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Flashback on ECJ Cases – C-174/11 (Zimmermann) – VAT exemption of ambulatory care services provided by commercial providers, is contrary to EU law

On November 12, 2015, the ECJ its decision in the case C-174/11 (Zimmermann).

Context: Sixth VAT Directive – Exemptions – Article 13A(1)(g) and (2) – Services closely linked to welfare and social security work supplied by bodies governed by public law or organisations recognised as charitable – Recognition – Conditions not applicable to organisations other than bodies governed by public law – Discretion of the Member States – Limits – Principle of fiscal neutrality


Article in the EU VAT Directive

Article 13A(1)(g) of the Sixth Directive (now art. 132(1)(g) of the EU VAT Directive 2006/112/EC).

Article 132 (Exemption)

1. Member States shall exempt the following transactions:
(g) the supply of services and of goods closely linked to welfare and social security work, including those supplied by old people’s homes, by bodies governed by public law or by other bodies recognised by the Member State concerned as being devoted to social wellbeing;


Facts

  • Ms Zimmermann is a registered nurse and in 1992 worked at a welfare centre as a staff nurse. In addition, from the beginning of 1993 she cared for individual patients on a freelance basis and on 1 June 1993 registered an out-patient care service. Following her application of 27 August 1993, she was authorised by the health insurance schemes on 1 October 1993 for home nursing services. In her tax returns for 1993 and 1994, Ms Zimmerman declared her transactions as exempt from VAT pursuant to Paragraph 4(16)(e) of the UStG.
  • In 1999, the Finanzamt found that Ms Zimmermann, together with her staff, had treated a total of 76 people in 1993, 52 of whom (68%) were private patients. The Finanzamt thereupon refused to treat the services provided by Ms Zimmermann in 1993 as exempt from VAT pursuant to Paragraph 4(16)(e) of the UStG.
  • The Finanzamt noted that, under Paragraph 4(16)(e) of the UStG, costs must have been borne, in at least two thirds of cases, wholly or mainly by the statutory social security or social welfare authorities. Exemption under Paragraph 4(16)(e) of the UStG of the services supplied by Ms Zimmermann in 1994 was also refused by the Finanzamt on the ground that that provision related to circumstances in the preceding calendar year. Nonetheless, according to the Finanzamt, the exemption provided for under Paragraph 4(14) of the UStG applied to the extent that Ms Zimmermann had provided care services of a therapeutic nature. By decision of 27 April 1999, the Finanzamt estimated the proportion of those services at one third.
  • Following an unsuccessful complaint, Ms Zimmermann brought an action contesting those decisions before the Finanzgericht (Finance Court). In the course of those proceedings, she submitted a letter sent to her on 19 October 2005 by the Berlin Senate Administration for Health, Social Affairs and Consumer Protection, attesting that, at least since 1988, Ms Zimmerman had provided the same services and carried out the same activities as the care centres (welfare centres) from the League of Voluntary Welfare Associations (Liga der Verbände der freien Wohlfahrtspflege) in Berlin and that Ms Zimmermann and her business had been recognised for the purposes of social security law as a charitable organisation.
  • The Finanzgericht upheld the action for the most part. It stated that the transactions carried out by Ms Zimmermann in 1993 were exempt, up until 1 October 1993, under the first sentence of Paragraph 4(14) of the UStG to the extent that they were apportionable to care of a therapeutic nature. The Finanzgericht estimated that this accounted for 75% of those transactions.
  • According to the Finanzgericht, Ms Zimmermann can claim exemption under Paragraph 4(16)(e) of the UStG for the period from 1 October 1993 to 31 December 1994. It stated that, from the beginning of that period onwards, at least two thirds of Ms Zimmermann’s transactions related to persons whose medical and pharmaceutical costs were borne wholly or mainly by the statutory social security or social welfare authorities. Again according to the Finanzgericht, Paragraph 4(16)(e) of the UStG is to be interpreted in conformity with the Sixth Directive to the effect that only the period subsequent to September 1993 was relevant.
  • By its appeal on a point of law, the Finanzamt claims that the decision of the Finanzgericht should be set aside and the action dismissed in so far it was upheld at first instance, for the period from 1 October 1993 to 31 December 1994, on the basis of Paragraph 4(16)(e) of the UStG. Ms Zimmermann contends that the appeal should be dismissed.
  • The Bundesfinanzhof (Federal Finance Court) finds, in contrast to the Finanzgericht, that the conditions laid down in Paragraph 4(16)(e) of the UStG are not satisfied. Nonetheless, doubts remain as to whether Article 13A(1)(g) or Article 13A2(a) of the Sixth Directive can serve as a legal basis for the two thirds threshold. Furthermore, in L.u.P. (Case C‑106/05 [2006] ECR I‑5123), the Court did not expressly approve the condition, laid down in Paragraph 4(16)(c) of the UStG, that a threshold of 40% must have been reached during the preceding year. Additionally, according to the Bundesfinanzhof, the implications for VAT law of the principle of neutrality are uncertain in the present case.
  • According to the Bundesfinanzhof, for the purposes of applying the exemption provided for in Paragraph 4(18) of the UStG, applicable only to the 11 bodies listed in Paragraph 23 of the UStDV, which supply services which are similar, if not identical, to those supplied by Ms Zimmermann, it is largely immaterial that the medical and pharmaceutical costs were borne in part by the statutory social security or social welfare authorities. Nor, in that connection, must account be taken of the situation during the preceding calendar year.

Questions

Does Article 13(A)(1)(g) and/or (2)(a) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes permit the national legislature to make the exemption of out-patient care services for those who are sick or in need of care dependent on the fact that, in the case of such organisations, ‘the costs of the care have been borne in at least two thirds of cases wholly or mainly by the statutory social security or social welfare authorities in the previous calendar year’ (Paragraph 4(16)(e) of the Umsatzsteuergesetz 1993)?
Is it relevant to the answer to this question, having regard to the principle of the neutrality of VAT, that the national legislature treats the same services as exempt under different conditions where they are carried out by officially recognised voluntary welfare associations, and corporations, associations of persons and funds serving purposes of voluntary welfare which are affiliated as members of a welfare association (Paragraph 4(18) of the Umsatzsteuergesetz 1993)?

AG Opinion

Article 13(A)(1)(g) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment permits, in principle, the national legislature to make the exemption of out-patient care services for those who are sick or in need of care dependent on the fact that, in the case of such organisations, the costs of the care have been borne in at least two thirds of cases wholly or mainly by the statutory social security or social welfare authorities in the previous calendar year.

      The fact remains, however, that that criterion may only be applied in so far as it complies with the principle of fiscal neutrality.

2.      The principle of fiscal neutrality precludes the application of that criterion if, under the applicable national provisions, identical or similar services are treated as exempt under different conditions such as is the case in the main proceedings.


Decision

Under Article 13A(1)(g) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, interpreted in the light of the principle of fiscal neutrality, the VAT exemption for out-patient services supplied by commercial service-providers may not be made subject to a condition such as that at issue in the main proceedings, by virtue of which the costs relating to those services must, during the preceding calendar year, have been borne wholly or partly by the statutory social security or social welfare authorities in at least two thirds of cases, where that condition is not capable of ensuring equal treatment in relation to the recognition, for the purposes of that provision, of the ‘charitable’ nature of organisations other than bodies governed by public law.


Summary

The Court of Justice of the EU (CJEU) has ruled that the condition that Germany attaches to the VAT exemption of ambulatory healthcare services provided by commercial providers is contrary to EU law.

 

The German Mrs. Zimmermann is a certified nurse and takes care of individual patients on a self-employed basis. In its VAT returns for the years 1993 and 1994, it assumes that it makes exempt supplies. However, the German tax authorities note that 68% of Zimmermann’s clients are private payers. According to the tax authorities, the exemption does not apply in that case. For exemption requires that the nursing costs in at least two thirds of the cases are wholly or largely borne by the legal institutions of social insurance or social assistance. The German court has referred questions for a preliminary ruling in this case. The Court of Justice of the EU (CJEU) has ruled that the condition that Germany attaches to the VAT exemption of ambulatory care services provided by commercial providers, is contrary to EU law. According to the CJEU, the condition is wrongly imposed if this condition cannot ensure equal treatment, insofar as it concerns the recognition of institutions other than public law as institutions of a social nature within the meaning of Art. 13 A(1)(g) Sixth VAT Directive.


Source:


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