The client we represented took part in a bidding procedure for the extension of a district hospital. The selection of our client’s bid, considered the most advantageous in the proceedings, was challenged by another bidder.

The competing contractor accused the contracting authority of choosing a bid that was inconsistent with the requirements of the Terms of Reference. The basis of the bidder’s appeal was the opinion that our client used an incorrect VAT rate of 23% in the bid.

The bidder argued that the subject of the contract included, inter alia, the installation of medical gases, which is subject to taxation at 8%, and should therefore be included in the taxation of the entire bid.

The case was analyzed by experts from the investment and tax department of DSK. A comprehensive approach to the problem allowed for the development of a position that was recognized by the National Appeal Chamber (KIO).

First, our experts presented the concept of main benefit and side benefits. Referring to case law and doctrinal views, they proved that the subject of the contract was the execution of construction works, while the supply of medical gases was only a side benefit, a small component of it, which justifies the application of a single, general VAT rate of 23% in the bid. This objected to the artificial division of the service for tax purposes. Indeed, the side benefits should share the legal fate of the main benefit.

A detailed examination of the tender documentation also made it possible to demonstrate that the subject matter of the contract concerns the carrying out of construction work and should also be treated as such in tax terms, which clearly justifies the application of a 23% VAT rate.

Subsequently, the firm’s specialists proved that, contrary to what the appellant claimed, the subject of the contract, in the part covering the installation of medical gases, is not a medical device. In the prepared statement, special attention was paid to the product certification procedure. As is clear from the provisions of the Act on Medical Devices, until it is completed, the medical gas installation itself cannot be considered a medical device. It is only a component of a construction object, which can only become a medical device.

Also, the analysis of the very structure of the bid form clearly indicated the possibility of using only one VAT rate that would apply to the entire bid. In view of the above arguments, the contractor was therefore obliged to indicate a 23% VAT rate, without being able to split it into two separate ones.

In the justification for the ruling, the National Appeal Chamber  clearly confirmed that the appeal is unfounded, and the position developed by the DSK team deserves to be taken into account. The Chamber agreed that construction works, and not the supply of medical gases, are the main service, constituting the subject of the contract. Consequently, the VAT rate that the contractor should apply in its bid is 23%, appropriate for construction works.

The NAC (KIO) also supported the position that the structure of the Terms of Reference makes it possible to conclude that the contracting authority only allowed the use of a single, unified VAT rate of 23%.

A comprehensive approach to the problem and the engagement of experts from several fields allowed us to properly analyze the case and apply effective solutions, which ultimately led to our client obtaining the contract in question.