraph b) of article 12.1 of the VAT Code, considering that "the acts of additional VAT assessment carried out should be qualified as consequential acts taking into account the concept, albeit restricted, adopted both by legal doctrine and by case law".

The TA argues that "those acts should be qualified as consequential acts which were produced, or endowed with certain content, by reason of the existence of prior acts presumed to be valid which serve as their cause, basis or condition" and maintains that "the acts of additional assessment in question are in a relationship of dependence not merely formal, but of a substantial nature, in the sense that such assessments only have reason to be in virtue of the existence of the recognition or non-recognition of a right by the now Applicant".

For this reason, the TA considers that "the present arbitral proceedings are materially incompetent to know of one of the various requests formulated in these proceedings, namely, whether the now Applicant has or does not have the right to opt out of the exemption as provided for in paragraph 2) of article 9, as provided in article 12.1 paragraph b), both of the VAT Code" and that "knowing whether the Applicant should be classified under the normal VAT regime with the right to deduct VAT, does not represent an act that may be susceptible to examination by this Tribunal, since it lies outside the material scope of tax arbitration as defined by the legislature".

This same question has been raised in various prior proceedings in which identical subject matter is analysed, including proceedings 168/2015-T of the CAAD, where the following was written, with all due respect, which is now transcribed:

"The competence of the arbitral tribunals operating at the CAAD is defined, in the first place, by article 2.1 of the RJAT, which establishes the following:

1 - The competence of arbitral tribunals comprises the examination of the following claims:

a) The declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account;

b) The declaration of illegality of acts fixing the taxable matter where this does not give rise to the assessment of any tax, of acts determining the taxable base and of acts fixing patrimonial values;

In the second place, the competence of arbitral tribunals operating at the CAAD is limited by the binding nature of the Tax Authority and Customs Authority which, pursuant to article 4.1 of the RJAT, was defined by Order No. 112-A/2011, of 12 March, which establishes the following, as far as relevant here:

The services and bodies referred to in the preceding article bind themselves to the jurisdiction of arbitral tribunals operating at the CAAD which have as their object the examination of claims relating to taxes whose administration is entrusted to them referred to in article 2.1 of Decree-Law No. 10/2011, of 20 January, with the exception of the following:

a) Claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account which have not been preceded by recourse to the administrative procedure in accordance with articles 131 to 133 of the Code of Tax Procedure and Process;

b) Claims relating to acts determining the taxable base and acts determining the taxable matter, both by indirect methods, including the decision of the review procedure;

c) Claims relating to customs duties on imports and other indirect taxes affecting goods subject to import duties; and

d) Claims relating to tariff classification, origin and customs value of goods and tariff quotas, or whose resolution depends on laboratory analysis or procedures to be carried out by another Member State within the scope of administrative cooperation in customs matters.

Order No. 112-A/2011, in relation to the acts that may be classified as indicated in article 2, excluded from the scope of the binding nature of the Tax Administration, in non-customs matters, only claims relating to acts of self-assessment, withholding at source and payment on account which have not been preceded by recourse to the administrative procedure and claims relating to acts determining the taxable base and acts determining the taxable matter, both by indirect methods, including the decision of the review procedure.

It is evident that none of the situations is present in which Order No. 112-A/2011 excludes the competence of arbitral tribunals operating at the CAAD, so competence must be assessed solely in light of the RJAT.

As can be seen from article 2 of the RJAT, the competence of arbitral tribunals operating at the CAAD was defined by the RJAT solely with regard to the type of acts that are the object of the claims of taxpayers and not in function of the type of questions that need to be examined to decide whether the acts are legal or illegal.

There is, in particular, no prohibition on examining matters relating to verification of the conditions of the right to opt out of VAT exemption or any other questions of legality relating to the acts of the types referred to in article 2 of the RJAT. An assessment of tax which departs from disregarding an exemption or an opt-out from exemption does not cease to be a tax assessment act. And the claim for examination of the legality or illegality of that disregard underlying an assessment act does not, therefore, cease to be the examination of a claim relating to the declaration of illegality of assessment acts, in which that disregard is embodied.

Thus, in arbitral proceedings, similarly to what occurs in the proceedings for judicial review, any illegality may, as a general rule, be imputed to assessment acts, as follows from article 99 of the CPPT, applicable subsidiarily.

This will only not be the case where the law provides for the autonomous challengeability of administrative acts which are a prerequisite of the assessment acts, it being only to that extent that the examination of the legality of the assessment acts in all respects is excluded. But, for there to be such autonomous challengeability, there must be some administrative act in tax matters, since challengeability relates to acts and not to legal positions adopted explicitly or implicitly as prerequisites of the assessment acts but not embodied in autonomous tax acts.

The consequential acts, of which the Tax Authority and Customs Authority speaks, are consequential to other prior tax or administrative acts and, in the present case, there is no evidence that any administrative act was carried out examining whether the Applicant has or does not have the right to opt out of VAT exemption.

That is, for there to be a limitation on the challengeability of the contested assessment acts, there would have had to be carried out, previously, some administrative act which was a prerequisite of these assessment acts, which did not occur in the present case.

For this reason, since the assessment acts are injurious to the interests of the Applicant and are the only acts carried out by the tax administration regarding the situation examined therein, its challengeability must be ensured on the grounds of any illegality, as follows from the principle of effective judicial protection, enshrined in articles 20.1 and 268.4 of the Constitution.

On the other hand, when there is no prior autonomously challengeable act to an assessment act regarding its conditions, any illegality previously committed may be "invoked in the challenge to the final decision" (final part of article 54 of the CPPT), so that all questions relating to the legality of the assessment acts may be examined in tax courts in proceedings for judicial review, as follows from paragraph a) of article 97.1 and article 99 of the same Code.

In fact, in tax courts, even when, having been carried out assessment acts, there is a situation in which it might be more useful for the taxpayer to use the action for recognition of a right or legitimate interest (by allowing, in addition to the examination of the legality of acts the definition for the future of the taxpayer's rights), the use of the action instead of judicial review is a mere faculty, as follows from the text of article 145.3 of the CPPT itself, which states that "actions may only be brought whenever this procedural means is the most appropriate to ensure full, effective and proper protection of the right or legally protected interest". That is, what is provided for in this rule is a limitation on the use of the action and not a limitation on the use of the judicial review proceedings.

Indeed, it is evident that the judicial review proceedings 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 compensatory interest and the right to compensation for improper guarantee, so that the fact that the recognition of rights is involved is not an obstacle to the use of the judicial review proceedings.

Thus, as the Tax Authority and Customs Authority states, since the tax arbitral proceedings were created as an alternative to the judicial review proceedings, it can be concluded that there is no obstacle to the examination of the legality of the assessment acts in question in these proceedings by this Arbitral Tribunal, since in tax courts that legality could be examined in judicial review proceedings.

For this reason, regarding the request for annulment of the assessment acts, the exception of material incompetence raised by the Tax Authority and Customs Authority on the grounds that recognition of a right in tax matters is involved is without merit."

Seeing no reason to depart from the learned exposition in the cited award, and indeed fully endorsing what was stated therein, the exception of material incompetence raised by the TA is without merit.

3. FINDINGS OF FACT

3.1 Established Facts

Based on the elements contained in the proceedings and in the administrative file attached to the record, the following facts are considered established:

A) The Applicant commenced operations on 07-09-1978, and during the periods under analysis was classified in the exercise of the activity of "Clinical Analysis Laboratories" (CAE 086901), at that time as Laboratory B…;

B) On 01-08-2013, Laboratory B… ceased operations upon being incorporated by merger into company A…, S.A.;

C) For VAT purposes, it was classified on 01-01-1986 under the exemption regime provided for in article 9 of the VAT Code;

D) On 03-07-2006, by declaration of changes reported to 01-07-2006, it opted out of the VAT exemption in accordance with paragraph b) of article 12.1 of the VAT Code, coming to be classified under the normal regime with quarterly periodicity, moving in 2008 to the monthly periodicity regime;

E) The Applicant was subject to a tax audit initiated by External Work Order of partial scope No. OI2014…, of 8 August 2014, originally directed to VAT for the periods 2011/01 to 2013/07 and subsequently amended to extend to the entire years 2011, 2012 and 2013;

F) Following the aforementioned tax audit, the Applicant was notified of the Tax Audit Report, through Official Letter No. …/…, of 10 August 2015, which contains the grounds for the contested Assessments, the contents of which are reproduced:

"III.2.1.3 Judgment of the Court of Justice of the European Communities – scope of paragraphs 1 and 2 of article 9 of the VAT Code

The Court of Justice of the European Communities (CJEC), in its Judgment of 10 September 2002, delivered in Case C-141/00, concerning the Kügler case (paragraph 36), noted that paragraphs b) and c) of article 132.1 of the VAT Directive, although intended to regulate exemptions applicable to medical care services, have different scopes.

Whilst paragraph b) - which corresponds to article 9.2 of the VAT Code - exempts medical care services provided in hospital settings, including closely related operations, paragraph c) – which corresponds to article 9.1 of the VAT Code - is intended to exempt medical and paramedical services provided outside such locations, whether in the private residence of the service provider, in the patient's home, or in any other place.

III.2.2. Actual Situation of the Taxpayer

III.2.2.1 Activity Actually Carried Out.

The activity actually carried out by the taxable person, which benefited from VAT exemption, under article 9 of the VAT Code and for which Laboratory B… opted out of the exemption, in accordance with paragraph b) of article 12.1 of the VAT Code, consisted essentially of the provision of clinical analysis services and pathological anatomy services.

The collection of samples to be analysed was effected, as a rule, in the central laboratory or in one of the various collection units, and could also occur at the patient's home. Subsequently, the samples to be analysed were processed and the corresponding analysis report was issued. Laboratory B… also processed samples collected at collection points of other entities, including related entities, when their services were subcontracted.

It should be noted that in no case did the services provided involve hospitalization or admission of patients, nor, as set out in the preceding paragraph, were they provided in a hospital setting.

III.2.2.2. Classification under VAT

As follows from what is set out in point III.2.1 Legislative Framework for the Classification of Clinical Analysis and Pathological Anatomy Activities, the taxable person cannot consider the activity carried out to be exempt from tax based on classification under article 9.2 of the VAT Code, but only based on invocation of what is provided in article 9.1 of the same provisions.

Consequently, being classified under article 9.1 of the VAT Code, the taxable person could not opt out of the exemption, for the lack of a legal rule that would permit it to do so, since the opt-out from the exemption provided for in paragraph b) of article 12.1 of the VAT Code applies only to the exemption under article 9.2 of the VAT Code"

G) Following the audit, the tax assessments that are the object of the arbitral request were issued and are listed in section 1, in the total amount of €840,876.46, which were paid by the Applicant;

3.2 Unproven Facts

There are no facts relevant to the decision of the case that have not been established.

3.3 Grounds for the Establishment of Facts

The established facts are based on the documents attached to the request for arbitral pronouncement and on the administrative file.

4. FINDINGS OF LAW

4.1 Powers of Cognition of the Tribunal in Annulment Proceedings

It falls to this Tribunal, competent for that purpose, to pronounce on the legality of the contested VAT assessment acts identified above.

It should be noted that the question that gave rise to these assessments has already been raised in proceedings No. 168/2015-T, of 18 September 2015, No. 303/2015-T, of 18 November 2015, No. 315/2015-T, of 27 November 2015 and No. 788/2015-T, of 24 May 2016, in which the arbitral tribunals constituted at the CAAD have already decided on subject matter identical to that in the present proceedings, whose conclusions this Tribunal follows closely.

Upon the entry into force of VAT (1 January 1986), the Applicant was classified under article 9 of the VAT Code (CIVA), which lists exemptions on internal transactions, and, pursuant to paragraph b) of article 12.1 of the same Code, opted out of the VAT exemption, by delivering, on 3 July 2006, a declaration of changes reported to 1 July 2006. Consequently, it came to be classified under the normal tax regime, proceeding to assess VAT on the services provided and to deduct VAT borne on acquisitions made in the course of its activity.

It should be recalled that the Applicant's activity consists of providing clinical analysis services which, for their provision, do not involve the hospitalization of the persons to whom the analyses are performed.

However, precisely because the aforementioned activity is carried out outside a hospital setting, the TA, following the aforementioned audit, proceeded to classify the Applicant's activity under article 9.1 of the CIVA and, consequently, rejected the possibility of the Applicant opting for the taxation of the operations it carries out.

In fact, in the TA's view, the opt-out from the exemption referred to in paragraph b) of article 12.1 of the CIVA is applicable only within the scope of operations exempted under article 9.2 of the CIVA and not for those operations referred to in article 9.1 of the same article, which is why the TA considered that the Applicant could not have opted out of the exemption "due to lack of legal basis" (page 7 of the Tax Audit Report).

Consequently, the TA considered that all VAT deducted by the Applicant in the years 2011 and 2012 and in the periods from January to July (inclusive)[1] of 2013 was improperly deducted, and therefore proceeded to the respective assessments.

For this purpose, in the Tax Audit Report underlying the contested assessments, the TA presented the following grounds (pages 9 and 10 of the Tax Audit Report):

• The exemption provided for in article 9.2 of the CIVA "transposes into the internal legal order paragraph b) of article 132.1 of Council Directive 2006/112/CE, of 28 November" 2006, relating to the common system of VAT;

• This Community exemption "covers medical and healthcare services (health acts) consisting of providing assistance to persons, diagnosing and treating diseases or any health anomalies and operations connected therewith, carried out by the establishments referred to in that rule or by hospital establishments (hospitalization/admission)";

• "For the purposes of the aforementioned exemption, establishments of the same nature are considered to be public or private establishments which diagnose or treat diseases or any other health anomaly, that is, establishments which effectively carry out operations of the nature of health services";

• "The Court of Justice of the European Communities (CJEC), in its Judgment of 10 September 2002, delivered in Case C-141/00, concerning the Kügler case (paragraph 36), noted that paragraphs b) and c) of article 132.1 of the VAT Directive, although intended to regulate exemptions applicable to medical care services, have different scopes."

"Whilst paragraph b) – which corresponds to article 9.2 of the VAT Code – exempts medical care services provided in hospital settings, including closely related operations, paragraph c) – which corresponds to article 9.1 of the VAT Code – is intended to exempt medical and paramedical services provided outside such locations, whether in the private residence of the service provider, in the patient's home, or in any other place";

• "The collection of samples to be analysed was effected, as a rule, in the central laboratory or in one of the various collection units, and could also occur at the patient's home. Subsequently, the samples to be analysed were processed and the corresponding analysis report was issued. Laboratory B… also processed samples collected at collection points of other entities, including related entities, when their services were subcontracted";

• "in no case did the services provided by the taxable person involve hospitalization or admission of patients, nor, as set out in the preceding paragraph, were they provided in a hospital setting.";

• The Applicant "cannot consider the activity carried out to be exempt from tax based on classification under article 9.2 of the VAT Code, but only based on invocation of what is provided in article 9.1 of the same provisions."

• "Consequently, being classified under article 9.1 of the VAT Code, the taxable person could not opt out of the exemption, for the lack of a legal rule that would permit it to do so, since the opt-out from the exemption provided for in paragraph b) of article 12.1 of the VAT Code applies only to the exemption under article 9.2 of the VAT Code."

Transcribed below, with all due respect, what was written, on the subject, in proceedings 168/2015-T, 303/2015-T and 788/2015-T, which, as has been emphasized, deal with subject matter identical to that in the present proceedings:

"The contentious system provided for in the RJAT is one of mere legality, aimed only at the declaration of illegality of acts of the types provided for in paragraphs a) and b) of article 2.1 thereof.

For this reason, the legality of the contested acts must be assessed as they were performed, with the grounds used in them, irrelevant being any other possible grounds that could serve as support for other acts, with a decision-making content totally or partially coincident with the performed act. Post hoc rationalizations are thus irrelevant, after the end of the tax procedure in which the act whose declaration of illegality is requested was performed, including those advanced in the judicial proceedings.

Thus, the Tribunal cannot, when confronted with the invocation of an illegal ground as support for the administrative decision, examine whether its action could be based on other grounds and refrain from declaring the illegality of the specific act performed on the grounds that, possibly, there is the abstract possibility of a hypothetical act with a decision-making content totally or partially identical, with other grounds, which would be legal, but was not performed. [2]

In these terms, the question to be examined consists, in the first place, of knowing whether it is correct the position assumed by the Tax Authority and Customs Authority in considering that only the activity carried out in hospital settings is classified under article 9.2 and that the Applicant's activity is not carried out in such a setting, because it is developed in its own facilities or in partnership, without the services provided having involved the hospitalization or admission of patients.

That is, for the assessment of the legality of the corrections made, what the Tax Authority and Customs Authority states in its Response and in the submissions presented in the present proceedings is not relevant, regarding, in the case of understanding that the Applicant's situation is classified under article 9.2, the need to assess whether opt-out of the exemption is possible in the light of the principle of neutrality, "a situation which was not examined by the TA since it was prejudiced by the Applicant's classification" (articles 82 et seq. of the Response). In fact, the grounds which the Tax Authority and Customs Authority did not examine when performing the act are not grounds of the performed act, and their invocation constitutes a posteriori rationalization.

For this reason, only the grounds contemporaneous with the act being relevant, if it is concluded that the Applicant's situation is classified under article 9.2 of the CIVA, it will be necessary to conclude that the act is illegal due to error as to the legal prerequisites."

4.2 Applicable Legal Regime

It is then necessary to conclude whether the TA's decision is correct, in classifying the Applicant's activity, because carried out outside a hospital setting, under the exemption of article 9.1 of the CIVA, thus removing the possibility of it opting out of the exemption.

It is therefore necessary to analyse the applicable legal regime, and at the date of the facts under analysis, articles 9 and 12 of the CIVA established the following, in the relevant part:

Article 9

Exemptions on internal operations

The following are exempt from tax:

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

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

(...)

Article 12

Opt-out from exemption

1- The following may opt out of the exemption, choosing the application of tax to their operations:

(...)

b) Hospital establishments, clinics, dispensaries and similar establishments, not belonging to legal persons under public law or private institutions integrated into the national health system, which carry out medical and healthcare services and operations closely connected therewith;

(...)

2- The right of option is exercised by delivery, at any tax office or at another legally authorized location, of a declaration of commencement or changes, as appropriate, producing effect from the date of its presentation.

3- Having exercised the right of option in accordance with the preceding paragraphs, the taxable person is obliged to remain in the regime chosen for a period of at least five years, and, once that period has ended, if it wishes to return to the exemption regime:

a) Present, during the month of January of one of the years following the one in which the period of the chosen regime has ended, the declaration referred to in article 32, which produces effect from 1 January of the year of its presentation;

b) Subject to tax the remaining inventory and proceed, in accordance with paragraph 5 of article 24, to the adjustment of the deduction regarding fixed assets.

The exemptions referred to in paragraphs 1) and 2) of article 9 of the CIVA are based on the provisions of paragraphs c) and b) respectively, of article 132.1 of Directive 2006/112/CE, of 28 November 2006 (VAT Directive), which provide as follows:

Article 132

1. Member States shall exempt the following transactions:

(...)

b) Hospital care and medical care, and activities closely related thereto, provided by public health care organisms or, under social conditions comparable to those applying to public health care organisms, by hospital establishments, medical and diagnostic assistance centres and other establishments of the same nature duly recognized;

c) Services provided in the context of the exercise of medical and paramedical professions as defined by the Member State concerned; (…)

It should also be recalled that paragraphs b) and c) of article 132.1 of the VAT Directive correspond literally to paragraphs b) and c) of article 13.A.1 of Directive 77/388/CEE (commonly known as the Sixth Directive).

4.3 Viability of the Applicant Opting Out of Exemption

Paragraph b) of article 12.1 of the CIVA permits opt-out from exemption only to the entities exempted as referred to in article 9.2 of the same legal instrument, that is, to the "hospital establishments, clinics, dispensaries and similar establishments, not belonging to legal persons under public law or private institutions integrated into the national health system, which carry out medical and healthcare services and operations closely connected therewith".

Thus, in light of the correspondence between the texts of the two legal rules, it must be concluded that only the entities just mentioned, classified under article 9.2 of the CIVA, may opt out of the exemption, and not also those benefiting from the exemption under article 9.1 of the same article.

In the TA's view, the fields of application of paragraphs b) and c) of article 132.1 of the VAT Directive correspond respectively to the fields of application of paragraphs 2) and 1) of article 9 of the CIVA[3].

In this way, the TA, invoking the Kügler Case[4], understands that "the exemption provided for in article 9.1 of the CIVA operates independently of the legal nature of the service provider and, in particular, of the fact that it is a natural or legal person and, furthermore, that that exemption is based on paragraph c) of article 132.1 of Directive 2006/112/CE (…) [cf. paragraph 53 of the TA's Response] and is intended to exempt medical and paramedical services provided outside such locations" (hospital establishments), "whether in the private residence of the service provider, in the patient's home, or in any other place" [2nd part of paragraph 63 of the TA's Response].

And the TA further understands that, on the other hand, article 9.2 of the CIVA "transposes into the internal legal order paragraph b) of article 132.1 of the aforementioned Directive 2006/112/CE (…) [cf. paragraph 59 of the TA's Response] and "exempts medical care services provided in hospital settings, including closely related operations" (…) [cf. 1st part of paragraph 63 of the TA's Response].

Considering that the Applicant exercises its activity outside a hospital setting, the TA concludes that the exemption it benefits from is that which corresponds to article 9.1 of the CIVA and, consequently, without the possibility of using the option for taxation, since this is only permitted for operations covered by article 9.2 of the CIVA.

However, the Kügler Case does not state that the entities covered by paragraph b) of article 132.1 of the VAT Directive and, to that extent, by article 9.2 of the CIVA, are only hospital establishments.

Now, the CJEU, in the L.u.P. Case[5], subsequent to the Kügler Case, clarified that "Article 13.A.1 paragraph b)[6] of the Sixth Directive (...), should be interpreted to the effect that clinical analyses which have as their object the observation and examination of patients for preventive purposes, which are carried out, as are those at issue in the main proceedings, by a clinical laboratory of private law external to an establishment of medical assistance under the prescription of general practitioners, are capable of being covered by the exemption provided for in that provision as medical care provided by another private law establishment duly recognized within the meaning of that provision"[7].

In paragraph 35 of the Judgment of 8 June 2006, L.u.P. Case, Case C-106/05, the CJEU clarifies that "since clinical analyses are covered, having regard to their therapeutic purpose, by the concept of 'medical care' provided for in article 13.A.1 paragraph b)[8] of the Sixth Directive, a laboratory such as that at issue in the main proceedings must be considered an establishment 'of the same nature' as the 'hospital establishments' and the 'medical and diagnostic assistance centres' within the meaning of that provision".

More recently, in the De Fruytier Case, the CJEU confirmed this case law by clarifying that "a clinical laboratory under private law which carries out clinical analyses must be considered an establishment 'of the same nature' as the 'hospital establishments' and the 'medical and diagnostic assistance centres' within the meaning of that provision[9], since those analyses are covered, having regard to their therapeutic purpose, by the concept of 'medical care' provided for in the aforementioned provision"[10].

Thus, in light of the Community case law, which is sufficiently clear on this matter, it must be concluded that the exemption provided for in paragraph b) of article 132 of the VAT Directive covers the services provided by entities such as the Applicant, regardless of whether the provision occurs or not in a hospital setting, since:

• The analysis services provided by the Applicant have the nature of medical care services; and

• The Applicant, as a clinical analysis laboratory, must be considered an establishment "of the same nature" as the "hospital establishments" and the "medical and diagnostic assistance centres"

With regard to the classification of the Applicant's activity within the scope of the CIVA, the wording of article 9.2 does not support the thesis defended by the TA in the sense that it applies only to services provided in hospital settings, not contemplating, in particular, the provision of clinical analysis and diagnostic services, closely connected with hospital activities.

Now, article 9.2 of the CIVA, in addition to hospital establishments, also makes reference to "clinics, dispensaries and similar establishments".

The reference to "dispensaries and similar establishments" allows the inclusion of other establishments such as "medical and diagnostic assistance centres and other establishments of the same nature" within the meaning of the provisions of paragraph b) of article 132.1 of the VAT Directive.

As was explained in the earlier awards delivered in the arbitral proceedings, already cited, which decided on identical subject matter (Cases No. 168/2015-T, 303/2015-T, 315/2015-T and 788/2015-T):

"The reference to 'dispensaries' unequivocally covers the provision of health services outside hospital settings, as the meaning of 'dispensary' is 'a charitable establishment for the treatment of patients with economic difficulties, giving them access to free consultations and medicines' or 'an establishment for freely providing care and medicines to poor patients who may be treated at home'.

On the other hand, the reference to 'similar', interpreted in consonance with the corresponding rule of paragraph b) of article 132 of the VAT Directive, which makes reference to 'medical and diagnostic assistance centres and other establishments of the same nature', allows for the conclusion that entities of the type of the Applicant, which provides health services in clinical analysis and diagnostic in connection with hospital establishments, will also fall within that concept."

For which reason, we conclude, in like manner, that the thesis defended by the TA, that the exemption applicable to establishments of the type of the Applicant is not provided for in article 9.2 of the CIVA, does not find support in the text of this legal rule.

In light of the above, the Applicant had the right to exemption under article 9.2 of the CIVA and, consequently, had the right to opt out of that exemption, in accordance with article 12.1 paragraph b) of the CIVA.

In this manner, the assessments issued by the TA are defective due to a breach of law, based on error as to the legal prerequisites.

The assessments of compensatory interest have as their prerequisite the VAT assessments in which they are included (article 25.8 of the General Tax Code), and thus are defective due to the same flaw.

In these terms, it must be judged that the Applicant's request is well-founded and, accordingly, the contested assessments, including the respective compensatory interest, must be annulled.

4.3. Preliminary Reference

In its Response, the TA formulates a request for a preliminary reference, aimed at defining the "scope of the opt-out from the aforementioned exemption regime", arguing that the existing European case law with similarities to the present proceedings results from cases that are in an antagonistic position, and therefore considers that it will not be applicable to the case at hand.

However, as has been demonstrated, the matter on which the TA seeks clarification, in general terms, is not a matter regulated by European Union law directly, but rather is left to the discretion of the Member States, which are competent to define the terms and scope of application of the possible right to opt out of exemption. Thus, pursuant to article 267 of the TFEU, the Court of Justice of the European Union will not have competence to proceed with the interpretation of domestic rules on opt-out from exemption.

The same applies to the interpretative doubts themselves concerning the concrete content of paragraphs 1 and 2 of article 9 of the VAT Code.

Finally, as is evident from the entire content of this award, there is diverse recent European case law that allows definition of the scope of the exemption provided for in the VAT Directive, falling to national courts to interpret the concrete content of article 9, paragraphs 1 and 2 and article 12 of the VAT Code. In the same sense, see, among others, the Awards of the CAAD No. 303/2015-T and 315/2015-T.

In these terms, we are not in a situation that justifies a preliminary reference.

4.4 Questions Barred from Examination

Pursuant to article 124 of the CPPT applicable subsidiarily by force of article 29.1 of the RJAT, examination of the other flaws argued by the Applicant is barred, among which, the alleged disregard of the opt-out from exemption with retroactive effect and the consequent retroactive reclassification as a taxable person benefiting from exemption, in light of the declaration of illegality of the assessments at issue due to a flaw which prevents renewal of the acts.

5. COMPENSATORY INTEREST

The Applicant further requests that the TA be condemned to reimburse it of the incorrectly paid amounts, plus the corresponding compensatory interest in accordance with article 43 of the General Tax Code.

This same question has been raised in various earlier proceedings in which identical subject matter is analysed, including proceedings 303/2015-T of the CAAD, where the following was written, with all due respect, which is now transcribed:

"In accordance with the provision in paragraph b) of article 24 of the RJAT, the arbitral decision regarding the merits of the claim for which there is no recourse or challenge binds the tax administration from the end of the deadline provided for recourse or challenge, and the latter, in the exact terms of the well-foundedness of the arbitral decision in favor of the taxable person and until the end of the deadline provided for spontaneous execution of the decisions of the judicial tax courts, shall "restore the situation that would exist if the tax act that is the object of the arbitral decision had not been performed, adopting the acts and operations necessary for that purpose", which is in line with what is provided for in article 100 of the General Tax Code [applicable by force of the provision in paragraph a) of article 29.1 of the RJAT] which establishes that "the tax administration is obliged, in case of full or partial well-foundedness of a claim, judicial challenge or recourse in favor of the taxable person, to the immediate and full restoration of the legality of the act or situation that is the object of the dispute, including the payment of compensatory interest, if applicable, from the end of the deadline for execution of the decision".

Although article 2.1 paragraphs a) and b) of the RJAT uses the expression "declaration of illegality" to define the competence of arbitral tribunals operating at the CAAD, making no reference to decisions of condemnation, it should be understood that the competence includes those powers attributed to tax courts in judicial review proceedings, being this the interpretation which is in line with the sense of the legislative authorization upon which the Government based itself in approving the RJAT, in which it proclaims, as the first guideline, that "the tax arbitral proceedings should constitute an alternative procedural means to the judicial review proceedings and to the action for recognition of a right or legitimate interest in tax matters".

The judicial review proceedings, although essentially a proceedings of annulment of tax acts, admits the condemnation of the Tax Administration in the payment of compensatory interest, as is inferred from article 43.1 of the General Tax Code, in which it is established that "compensatory interest is due when it is determined, in an administrative complaint or judicial challenge, that there was error attributable to the departments from which results payment of the tax debt in an amount greater than legally due" and from article 61.4 of the CPPT (in the wording given by Law No. 55-A/2010, of 31 December, to which corresponds paragraph 2 in the initial wording), that "if the decision recognizing the right to compensatory interest is a judicial one, the deadline for payment is counted from the beginning of the deadline for its spontaneous execution".

Thus, article 24.5 of the RJAT, in stating 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 compensatory interest in arbitral proceedings, as well as the reimbursement of the amount paid, which is the prerequisite for the existence of that interest."

In light of what is stated above, it is necessary to examine the request for reimbursement of the amount improperly paid of €840,876.46, plus compensatory interest.

Following the illegality of the assessment act that is the object of the present proceedings, there is no doubt that the TA shall proceed to the restitution of the amounts improperly paid, complying with the imperative of article 100 of the General Tax Code cited above.

Also with regard to the right to compensatory interest, there is no doubt that there was error attributable to the departments from which resulted payment of the tax debt in an amount greater than legally due.

The concept of "error attributable to the departments" has been extensively analysed by the Supreme Administrative Court which uniformly has argued that "(…) as is stated in the learned Judgment of the Supreme Administrative Court of 05.05.99 — Appeal No. 5557-A, "the use of the expression 'error' and not 'flaw' or 'illegality' to refer to facts which may serve as the basis for the attribution of interest, reveals that what was intended was only the flaws of the annulled act to which that designation is adequate, which are error as to the material facts and error as to the legal prerequisites (cf. Appendix to the Official Gazette of 19.6.2002, at page 1724).

This means that the error referred to in the cited provisions is not any flaw or illegality but that which is concretized in erroneous appraisal of relevant factuality or in erroneous application of the legal norm. Excluded therefrom, as has been the repeated case law of this Supreme Court, are the cases of annulment of tax acts based on formal flaws or procedural flaws."[11]

In the case at hand, the illegality of the disputed tax assessments stems precisely from error as to legal prerequisites, committed by the TA and consequently attributable to it.

Thus, the Respondent shall give effect to the present arbitral decision, in accordance with article 24.1 of the RJAT, determining the amount to be reimbursed to the Applicant and calculating the corresponding compensatory interest, at the supplementary legal rate for civil debts, in accordance with articles 35.10 and 43.1 and 5 of the General Tax Code, article 61 of the CPPT, article 559 of the Civil Code and Order No. 291/2003, of 8 April (or the rule or rules that succeed it).

Compensatory 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).

6. DECISION

In these terms, this Arbitral Tribunal agrees to:

a) Judge the exception of incompetence of the Arbitral Tribunal, raised by the Tax Authority and Customs Authority, to be without merit;

b) Judge the request for arbitral pronouncement to be well-founded and annul the following VAT assessments and compensatory interest:

c) Judge the requests for reimbursement of the amounts paid, in the total amount of €840,876.46 and for payment of compensatory interest on this amount, calculated at the supplementary legal rate, from the date of payment until full reimbursement of those amounts, and condemn the Tax Authority and Customs Authority to make these payments.

7. VALUE OF THE PROCEEDINGS

In accordance with the provision in article 306.2 of the Code of Civil Procedure and 97-A.1 paragraph a) of the Code of Tax Procedure and Process and 3.2 of the Regulation of Court Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at €840,876.46.

8. COSTS

Pursuant to article 22.4 of the RJAT, the amount of costs is fixed at €11,934.00, in accordance with Table I attached to the Regulation of Court Costs in Tax Arbitration Proceedings, at the charge of the Respondent TA.

Lisbon, 19 July 2016

The Arbitrators

(Maria Fernanda dos Santos Maçãs)

(Mariana Gouveia de Oliveira)

(Emanuel Augusto Vidal Lima)

[1] On 1 August 2013, Laboratory B… ceased operations upon being incorporated by merger into company A…, SA.

[2] Essentially in this sense, reference may be made to the following Judgments of the Supreme Administrative Court, regarding a parallel situation that arises in contencious resource proceedings:

• of 10-11-98, of the Plenary, delivered in appeal No. 32702, published in Appendix to the Official Gazette of 12-4-2001, page 1207;

• of 19/06/2002, case No. 47787, published in Appendix to the Official Gazette of 10-2-2004, page 4289;

• of 09/10/2002, case No. 600/02;

• of 12/03/2003, case No. 1661/02.

In the same sense, reference may be made to:

• MARCELLO CAETANO, Manual of Administrative Law, volume I, 10th edition, page 479, in which it is stated that it is "irrelevant that the Administration, already during the pendency of the contencious resource, invokes as determining reasons other reasons, not stated in the act", and volume II, 9th edition, page 1329, in which it is written that "the responding authority cannot (...), in its response to the resource, justify the performance of the contested act by reasons different from those contained in its express motivation";

• MÁRIO ESTEVES DE OLIVEIRA, Administrative Law, Volume I, page 472, where it is written that "the reasons objectively existing but which are not expressly adduced as grounds of the act cannot be taken into account in the assessment of its legality".

[3] See Judgment of the CJEU of 10 September 2002, Kügler, C-141/00, paragraph 36.

[4] Judgment of the CJEU of 10 September 2002, Case C-141/00.

[5] Judgment of 8 June 2006, L.u.P., Case C-106/05.

[6] Which corresponds literally to paragraph b) of article 132.1 of Directive 2006/112/CE.

[7] Judgment of 8 June 2006, L.u.P., Case C-106/05, operative part.

[8] Which corresponds literally to paragraph b) of article 132.1 of Directive 2006/112/CE.

[9] Referring to article 13.A.1 paragraph b) of the Sixth Directive.

[10] Judgment of 2 July 2015, De Fruytier Case, Case C-334/14, paragraph 35, in which the Judgments L.u.P., C-106/05, paragraphs 18 and 35, and CopyGene, C-262/08, paragraph 60 are cited.

[11] Judgment of the Supreme Administrative Court No. 01610/13 of 12 February 2015, available at http://www.dgsi.pt/ .