Flashback on ECJ Cases – C-366/12 (Klinikum Dortmund) – Supplies of cytostatic drugs by a German hospital to outpatients treated with chemotherapy are not exempt from VAT

On MArch 13, 2014, the ECJ issued its decision in the case C-366/12 (Klinikum Dortmund).

Context: Reference for a preliminary ruling — Sixth VAT Directive — Exemptions — Article 13A(1)(b) — Supply of goods — Supply of cytostatic drugs for the treatment of outpatients — Services provided by different taxable persons — Article 13A(1)(c) — Provision of medical care — Drugs prescribed by a doctor working in an independent capacity in a hospital — Closely related activities — Services ancillary to the provision of medical care — Activities physically and economically indissociable

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 (Exemption)
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

KD is a non-profit-making limited liability company which manages a hospital. During 2005 and 2006, under Paragraph 116a of the SGB V, it held accreditation authorising it to provide outpatient care as well as in-patient care. Doctors employed by KD who provided outpatient care within that hospital worked under an individual authorisation granted under Paragraph 116 of the SGB V.
During 2005 and 2006, that hospital admitted patients suffering from cancer who were treated with chemotherapy. The cytostatics that were administrated to those patients were prepared individually for them, on the basis of a medical prescription, within the hospital pharmacy. Where the cytostatics were used for in-patient hospital and medical care on the hospital premises, it is not contested that their supply was exempt from VAT.
During those same years, KD was of the opinion that the use of cytostatics prepared in its hospital pharmacy was also exempt from VAT where outpatient care was provided by doctors working in an independent capacity in the hospital managed by it. In contrast, the Finanzamt took the view that the dispensing of drugs for consideration in the course of outpatient care for cancer patients was subject to VAT from 2005, the date that Section 100(3) of the 2005 Guidelines on turnover tax, an administrative provision not binding on the courts, entered into force. Consequently, the Finanzamt amended KD’s VAT assessments by making the dispensing of those drugs prepared within the pharmacy of that hospital subject to VAT but granting KD the right to deduct input tax.
KD’s challenge lodged against those VAT assessments was unsuccessful. In contrast, the Finanzgericht upheld its action, which led the Finanzamt to lodge an appeal on a point of law before the Bundesfinanzhof against the decision of the Finanzgericht.

Questions

(1) Must a closely related activity be a service in accordance with Article 6(1) of [the Sixth Directive …]?

AG Opinion

(1) The expression ‘closely related activities’ in 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 – includes supplies of goods as well as supplies of services.

(2) In order to qualify for exemption as an activity closely related to hospital and medical care pursuant to Article 13A(1)(b) of Directive 77/388, it is not essential for a supply to be made by the person who provides the care in question.

(3) Supplies of goods or services which are

(i) closely related to the provision of medical care in the exercise of the medical and paramedical professions within the meaning of Article 13A(1)(c) of Directive 77/388,

(ii) physically and economically dissociable from the provision of such medical care and

(iii) not closely related to hospital and medical care within the meaning of Article 13A(1)(b) of the same directive

do not qualify for exemption pursuant to either of those two provisions.

Decision

A supply of goods, such as the cytostatic drugs at issue in the main proceedings, prescribed in the course of outpatient cancer treatment by doctors working in an independent capacity in a hospital, may not be exempt from value added tax under Article 13A(1)(c) 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 — Common system of value added tax: uniform basis of assessment, as amended by Council Directive 2005/92/EC of 12 December 2005, unless that supply is physically and economically indissociable from the principal supply of medical care, which it is for the referring court to determine.

Summary

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