The European Court of Justice ruled that, under art. 13(A)(1)(b) of Council Directive 77/388 (the sixth directive), medical tests for the observation and examination of patients for prophylactic purposes, carried out by a laboratory governed by private law outside a centre for treatment on prescription from general practitioners, might be exempt from VAT as medical care provided by another duly recognised establishment of a similar nature. Futhermore, neither that provision nor art. 13(A)(2)(a) precluded national legislation which made the exemption of such medical tests subject to conditions which, first, did not apply to the exemption of care provided by the general practitioners who prescribed them and, second, were different from those applicable to closely related activities to medical care. Article 13(A)(1)(b) did preclude national legislation which made the exemption of medical tests subject to the condition that they be carried out under medical supervision. However that provision permitted such legislation to make the exemption subject to the condition that at least 40 per cent of those services had to be intended for persons insured by a social security authority.

Facts

The taxpayer was a private limited company under German law whose sole shareholder was a pathologist (‘D’). It carried out medical tests, inter alia, for companies operating laboratories affiliated to the general practitioners who prescribed those tests as part of the care they provided. The Finanzamt found that those services were subject to VAT and its decision was upheld by the Finanzgericht on the grounds, first, that although the taxpayer was an ‘other bod[y] providing medical ... tests’ under the national law, the services in question were not provided ‘under medical supervision’ within the meaning of that provision and, second, that the taxpayer did not establish that for each of the previous calendar years at least 40 per cent of its services had been provided to specified persons.

The taxpayer appealed to the Bundesfinanzhof which doubted whether the services in question had to be regarded as ‘closely related activities’ to ‘medical care’ provided by ‘hospitals’ within the meaning art. 13(A)(1)(b) of the Sixth Directive or as being ‘the provision of medical care in the exercise of the medical and paramedical professions’ within the meaning of art. 13(A)(1)(c) of that directive.

Accordingly, it stayed the proceedings and made a reference to the European Court of Justice (‘ECJ’) for a preliminary ruling.

Issue

Whether art. 13(A)(1)(b) and (2) of the sixth directive allowed for the tax exemption for medical laboratory tests ordered by general practitioners to be made subject to the conditions specified in those provisions, even where medical care by such practitioners was exempt from taxation in any event.

Decision

The ECJ (ruling accordingly) said that services of a medical nature might come within the exemptions provided for in art. 13(A)(1)(b) and (c). According to art. 13(A)(1)(b), member states were to exempt, inter alia, medical care and closely related activities undertaken by bodies governed by public law or, under social conditions comparable to those applicable to those bodies, by hospitals, centres for medical treatment or diagnosis and other duly recognised establishments of a similar nature. Article 13(A)(1)(c) provided for exemption for the provision of medical care in the exercise of the medical and paramedical professions as defined by the member state concerned. The criterion for drawing a clear distinction between those two tax exemptions was the place where it was provided. Article 13(A)(1)(b) exempted services encompassing a range of medical care in establishments pursuing social purposes such as the protection of human health, whereas f © exempted services provided outside hospitals at any other location. The exemptions envisaged in art. 13 had to be interpreted strictly since they constituted exceptions to the general principle that VAT was to be levied on all supplies of services for consideration by a taxable person. However, the interpretation had to be consistent with the objectives of those exemptions and comply with the principle of fiscal neutrality inherent in the common system of VAT.

The term ‘medical care’ in art. 13(A)(1)(b) covered all provisions of medical care envisaged in ©, since those two provisions were intended to regulate all exemptions of medical services in the strict sense. It followed that the concept of ‘medical care’ in both provisions was intended to cover services which had as their purpose the diagnosis, treatment and, in so far as possible, cure of diseases or health disorders. Whilst ‘medical care’ and ‘the provision of medical care’ had to have a therapeutic aim, it did not necessarily follow that the therapeutic purpose should be confined within a particularly narrow compass. Accordingly, medical services effected for the purpose of protecting, including maintaining or restoring, human health might benefit from the exemption under art. 13(A)(1)(b) and (c).

Under art. 13(A)(1)(b), laboratories governed by private law which came within ‘other ... establishments of a similar nature’ had to be ‘duly recognised’, in order to be exempt but it did not specify the conditions and procedures for that recognition. It was thus, in principle, for the national law of each member state to lay down the rules according to which such recognition might be granted. The member states enjoyed a discretion in that regard. Moreover, under art. 13(A)(2)(a), member states might make the grant of the exemption provided for in art. 13(A)(1)(b) to bodies other than those governed by public law subject to one or more of the conditions referred to therein. Those optional conditions might also be imposed freely and additionally. The wording of art. 13(A)(2) made it clear that the conditions laid down in (a) thereof might be applied only to medical services coming within art. 13(A)(1)(b) and not to care exempt under art. 13(A)(1)(c). Moreover, the exemption of that care was contingent on the condition that the care had to be provided in the exercise of the medical and paramedical professions as defined in national legislation. It was thus inherent that the exemption of medical tests might be made subject to conditions which were not imposed with respect to the doctors who prescribed those tests. It was for the national courts to examine whether the member states, in imposing such conditions, had observed the limits of their discretion in applying Community principles, in particular the principle of equal treatment. The principle of fiscal neutrality required, first, that all of the categories of establishments governed by private law referred to in art. 13(A)(1)(b) be subject to the same conditions for the purpose of their recognition for the provision of similar services. In so far as the national legislation made the exemption of medical care subject to those conditions, which it was for the national court to determine, the condition requiring that the treatment be provided under medical supervision, in so far as it was intended to preclude the exemption from applying to treatment given under the sole responsibility of members of paramedical professions, went beyond the limits of the discretion allowed to the member states under art. 13(A)(1)(b). The term ‘medical care’ in that provision covered not only treatment provided directly by doctors or other health professionals under medical supervision, but also paramedical services given in hospitals under the sole responsibility of persons who were not doctors. It followed that, for the purposes of the exemption in art. 13(A)(1)(b), a member state might not validly make recognition of establishments governed by private law subject to a condition requiring that the tests carried out by those establishments be done under medical supervision. As to the second condition, in order to determine whether establishments governed by private law might be recognised for the purpose of the application of the exemption provided for in art. 13(A)(1)(g), the national authorities might, in accordance with Community law and subject to review by the national courts, take into consideration, inter alia, and in addition to the public interest of the activities of the taxable person in question, the fact that other taxable persons carrying on the same activities already had similar recognition and the fact that the costs incurred for the treatment in question might be largely met by health insurance schemes or other social security bodies.

European Court of Justice (Third Chamber). Judgment delivered 8

June 2006.