The European Court of Justice (ECJ) (Third Chamber) ruled that member states, in the exercise of their discretion to define the paramedical professions and medical care coming within the scope of such professions for the purpose of the exemption laid down by art. 13(A)(1)(c) of Directive 77/388 (the sixth directive), should ensure that the exemption applied solely to services provided by persons with the required professional qualifications, and in accordance with the principle of fiscal neutrality.

Facts

S was a registered physiotherapist. In addition to his standard physiotherapy activities, he carried out so-called ‘disturbance field diagnostics’, in respect of which he completed additional specific training in Germany. S's activities in that area consisted first of establishing a diagnosis, to determine whether the patient's ailments were associated with ‘disturbance fields’ in the jawbone or teeth. If that was the case, S established a treatment plan. The latter involved, essentially, soft laser applications, homeopathic treatments and manual therapy. Before carrying out these treatments, S might also refer the patient to a dentist or maxillary surgeon.

As S did not pay any VAT on services in connection with his activities in the area of disturbance field diagnostics, notices of assessment were sent to him in respect of the period 1 January 1994 to 31 December 2000. The objections which he made to those notices were rejected by the inspector on the basis that disturbance field diagnostics did not fall within the area of expertise of a physiotherapist under national law.

The national court dismissed S's appeal against the decisions to reject his objections, on the ground, in essence, that the medical care in question could not be regarded as having been provided by the latter in his capacity as a physiotherapist. S appealed to the Netherlands Supreme Court which was uncertain whether the medical care in question should be exempt from VAT, since, first, its purpose was, from a subjective point of view, to contribute to the medical treatment of the patient and, second, it was apparent from the facts that, in 40 per cent of cases, S's patients were referred to him by a doctor or dentist and most insurance companies reimbursed the cost of the treatment, at least when the patients had taken out additional insurance covering medical practices other than those coming within the scope of traditional medicine. Therefore the court stayed the proceedings and made a reference to the ECJ for a preliminary ruling. H was a self-employed psychotherapist, and had a teaching diploma in that field. As she did not pay VAT on the services relating to her activities, notices of additional assessment were sent to her for the period 1 January 1992 to 31 December 1995. The objection which she made to those notices was rejected by the inspector. The national court of first instance dismissed her appeal but she subsequently appealed to the Supreme Court.

The court was uncertain whether the exhaustive list of the medical professions in the national law was sufficient to exclude the medical care at issue from the exemption laid down by art. 13(A)(1)(c) of the sixth directive and stayed the proceedings to refer to the ECJ for a preliminary ruling.

Issue

Whether the exemption from VAT laid down by art. 13(A)(1)(c) applied to treatments carried out, respectively, by a physiotherapist and by a psychotherapist outside the context of the exercise of the medical and paramedical professions as defined by the legislation of the member state concerned.

Decision

The ECJ (Third Chamber) said that on a literal interpretation of art. 13(A)(1)(c), the practitioner had to satisfy two conditions to benefit from the exemption: first, he had to provide ‘medical care’; and second, that had to be carried out in the exercise of the medical and paramedical professions as defined by the member state concerned.

In the present cases, it was common ground that the treatments given by the taxpayers constituted medical care since those treatments were carried out for the purpose of diagnosing, treating and, in so far as possible, curing diseases or health disorders, thus pursuing a therapeutic aim. On the other hand, the questions raised by the referring court concerned whether the treatments could be regarded as having been carried out in the exercise of the medical or paramedical professions, as defined by national legislation, in accordance with the second condition under art. 13(A)(1)(c).

In that respect, it was apparent that, in S's case, the treatments in question were given by a provider who did not belong, at the time of the facts in the main proceedings, to one of the paramedical professions defined by the national legislation for the purposes of exemption from VAT; while, in H's case, although the treatments in question were given by a service provider belonging to such a paramedical profession, they did not come within the areas of expertise of that profession, as defined by the national legislation. Article 13(A)(1)(c) did not define the concept of ‘paramedical professions’, but referred to the definition adopted by the national legislation. Thus it was for each member state to define, in its own domestic law, the paramedical professions in the context of which medical care was exempt from VAT, pursuant to art. 13(A)(1)(c). That discretion covered not only the power to define the qualifications required to carry out the professions in question, but also the power to define the specific medical-care activities which were covered by such professions. In fact, since the various qualifications acquired by the service providers did not necessarily prepare them to provide all types of care, a member state was entitled to take the view, in the exercise of its discretion, that the definition of paramedical professions would be incomplete if it were limited to imposing general requirements as to the qualifications of providers, without specifying the care in respect of which they were qualified in the context of those professions.

However, the discretion enjoyed by member states in that respect was not unlimited. The requirement of a correct and straightforward application of the exemptions did not allow member states to prejudice the objectives of the sixth directive or the principles of Community law, in particular the principle of equal treatment, which was reflected, in the field of VAT, by the principle of fiscal neutrality. Consequently, where a taxable person requested that his medical-care activities be recognised as coming within the ambit of the exercise of paramedical professions, for the purpose of benefiting from the exemption from VAT laid down in art. 13(A)(1)(c), it was for the national courts to examine whether the competent authorities had observed the limits of their discretion.

The condition that medical care had to be provided in the exercise of the paramedical professions as defined by the member state concerned was to ensure that the exemption applied only to medical care provided by practitioners with the required professional qualifications. Consequently, not all medical care fell within the scope of such an exemption, the latter concerning only that of sufficient quality having regard to the professional training of the providers. It followed that the exclusion of a particular profession or a specific medical-care activity from the definition of the paramedical professions adopted by the national legislation had to be objectively justified based on the professional qualifications of the care providers and, therefore, by considerations relating to the quality of the services provided.

Further, the principle of fiscal neutrality inherent in the common system of VAT precluded treating similar supplies of services, which were thus in competition with each other, differently for VAT purposes. In order to determine whether medical care was similar, it was appropriate to take into account the professional qualifications of the care providers. In fact, where it was not identical, medical care could be regarded as similar only to the extent that it was of equivalent quality from the point of view of recipients.

Accordingly, the exclusion of a profession or specific medical-care activity from the definition of the paramedical professions adopted by the national legislation for the purpose of the exemption from VAT in art. 13(A)(1)(c) was contrary to the principle of fiscal neutrality only if it could be shown that the persons exercising that profession or carrying out that activity had, for the provision of such medical care, professional qualifications which ensured a level of quality of care equivalent to that provided by persons benefiting, pursuant to that same national legislation, from an exemption.

European Court of Justice (Third Chamber). Judgment delivered 27 April 2006.