Case C-172/03

Wolfgang Heiser

v

Finanzamt Innsbruck

(Reference for a preliminary ruling from the Verwaltungsgerichtshof (Austria))

(VAT – Exemption for medical care provided in the exercise of the profession of medical practitioner – Adjustment of deductions)

Opinion of Advocate General Tizzano delivered on 28 October 2004

Judgment of the Court (Second Chamber), 3 March 2005

Summary of the Judgment

1. State aid – Definition – Effect on trade between Member States – Selective nature of measure – Justification by the nature or general scheme of the system – Effect on competition

(EC Treaty, Art. 92(1) (now, after amendment, Art. 87(1)EC))

2. State aid – Definition – Measure with a social purpose – Derogation provided for by Article 90(2) of the Treaty (now, after amendment, Article 86(2) EC) – State measures seeking to approximate the conditions of competition in a particular sector of the economy to those prevailing in other Member States – No effect on the classification as aid

(EC Treaty, Art. 90(2) and 93(3) (now Art. 86(2) EC and 88(3) EC) and Art. 92(1) (now, after amendment, Art. 87(1) EC))

3. State aid – Definition – Discontinuance, in the case of the changeover for medical practitioners from taxable to exempt status for the purposes of value added tax, of the reduction of input tax already deducted that is prescribed by Article 20 of the Sixth Directive in relation to goods that continue to be used in the business – Included

(EC Treaty, Art. 92(1) (now, after amendment, Art. 87(1) EC); Council Directive 77/388, Art. 20)

1. Article 92(1) of the Treaty (now, after amendment, Article 87(1) EC) lays down the following conditions for a measure to be classified as State aid. First, there must be an intervention by the State or through State resources. Second, the intervention must be liable to affect trade between Member States. Third, it must confer an advantage on the recipient. Fourth, it must distort or threaten to distort competition.

As regards the second condition, there is no threshold or percentage below which it may be considered that trade between Member States is not affected. The relatively small amount of aid or the relatively small size of the undertaking which receives it does not as such exclude the possibility that trade between Member States might be affected. Fulfilment of the second condition does not therefore depend on the local or regional character of the services supplied or on the scale of the field of activity concerned.

As regards the third condition, it is settled case-law that the concept of aid embraces not only positive benefits, but also measures which, in various forms, mitigate the charges which are normally included in the budget of an undertaking and which, without therefore being subsidies in the strict meaning of the word, are similar in character and have the same effect. In that regard, Article 92(1) of the Treaty requires it to be determined whether, under a particular statutory scheme, a State measure is such as to favour ‘certain undertakings or the production of certain goods’ in comparison with others which, in the light of the objective pursued by the system in question, are in a comparable legal and factual situation. If it is, the measure concerned fulfils the condition of selectivity which is a defining characteristic of the concept of State aid. The fact that the number of undertakings able to claim entitlement under the measure at issue is very large, or that they belong to different sectors of activity, is not sufficient to call into question its selective nature and therefore, to rule out its classification as State aid. Similarly, aid may concern a whole economic sector and still be covered by Article 92(1) of the Treaty. That would not be the case if a measure, although conferring an advantage on its recipient, were justified by the nature or general scheme of the system of which it is part.

As regards the fourth condition, aid which is intended to release an undertaking from costs which it would normally have had to bear in its day-to-day management or normal activities, distorts the conditions of competition.

(see paras 27, 32-33, 36, 40, 42-43, 55)

2. The mere fact that a measure has a social purpose does not suffice to exclude the measure at issue outright from classification as aid within the meaning of Article 92 of the Treaty (now, after amendment, Article 87 EC). Article 92(1) does not distinguish between measures of State intervention by reference to their causes or their aims but defines them in relation to their effects. Moreover, the derogation provided for by Article 90(2) of the Treaty (now Article 86(2) EC) does not prevent a measure from being classified as State aid within the meaning of Article 92 thereof. Nor could it, once such a classification has been made, allow the Member State concerned not to notify the measure pursuant to Article 93(3) of the Treaty (now Article 88(3) EC). Finally, the fact that a Member State seeks to approximate, by unilateral measures, the conditions of competition in a particular sector of the economy to those prevailing in other Member States cannot deprive the measures in question of their character as aid.

(see paras 46, 51, 54)

3. Article 92 of the Treaty (now, after amendment, Article 87 EC) must be interpreted as meaning that a rule providing that the changeover for medical practitioners from taxable to exempt status for the purposes of VAT does not, in relation to goods that continue to be used in the business, entail the reduction of input tax already deducted that is prescribed by Article 20 of the Sixth Directive must be classified as State aid.

(see para. 59)

JUDGMENT OF THE COURT (Second Chamber) 3 March 2005 (1)

(VAT – Exemption for medical care provided in the exercise of the profession of medical practitioner – Adjustment of deductions)

In Case C-172/03,REFERENCE for a preliminary ruling under Article 234 EC from the Verwaltungsgerichtshof (Austria), made by decision of 31 March 2003, received at the Court on 14 April 2003, in the proceedings

v

THE COURT (Second Chamber),,

composed of C.W.A. Timmermans (Rapporteur), President of the Chamber, C. Gulmann, R. Schintgen, J. Makarczyk and J. Klučka, judges,

Advocate General: A. Tizzano,

having regard to the written procedure and further to the hearing on 30 September 2004,after considering the observations submitted on behalf of:

after hearing the Opinion of the Advocate General at the sitting on 28 October 2004,

gives the following

‘If, in the case of an item used by an undertaking as a fixed asset in its business, the circumstances material to the deduction of input tax in the calendar year of its first use (subparagraph 3) should change during the four calendar years following the year of its first use, compensation shall be effected for each year to which the change applies by adjusting the deduction of input tax.

This shall apply mutatis mutandis to input tax on subsequent acquisition or manufacturing costs, expenditure to be capitalised or, in the case of buildings, on the cost of major repairs, in which case the adjustment period shall start to run from the beginning of the calendar year that follows the year during which the services giving rise to those costs and expenditure were first used in connection with the fixed asset.

In the case of real estate within the meaning of Paragraph 2 of the Grunderwerbsteuergesetz 1987 (Law on Land Transfer Tax 1987) (including expenditure to be capitalised and the cost of major repairs) the period of four calendar years shall be replaced by a period of nine calendar years.

In the case of an adjustment that is to be made for the year during which the change takes place, one fifth, or in the case of real estate (including expenditure to be capitalised and the cost of major repairs) one tenth, of the total input tax on the item, expenditure or costs shall be taken as the basis for each year to which the change applies; in the event of a disposal or transfer, the adjustment for the remainder of the adjustment period shall be made not later than in the last return for the assessment period in which the disposal took place.’

‘There shall be no adjustment to the deduction of input tax under Paragraph 12(10) … of the UStG 1994 that would otherwise apply as a result of the first application after 31 December 1996 of the provisions in … Paragraph 6(1)(19) of the UStG 1994.’

‘(1) Medical practitioners, dentists [‘Dentisten’] and other contracting parties shall be entitled to a compensatory payment determined according to the remuneration paid by the social security authorities, healthcare institutions and public welfare organisations for services within the meaning of Paragraph 6(1)(19) UStG 1994.

...

(3) The Bundesminister für Finanzen (Federal Minister of Finance) in conjunction with the Bundesminister für Arbeit und Soziales (Federal Minister of Employment and Social Affairs) shall make an order stipulating compensatory payment rates based on experience of the economic circumstances of the particular group of businesses concerned.’

‘Does a rule, such as that contained in Paragraph XIV(3) of Federal Law 21/1995, as amended by Federal Law 756/1996, providing that in the case of supplies made by doctors the changeover from taxable to exempt status for the purposes of value added tax does not, in relation to goods that continue to be used in the business, entail the reduction of input tax already deducted that is prescribed by Article 20 of [the Sixth Directive], constitute State aid within the meaning of Article 87 EC (formerly Article 92 of the EC Treaty)?’

On those grounds, the Court (Second Chamber) rules as follows:

[Signatures]