Flashback on ECJ Cases – C-45/01 (Dornier) – Medical services not provided by doctors may be VAT exempted

On November 6, 2003, the ECJ issued its decision in the case C-45/01 (Dornier).

Context: Article 13A(1)(b) and (c) of the Sixth Directive 77/388/EEC – Exemption – Psychotherapeutic treatment given in an out-patient facility provided by a foundation governed by private law (charitable establishment) employing qualified psychologists who are not doctors – Direct effect

Article in the EU VAT Directive

Articles 13A(1)(b), 13A(1)(c) of the Sixth VAT Directive (Articles 132(1)(b) and 132(1)(c) of the EU VAT Directive 2006/112/EC).

Article 132
1. Member States shall exempt the following transactions:
(b) hospital and medical care and closely related activities undertaken by bodies governed by public law or, under social conditions comparable with those
applicable to bodies governed by public law, by hospitals, centres for medical treatment or diagnosis and other duly recognised establishments of a similar
nature;
(c) the provision of medical care in the exercise of the medical and paramedical professions as defined by the Member State concerned;

Facts

Dornier is a charitable foundation governed by private law, with its head office at Marburg (Germany). According to the order for reference, its object is to develop the practice of clinical psychology. It also aims to improve methods of treatment through theoretical and practical research in clinical psychology. For those purposes, it maintains an out-patient facility in which patients are given psychotherapeutic treatment by qualified psychologists employed by the foundation.
In 1990, the qualified psychologists employed by the foundation were not doctors. However, they were licensed to practise under the Heilpraktikergesetz (Law on Lay Practitioners) and had received further education to qualify as psychotherapists.
More than 40% of the services Dornier provided in 1990 were for persons insured under the compulsory social insurance scheme, for persons in receipt of social assistance or for persons entitled to maintenance or a pension. In addition, the board members and principal employees were psychotherapists who were licensed as lay practitioners (Heilpraktiker).
In 1990, the Finanzamt taxed the services supplied by Dornier at a reduced rate of VAT under Paragraph 12(2)(8) of the UStG. Disagreeing with Dornier, it took the view that those services were not exempt from tax under Paragraph 4(16)(c) of the UStG.
Dornier contested its tax assessment for 1990 before the Hessisches Finanzgericht (Finance Court, Hesse), Kassel (Germany). It argued that, if applied in accordance with the German Constitution and Community directives, the exemption in question covered not only services provided under the supervision of a doctor but also those services provided by establishments offering psychotherapeutic care where they were managed not by doctors but by qualified psychologists holding a further paramedical qualification similar to that of a medical specialist in psychotherapy and licensed as lay practitioners. The refusal of tax exemption gave rise to a difference in treatment, without any objective reason, as compared with the taxation of comparable services provided under the supervision of a doctor.
The Hessisches Finanzgericht took the view that neither Article 13A(1)(b) of the Sixth Directive nor constitutional considerations required that Paragraph 4(16)(c) of the UStG be applied more broadly than its wording entailed. It accordingly rejected the claim, on the ground that Dornier had not provided the services specified in Paragraph 4(16)(c) of the UStG under the supervision of doctors.

Questions

1. Does psychotherapeutic treatment, given in an out-patient facility provided by a foundation (charitable establishment) employing qualified psychologists who are licensed under the Heilpraktikergesetz but who are not registered as doctors, qualify as activities closely related to hospital and medical care within the meaning of Article 13A(1)(b) of Directive 77/388/EEC?

2. In order for there to be an other duly recognised establishment of a similar nature within the meaning of Article 13A(1)(b) of Directive 77/388/EEC, must there be a formal recognition procedure or can recognition also derive from other rules (e.g. rules concerning the assumption of costs by social security authorities) which apply equally to hospitals, centres for medical treatment and other establishments?

Is an exemption from tax unavailable to the extent that the social security authorities do not reimburse, or only partially reimburse, patients for the costs of psychotherapeutic treatment given by the aforementioned employees of the claimant?

3. Is the psychotherapeutic treatment provided by the claimant exempt from tax on the basis of the neutrality of value added tax, because the psychotherapists it employs could have provided the same treatment on a tax-exempt basis under Article 13A(1)(c) of Directive 77/388/EEC if they had provided it themselves as self-employed taxable persons?

4. Is the claimant entitled to rely on the tax exemption of its transactions involving psychotherapeutic treatment under Article 13A(1)(b) and (c) of Directive 77/388/EEC?

AG Opinion

(1) Psychotherapeutic treatment, given in an out-patient facility by a foundation employing qualified psychologists who are licensed medical practitioners but who are not registered as doctors, qualifies as medical care, and therefore not as closely related activities to such care, within the meaning of Article 13A(1)(b) 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. It is for the national court to establish, in the light of all relevant factors, whether the taxable person is a duly recognised establishment of a similar nature within the meaning of Article 13A(1)(b) of the Sixth Directive.

(2) The exemption envisaged by Article 13A(1)(c) of the Sixth Directive 77/388/EEC is not dependent on the legal form of the taxable person supplying the medical or paramedical services referred to in that provision.

(3) The exemptions provided for in Article 13A(1)(b) and (c) of the Sixth Directive 77/388/EEC may be relied upon by a taxable person in order to oppose national rules incompatible with that provision.

Decision

1. Psychotherapeutic treatment given in an out-patient facility of a foundation governed by private law by qualified psychologists who are not doctors is not an activity closely related to hospital or medical care within the meaning of Article 13A(1)(b) 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, except where such treatment is actually given as a service ancillary to the hospital or medical care received by the patients in question and constituting the principal service. However, the term medical care in that provision must be interpreted as covering all provision of medical care envisaged in letter (c) of the same provision, including services provided by persons who are not doctors but who give paramedical services, such as psychotherapeutic treatment given by qualified psychologists.

2. Recognition of an establishment for the purposes of Article 13A(1)(b) of the Sixth Directive 77/388 does not presuppose a formal recognition procedure; nor must such recognition necessarily derive from national tax law provisions. Where the national rules pertaining to recognition contain restrictions which exceed the limits of the discretion allowed to Member States under that provision, it is for the national court to determine, in the light of all the relevant facts, whether a taxable person must none the less be regarded as an other duly recognised establishment of a similar nature within the meaning of that provision.

3. Since the exemption envisaged in Article 13A(1)(c) of the Sixth Directive 77/388 is not dependent on the legal form of the taxable person providing the medical or paramedical services referred to in that provision, psychotherapeutic treatment provided by a foundation governed by private law and given by psychotherapists employed by the foundation may benefit from that exemption.

4. In circumstances such as those in the main proceedings, Article 13A(1)(b) and (c) of the Sixth Directive 77/388 may be relied on by a taxable person before a national court in order to contest the application of rules of national law which are incompatible with that provision.

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