C-172/03 Heiser

JUDGMENT OF THE COURT (Second Chamber)

Legal context and the dispute

3 March 2005 *

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

Wolfgang Heiser

ν

Finanzamt Innsbruck,

THE COURT (Second Chamber),

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

* Language of the case: German.

Advocate General: A. Tizzano, Registrar: Κ. Sztranc, Administrator,

having regard to the written procedure and further to the hearing on 30 September 2004,

after considering the observations submitted on behalf of:

— Mr Heiser, by R. Kapferer, Steuerberater,

— the Austrian Government, by E. Riedl and J. Bauer, acting as Agents,

— the Commission of the European Communities, by V. Kreuschitz, V. Di Bucci and Κ. Gross, acting as Agents,

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

gives the following

Judgment

I This reference for a preliminary ruling concerns the interpretation of Article 92 of the EC Treaty (now, after amendment, Article 87 EC).

2The reference was made in the course of proceedings brought by Mr Heiser against the Finanzamt Innsbruck (Austria) regarding a decision made by the latter on the adjustment of deductions of value added tax ('VAT').

The national legislation

3According to the order for reference, transactions carried out in the exercise of the profession of medical practitioner are exempt from VAT under Paragraph 6(1)(19) of the Umsatzsteuergesetz (Law on Turnover Tax, BGBl. 663/1994, 'UStG 1994'), except for the deduction of input tax. However, under Paragraph 29(5) of the UStG 1994, this exemption only applies to transactions made after 31 December 1996. Medical services rendered prior to 1 January 1997 were liable to VAT and chargeable at the standard rate.

4This transition from VAT liability to VAT exemption implements Annex XV, Part IX, point 2(a), second indent, of the Act concerning the conditions of accession of the Kingdom of Norway, the Republic of Austria, the Republic of Finland and the Kingdom of Sweden and the adjustments to the Treaties on which the European Union is founded (OJ 1994 C 241, p. 21, and OJ 1995 L 1, p. 1). Under that Annex, the entry into force of the VAT exemption provided for by 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 (OJ 1977 L 145, p. 1, 'the Sixth Directive'), was postponed until 1 January 1997, inter alia for the provision of medical care by physicians in the field of public health and social welfare.

5It is clear from the order for reference that where long-term medical services, such as orthodontic treatment, began prior to 1 January 1997 but were not completed until after 31 December 1996, those services are deemed to have been rendered after that date and are therefore exempt from VAT. If a medical practitioner received payments on account of such services before 1 January 1997 and the VAT on such services was paid, the tax exemption is to be subsequently applied to those payments on account. This tax relief is given in the 1997 tax year.

6Paragraph 12(10) of the UStG 1994 provides:

'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.'

7Paragraph XIV(3) of Federal Law 21/1995, as amended by Federal Law 756/1996 ('Federal Law 21/1995'), provides as follows:

'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.'

8Under the Gesundheits- und Sozialbereich-Beihilfengesetz (Law on Aid for the Health and Social Services Sectors, BGBl. 746/1996, 'GSBG 1996') medical practitioners are entitled to compensatory payments to make up for input tax paid.

9Paragraph 3 of the GSBG reads as follows :

'(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.'

10The amount of the compensatory payment is laid down in the Verordnung des Bundesministers für Finanzen zu den Beihilfen- und Ausgleichsprozentsätzen, die in Rahmen des Gesundheits- und Sozialbereich-beihilfengesetzes (GSBG 1996) anzuwenden sind (Order of the Federal Finance Minister concerning the rates of aid and compensation applicable under the GSBG 1996, BGBl. II 56/1997, 'Order 56/1997').

The main proceedings and the question referred

11Mr Heiser, the appellant in the main proceedings, is a medical practitioner specialising in dentistry.

12By virtue of his transition to VAT exemption, in his 1997 VAT return, Mr Heiser claimed relief of approximately ATS 3.5 million for long-term orthodontic treatment which had begun after 1991 and had not been completed by 1 January 1997 and for which he had received payments on account on which VAT had been paid.

13The tax office responsible took the view that in the case of long-term orthodontic treatment the service is supplied over the course of approximately a year. In its assessment of tax relating to turnover for 1997, of 4 October 1999 ('the tax assessment') it therefore allowed the VAT relief only in respect of treatment having commenced in 1996. It thus allowed only ATS 1 460 000 of the VAT relief applied for.

14The appellant in the main proceedings appealed against the tax assessment.

15The Finanzlandesdirektion für Tirol (appeals body, 'the Finanzlandesdirektion'), the respondent in the main proceedings whose place was then taken by the Finanzamt Innsbruck, instructed the tax office, in a letter of 1 March 2002, inter alia to determine the extent to which deductions should be adjusted under Paragraph 12 (10) UStG 1994 as of 1 January 1997 in the case of transition from VAT liability to VAT exemption where the deduction of input tax is not possible.

16On 19 September 2002, in the light of the findings made by the tax office by agreement with Mr Heiser, the Finanzlandesdirektion made a decision dismissing the appeal before it and varying the assessment to the appellant's detriment. By that decision, Mr Heiser's tax credit was reduced by ATS 89 635.94 and ATS 164 870.15 through the adjustment of deductions.

17In the appeal which he brought before the Verwaltungsgerichtshof, Mr Heiser challenged, inter alia, the adjustment of deductions made by the Finanzlandesdirektion. The appeal essentially relies on the fact that Paragraph XIV(3) of Federal Law 21/1995 expressly exempts medical practitioners from having to adjust deductions as of 1 January 1997.

18In its defence before that court, the Finanzlandesdirektion countered that, when it considered the appeal brought against the tax assessment, it did not apply Paragraph X1V(3) of Federal Law 21/1995, because the failure to adjust deductions constitutes unnotified aid under Article 92 of the Treaty. Under Article 93(3) of the EC Treaty (now Article 88(3) EC), the authorities of a Member State may not implement aid which is not notified. Paragraph XIV(3) is, moreover, contrary to Article 20 of the Sixth Directive.

19In its order for reference, the Verwaltungsgerichtshof states that it is inherent in the system of VAT applied within the European Union by Community directives, and by the Sixth Directive in particular, that liability to VAT on transactions should go hand in hand with the right to a full deduction of input tax by an undertaking, whereas those undertakings whose turnover is exempt from tax should be excluded from that entitlement. If a change occurs in the circumstances relied on to determine the amount of input tax to be deducted, Article 20 of the Sixth Directive requires the initial deductions to be adjusted. That court points out that, under Article 20(2) of the Sixth Directive, in the case of capital goods, an adjustment is to be made if, after the year in which the goods were acquired, variations in the deduction entitlement occur compared to entitlement during the year of acquisition.

20The referring court adds that Paragraph XIV(3) of Federal Law 21/1995 provides that, in the case of services in the medical field, and for medical practitioners in particular, contrary to Article 20 of the Sixth Directive, the transition from liability to VAT for such services, which was the system applicable until 31 December 1996, to exemption, from 1 January 1997, should not entail an adjustment in deductions made for goods already acquired during the period of liability to tax even though those goods also continue to be used during the period of tax exemption, that is to say, are used to carry out exempt transactions. This provision means that the deduction of input tax continues to apply to goods that are used to carry out exempt transactions. The result of that rule is the maintenance of the deduction for goods used for such transactions.

21In the view of the Verwaltungsgerichtshof, it is not inconceivable that orthodontists in Austria might be in competition with orthodontists in other EU Member States. This is particularly so in border areas. As a result of the rule in Paragraph XIV(3) of Federal Law 21/1995, that is to say, a rule excluding the reduction of deductions inherent in the system of VAT and expressly provided for by Article 20 of the Sixth Directive, the Austrian legislature has favoured national medical practitioners.

22The deduction constitutes an advantage granted using State resources which strengthens the position of the undertakings on which it is conferred compared with other competing undertakings, which cannot make such deductions.

23The Verwaltungsgerichtshof doubts whether Paragraph XIV(3) of Federal Law 21/1995, by which the Republic of Austria discontinued the adjustment of VAT deductions made by medical practitioners until 31 December 1996 ('the measure at issue in the main proceedings'), was objectively justified in the sense discussed in paragraph 42 of the judgment in Case C-143/99 Adria-Wien Pipeline and Wietersdorfer & Peggauer Zementwerke [2001] ECR I-8365), particularly as the disadvantages of discontinuing the deduction of input tax to the parties concerned are in any event recompensed by way of State compensatory payments under the GSBG 1996, and Order 56/1997.

24It is against that background that the Verwaltungsgerichtshof decided to stay proceedings and refer the following question to the Court for a preliminary ruling:

'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)?'

The question referred for a preliminary ruling

25It should be pointed out, to begin with, that the question asked by the referring court concerns the interpretation of Article 92 of the Treaty only.

26In that regard, it must be observed, first, that a medical practitioner specialising in dentistry, such as Mr Heiser, must be considered to be an undertaking within the meaning of that provision since he provides, in his capacity as a self-employed economic operator, services on a market, namely the market in specialist medical services in dentistry (see, to that effect, Joined Cases C-180/98 to C-184/98 Pavlov and Others [2000] ECR I-6451, paragraphs 76 and 77).

27It must then be borne in mind that Article 92(1) of the Treaty 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 (Case C-280/00 Altmark Trans and Regierungspräsidium Magdeburg [2003] ECR I-7747, paragraph 75).

28As regards the first condition mentioned in the previous paragraph, it cannot be disputed that a measure such as that at issue in the main proceedings constitutes State intervention.

29As regards the second condition cited in paragraph 27 of this judgment, Mr Heiser and the Austrian Government submit that the measure at issue in the main proceedings is not, in any event, liable to affect trade between Member States because the amounts involved in the discontinuance of the adjustment of deductions are generally very small. In the main proceedings, the amount involved is at most EUR 30 000 for the whole of the period covering the years 1997 to 2004, an amount which is far below the de minimis ceiling of EUR 100 000 over a three-year period rule laid down by the Commission Notice on the de minimis rule for State aid (OJ 1996 C 68, p. 9) which was applicable on the date of the entry into force of that measure in 1996.

30The Austrian Government also submits that the effect of the measure at issue in the main proceedings on trade between Member States is not very marked given the particular nature of medical care which is primarily provided locally.

31However, those arguments do not establish that the second condition cited in paragraph 27 is not fulfilled.

32According to the Courts case-law, 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 (see Altmark Trans and Regierungspräsidium Magdeburg, paragraph 81 and the case-law cited therein).

33The second condition for the application of Article 92(1) of the Treaty, namely that the aid must be capable of affecting trade between Member States, does not therefore depend on the local or regional character of the services supplied or on the scale of the field of activity concerned (see, to that effect, Altmark Trans and Regierungspräsidium Magdeburg, paragraph 82).

34As regards the de minimis ceiling laid down by the Commission Notice of 6 March 1996, it is not apparent from the case-file put before the Court by the referring court that the amount of the deductions which a medical practitioner may be able to make under a measure such as that at issue in the main proceedings is, in all circumstances, less than the de minimis amount, which is set at EUR 100 000 over three years. The national legislation, as the Commission of the European Communities rightly observes, does not lay down any limit on the amount a medical practitioner, as an individual undertaking, may receive as a result of the discontinuance of the adjustment of deductions. Accordingly, it is not established that such a measure can be covered by the de minimis rule laid down by that notice.

35Accordingly, since it is not inconceivable, as the Verwaltungsgerichtshof finds in the order for reference, that medical practitioners specialising in dentistry, such as Mr Heiser, might be in competition with their colleagues established in another Member State, the second condition for the application of Article 92(1) of the Treaty must be considered to be fulfilled.

36As regards the third condition cited in paragraph 27 of this judgment, relating to the existence of an advantage, it is settled case-law that the concept of aid is more general than that of a subsidy. It 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 (see Adria-Wien Pipeline and Wietersdorfer & Peggauer Zementwerke, paragaraph 38, and the case-law cited).

37Mr Heiser submits, essentially, that the measure at issue in the main proceedings does not constitute an advantage simply because the adjustment itself is, in any event, contrary to Community law.

38Even if the legislation providing for the adjustment of deductions, that is to say, Paragraph 12(10) of the UStG 1994, in the main proceedings, is unlawful, the fact none the less remains that that legislation is liable to have an impact as long as it is not repealed or, at the very least, as long as its unlawfulness is not established. Consequently it is such as to create a charge which is normally included in the budget of a medical practitioner specialising in dentistry, such as Mr Heiser. The fact that the Republic of Austria subsequently discontinued the adjustment of deductions by a separate measure from that providing for such adjustment, therefore mitigates the charges which are normally included in the budget of such a medical practitioner and, accordingly, constitutes an advantage for him.

39However, the Austrian Government contends that the discontinuance of the adjustment of deductions does not constitute aid as all medical practitioners are affected, including those specialising in dentistry, psychotherapists, midwives and other independent practitioners within the meaning of the Krankenpflegegesetz (law on the care of the sick) and hospitals. Discontinuance was thus not liable to confer an advantage only on certain medical practitioners.

40In that regard, it must be observed that, according to settled case-law 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 as set out by that provision (see, inter alia, Case C-308/01 GIL [2004] ECR 1-4777, paragraph 68, and the case-law cited).

41It must be pointed out that the fact that the measure at issue in the main proceedings constitutes an advantage not only for medical practitioners specialising in dentistry, such as Mr Heiser, but also for other operators in the medical field or even for all operators in that field does not mean that that measure does not fulfil the condition of selectivity.

42The 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 (see, inter alia, Case C-409/00 Spain ν Commission [2003] ECR 1-1487, paragraph 48, and the case-law cited). Similarly, aid may concern a whole economic sector and still be covered by Article 92(1) of the Treaty (Case C-75/97 Belgium ν Commission [1999] ECR I-3671, paragraph 33, and the case-law cited).

43That 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 (see Adria-Wien Pipeline and Wietersdorfer & Peggauer Zementwerke, paragaraph 42, and the case-law cited).

44In that connection, the Austrian Government contends that a measure such as that at issue in the main proceedings promotes solidarity between sickness insurance bodies because, in practice, it benefits such bodies. An increase in the expenses borne by independent medical practitioners because of a change in the taxation of their turnover would indirectly give rise to expenses for those bodies. They would, however, not be able to increase their income, as the rates of contributions by the policyholders are set by law. At the hearing, that government pointed out, as did Mr Heiser in his written observations, that the measure at issue in the main proceedings is not applied in addition to the compensation paid under the GSBG 1996 and Order 56/1997 as that compensation is only payable to medical practitioners not under contract, such as Mr Heiser.

45However, that argument does not establish that a measure such as that at issue in the main proceedings cannot be classified as State aid.

46First, the mere fact that discontinuance of adjustment of deductions has a social purpose, if such could be established, does not suffice to exclude the measure at issue outright from classification as aid within the meaning of Article 92 of the Treaty. 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 (Case C-159/01 Netherlands ν Commission [2004] ECR I-4461, paragraph 51, and the case-law cited).

47Second, with regard to the effects of a measure such as that at issue in the main proceedings, it must be observed that, in law, medical practitioners are the only beneficiaries. There is no indication in the case-file put before the Court by the referring court that the benefit of that measure was systematically passed on by them to the sickness insurance bodies so that the advantage was, in the end, cancelled out for medical practitioners.

48Moreover, the Austrian Government does not explain why the advantage derived from the measure at issue in the main proceedings could be justified by the fact that medical practitioners not under contract were not eligible for the compensation provided for by Article 3 of the GSBG 1996, the amount of which was fixed by Order 56/1997. Nothing in the case-file indicates that medical practitioners under contract who receive such compensation do not also benefit from the discontinuance of adjustment.

49Accordingly, in the absence of other relevant grounds relied on by the Austrian Government, it is not apparent from the case-file put before the Court that the measure at issue in the main proceedings is justified by the nature or general scheme of the system of which it is part.

50In so far as the Austrian Government relies on Article 90(2) of the EC Treaty (now Article 86(2) EC) to deny that the measure at issue in the main proceedings is in the nature of an advantage, its argument cannot be upheld.

51The derogation provided for by Article 90(2) of the Treaty 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 (see Joined Cases C-261/01 and C-262/01 Van Calster and Others [2003] ECR 1-12249, paragraph 61, and the case-law cited).

52Mr Heiser also submits that a measure such as that at issue in the main proceedings does not constitute an advantage where its sole effect is to eliminate a disadvantage previously affecting medical practitioners not under contract established in Austria compared with their colleagues established in other Member States. Whereas medical services supplied in those Member States were not subject to VAT, those supplied in 1995 and 1996 by medical practitioners not under contract established in Austria were liable to VAT.

53It should be noted in that regard that even if the purpose of the measure at issue in the main proceedings is to compensate for the disadvantage Mr Heiser refers to, such a measure could not, in any event, as the Advocate General observes in point 50 of his Opinion, be justified by the fact that it is intended to correct distortions of competition on the Community market in medical services.

54It should be borne in mind that, according to settled case-law, 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, inter alia, Case C-372/97 Italy ν Commission [2004] ECR 1-3679, paragraph 67, and the case-law cited).

55As regards the fourth condition cited in paragraph 27 of this judgment, to the effect that the intervention by the State must distort or threaten to distort competition, it must be borne in mind that aid, that is to say 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 Case C-156/98 Germany ν Commission [2000] ECR I-6857, paragraph 30, and the case-law cited).

56The argument of Mr Heiser and the Austrian Government that the fourth condition is not fulfilled on the ground that the medical practitioners who benefit from a measure such as that at issue in the main proceedings do not face competition based on prices, cannot be upheld.

57Even if, as Mr Heiser and the Austrian Government point out, the choice of a medical practitioner by patients may be influenced by criteria other than the price of the medical treatment, such as its quality and the confidence placed in the medical practitioner, the fact none the less remains that that price is liable to have an influence, or even a substantial influence, on the choice of medical practitioner by the patient. That is so where, inter alia, as is clear from the case-file put before the Court, in the case of medical practitioners not under contract such as Mr Heiser, the patient has to pay more than 50% of the cost of the treatment out of his own pocket.

58It follows from all the foregoing that a measure such as that at issue in the main proceedings must be considered to constitute State aid within the meaning of Article 92(1) of the Treaty.

59The answer to the question referred must therefore be that Article 92 of the Treaty must be interpreted as meaning that a rule, such as that at issue in the main proceedings, 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.

Costs

60Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

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

Article 92 of the Treaty (now, after amendment, Article 87 EC) must be interpreted as meaning that a rule, such as that laid down by Paragraph XIV(3) of Federal Law 21/1995, as amended by Federal Law 756/1996, 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 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, must be classified as State aid.

[Signatures]

OPINION OF ADVOCATE GENERAL TIZZANO delivered on 28 October 2004 1

I — Introduction

1This case concerns a question referred to the Court for a preliminary ruling under Article 234 EC by the Verwaltungsgerichtshof (Administrative Court) on the interpretation of Article 87 EC.

2In substance, the national court asks the court to clarify whether a national rule providing for a change in the value added tax (VAT) status of medical services from taxable to exempt and which does not entail, following that change, the adjustment of deductions in accordance with Article 20 of 2 the Sixth VAT Directive (hereinafter 'the Directive') constitutes State aid under Article 87 EC.

1 — Original language: Italian.

2 - 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 (OI 1977 L 145. p. 1).

II — Legislative framework

Community law

3The first provision relevant to this case is Article 87(1) EC, which provides, subject to the exceptions contemplated by the Treaty, that any aid granted by a Member State or through State resources which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods and which affects trade between Member States is incompatible with the common market.

4Article 88(3) EC, for its part, provides that plans to grant or alter aid shall be notified in good time to the Commission and that Member States may not put their proposed aid measures into effect until the Commission has approved them

5Mention should also be made of Article 86(2) EC, which provides:

'Undertakings entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly shall be subject to the rules contained in this Treaty, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Community.'

6Various provisions of the Sixth VAT Directive also come into play in this case.

7Article 13(A)(1)(c) of the directive provides for the exemption of medical services from VAT, in the following terms:

'A. Exemptions for certain activities in the public interest

1. Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse:

(c) the provision of medical care in the exercise of the medical and paramedical professions as defined by the Member State concerned;

8That exemption has been applicable in Austria since 1 January 1997. Article IX of Annex XV of the Act of Accession of Austria to the European Union provides, so far as concerns us here, as follows:

'(a) Notwithstanding Articles 12 and 13(A) (1):

The Republic of Austria may, until 31 December 1996, continue to apply:

— a reduced rate of value added tax of 10% to hospital activities in the field of public health care and welfare and to the transport of sick or injured persons in vehicles specially designed for the purpose by duly authorised bodies;

— a standard rate of value added tax of 20% to the provision of medical care by physicians in the field of public health and social welfare;

— an exemption, with refund of tax paid at the preceding stage, to supplies carried out by social security and social welfare institutions.

9Article 17 of the Sixth Directive deals with the origin and scope of the right to deduct VAT and provides:

'1. The right to deduct shall arise at the time when the deductible tax becomes chargeable.

2. In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:

(a) value added tax due or paid in respect of goods or services supplied or to be supplied to him by another taxable person;

10The adjustment of deductions is governed by Article 20 of the directive, which provides:

'1. The initial deduction shall be adjusted according to the procedures laid down by the Member States, in particular:

(a) where that deduction was higher or lower than that to which the taxable person was entitled;

(b) where after the return is made some change occurs in the factors used to determine the amount to be deducted, in particular where purchases are cancelled or price reductions are obtained; however, adjustment shall not be made in cases of transactions remaining totally or partially unpaid and of destruction, loss or theft of property duly proved or confirmed, nor in the case of applications for the purpose of making gifts of small value and giving samples specified in Article 5(6). However, Member States may require adjustment in cases of transactions remaining totally or partially unpaid and of theft.

2. In the case of capital goods, adjustment shall be spread over five years including that in which the goods were acquired or manufactured. The annual adjustment shall be made only in respect of one-fifth of the tax imposed on the goods. The adjustment shall be made on the basis of the variations in the deduction entitlement in subsequent years in relation to that for the year in which the goods were acquired or manufactured.

By way of derogation from the preceding subparagraph, Member States may base the adjustment on a period of five full years starting from the time at which the goods are first used.

In the case of immovable property acquired as capital goods the adjustment period may be extended up to 10 years.'

National law

11In Austria, turnover from medical practice is exempt from VAT by virtue of Paragraph 6(1)(19) of the Umsatzsteuergesetz 1994 (Austrian Law on Turnover Tax, hereinafter 'UStG'). Paragraph 29(5) UStG 1994, which gives effect to Annex XV of the Act of Accession of Austria to the European Union, provides that the exemption applies only to transactions after 31 December 1996. Accordingly, medical services rendered prior to 1 January 1997 were subject to VAT and chargeable at the standard rate.

12The adjustment of deductions is provided for by Paragraph 12(10) and (11) UStG, in the following terms:

'(10) 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.

(11) If, in the case of an item that an undertaking has manufactured or acquired for its business or in the case of other services that have been rendered for its business, the circumstances that were material to the deduction of input tax should change (subparagraph 3), an adjustment shall be made to the deduction of input tax for the assessment period during which the change occurred, unless subparagraph 10 should apply.'

13According to the third sentence of Paragraph XIV of Federal Law BGBl. 21/1995, as amended by BGBl. 756/1996 (hereinafter 'BGBl. 21/1995'), however, the adjustment does not apply to deductions made by doctors prior to the changeover to VAT-exempt status:

'There shall be no adjustment to the deduction of input tax under Paragraph 12(10) and (11) of the Umsatzteuergesetz 1994 that would otherwise apply as a result of the first application after 31 December 1996 of the provisions in Paragraph 6(1)(17) and (18), except in so far as in relation to nursing homes, retirement homes, homes for the blind and care homes, and of the provisions in Paragraph 6(1)(19) to (22) of the Umsatz teuergesetz 1994. ...'

14Finally, the Gesundheits- und Sozialber eich-Beihilfengesetz (BGBl. 746/1996, Law on Aid for the Health and Social Services Sectors) provides for a grant scheme to compensate doctors for VAT paid which has become non-deductible in the wake of the changeover to VAT exemption.

III — Facts and procedure

15Mr Heiser, the appellant in the main proceedings, is a medical doctor specialising in oral and maxillo-facial surgery.

16In his VAT return for 1997, the appellant claimed a VAT credit of approximately ATS 3.5 million. This claim was based on the fact that, under the Austrian legislation, long-term medical services (such as orthodontic treatment) commenced prior to 1 January 1997 but completed after 31 December 1996 — that is, after the changeover from VAT liability to VAT exemption — are deemed to be VAT-exempt. Having paid VAT on down payments received prior to 1997 for ortho dontic treatment not yet completed at the time of the changeover to VAT-exempt status, Mr Heiser believed himself entitled to apply the exempt status retrospectively to the treatment in question.

17On 4 October 1999, taking the view that in the case of long-term orthodontic treatment the service is supplied over the course of approximately a year, the Finanzamt (tax office), in its assessment of VAT due for 1997, allowed the credit in question only in respect of treatment having commenced in 1996. It thus allowed only ATS 1 460 000 by way of VAT credit, an amount less than that claimed by Mr Heiser.

18The appellant challenged that assessment before the competent appeals body, the Finanzlandesdirektion für Tirol. In a letter of 1 March 2002, that body instructed the Finanzamt inter alia to determine the extent to which deductions should be adjusted under Paragraph 12(10) UStG 1994 as of 1 January 1997 because of the changeover from taxability to exemption.

19On 19 September 2002, after those determinations had been made, the Finanz landesdirektion für Tirol dismissed the appeal against the assessment and varied the assessment raised by the Finanzamt to the appellant's detriment, by adjusting as of 1 January 1997 the deductions made by Mr Heiser between 1993 and 1996 for investments in immovable and movable property. The total adjustments came to ATS 254 506.09 (EUR 18 495.69).

20Mr Heiser thereupon appealed to the Vervvaltungsgerichtshof, challenging, inter alia, the competent authority's adjustment of deductions. He argued that Paragraph XIV (3) of Law BGBl. 21/1995 expressly exempts medical practitioners from having to adjust deductions as of 1 January 1997.

21For its part, the Finanzlandesdirektion für Tirol countered that Paragraph XIV(3) of Law BGBl. 21/1995 was not applicable on the basis that that provision constituted State aid under Article 87 EC which had not been notified to the Commission and had thus not been approved by it. Under Article 88(3) EC, therefore, the Austrian authorities could not give effect to unnotified aid. Furthermore, the provision was also contrary to Article 20 of the Sixth Directive.

22In doubt as to the interpretation of Article 87 EC, the Verwaltungsgerichtshof, by order of 31 March 2003, decided to stay the proceedings pending before it and to refer the following question to the Court for a preliminary ruling:

'Does a rule, such as that contained in Paragraph XIV(3) of Federal Law BGBl. 21/1995, as amended by BGBl. 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 Council Directive 77/388/EEC, constitute State aid within the meaning of Article 87 EC (formerly Article 92 of the EC Treaty)?'

23In the ensuing proceedings, the appellant, the Austrian Government and the Commission submitted written observations and made oral representations at the hearing on 30 September 2004.

IV — Legal analysis

24As we have seen, the question referred concerns Article 87(1) EC. The national court asks whether the Austrian legislation's dispensation for medical practitioners from the requirement to adjust deductions should be considered State aid.

The issue of the compatibility of the national provision with Article 20 of the Sixth Directive

25Before turning to consider the question referred, I must first note that all the intervening parties also submitted observations concerning the compatibility of the national provision with Article 20 of the Sixth Directive.

26The Commission, on the one hand, submits that it is not so compatible. By a series of arguments based on both a literal and a teleologicai reading, it comes to the conclusion that Article 20 requires deductions to be adjusted following the change in the Austrian VAT rules. Although, in its opinion, such adjustment could be required only in respect of VAT deducted after Austria's accession to the European Union, that is, after 1 January 1995. Prior to then, the Sixth Directive did not apply in Austria and the issue of adjustment of deductions effected previously had therefore to be resolved solely in the light of the Austrian legislation applicable at the time.

27The Austrian Government and Mr Heiser, on the other hand, argue that the principle of the protection of legitimate expectations and the principle of legal certainty require that the right to deduct VAT, once it has accrued, cannot subsequently be made subject to adjustment under · Article 20 as a result of a changeover from a rule of taxability to one of exemption, as a result, that is, of an event outside the taxable person's control. The Austrian legislation was therefore in conformity with Article 20 of the Sixth Directive, interpreted in the light of those general principles of Community law.

28For my part, I must first stress that the Verwaltungsgerichtshof did not request the Court for a preliminary ruling on the interpretation of Article 20 of the Directive.

29None the less, it has to be asked whether an answer on this point may not still be necessary. As the Court has held, 'in order to provide a helpful answer to the national court which has referred a question to it for a preliminary ruling, the Court may deem it necessary to consider provisions of Community law to which the national court has not referred in its question.' 3

30It therefore needs to considered whether interpretation of the Community provision in question would be helpful for the purposes of the main proceedings.

31It seems to me that that is not the case. It would clearly have no bearing on the main proceedings were the argument to succeed that the national provision is compatible with Article 20 of the Sixth Directive. In that event, it would still have to be determined whether or not the dispensation allowed by the national provision constituted State aid for the purposes of Article 87(1) EC. An interpretation of the Community provision to that effect would therefore be of no assistance to the national court in resolving the dispute in the main proceedings.

32The outcome would clearly be different, on the face of it, if the Commission's argument were upheld that Article 20

3 - Case 35/85 Timer [1986] ECR 1207. paragraph 9, Case C-315/88 Bagli Pennacchiotti [1990] ECR I-1323, paragraph 10. and Case C-107/98 Teckai [1999] ECR I-8121, paragraph 39.

precludes a national provision not providing for the adjustment of deductions upon a 4 change in the statutory context. In that case, the provision in question would, on the face of it, have to be disapplied as being contrary to a provision of Community law, and it would not therefore be necessary to consider whether it also constituted State aid.

33On closer inspection, however, that outcome too would turn out to be of no relevance for the national proceedings in this case. Because, as the Commission itself rightly observes, the national court could not disapply the national rule adjudged contrary to the directive so as to order adjustment of the deductions in question. That outcome would necessarily entail imposing a higher tax liability on Mr Heiser than would be the case if the national rule were applied. But as the Court has on many occasions emphasised, 'according to Article [249 EC] the binding nature of a directive, which constitutes the basis for the possibility of relying on the directive before a national court, exists only in relation to "each member state to which it is addressed". It follows that a

4 — An interpretation, incidentally, about which I continue to harbour the same doubts as those I expressed in my Opinion in loined Cases C-487/01 and C-7/02 Gemente Leusden and Holin Groep, ECR I-5337.

directive may not of itself impose obligations on an individual and that a provision of a directive may not be relied upon as such against such a person'. 5 As against Mr Heiser, who relies on a particular right specifically conferred on him by a national provision, the Austrian authorities could not therefore rely on the alleged incompatibility of that provision with Article 20. 6

34In both eventualities, therefore, the resolution of the issue would not be of assistance to the national court.

35I will therefore confine myself to examining the question asked by the national court, that is, whether the dispensation from the adjustment requirement enjoyed by the Austrian medical sector constitutes State aid for the purposes of Article 87 EC.

5 — Case 152/84 Marshall [1986] ECR 723, paragraph 48. See, Analysis of the question

36Austria and Mr Heiser, on the one hand, and the Commission, on the other, give completely different answers to the question asked, on the strength of arguments that will be detailed, as required, in what follows. While the Commission believes that the disputed provision constitutes State aid, the other two intervening parties take the opposite view.

37For my part, I must observe that, according to the settled case-law of the Court, four cumulative conditions must be satisfied in order for a public measure to constitute State aid: (i) the measure must give a selective advantage to certain undertakings or to the production of certain goods, (ii) the advantage must be granted directly or indirectly using State resources, (iii) the measure must distort or threaten to distort competition, and (iv) must be capable of affecting trade between Member States. 7 more recently, Case C-343/98 Collino and Chiapperò [2000] ECR 1-6659, paragraphs 20 and the order in Case C-233/01 RAS [2002] ECR I-9411, paragraph 22.

6 — See, in particular, the Order in RAS, where the issue was whether a national court could disapply a national provision on the ground of incompatibility with Directive 73/239/EC on Direct Insurance other than Life Assurance in order to give judgment against an insured person for the payment of a higher insurance premium than would have been payable under the national provision in question. On that issue, the Court concluded that 'interpretation of [the directive], which has been requested by the national court, cannot, in any event, enable judgment to be given against Mr Lo Bue for the payment of an increase in premium which is not based on the national law applicable to the main proceedings ...' (paragraph 21).

38I will therefore now turn to analyse each of these conditions with reference to the

7 — See, for example, Case C-280/00 Altmark [2003] ECR I-7747, paragraph 74.

facts of this case, having first noted, however, as a preliminary point, that the question as to whether or not the measure at issue constitutes State aid arises only in so far as it concerns an economic activity, that is, '[an] activity consisting in offering goods and 8 services on a given market' A measure can constitute State aid only if it benefits an 'undertaking', a concept that for the purposes of the application of the Treaty rules on competition encompasses, according to settled case-law, 'every entity engaged in an economic activity, regardless of the legal status of the entity and the way in which it is financed'.9

39It is true that, in the healthcare sector, it is by no means certain that that condition is always and necessarily met. I would recall the view taken by the Court, in the field of social security, according to which bodies or organisations that fulfil an 'exclusively social function' and are entirely non-profit-making do not fall to be regarded as undertakings.

8 — Joined Cases C-180/98 to C-184/98 Pavlov and Others [2000] ECR I-6451. paragraph 75. See also Case 118/85 Commission ν Italy [1987] ECR 2599, paragraph 7, Case C-35/96 Commission ν Italy [1998] ECR I-3851, paragraph 36, Case C-475/99 Ambulanz Glöckner [2001] ECR I-8089, paragraph 19, Case C-309/99 Wouters and Others [2002] ECR I-1577. paragraph 47, and Case C-218/00 C1SAL [2002] ECR I-691, paragraph 23. 9 — Case C-41/90 Hofner and Elser [1991] ECR I-1979. paragraph 21; Case C-244/94 Fédération française des sociétés d'assurance and Others [1995] ECR I-4013, paragraph 14; Case C-55/96 lob Centre [1997] ECR 1-7119, paragraph 21; Pavlov. paragraph 74; Wouters, paragraph 46; and Joined Cases C-264/01, C-306/01, C-354/01 and C-355/01 AOK and Others [2004] ECR 1-2493, paragraph 46). Emphasis added. 10 - See, in particular, loined Cases C-159/91 and C-160/91 Poucet and Pistre [1993] ECR I-637, paragraphs 15 and 18. Case T-319/99 Femn [2003] ECR II-357, paragraphs 38 to 39, and AOK. paragraphs 47-51. That does not apply in this case, however. What we have here is a situation analogous to that considered in Pavlov, which concerned Dutch medical specialists. In that case, the Court held that those doctors are undertakings within the meaning of the Treaty, since they 'provide, in their capacity as self-employed economic operators, services on a market, namely the market in specialist medical services' and 'are paid by their patients for the services they provide and assume the financial risks attached to the pursuit of their activity'. 11

40That much clarified, I now turn to examine the conditions referred to above.

41(i) I would first observe, with regard to the first condition, that the provision in question undoubtedly confers an advantage on the Austrian medical sector. Those operating in that sector have not had to bear the financial cost which, in the absence of the dispensation from the adjustment requirement, would have been imposed on them as a consequence of the changeover from a rule of VAT taxability to one of VAT exemption. The measure at issue thus reduced their charge to tax.

11 — Pavlov, paragraph 76.

42It is also a selective advantage, in that it applies to a single sector of activity (the medical sector) and 'places the persons to whom the exemption applies in a more favourable financial position than other 12 taxpayers'.

43On that point, it should be noted that the fact that a public measure confers an advantage on a whole economic sector is not sufficient, contrary to what the Austrian Government maintains, to negate the selective nature of the measure and thus to take it outside the ambit of State aid. As may be inferred from the very letter of Article 87(1) EC, public measures that concern 'the production of certain goods', in other words, a particular sector of the economy, can fall within the scope of the article. That is specifically so in the case of measures designed 'to give the undertakings of a particular ... sector a partial reduction of the financial charges arising from the normal 14 application of the general ... system', a description that fits this case perfectly. The national legislation at issue makes a special rule for the medical sector, one that is more favourable to the taxpayer than the ordinary VAT rules applicable to other sectors.

44It does not seem to me, furthermore, that a different conclusion is warranted by the Austrian Government's argument that while the disputed measure does give rise to unequal tax treatment as between different economic sectors, it is not designed to create an advantage for the medical sector, having regard to the objective it pursues. The measure, according to the Austrian Government, pursues an objective in the general interest by facilitating the provision of medical care and, hence, of 'services of general economic interest' within the meaning of Article 86(2) EC. More specifically, the Austrian Government explains, the provision in question was adopted with the sole purpose of avoiding a situation where social security organisations would be faced with additional charges as a result of the medical sector becoming VAT-exempt. Under the agreements in force between the Austrian Medical Council and the social security organisations, the latter would have had to compensate the doctors appropriately for the additional expenses arising as a result of the change in the VAT rules. In those circumstances, the Austrian legislature decided that it would not burden the social security organisations with those charges and so introduced a dispensation from the adjustment requirement in respect of VAT deducted prior to the changeover to VAT exemption, and provided, in the case of VAT that had become non-deductible following the changeover, for the payment of direct aid (paragraph 13 above).

12 — Case C-387/92 Banco Exterior de Espana [1994] ECR I-877, paragraph 14.

13 — Case 248/84 Germany ν Commission [1987] ECR 4013, paragraph 18, and Case C-75/97 Belgium ν Commission [1999] ECR I-3671, paragraph 33.

14 — Belgium ν Commission, paragraph 33.

45In that regard, however, I would first observe that the nature of the objectives behind a State measure is not sufficient ipso facto to take it outside the ambit of State aid. Otherwise, the Member State would only have to invoke the legitimacy of the aim pursued by the public intervention to avoid the application of the Treaty rules on State aid. Article 87 EC, furthermore, as consistently interpreted by the Court, 'does not distinguish between measures of State intervention by reference to their causes or aims but defines them in relation to their 15 effects', that is, their potential distorting effect on competition. The fact that the measure concerned may serve objectives in the general interest is not therefore sufficient to exclude it from the concept of aid. 16

46Likewise, I do not find merit in the Austrian Government's argument regarding Article 86(2). On the basis of that Treaty provision, the Court has excluded from the ambit of State aid measures of State intervention that are no more than 'compensation for the services provided by the recipient undertakings in order to discharge public service obligations, so that those undertakings do not enjoy a real financial advan17 tage'. But it seems clear to me that a blanket provision such as that at issue here, which applies to all medical and paramedical services without regard to the nature of the service supplied or the nature of the costs incurred, does not come within that exception.

47That much said, it is also the case that not all differences in t r e a t m e nt of undertakings or sectors constitute an advantage for the purposes of Article 87 EC. 18 According to Community case-law, differences which in effect favour particular undertakings or sectors but which are 'justified by the nature or general scheme

17 — Altmark, paragraph 87. The Court explained that in order for a compensation measure of that kind to fall outside the scope of State aid, four conditions must be satisfied: 1) the recipient undertaking must be actually required to discharge public service obligations and those obligations must have been clearly defined; 2) the parameters on the basis of which the compensation is calculated must have been established beforehand in an objective and transparent manner; 3) the compensation must not exceed what is necessary to cover all or part of the costs incurred in discharging the public service obligations, taking into account the relevant receipts and a reasonable profit; 4) where the undertaking is not chosen in a public procurement procedure, the level of compensation 15 — Case C-241/94 France ν Commission [1996] ECR I-4551. paragraph 20, Case C-342/96 Spain ν Commission [1999] ECR I-2459, paragraph 23, Belgium v Commission, cited above, paragraph 25, Case C-382/99 Netherlands v Commission [2002] ECR I-5163, paragraph 61, and Case C-126/01 GEMO [2003] ECR I-13769, paragrapll 34. 16 — See, in particular, Case 310/85 Denfil v Commission [1987] ECR 901, paragraph 8. must be determined on the basis of an analysis of the costs which a typical, well-run undertaking would have incurred in discharging the public service obligations in question (paragraph 95). 18 — See, for example, Case C-353/95 P Tiercé Ladbroke [1997] ECR I-7007, paragraph 33. and Case C-53/00 Ferring [2001] ECR I-9067, paragraph 17. of the system of which [they are] part' are not of a selective nature (and constitute a so-called 'general measure'). That category may include, inter alia, differences in tax treatment, provided that they are dictated by reasons relating to the logic of the tax 20 system, and not simply by the general purposes and objectives pursued by the State 21 in adopting the measures in question.

48It does not seem to me, however, that those conditions are met in this case. The reasons behind the provision at issue are difficult to construe as reasons inherent in the tax system. Its sole purpose, as confirmed by the explanations offered by the Austrian Government itself, is to facilitate the transition from one set of tax arrangements to another, by having the State bear some of the 'costs' of this statutory change. What is more, the Austrian Government failed to give any explanation as to how the dispensation from the adjustment requirement might

19 — Case C-143/99 Adria-Wien Pipeline and Wletersdorfer & Peggauer Zementwerke [2001] ECR I-8365, paragraph 42. The italics are mine. See also, to the same effect, Case 173/73 Italy ν Commission, paragraph 33, Tiercé Ladbroke, paragraph 35, Belgium ν Commission, paragraph 33, Case C-351/98 Spain ν Commission [2002] ECR I-8031, paragraph 42 and Case C-308/01 GIL Insurance [2004] ECR 1-4777, paragraph 60. 20 — See, in particular, GIL Insurance, in which the Court regarded as 'justified by the nature and the general scheme of the national system of taxation of insurance' a measure introduced 'to counteract the practice of taking advantage of the difference between the standard rate of [insurance premium tax] and that of VAT by manipulating the prices of rental or sale of appliances and of the associated insurance' (paragraph 74).

21 — See, for example, Case C-351/98 Spain ν Commission [2002] ECR I-8031, in which the Court rejected arguments by the Spanish Government that a measure to facilitate the replacement of commercial vehicles did not fall to be classified as State aid since its objectives were environmental protection and road safety.

be justified by the nature or structure of the VAT system.

49Finally, I do not see any merit in Mr Heiser's point that the national provision does not create an advantage since it does no more than to compensate Austrian doctors for the handicap they had suffered, as a result of their services having been chargeable to VAT, compared to their counterparts in other Member States who were exempt from paying VAT. The medical professions had thus been hindered not helped and the provision at issue did no more than create/ restore a level playing-field between Austrian practitioners and those of other Member States.

50However, without it being necessary to consider whether Austrian doctors were actually placed at a disadvantage by being subject to VAT, I believe it is sufficient to recall the settled case-law of the Court according to which '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 2 character as aid'. 2 In other words, contrary

22 — Case C-6/97 Italy ν Commission [1999] ECR I-2981, paragraph 21.

to what is suggested by Mr Heiser, it would not be open to Austria to justify the dispensation by arguing that the advantage conferred was aimed at correcting alleged distortions of competition in the common market for medical services.

51In that regard, the Court has also stated that '[f]or the application of Article 92 of the Treaty, it is irrelevant that the situation of the presumed beneficiary of the measure is better or worse in comparison with the situation under the law as it previously 23 stood, or has not altered over time', the proper comparison being that between the situation of the beneficiary and that of other undertakings or sectors at the time of the granting of the aid.

52(ii) It seems clear to me also that the advantage in question has been funded through public resources. The Court has consistently held that the concept of aid 'embraces not only positive benefits, such as subsidies, but also measures which, in various forms, mitigate the charges which are normally included in the budget of an undertaking and which, therefore, without being subsidies in the strict sense of the word, are similar in character and have the 24 same effect'. That is the case in particular

23 — Adria-Wien Pipeline, paragraph 41. 24 — Italy ν Commission, paragraph 15. of measures which give certain undertakings a tax advantage, because while such measures do not entail any expenditure of State resources they do entail a loss of revenue which would otherwise have accrued to the State.

53In this case, it is sufficient to note that by applying the dispensation from the adjustment requirement the Austrian authorities have in practice forgone the tax receipts which would have flowed from the adjustment in the form of part-repayments of deductions. The measure therefore entailed an additional charge for the State. The tax advantage in question was thus granted through State resources

54(iii) As for the condition concerning the potential to distort competition, it seems to me that the case at hand leaves no room for doubt on that count. It is settled case-law that aid which, like that provided for by Paragraph XIV(3) of BGBl. 21/1995, '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'. 25

25 - Case C-156/98 Germany ν Commission [2000] ECR I-6857, paragraph 30 and cases cited therein.

55It does not seem to me, furthermore, that Mr Heiser's arguments regarding the organisation of the Austrian medical sector give any reason to disturb that conclusion. According to Mr Heiser, even if it were the case that the measure in question constituted an advantage for Austrian doctors, that advantage could not distort competition since the patient's choice of doctor would not be influenced by the price of the services. In reality, the decisive factor in that choice would be whether the doctor was or was not approved for reimbursement purposes, since in the latter case the patient would have to pay more than 50% of the price of treatment out of his or her own pocket. In the absence of price-competition the measure therefore had no bearing whatsoever on the competitive position of its beneficiaries.

56According to the information contained in the case-file, however, whether or not services are provided by an approved doctor, the patient is never reimbursed the full price of the treatment. The doctor thus has some 'room for manoeuvre' with respect to the non-reimbursable part of the price. But a measure that has the effect of lowering the 'production costs' of medical treatment (by allowing deductions on machinery and equipment, for example) can impact on the price of such treatment and is therefore capable of having distorting effects on competition.

57(iv) Turning finally to the effect of the measure on trade between Member States, I would first point out that, according to settled case-law, '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 intra-Com-26 munity trade might be affected'. It follows from that, firstly, that there is no threshold or percentage below which it may be considered that trade between Member 27 States is not affected. And secondly, that aid can be such as to affect trade between Member States even if the recipient operates on a local or regional scale only and does not engage in cross-border trade. As a result of the aid, the business carried on by the recipient may be maintained or increased with the result that undertakings established in other Member States have less chance of penetrating the market of the Member State 28 concerned. Finally, the Community case-law holds that in order for a measure to be considered aid it is sufficient for it to be potentially harmful to trade between Member States without the actual effect of it 29 having to be shown.

26 — Case C-142/87 Belgium ν Commission [1990] ECR I-959, paragraph 43, Joined Cases C-278/92 to C-280/92 Spain ν Commission [1994] ECR 1-4103, paragraph 42, and Altmark, paragraph 81.

27 — See, for example, Altmark, paragraph 81.

28 — See, for example, Altmark, paragraphs 78 and 82.

29 — Joined Cases T-298/97, T-312/97, T-313/97, T-315/97, T-600/97 to T-607/97, T-l/98, T-3/98 to T-6/98 and T-23/98 Alzetta Mauro [2000] ECR 11-2319, paragraphs 76 to 80, and Joined Cases T-127/99, T-129/99 and T-148/99 Diputación Foral de Álava [2002] ECR II-1275, paragraphs 76 to 78.

58In the case of the measure at issue, it is or curtail the supply of services by operators possible, in my opinion, that even though it in other Member States.

concerns the supply of services which are of a predominantly local or regional character, it has the potential to affect trade between Member States to some extent. As the Commission points out (and as demon 59. It seems to me therefore, in the light of strated by the extensive Community case- all the foregoing considerations, that the law in this area), the market concerned by national provision in question constitutes the contested provision, which is the market State aid for the purposes of Article 87(1) EC for medical treatment, is one that is open to and that Austria should therefore have competition and characterised by increasing complied with the procedure laid down by cross-border trade. In that context, a mea Article 88 EC, in other words the require sure which, as I have said, reduces 'produc ment to notify the measure and not to give tion costs', may make treatment provided in effect to it pending the adoption of a final Austria more competitive and thereby deter decision by the Commission.

V — Conclusion

60I am therefore of opinion that the Court should answer the question referred by the Verwaltungsgerichtshof in the following terms:

'A rule, such as that contained in Paragraph XIV(3) of Federal Law BGBl. 21/1995, as amended by BGBl. 756/1996, which dispenses those engaged in the medical sector, in connection with the transition from taxable to exempt status for VAT purposes, from the general requirement under national law for deductions to be adjusted, constitutes State aid within the meaning of Article 87(1) EC.'