C-211/18 Idealmed III

JUDGMENT OF THE COURT (Sixth Chamber)

5 March 2020 ( *1 )

(Reference for a preliminary ruling — Taxation — Value added tax (VAT) — Directive 2006/112/EC — Article 132(1)(b) — Exemptions — Hospital and medical care — Hospital establishments — Services provided under social conditions comparable to those applicable to bodies governed by public law — Articles 377 and 391 — Derogations — Right to opt for a taxation regime — Maintenance of the taxation — Variation in the conditions for the exercise of the activity)

In Case C‑211/18,

REQUEST for a preliminary ruling under Article 267 TFEU from the Tribunal Arbitral Tributário (Centro de Arbitragem Administrativa) (Tax Arbitration Tribunal (Centre for Administrative Arbitration), Portugal), made by decision of 19 February 2018, received at the Court on 26 March 2018, in the proceedings

IDEALMED III — Serviços de Saúde, SA

v

Autoridade Tributária e Aduaneira,

THE COURT (Sixth Chamber),

composed of M. Safjan, President of the Chamber, L. Bay Larsen (Rapporteur) and C. Toader, Judges,

Advocate General: M. Szpunar,

Registrar: M. Ferreira, Principal Administrator,

having regard to the written procedure and further to the hearing on 17 June 2019,

after considering the observations submitted on behalf of:

Idealmed III — Serviços de Saúde SA, by J.P. Lampreia and F. Antas, advogados,

the Portuguese Government, by L. Inez Fernandes, M. Figueiredo, R. Campos Laires, M.J. Marques and P. Barros da Costa, acting as Agents,

the European Commission, by M. Afonso and N. Gossement, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 10 October 2019,

gives the following

Judgment

Legal context and the dispute

1This request for a preliminary ruling concerns the interpretation of Article 132(1)(b) and Articles 377 and 391 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347 p. 1).

2The request has been made in proceedings between Idealmed III — Serviços de Saúde SA (‘Idealmed’) and the Autoridade Tributária e Aduaneira (Tax and Customs Authority, Portugal) concerning the latter’s decision requiring Idealmed to pay an amount corresponding to the value added tax (VAT) deducted in respect of medical services that it provided between 2014 and 2016 and to pay compensatory interest as well as default interest thereon.

Legal context

Directive 2006/112

3Recital 7 of Directive 2006/112 states:

‘The common system of VAT should, even if rates and exemptions are not fully harmonised, result in neutrality in competition, such that within the territory of each Member State similar goods and services bear the same tax burden, whatever the length of the production and distribution chain.’

4Article 132(1) of that directive provides:

‘Member States shall exempt the following transactions:

…

hospital and medical care and closely related activities undertaken by bodies governed by public law or, under social conditions comparable to 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;

…

the supply of services and of goods closely linked to welfare and social security work, including those supplied by old people’s homes, by bodies governed by public law or by other bodies recognised by the Member State concerned as being devoted to social wellbeing;

…’

5Article 133 of the directive provides:

‘Member States may make the granting to bodies other than those governed by public law of each exemption provided for in points (b), (g), (h), (i), (l), (m) and (n) of Article 132(1) subject in each individual case to one or more of the following conditions:

the bodies in question must not systematically aim to make a profit, and any surpluses nevertheless arising must not be distributed, but must be assigned to the continuance or improvement of the services supplied;

…

those bodies must charge prices which are approved by the public authorities or which do not exceed such approved prices or, in respect of those services not subject to approval, prices lower than those charged for similar services by commercial enterprises subject to VAT;

…’

6Article 377 of the same directive states:

‘Portugal may continue to exempt the transactions listed in points (2), (4), (7), (9), (10) and (13) of Annex X, Part B, in accordance with the conditions applying in that Member State on 1 January 1989.’

7Article 391 of Directive 2006/112 reads as follows:

‘Member States which exempt the transactions referred to in Articles 371, 375, 376 or 377, Article 378(2), Article 379(2) or Articles 380 to 390 may grant taxable persons the right to opt for taxation of those transactions.’

8Annex X to that directive, entitled ‘List of transactions covered by the derogations referred to in Articles 370 and 371 and Articles 375 to 390’, refers in point 7 of Part B thereof, which lists the transactions that Member states may continue to exempt, ‘transactions carried out by hospitals not covered by point (b) of Article 132(1)’.

Portuguese law

9Article 9, point 2 of the Código do IVA (VAT Code) provides that, ‘medical and healthcare services and closely related activities undertaken by hospitals, clinics, healthcare centres and other similar establishments’ are exempt from VAT.

10Article 12 of that code, in the version resulting from Decreto-lei No 102/2008 (Decree-Law No 102/2008) of 20 June 2008, provides

‘1. The following may waive the exemption and opt for the tax to be levied on their transactions:

…

hospitals, clinics, healthcare centres and other similar establishments which are not owned by legal persons governed by public law or private institutions which are part of the national health system and which provide medical care and healthcare services and carry out transactions closely related thereto;

2. That option shall be exercised by filing a declaration of commencement or, as the case may be, variation with the competent tax office and shall take effect from the date of filing.

3. Where the right of option has been exercised in accordance with the preceding paragraphs, the taxable person shall be required to remain in the scheme he or she has chosen for a minimum period of five years, at the end of which, if he or she wishes to benefit from the exemption scheme again, he or she must:

file in the January of one of the years following the year in which the period of application of the optional scheme ended, the declaration referred to in Article 32, which shall take effect from 1 January of the year of filing;

…’

11The lei No 7-A/2016 (Law No 7-A/2016) of 30 March 2016 varied Article 12(1)(b) of that code, which now reads as follows:

‘The following may waive the exemption and opt for the tax to be levied on their transactions

…

the taxable persons referred to in Article 9(2), who are not legal persons governed by public law, as regards the provision of medical care and healthcare services and closely related activities which do not come under contracts with the State in the context of the health system, in accordance with the respective framework law’.

The dispute in the main proceedings and the questions referred for a preliminary ruling

12Idealmed is a company which manages and operates, for profit, five healthcare establishments providing, inter alia, medical and nursing care, as well as diagnostic, clinical analysis, and physiotherapy services.

13In its declaration of commencement of activity filed on 6 January 2012, Idealmed stated its wish to opt for the normal VAT regime.

14With effect from September 2012, Idealmed concluded agreements and contracts with public authorities providing inter alia for the supply of care services at predetermined prices.

15Upon carrying out an inspection, the Tax and Customs Authority found that, between April 2014 and June 2016, a large part of Idealmed’s medical activity was exercised under those agreements and contracts. That authority concluded that that activity should have been exempt, without Idealmed being entitled to opt out of that exemption, and that that company had therefore wrongly deducted VAT paid in the course of carrying out that activity.

16Following that inspection the Tax and Customs Authority adopted a decision varying of its own motion Idealmed’s VAT status with effect from 1 October 2012 and requiring that company to pay a sum corresponding to the amount of VAT wrongly deducted, namely EUR 2 009 944.90, together with interest thereon.

17On 27 June 2017, Idealmed submitted a request for an arbitral tax tribunal to be constituted for the purpose of declaring that decision to be unlawful.

18It is in those circumstances that the Tribunal Arbitral Tributário (Centro de Arbitragem Administrativa) (Tax Arbitration Tribunal (Centre for Administrative Arbitration), Portugal) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling:

Does Article 132(1)(b) of [Directive2006/112] preclude a hospital owned by a company governed by private law, which has concluded agreements for the provision of medical care with the State and with legal persons governed by public law, from being deemed to have started to operate under social conditions comparable with those applicable to bodies governed by public law, as referred to in that provision, where the following conditions are met:

more than 54.5% of revenue, including sums invoiced to the relevant user-beneficiaries, comes from State bodies and public health subsystems, at the prices stipulated in the agreements concluded with them;

more than 69% of users are beneficiaries of public health subsystems or receive services provided within the framework of agreements concluded with State bodies;

more than 71% of medical services are carried out under agreements concluded with public health subsystems and with State bodies, and

the activity carried out is of significant general public interest?

In view of the fact that, in accordance with Article 377 of the [Directive 2006/112], the Portuguese Republic chose to continue to exempt from VAT transactions carried out by hospitals not referred to in Article 132(1)(b) of that directive, that it granted such taxable persons the right to opt for taxation of those transactions under Article 391 of the directive, provided that they continue to be taxed for a minimum period of five years, and that it provides that they may become subject to the exemption scheme again only if they make an express declaration to that effect, does Article 391 and/or the principles of the protection of acquired rights and of legitimate expectations, equality and non-discrimination, neutrality and non-distortion of competition in relation to users and taxable persons which are bodies governed by public law, preclude the taxation and customs authority from imposing the exemption scheme before that period has elapsed, since it considers that the taxable person has started to provide services under social conditions comparable with those applicable to bodies governed by public law?

Do Article 391 of [Directive 2006/112] and/or the abovementioned principles preclude a new law from requiring the application of the exemption scheme to taxable persons who previously opted for the taxation scheme, before the five-year period has elapsed?

Do Article 391 of [Directive 2006/112] and the abovementioned principles preclude legislation in accordance with which a taxable person, who opted for application of the taxation scheme because, at the time when he or she opted for that scheme, he or she was not providing healthcare services under social conditions comparable with those applicable to bodies governed by public law, can continue to be subject to that scheme if he or she starts to provide such services under social conditions comparable with those applicable to bodies governed by public law?’

Consideration of the questions referred

The first question

19As a preliminary matter, it should be recalled that, pursuant to Article 132(1)(b) of Directive 2006/112, Member States are to exempt hospital and medical care and closely related activities undertaken by bodies governed by public law or, under social conditions comparable to 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.

20It is clear from the wording of that provision that the exemption of care services provided by private hospitals is subject to the condition that those services are provided under social conditions comparable to those applicable to bodies governed by public law.

21Since that requirement relates to the services provided and not to the provider in question, the proportion of the care services provided under comparable social conditions, within the meaning of that provision, in relation to all the activity undertaken by that provider is irrelevant for the application of the exemption laid down in Article 132(1)(b) of that directive.

22Accordingly, by its first question, the referring court must be regarded as asking, in essence, whether Article 132(1)(b) of Directive 2006/112 must be interpreted as meaning that the competent authorities in a Member State may — for the purpose of determining whether the care services provided by a private hospital, which are in the public interest, are provided under social conditions comparable to those applicable to bodies governed by public law, within the meaning of that provision — take into account the fact that those services are provided under contracts concluded with public authorities of that Member State, at prices fixed by those contracts and whose costs are partially borne by the social security institutions of that Member State.

23In that regard, it must be noted at the outset that Article 13(A)(1)(b) and (g) 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) and Article 132(1)(b) and (g) of Directive 2006/112, which is worded essentially in the same way as the first of those provisions, must be interpreted in the same way and that consequently the case-law of the Court on that first provision lends itself to serving as a basis for the interpretation of the second provision (see, to that effect, judgment of 10 June 2010, Future Health Technologies, C‑86/09, EU:C:2010:334, paragraph 27).

24As regards the concept of ‘comparable social conditions’, within the meaning of Article 132(1)(b) of Directive 2006/112, it should be observed that that provision does not define precisely the aspects of the provision of care concerned that must be compared for the purpose of assessing whether it applies.

25In that regard, it should be recalled, in the first place, that the purpose of the provisions of Article 132(1) of Directive 2006/112, as a whole, is to exempt from VAT certain activities in the public interest with a view to facilitating access to certain services and the supply of certain goods by avoiding the increased costs that would result if they were subject to VAT (see, to that effect, judgment of 20 November 2019, Infohos, C‑400/18, EU:C:2019:992, paragraph 37 and the case-law cited).

26The public interest nature of those services is therefore a relevant matter to take into account for the purpose of determining whether the care services provided by a private hospital fall within the exemption laid down in Article 132(1)(b) of that directive.

27In the second place, it is clear from Article 133, first paragraph, point (c) of that directive that Member States may make the granting of the exemptions laid down inter alia in Article 132(1)(b) and (g) of the directive to bodies other than those governed by public law subject to the condition that those bodies charge prices which are approved by the public authorities or which do not exceed such approved prices or, in respect of those services not subject to approval, prices lower than those charged for similar services by commercial enterprises subject to VAT.

28Since, the EU legislature has made the element as to the fixing of prices for those supplies in an agreement concluded with the public authorities of a Member State a discretionary condition for Member States to choose to apply the exemption laid down in Article 132(1)(b) of Directive 2006/112, the absence of a such an element cannot preclude entitlement to that exemption (see, by analogy, judgment of 26 May 2005, Kingscrest Associates and Montecello, C‑498/03, EU:C:2005:322, paragraph 40).

29Such an element remains relevant, however, for the purposes of determining whether the care services provided by a private hospital are provided under social conditions comparable to those applicable to bodies governed by public law, within the meaning of Article 132(1)(b) of Directive 2006/112 (see, by analogy, judgment of 21 January 2016, Les Jardins de Jouvence, C‑335/14, EU:C:2016:36, paragraph 38).

30Accordingly, it must held that the element concerning the fixing of prices of those supplies in an agreement concluded with the public authorities of a Member State is an element that may be taken into account for the purpose of determining whether the care services provided by a private hospital are provided under social conditions comparable to those applicable to bodies governed by public law, within the meaning of Article 132(1)(b) of Directive 2006/112.

31In the third place, it is clear from the Court’s case-law that the arrangements for services to be paid for by the social security institutions of a Member State are relevant in the context of examining whether the conditions under which those services are provided are comparable, within the meaning of that provision (see, to that effect, judgment of 10 June 2010, CopyGene, C‑262/08, EU:C:2010:328, paragraphs 69 and 70).

32In the light of the foregoing considerations, the answer to the first question is that Article 132(1)(b) of Directive 2006/112 must be interpreted as meaning that the competent authorities in a Member State may — for the purpose of determining whether the care services provided by a private hospital, which are in the public interest, are provided under social conditions comparable to those applicable to bodies governed by public law, within the meaning of that provision — take into account the fact that those services are provided under contracts concluded with public authorities of that Member State, at prices fixed by those contracts and whose costs are partially borne by the social security institutions of that Member State.

Questions 2 to 4

33By its second to fourth questions, which it is appropriate to examine together, the referring court asks, in essence, whether Article 391 of Directive 2006/112, read in conjunction with Article 377 thereof, and the principles of legitimate expectation, legal certainty and fiscal neutrality, must be interpreted as precluding the exemption from VAT of care services provided by private hospitals which fall within Article 132(1)(b) of that directive owing to a change in the conditions under which it carried on its activities that occurred after it opted for the taxation regime laid down in the national law of the Member State concerned which laid down the requirement, for all taxable persons exercising that option, to remain subject to that regime for a certain period, where such a period has not yet expired.

34It must be borne in mind that the common system of VAT is the result of a gradual harmonisation of national legislation pursuant to Articles 113 and 115 TFEU. The Court has consistently held that this harmonisation, as brought about by successive directives and in particular by Directive 77/388, is still only partial (see, to that effect, judgment of 26 February 2015, VDP Dental Laboratory and Others, C‑144/13 and C‑160/13, EU:C:2015:116, paragraph 60 and the case-law cited).

35Directive 2006/112, by virtue of Article 370 thereof, authorised the Member States to retain certain provisions of their national legislation predating that directive which would, without that authorisation, be incompatible with that directive (judgment of 26 February 2015, VDP Dental Laboratory and Others, C‑144/13 and C‑160/13, EU:C:2015:116, paragraph 61 and the case-law cited).

36In that context, Article 377 of that directive, read in conjunction with Annex X, Part B, point (7) of the directive, authorises the Portuguese Republic to continue to exempt transactions carried out by hospitals not covered by point (b) of Article 132(1) of that directive, under the conditions that existed in that Member State on 1 January 1989.

37Furthermore, Article 391 of Directive 2006/112 permits Member States that exempt transactions covered by the provisions that it cites, which includes Article 377 of that directive, to grant the taxable persons concerned the right to opt for the taxation of those transactions.

38It is clear from a combined reading of Articles 377 and 391 of that directive, as well as Annex X, Part B, point (7) thereof, that the right to opt for taxation laid down in Article 391 of the directive concerns only transactions carried out by hospitals not covered by Article 132(1)(b) of Directive 2006/112. That latter provision, however, requires Member States to exempt supplies of services coming within it (see, to that effect, judgment of 10 June 2010, CopyGene, C‑262/08, EU:C:2010:328, paragraph 56).

39It follows that, from the time when a private hospital supplies services coming within Article 132(1)(b) of the same directive, it must ensure that the exemption regime is applied to its supplies of services, even if it had opted for the taxation regime for its activities that did not come within that provision.

40Therefore, the Member States cannot rely on Articles 377 and 391 of Directive 2006/112 in order to justify the continued taxation of a taxable person’s transactions if that would result in those transactions not being exempted despite their coming within the exemption laid down in Article 132(1)(b) of that directive.

41Moreover, having regard to the principle of fiscal neutrality, which is recalled in recital 7 of that directive and which precludes treating supplies that are similar, and thus in competition with each other, differently as regards VAT (see, to that effect, judgment of 5 September 2019, Regards Photographiques, C‑145/18, EU:C:2019:668, paragraph 36 and the case-law cited), the fact that, in the past, the taxable person concerned made other supplies in respect of which it benefited from a particular tax regime, does not, in principle, have the effect of varying the tax treatment of supplies that it provided subsequently under different social conditions.

42Similarly, the fact that the national law providing for such a possibility of option regarding the taxation regime applicable to the activities requires the taxable person to remain subject to that regime for a certain period which has not yet expired, is irrelevant to the tax treatment of supplies coming within Article 132(1)(b) of Directive 2006/112 because such a possibility is valid only for transactions not covered by that provision.

43Moreover, that interpretation is not called into question by the principles of legitimate expectation or legal certainty.

44As regards the principle of legitimate expectation, it must be noted that the right to rely on that principle extends to any person in a situation in which an administrative authority has caused that person to entertain expectations which are justified by precise assurances provided to him or her (judgment of 21 February 2018, Kreuzmayr, C‑628/16, EU:C:2018:84, paragraph 46 and the case-law cited).

45The fact that the national law that permitted a taxable person to opt for the taxation of its activities makes the exercise of that option subject to the requirement for that person to remain subject to the chosen regime for a certain period of time cannot create a legitimate expectation for that taxable person that the competent authorities will maintain that regime in the event of a change in the conditions in which it exercises its activities.

46As regards the principle of legal certainty, the Court has held that it does not preclude the tax authorities from carrying out, within the limitation period, an assessment for VAT relating to the deducted tax or to services already provided which should have been subject to VAT (judgment of 12 October 2016, Nigl and Others, C‑340/15, EU:C:2016:764, paragraph 48).

47Such a principle does not therefore preclude a tax authority from carrying out an assessment of the situation of a taxable person who had opted for the taxation of its activities or, upon concluding that assessment, from proceeding to the adjustment of VAT relating to the tax deducted for supplies that that taxable person had provided after having exercised its option, where it reaches the conclusion that the supplies come within Article 132(1)(b) of that directive and should have been exempt in accordance with that provision.

48It follows that the answer to the second to fourth questions is that Article 391 of Directive 2006/112, read in conjunction with Article 377 thereof, and the principles of legitimate expectation, legal certainty and fiscal neutrality, must be interpreted as precluding the exemption from VAT of supplies of care services provided by private hospitals which come within Article 132(1)(b) of that directive owing to a change in the conditions under which it carried on its activities that occurred after it opted for the taxation regime laid down in the national law of the Member State concerned that laid down the requirement, for all taxable persons making such a choice, to remain subject to that regime for a certain period, where such a period has not yet expired.

Costs

49Since 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 (Sixth Chamber) hereby rules:

Article 132(1)(b) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the competent authorities in a Member State may — for the purpose of determining whether the care services provided by a private hospital, which are in the public interest, are provided under social conditions comparable to those applicable to bodies governed by public law, within the meaning of that provision — take into account the fact that those services are provided under contracts concluded with public authorities of that Member State, at prices fixed by those contracts and whose costs are partially borne by the social security institutions of that Member State.

Article 391 of Directive 2006/112, read in conjunction with Article 377 thereof, and the principles of legitimate expectation, legal certainty and fiscal neutrality, must be interpreted as precluding the exemption from VAT of supplies of care services provided by private hospitals which fall within Article 132(1)(b) of that directive owing to a change in the conditions under which it carried on its activities that occurred after it opted for the taxation regime laid down in the national law of the Member State concerned which laid down the requirement, for all taxable persons making such a choice, to remain subject to that regime for a certain period, where such a period has not yet expired.

Signatures

[Signatures]

( *1 ) Language of the case: Portuguese.

OPINION OF ADVOCATE GENERAL

SZPUNAR

delivered on 10 October 2019 ¹

(Reference for a preliminary ruling — Taxation — Value added tax — Directive 2006/112 — Article 132(1)(b) — Exemptions — Hospital and medical care — Services provided under social conditions comparable with those applicable to bodies governed by public law — Articles 377 and 391 — Derogations — Right to opt for a taxation scheme — Change in operating conditions)

Introduction

1Taxes are something that everyone usually tries to avoid as much as possible, although, according to a well-known saying, they are one of the two things that cannot ultimately be avoided (the other being death). Surprisingly, however, there are situations in which taxation is accepted as something positive and even desirable. This is the case, inter alia, with taxable persons who conduct activities subject to value added tax (‘VAT’). This is because, as long as the activities in question are taxed, this tax is neutral for the taxable person, since its economic burden is passed on to further stages of marketing and is ultimately borne by consumers. However, if the transactions carried out by a taxable person are exempt from VAT, that taxable person bears the economic burden of input tax accrued at earlier stages of marketing. As a result, economic operators often wish to be subject to taxation rather than be exempt from it. However, if the exemption is compulsory, this is not possible: the entity in question cannot waive the exemption and be voluntarily subject to taxation. In the present case, the Court will have the opportunity to recall this principle.

Legal framework

EU law

2Article 132(1)(b) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax ² provides that:

‘Member States shall exempt the following transactions:

…

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;

…’

3Article 133(a) and (c) of the directive provides as follows:

‘Member States may make the granting to bodies other than those governed by public law of each exemption provided for in points (b), (g), (h), (i), (l), (m) and (n) of Article 132(1) subject in each individual case to one or more of the following conditions:

the bodies in question must not systematically aim to make a profit, and any surpluses nevertheless arising must not be distributed, but must be assigned to the continuance or improvement of the services supplied;

…

those bodies must charge prices which are approved by the public authorities or which do not exceed such approved prices or, in respect of those services not subject to approval, prices lower than those charged for similar services by commercial enterprises subject to VAT;

…’

4Article 377 of the same directive provides for the following derogation:

‘Portugal may continue to exempt the transactions listed in points (2), (4), (7), (9), (10) and (13) of Annex X, Part B, in accordance with the conditions applying in that Member State on 1 January 1989.’

5Article 391 of the directive stipulates:

‘Member States which exempt the transactions referred to in Articles … 377 … may grant taxable persons the right to opt for taxation of those transactions.’

6Finally, point 7 of Part B of Annex X to Directive 2006/112 lists ‘transactions carried out by hospitals not covered by point (b) of Article 132(1)’.

Portuguese law

7The exemption provided for in Article 132(1)(b) of Directive 2006/112 has been transposed into Portuguese law by Article 9(2) of the Código do IVA (VAT Code).

8In its version in force until 31 March 2016, Article 12(1)(b) of the VAT Code provided that hospitals, clinics, healthcare centres and other similar establishments which are not owned by entities governed by public law or private bodies which are part of the national health system could waive that exemption. The same provision in the version in force after 31 March 2016 limits the ability of entities governed by private law to waive the exemption to services which do not come under contracts with the State in the context of the health system.

9According to Article 12(3) of the same code, a taxable person chooses its taxation scheme for a period of at least five years.

Facts, procedure and questions referred

10Idealmed III — Serviços de Saúde SA, a company incorporated under Portuguese law (‘Idealmed’), runs five healthcare institutions for profit.

11In its declaration of commencement of activity on 6 January 2012, the company opted for inclusion in the normal VAT taxation scheme.

12As of September 2012, Idealmed concluded a number of agreements with public bodies which operate in several public health subsystems to provide medical services at predefined prices.

13As a result of an inspection, the tax authorities found that from April 2014 to June 2016, a significant part of Idealmed’s activities were carried out under the above agreements. Therefore, the authorities concluded that the company’s activities were subject to the exemption referred to in Article 132(1)(b) of Directive 2006/112 and it was not possible to waive that exemption. As a result, the tax authorities decided, ex officio, to change Idealmed’s tax status as of 1 October 2012, and ordered that wrongly deducted VAT in the amount of EUR 2009 944.90 be paid with interest.

14On 27 June 2017, Idealmed submitted a request for an arbitration tribunal to be set up, seeking a declaration that the above decision was invalid.

15In these circumstances, the Tribunal Arbitral Tributário (Centro de Arbitragem Administrativa — CAAD) (Tax Arbitration Tribunal (Centre for Administrative Arbitration), Portugal) decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:

Does Article 132(1)(b) of [Directive 2006/112] preclude a hospital owned by a company governed by private law, which has concluded agreements for the provision of medical care with the State and with legal persons governed by public law, from being deemed to have started to operate under social conditions comparable with those applicable to bodies governed by public law, as referred to in that provision, where the following conditions are met:

more than 54.5% of revenue, including sums invoiced to the relevant user-beneficiaries, comes from State bodies and public health subsystems, at the prices stipulated in the agreements concluded with them;

more than 69% of users are beneficiaries of public health subsystems or receive services provided within the framework of agreements concluded with State bodies;

more than 71% of medical services are carried out under agreements concluded with public health subsystems and with State bodies; and

the activity carried out is of significant general public interest?

In view of the fact that, in accordance with Article 377 of [Directive 2006/112], Portugal chose to continue to exempt from VAT transactions carried out by hospitals not referred to in Article 132(1)(b) of that directive, that it granted such taxable persons the right to opt for taxation of those transactions under Article 391 of the directive, provided that they continue to be taxed for a minimum period of five years, and that it provides that they may become subject to the exemption scheme again only if they make an express declaration to that effect, does Article 391 and/or the principles of the protection of acquired rights and of legitimate expectations, equality and non-discrimination, neutrality and non-distortion of competition in relation to users and taxable persons which are bodies governed by public law, preclude the taxation and customs authority from imposing the exemption scheme before that period has elapsed, since it considers that the taxable person has started to provide services under social conditions comparable with those applicable to bodies governed by public law?

Do Article 391 of [Directive 2006/112] and/or the abovementioned principles preclude a new law from requiring the application of the exemption scheme to taxable persons who previously opted for the taxation scheme, before the five-year period has elapsed?

Do Article 391 of [Directive 2006/112] and the abovementioned principles preclude legislation in accordance with which a taxable person, who opted for application of the taxation scheme because, at the time when he or she opted for that scheme, he or she was not providing healthcare services under social conditions comparable with those applicable to bodies governed by public law, can continue to be subject to that scheme if he or she starts to provide such services under social conditions comparable with those applicable to bodies governed by public law?’

16The request for a preliminary ruling was lodged at the Court on 26 March 2018. Written observations were submitted by Idealmed, the Portuguese Government and the European Commission. The same interested parties were represented at the hearing on 17 June 2019.

Analysis

17In the present case, the referring court referred four questions to the Court concerning the exemption from VAT of medical services which are provided by private entities but on terms comparable with those on which public bodies providing similar services operate. The first question is of fundamental importance here, and this is where my analysis of the legal problems raised in the present case will begin. The other questions concern more technical issues regarding a Member State’s power to change the status of a taxable person and the point in time at which such a change may take place.

First question referred for a preliminary ruling

18The first question referred for a preliminary ruling concerns the circumstances in which it is deemed that hospital and medical care services provided by a private entity must be regarded as being provided ‘under social conditions comparable to those applicable to bodies governed by public law’ within the meaning of Article 132(1)(b) of Directive 2006/112 and therefore as being subject to the VAT exemption provided for in that provision.

19This question was posed within the framework of proceedings concerning hospitals run by a commercial company which provide part of their medical services under an agreement with bodies belonging to the public health care system. In its question, the referring court draws attention to the proportion of the services provided under the public health system relative to the total value of the services provided by the entity in question. However, I do not believe that this proportion is relevant for the application of the exemption provided for in the aforementioned provision of Directive 2006/112.

20The exemption provided for in Article 132(1)(b) of Directive 2006/112 is designed similarly to the other exemptions provided for in that article, namely, it is based on the fact that both the entity providing the services is VAT-exempt and the services provided are themselves VAT-exempt.

21First, the exemption applies to hospital and medical care services ³ provided by bodies governed by public law. In the provision in question, the conditions under which these services are to be provided are not specified; it is sufficient that they are provided by a body governed by public law.

22Second, the exemption covers hospital and medical care services provided by entities other than bodies governed by public law ‘under social conditions comparable with those applicable to bodies governed by public law’. It should be noted that the requirement that the social conditions must be comparable with those applicable to bodies governed by public law concerns the services which may potentially be exempt rather than the general activities of the entity concerned. Therefore, this exemption is, in the case of entities other than bodies governed by public law, based on the type of services provided: only services provided under social conditions comparable with those applicable to bodies governed by public law are subject to it, whereas other services provided by the same entity are subject to taxation in accordance with the general rules.

23This means that the proportion of the services provided under such comparable conditions relative to the entirety of the services provided by the entity concerned, however measured, is irrelevant to the application of the exemption in question, as the exemption concerns individual services rather than the activity of the entity as such.

24Obviously, this also means that an entity other than a body governed by public law, which provides medical services both under social conditions comparable to those applicable to bodies governed by public law within the meaning of Article 132(1)(b) of Directive 2006/112 and under different conditions, becomes a mixed taxable person, that is, one who carries out both taxable and exempt transactions. This involves additional administrative burdens related to the need to properly account for both output and input VAT. ⁴ However, this is an inevitable consequence of undertaking activities which are exempt from VAT.

25The parties to the main proceedings appear to be engaged in a dispute as to whether the services provided by Idealmed are provided under social conditions comparable to those applicable to bodies governed by public law within the meaning of Article 132(1)(b) of Directive 2006/112. In particular, the company claims that the services it provides under agreements with public bodies do not fall within the scope of the general health insurance system in Portugal, but are instead targeted at a specific group of insured persons (that is, officials) and should rather be compared to a private health insurance system.

26This question concerns the interpretation of national law and the assessment of the facts, and it falls entirely within the jurisdiction of the referring court. However, the provisions of Directive 2006/112 should be interpreted, as far as possible, uniformly throughout the European Union, even if their application requires reference to the system of national law. Therefore, I believe that where an entity provides medical services under a health insurance scheme which is compulsory or is one of the alternative insurance schemes from which the insured person is obliged to choose, and this scheme is intended to satisfy basic medical care needs, there is a significant probability that such services should be regarded as provided under social conditions comparable to those applicable to bodies governed by public law within the meaning of Article 132(1)(b) of Directive 2006/112.

27In its observations in the present case, the Commission also raises the issue of the additional condition contained in the provision in question, namely, that the entity providing the services which are potentially subject to exemption be ‘duly recognised’. However, it appears that this requirement applies to ‘other establishments’, whereas Idealmed operates hospitals. In any event, the Court has already ruled on one occasion that this requirement does not imply the need for any formal recognition of the entity in question as subject to the exemption provided for in the provision in question. ⁵ It appears that the fact that an entity is authorised to provide medical services and provides them under an agreement with bodies belonging to the public health insurance system is fully sufficient to establish that that entity is ‘duly recognised’ within the meaning of Article 132(1)(b) of Directive 2006/112.

28Article 133 of Directive 2006/112 allows Member States to make the exemptions provided for, inter alia, in Article 132(1)(b) of that directive subject to the fulfilment of certain conditions by the taxable person, including, among other things, that the taxable person does not systematically aim to make a profit. However, it is apparent from the file in the present case that Portuguese law does not provide for this condition. Nor does Article 132(1)(b) of Directive 2006/112 itself include this condition, unlike certain other provisions of that directive which introduce VAT exemptions, and according to the case-law of the Court, in the absence of such a condition both in Directive 2006/12 and in national law, the mere pursuit of a profit-making aim does not preclude the application of the exemption provided for in Article 132(1)(b) of that directive. ⁶

29Therefore, the fact that Idealmed provides medical services in order to make a profit does not affect the application of the exemption provided for in Article 132(1)(b) of Directive 2006/112.

30I therefore propose that the answer to the first question referred for a preliminary ruling be that Article 132(1)(b) of Directive 2006/112 must be interpreted as meaning that hospital and medical care services provided by an entity other than a body governed by public law under social conditions comparable to those applicable to bodies governed by public law are subject to the exemption provided for in that provision irrespective of the proportion of such services relative to the entirety of the services provided by that entity. The assessment as to whether the services are provided under social conditions comparable to those applicable to bodies governed by public law falls within the jurisdiction of the national court. When making that assessment, the court should take into account, inter alia, whether those services are provided under a health insurance scheme which is either compulsory or one of the alternative insurance schemes from which an insured person is obliged to choose, and is intended to satisfy their basic medical needs.

Second, third and fourth questions referred for a preliminary ruling

31The second, third and fourth questions referred for a preliminary ruling concern the issue of whether Article 377 of Directive 2006/112, read in conjunction with Article 391 thereof, as well as the principles of the protection of acquired rights and of legitimate expectations, equality and non-discrimination, neutrality and non-distortion of competition, preclude the application to an entity which, pursuant to national laws transposing Article 391 of that directive, opted for a scheme under which its activities were taxed in accordance with the general rules, of the exemption provided for in Article 132(1)(b) of that directive before the end of the period during which it was obliged to remain in the tax scheme of its choice. These questions should be considered together.

32It should be recalled that under Article 377 of Directive 2006/112, the Portuguese Republic may, by way of derogation from the general principles laid down in that directive, continue to exempt, inter alia, medical services not covered by the exemption provided for in Article 132(1)(b) thereof. On the other hand, Article 391 of Directive 2006/112 provides that where this is the case, Member States may grant taxable persons the right to opt for taxation of exempt transactions. Portuguese law provides for that possibility: providers of medical services may choose between exemption or taxation in accordance with the general rules, and this choice is in principle made for a period of at least five years. Idealmed took advantage of this possibility, opting for taxation in accordance with the general rules. However, it emerged that, according to the tax authorities, part of the services provided by that company were provided under social conditions comparable to those applicable to bodies governed by public law within the meaning of Article 132(1)(b) of Directive 2006/112, which results in their being exempt irrespective of the company’s choice of taxation scheme. Hence the second, third and fourth questions of the referring court.

33With regard to these questions, it should first be noted that the right to opt for a taxation scheme provided for in Article 391 of Directive 2006/112 only concerns the exemptions applied by Member States pursuant to the special provisions which are laid down in Articles 370 to 390c of that directive and are derogations from its general principles. Therefore, that right concerns the exemption of transactions which are not exempt under other provisions of the directive in question, for instance, Article 132(1)(b) thereof.

34When it comes to medical services in particular, the exemption which the Portuguese Republic maintains on the basis of the authorisation provided for in Article 377 of Directive 2006/112, together with the taxable person’s right to choose a taxation scheme provided for in Article 391 of that directive, may only apply to services provided by entities other than bodies governed by public law and under social conditions which are not comparable to those applicable to bodies governed by public law. This is clear from the wording of point 7 of Part B of Annex X to Directive 2006/112. On the other hand, as regards services covered by Article 132(1)(b) of Directive 2006/112, that provision provides for a compulsory exemption in the public interest and neither the Portuguese Republic as a Member State nor taxable persons may waive that exemption.

35I would also like to point out that the exemption provided for in Article 132(1)(b) of Directive 2006/112 applies to individual transactions rather than the activity of the entity as such. Therefore, the entity concerned may continue to tax transactions which are not subject to that exemption.

36Therefore, Article 377 of Directive 2006/112, read in conjunction with Article 391 thereof, does not preclude the application to an entity which, pursuant to national laws transposing Article 391 of that directive, opted for a scheme under which its activities were taxed in accordance with the general rules, of the exemption provided for in Article 132(1)(b) of that directive before the end of the period during which it was obliged to remain in the tax scheme of its choice, since services provided on the terms laid down in the latter provision of Directive 2006/112 remain outside the scope of Articles 377 and 391 thereof.

37That conclusion is not called into question by the general principles set out in the questions posed by the referring court.

38As regards the principle of the protection of legitimate expectations, Idealmed submits that the Portuguese legislation according to which it should remain in the taxation scheme of its choice for at least five years gave rise to its legitimate expectation that that system would not be changed by a decision of the tax authorities either.

39However, that expectation is legitimate only in so far as the transactions carried out by that company are subject to the legal regime arising from Article 377 of Directive 2006/112, read in conjunction with Article 391 thereof, since only under this regime does a taxable person have the right to choose the manner in which its transactions are taxed. However, where that taxable person engages in activities which are covered by the compulsory exemption provided for in Article 132(1)(b) of the directive in question, it cannot legitimately expect to continue to exercise its right to choose a taxation scheme under rules which do not provide for such an option. Therefore, the application of the exemption to that taxable person, even before the end of the period during which it was obliged to remain in the taxation scheme of its choice, does not infringe that principle.

40The same applies to the principle of equality and non-discrimination, which in the common system of VAT is reflected by the principle of fiscal neutrality. ⁷ In fact, that principle confirms the conclusions of this opinion, since according to that principle goods or services which are similar from the point of view of the average consumer, and which are accordingly in competition with each other, should not be treated differently for VAT purposes. ⁸ Therefore, if Directive 2006/112 provides for a compulsory exemption of certain services, that exemption should cover all transactions subject thereto irrespective of the choice of taxation scheme previously made by the taxable person.

41In the context of VAT, the principle of fiscal neutrality also means that economic operators do not bear the burden of this tax, since it is passed on in full to the consumer. That result is achieved through the deduction of input tax accrued at earlier stages of marketing. ⁹ However, the system only works if the economic operator itself carries out taxable transactions. On the other hand, if the economic operator carries out exempt transactions, it, like the consumer, becomes the final link from the point of view of the VAT system and loses the right to deduct the input tax accrued at earlier stages, bearing its economic burden as a result.

42Therefore, the principle of fiscal neutrality does not prevent Idealmed from losing its right to deduct the input tax accrued at earlier stages of marketing in respect of services which fall within the exemption under Article 132(1)(b) of Directive 2006/112. However, the company is entitled to a refund, together with interest, of the tax it paid on those services, since that tax must be regarded as having been unduly levied. ¹⁰

43In the light of the foregoing, the answer to the second, third and fourth questions should be that neither Article 377 of Directive 2006/112, read in conjunction with Article 391 thereof, nor the principles of the protection of acquired rights and of legitimate expectations, equality and non-discrimination, neutrality and non-distortion of competition preclude the application to an entity which, pursuant to national laws transposing Article 391 of that directive, opted for a scheme under which its activities were taxed in accordance with the general rules, of the exemption provided for in Article 132(1)(b) of that directive before the end of the period during which it was obliged to remain in the tax scheme of its choice.

Conclusions

44In the light of all the foregoing, I propose that the Court’s answer to the questions referred for a preliminary ruling by the Tribunal Arbitral Tributário (Centro de Arbitragem Administrativa — CAAD) (Tax Arbitration Tribunal (Centre for Administrative Arbitration), Portugal) should be as follows:

Article 132(1)(b) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that hospital and medical care services provided by an entity other than a body governed by public law under social conditions comparable to those applicable to bodies governed by public law are subject to the exemption provided for in that provision irrespective of the proportion of such services relative to the entirety of the services provided by that entity. The assessment as to whether the services are provided under social conditions comparable to those applicable to bodies governed by public law falls within the jurisdiction of the national court. When making that assessment, the court should take into account, inter alia, whether those services are provided under a health insurance scheme which is either compulsory or one of the alternative insurance schemes from which an insured person is obliged to choose, and is intended to satisfy their basic medical needs.

Neither Article 377 of Directive 2006/112, read in conjunction with Article 391 thereof, nor the principles of the protection of acquired rights and of legitimate expectations, equality and non-discrimination, neutrality and non-distortion of competition preclude the application to an entity which, pursuant to national laws transposing Article 391 of that directive, opted for a scheme under which its activities were taxed in accordance with the general rules, of the exemption provided for in Article 132(1)(b) of that directive before the end of the period during which it was obliged to remain in the tax scheme of its choice.

¹ Original language: Polish.

² OJ 2006 L 347, p. 1.

³ And closely related activities.

⁴ Unlike in the case of taxable transactions, a taxable person does not have the right to deduct input tax in respect of exempt transactions.

⁵ Judgment of 6 November 2003, Dornier (C‑45/01, EU:C:2003:595, paragraphs 64 to 67).

⁶ See, by analogy, judgment of 26 May 2005, Kingscrest Associates and Montecello (C‑498/03, EU:C:2005:322, paragraph 40).

⁷ See, in particular, judgment of 10 November 2011, The Rank Group (C‑259/10 and C‑260/10, EU:C:2011:719, paragraph 61).

⁸ See, recently, judgment of 5 September 2019, Regards Photographiques (C‑145/18, EU:C:2019:668, paragraph 36).

⁹ Judgment of 15 November 2012, Zimmermann (C‑174/11, EU:C:2012:716, paragraph 46).

¹⁰ See, in particular, judgment of 19 July 2012, Littlewoods Retail and Others (C‑591/10, EU:C:2012:478, paragraphs 24 to 26).