Brussels, 17/01/2013 (Agence Europe) - On Thursday 17 January, the European Court of Justice ruled against Spain (case C-360) for applying reduced rates of VAT beyond what is authorised under the VAT Directive (2006/112/EC). It found in favour of the Commission, which called on the country to respect the directive, on 25 November 2010, before lodging a complaint against the country for failing to comply with the directive.
In its ruling, the ECJ considers that: - the application of a reduced rate of VAT to medicinal substances which can be used habitually and suitably in the production of medicine is contrary to the VAT directive. This authorises the application of a reduced rate of VAT only to finished goods, which may be used directly by final consumers, other than goods, which may be used in the production of medicinal products, which normally require further processing. It says that the purpose of reduced rates is to make more accessible certain goods regarded as being particularly necessary to final consumers - who ultimately bear the VAT. However, the Court notes that only when a medicinal substance is marketed as a finished product can reduced rates of VAT may be applied.
Secondly, the Court considers that the VAT Directive does not authorise a reduced rate of VAT to be applied to “medical devices, material, equipment and appliances used only to prevent, diagnose, treat, alleviate or cure human or animal illnesses or ailments”. This type of goods cannot be covered by the category provided for in Annex III to the VAT directive relating to medical equipment, aids and other appliances normally intended to alleviate or treat disability, for the exclusive personal use of the disabled, in so far as that category relates only to human use and thus excludes veterinary use. Those goods can also not be regarded as falling within the concept of “pharmaceutical products” within the meaning of Annex III to the VAT directive, namely medical material for general use. The cost of these devices is rarely borne directly by final consumers, since those products are primarily used by healthcare professionals to provide services which themselves may be exonerated from VAT.
Thirdly, the Court declares that the application of a reduced rate of VAT to aids and equipment that may be used to treat physical disabilities in animals is contrary to the VAT directive.
Lastly, the Court affirms that a reduced rate of VAT cannot be applied to apparatus and accessories used essentially or primarily to alleviate physical disability in humans, but which are not intended for the exclusive personal use of the disabled. In that regard, the VAT directive requires those goods to be intended for the exclusive personal use of the disabled. Therefore, the application of a reduced rate of VAT to medical devices for general use that are used in hospitals and by health-care professionals is not justified. The Court adds that that conclusion is not called into question by Spain's argument that certain devices may be used both generally and for the exclusive personal use of the disabled. In that regard, the Court reiterates its case-law that the application of a reduced rate of VAT, in the case of a product which may be put to different uses, is subject, for each supply of goods, to the product being used for its intended purpose by the purchaser. (FG/transl.fl)