Attribution of input VAT and general overheads

The AG's opinion in Oblastní nemocnice Kolín, a. s., nemocnice Středočeského kraje v Odvolací finanční ředitelství (Case C‑513/24) addresses the circumstances where input VAT can be attributed to general overheads or needs to be attributed directly to particular supplies. In particular, the AG has rejected the argument that a statutory requirement to have in place certain equipment to carry on a healthcare business means that expenditure on that equipment can necessarily be attributed to the business carried on as a whole, including additional taxable services provided by the business which themselves depend on the existence of the (largely exempt) healthcare business.

Background

The case concerns input VAT incurred in connection with the setting up of a hospital in the Czech Republic. Under Czech law, the trader was required to have in place minimum levels of equipment in order to obtain a licence to operate as a healthcare provider. However, the business ultimately established not only made VAT exempt healthcare supplies, but also certain taxable healthcare supplies (such as gynaecological healthcare services) and other additional taxable services (such as clinical studies and internships for trainee doctors).

The taxpayer argued that the VAT incurred on the acquisition of minimum levels of equipment should be treated as attributable to its business as a whole and deductible as general overheads in proportion to its taxable supplies. The Czech tax authorities rejected this approach and the domestic courts referred the question to the CJEU.

AG opinion

Firstly, the AG rejected the argument that the existence of a statutory obligation to purchase the equipment in order to obtain a licence to conduct a healthcare business (including the additional healthcare related services) was sufficient to establish a direct and immediate link to the business as a whole. Rather the existence of a direct and immediate link must be based on "the objective content of the transactions in question".

The national legislation might, however, be seen as one factor to be taken into account when assessing the direct and immediate link. And where the acquired goods are acquired to provide healthcare services, then, in principle, there may be an apportionment between VAT exempt and taxable healthcare services provided by the taxpayer.

The additional services fell into a different category however. Even assuming the provision of healthcare services is necessary for the provision of additional services, that did not mean that items purchased solely with a view to the provision of healthcare could be attributed in part to those additional services. "The link between, on the one hand, the input goods and services and, on the other, the provision of additional services as outputs is not sufficiently direct and immediate, which means that the expenditure incurred in acquiring those goods and services cannot be treated as general costs simply because their acquisition is required under that national legislation."

Ultimately, however, what was important was the ability to demonstrate a link on a case by case basis. As such, if it could be shown that "so far as some of the goods and services at issue are also necessary for the supply of additional services, their acquisition has a direct and immediate link with those activities, which means that the right to deduct may be attributed to those activities on a proportional basis".

The AG provided an example in the form of the purchase of a defibrillator as a compulsory item of equipment for use in an intensive care unit (and thus for the provision of healthcare services). First, the AG noted that it is highly unlikely that a defibrillator could be regarded as an item linked to the economic activity as a whole of the taxpayer. "The link between the purchase of that item of equipment and certain output services, such as the carrying out of clinical studies or the provision of internships for trainee doctors (additional services), is not self-evident. That link cannot therefore be presumed for services which do not in any way require the use of a defibrillator and whose only connection with the purchase of that device is limited to the fact that they may be supplied only in conjunction with an activity which may require the use of such a device."

However, since it is conceivable that a defibrillator may be used in medical procedures subject to VAT, as in the case of gynaecological healthcare services under general anaesthetic, although that equipment is intended to be used more regularly by the intensive care unit than by the gynaecology department, the costs might nevertheless be apportioned in part to the taxable activities. According to the AG, what is important in this context is "not the actual or regular use of the input goods and services, but rather the possibility of such use".

Comment

The opinion of the AG is not surprising in rejecting what essentially amounts to a "but for" approach to input VAT attribution. It is simply not sufficient to argue that the relevant activities could not have been provided "but for" the relevant expenditure. The "direct and immediate" test of input VAT attribution requires a much closer nexus between expenditure and use, such that even a statutory requirement to have in place certain equipment to carry out healthcare services on which the additional services depended was an insufficient link.