C-360/11 Commission v Spain

JUDGMENT OF THE COURT (Third Chamber)

17 January 2013 ( *1 )

‛Failure of a Member State to fulfil obligations — Value added tax — Directive 2006/112/EC — Application of a reduced rate — Articles 96 and 98(2) — Points 3 and 4 of Annex III — ‘Pharmaceutical products normally used for health care, prevention of illnesses and as treatment for medical and veterinary purposes’ — ‘Medical equipment, aids and other appliances normally intended to alleviate or treat disability, for the exclusive personal use of the disabled’’

In Case C-360/11,

ACTION for failure to fulfil obligations under Article 258 TFEU, brought on 8 July 2011,

European Commission, represented by L. Lozano Palacios, acting as Agent, with an address for service in Luxembourg,

v

Kingdom of Spain, represented by S. Centeno Huerta, acting as Agent,

THE COURT (Third Chamber),

composed of M. Ilešič (Rapporteur), President of the Chamber, E. Jarašiūnas and A. Ó Caoimh, Judges,

Advocate General: N. Jääskinen,

Registrar: A. Calot Escobar,

after hearing the Opinion of the Advocate General at the sitting on 25 October 2012,

gives the following

Judgment

Legal context and the dispute

1By its application, the European Commission asks the Court to declare that, by applying a reduced rate of value added tax (‘VAT’) to:

medicinal substances which can be used habitually and suitably in the manufacturing of medicinal products;

medical devices, material, equipment and appliances which, viewed objectively, can be used only to prevent, diagnose, treat, alleviate or cure human or animal illnesses or ailments, but which are not normally intended to alleviate or treat disability, for the exclusive personal use of the disabled;

aids and equipment which may be used essentially or primarily to treat physical disabilities in animals;

and, finally, aids and equipment essentially or primarily used to treat human disabilities, but which are not intended for the exclusive personal use of the disabled;

the Kingdom of Spain has failed to fulfil its obligations under Article 98 of Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1), read in conjunction with Annex III to that directive.

Legal context

European Union law

2Article 96 of Directive 2006/112 provides:

‘Member States shall apply a standard rate of VAT, which shall be fixed by each Member State as a percentage of the taxable amount and which shall be the same for the supply of goods and for the supply of services.’

3Article 97(1) of Directive 2006/112 states that, ‘[f]rom 1 January 2006 until 31 December 2010, the standard rate may not be less than 15%’.

4Article 98 of that directive reads as follows:

‘1. Member States may apply either one or two reduced rates.

2. The reduced rates shall apply only to supplies of goods or services in the categories set out in Annex III.

…

3. When applying the reduced rates provided for in paragraph 1 to categories of goods, Member States may use the Combined Nomenclature to establish the precise coverage of the category concerned.’

5Article 99(1) of the directive provides:

‘The reduced rates shall be fixed as a percentage of the taxable amount, which may not be less than 5%.’

6Under the first subparagraph of Article 114(1) of the directive:

‘Member States which, on 1 January 1993, were obliged to increase their standard rate in force at 1 January 1991 by more than 2% may apply a reduced rate lower than the minimum laid down in Article 99 to the supply of goods and services in the categories set out in Annex III.’

7Annex III to Directive 2006/112, entitled ‘List of supply of goods and services to which the reduced rates referred to in Article 98 may be applied’, states in points 3 and 4 as follows:

pharmaceutical products of a kind normally used for health care, prevention of illnesses and as treatment for medical and veterinary purposes, including products used for contraception and sanitary protection;

medical equipment, aids and other appliances normally intended to alleviate or treat disability, for the exclusive personal use of the disabled, including the repair of such goods, and supply of children’s car seats.’

National law

8Paragraphs 1(5) and 1(6) of the first section of Article 91 of Law 37/1992 of 28 December 1992 (BOE No 312 of 29 December 1992, p. 44247), in the version applicable to the facts of the case (‘the Law on VAT’), provides for the application of a reduced rate of VAT of 8% on deliveries and intra-community acquisitions and imports of the following goods:

‘5. Medicaments for veterinary use and medicinal substances which can be used habitually and suitably in the production of medicinal products.

6. Appliances and accessories, including glasses with corrective lenses and contact lenses which, viewed objectively, can be used essentially or primarily to alleviate physical disability in humans and animals, including limitations in their mobility and communicational abilities.

Medical devices, material, equipment and appliances which, viewed objectively, can be used only to prevent, diagnose, treat, alleviate or cure human or animal illnesses or ailments.

Not included in this category are cosmetic products and personal hygiene products excluding sanitary towels, tampons and panty liners.’

9Pursuant to Paragraph 1(3) of the second section of Article 91 of the Law on VAT, the ‘super-reduced’ rate of VAT, laid down in Article 114(1) of Directive 2006/112, which is 4% in the case of the Kingdom of Spain, is applicable to deliveries and intra-community acquisitions and imports of the following goods:

‘Medicaments for human use, as well as medicinal substances, pharmaceutical forms and intermediary products which can be used habitually and suitably in the production of medicinal products.’

Pre-litigation procedure

10By letter of formal notice of 22 March 2010, the Commission informed the Kingdom of Spain that it considered the application of the regime of reduced rates of VAT provided in paragraphs 1(5) and 1(6) of the first section of Article 91 and paragraph 1(3) of the second section of Article 91 of the Law on VAT to be in breach of its obligations under Directive 2006/112.

11In its response of 28 May 2010, the Kingdom of Spain submitted that the application of the reduced rate of VAT to the goods referred to in those provisions of the Law on VAT was permissible under points 3 and 4 of Annex III to Directive 2006/112 and, accordingly, was in conformity with that directive.

12In support of that conclusion, the Kingdom of Spain, first of all, relied on the need to interpret the concept of ‘pharmaceutical products’, within the meaning of point 3 of that Annex III, in accordance with the definition of pharmaceutical products applicable under Spanish law, which includes not only medicinal products, but also medical appliances and devices. Next, it submitted that finished medicinal products, magistral formulas, officinal formulas, active substances and pharmaceutical forms, as defined in national legislation, should be regarded as ‘pharmaceutical products’ within the meaning of point 3 of Annex III. Finally, the Kingdom of Spain submitted that the concept of ‘disabled’ within the meaning of point 4 of Annex III should be understood, in accordance with the relevant guidelines of the World Health Organisation, as referring to any person suffering from an illness resulting from disability.

13The Commission did not consider that response convincing and, on 25 November 2010, issued a reasoned opinion calling on the Kingdom of Spain to take appropriate measures to comply with the reasoned opinion within two months of receipt thereof.

14By letter of 31 January 2011, the Spanish authorities repeated their position that the national provisions in dispute were in conformity with Directive 2006/112.

15Since the Commission was not satisfied with that response, it decided to bring the present action.

The action

Preliminary considerations

16It is appropriate to analyse, at the outset, the line of argument of the Kingdom of Spain that the categories of goods and services referred to in Annex III to Directive 2006/112 are not defined clearly enough to justify the bringing of an action for failure to fulfil obligations and that, consequently, the Commission’s restrictive interpretation of points 3 and 4 of that annex must not be favoured over the other possible interpretations founded, inter alia, on national law.

17According to the Commission, by contrast, the provisions of that annex are sufficiently precise and, pursuant to the principles of uniformity and equality, they must be interpreted autonomously and uniformly at European Union level. Moreover, it submits that the Kingdom of Spain has been sufficiently informed of the extent of its obligations in the reasoned opinion which it sent it.

18It is settled case-law of the Court that provisions which are in the nature of exceptions to a principle must be interpreted strictly (see, inter alia, Case C-399/93 Oude Luttikhuis and Others [1995] ECR I-4515, paragraph 23; Case C-83/99 Commission v Spain [2001] ECR I-445, paragraph 19; and Case C-41/09 Commission v Netherlands [2011] ECR I-831, paragraph 58).

19The Court has also repeatedly held that the need for the uniform application of European Union law and the principle of equality require that the terms of a provision of European Union law which makes no express reference to the law of the Member States for the purpose of determining its meaning and scope must normally be given an autonomous and uniform interpretation throughout the European Union (see Joined Cases C-424/10 and C-425/10 Ziolkowski and Szeja [2011] ECR I-14035, paragraph 32 and the case-law cited).

20It is apparent from the foregoing considerations that, as submitted by the Commission, the provisions of European Union law which authorise a reduced rate of VAT to be applied must – as a possibility granted to the Member States by way of derogation from the principle that the normal rate is to be applied – be interpreted strictly. Moreover, since points 3 and 4 of Annex III to Directive 2006/112 do not expressly refer to the law of the Member States, they must be interpreted autonomously and uniformly throughout the European Union.

21Contrary to what the Kingdom of Spain submits, those findings are not invalidated by the fact that the points at issue list general categories of goods, which it is for the Member States to define subsequently in their national legislation.

22It is sufficient to note, in that regard, as pointed out by the Advocate General in point 25 of his Opinion, that, when specifying the particular categories of goods to which they apply a reduced rate of VAT, the Member States are required to respect the limits of the categories defined in those points, as interpreted by the Court of Justice.

The first complaint, alleging the application of a reduced rate of VAT to medicinal substances which can be used habitually and suitably in the manufacturing of medicinal products

The scope of the first complaint

– Arguments of the parties

23Both in its defence and in its rejoinder, the Kingdom of Spain contests the Commission’s arguments relating to ‘intermediary products’, referred to in paragraph 1(3) of the second section of Article 91 of the Law on VAT.

24In its view, the Commission’s first complaint, as defined in the pre-litigation procedure and in the statement of complaints in the application, concerns only medicinal substances other that those ‘intermediary products’.

25The Commission refutes the assertions made by the Kingdom of Spain in its defence and in its rejoinder in relation to ‘intermediary products’, and confirms that it contests the application of a reduced rate of VAT to those products.

– Findings of the Court

26The Court notes that, under Article 120(c) of the Rules of Procedure of the Court of Justice and the case-law relating to that provision, the application initiating proceedings must state the subject-matter of the dispute and a summary of the pleas in law on which the application is based and that that statement must be sufficiently clear and precise to enable the defendant to prepare its defence and the Court to rule on the application. It is therefore necessary for the essential points of law and of fact on which a case is based to be indicated coherently and intelligibly in the application itself and for the heads of claim to be set out unambiguously so that the Court does not rule ultra petita or indeed fail to rule on a claim (see Case C-343/08 Commission v Czech Republic [2010] ECR I-275, paragraph 26 and the case-law cited).

27In the present case, the Court notes that, although the Commission repeatedly refers to ‘intermediary products’ in its letter of formal notice, in its reasoned opinion and in its application, it does not mention them in its statement of complaints or in its conclusions.

28Consequently, the first complaint of the present action must be understood to the effect that the Commission is complaining that the Kingdom of Spain applied a reduced rate of VAT only to medicinal substances which can be used habitually and suitably in the manufacturing of medicinal products.

Substance

– Arguments of the parties

29By its first complaint, the Commission considers that the application of a reduced rate of VAT to medicinal substances which can be used habitually and suitably in the production of medicinal products, as provided by paragraph 1(5) of the first section of Article 91 and paragraph 1(3) of the second section of Article 91 of the Law on VAT, is contrary to Directive 2006/112.

30In that regard, it submits that point 3 of Annex III to that directive allows Member States to apply a reduced rate of VAT to goods which fulfil two conditions. First, they have to be ‘pharmaceutical products’, and second, those products have to be ‘normally used for health care, prevention of illnesses and as treatment for medical and veterinary purposes’.

31The Commission considers that medicinal substances are not final products and cannot therefore be considered to be ‘normally used for health care, prevention of illnesses and as treatment for medical and veterinary purposes’.

32According to the Commission, that conclusion is corroborated by the consideration that, if the European Union legislature had intended to include, in a point of Annex III to Directive 2006/112, not only finished products but also those used in the production of those products, it would have stated so expressly.

33In addition, the Commission refers to the definitions set out in Directive 2001/83/EC of the European Parliament and of the Council of 6 November 2001 on the Community code relating to medicinal products for human use (OJ 2001 L 311, p. 67). In its view, it is apparent from that directive that magistral and officinal formulas are finished pharmaceutical products, whereas active substances, defined as ‘any substance to be included in a medicinal product’, are not finished products intended for human or animal consumption.

34By contrast, the Kingdom of Spain submits that medicinal substances are ‘pharmaceutical products’ within the meaning of point 3 of Annex III to Directive 2006/112.

35It considers that, in the absence of a definition of the concept of ‘pharmaceutical products’ on the European Union level, the Member States may apply existing definitions in their respective national laws. In various national laws, that concept is largely defined as also including medicinal substances.

36Moreover, the Kingdom of Spain submits that certain medicinal substances may be marketed as finished products, without it being necessary to mix them with other substances.

37In its reply, the Commission admits that, where they are marketed as finished pharmaceutical products, with a view to being used directly by consumers, there is no reason why a reduced rate of VAT should not be applied to medicinal substances. In that regard, it refers to the case-law of the Court, pursuant to which the application of a reduced rate of VAT, in the case of a product which may be put to different uses, is subject, for each supply of goods, to the product being used for its intended purpose by the purchaser (Commission v Netherlands, paragraph 65).

– Findings of the Court

38The parties are in disagreement as to the interpretation to be given to the concept of ‘pharmaceutical products normally used for health care, prevention of illnesses and as treatment for medical and veterinary purposes’ within the meaning of point 3 of Annex III to Directive 2006/112. In particular, the issue is whether that concept may cover medicinal substances used habitually and suitably in the production of medicinal products.

39In that regard, it should be noted, as submitted by the Commission in its application, that point 3 of Annex III allows a reduced rate of VAT to be applied to goods which fulfil two conditions. First, they have to be ‘pharmaceutical products’, and second, those products have to be ‘normally used for health care, prevention of illnesses and as treatment for medical and veterinary purposes’.

40The Commission argues that the concept of ‘pharmaceutical products’ within the meaning of Annex III should be regarded as being comparable to that of ‘medicinal product’ in Article 1 of Directive 2001/83.

41However, the Court notes, as does the Advocate General in points 33 to 35 of his Opinion, that there are significant differences between those two concepts.

42First of all, the majority of the language versions of Directive 2001/83 and Annex III to Directive 2006/112 use different terms in relation to the two concepts. Thus, in the French language version, the concepts of ‘medicinal product’ and ‘pharmaceutical product’ are referred to respectively as ‘médicament’ and ‘produit pharmaceutique’. The same is true, inter alia, of the Spanish (‘medicamento’ and ‘producto farmacéutico’), Lithuanian (‘vaistai’ and ‘farmacijos gaminiai’), Polish (‘produkt leczniczy’ and ‘produkty farmaceutyczne’), Romanian (‘medicament’ and ‘produsele farmaceutice’), Slovenian (‘zdravilo’ and ‘farmacevtski izdelki’) and Swedish (‘läkemedel’ and ‘farmaceutiska produkter’) language versions. Next, it is evident that the objectives pursued by Annex III to Directive 2006/112 differ from those pursued by Directive 2001/83, in so far as the latter seeks to harmonise the conditions for marketing medicinal products for human use. Finally, it is important to note that, whereas Directive 2001/83 applies only to medicinal products for human use, point 3 of Annex III also covers veterinary use.

43In those circumstances, contrary to what the Commission claims, the Court finds that the concept of ‘pharmaceutical products’ within the meaning of point 3 of Annex III, while including the concept of ‘medicinal product’ within the meaning of Directive 2001/83, must be interpreted as having a broader meaning than the latter.

44That interpretation is also in line with the concept of ‘pharmaceutical products’, used in Chapter 30 of the Combined Nomenclature in Annex I to Council Regulation (EEC) No 2658/87 of 23 July 1987 on the tariff and statistical nomenclature and on the Common Customs Tariff (OJ 1987 L 256, p. 1), as amended by Regulation (EU) No 1238/2010 of the European Parliament and of the Council of 15 December 2010 (OJ 2010 L 348, p. 36), which lists as pharmaceutical products not only medicinal products, but also preparations and pharmaceutical articles, such as wadding, gauze, bandages and similar articles.

45In addition, the last sentence of point 3 of Annex III to Directive 2006/112 refers to goods which cannot be included in the concept of ‘medicinal product’ within the meaning of Directive 2001/83, such as ‘products used for contraception and sanitary protection’.

46The fact none the less remains that, to fall within the category referred to in point 3 of Annex III, it is also necessary for goods to be ‘normally used for health care, prevention of illnesses and as treatment for medical and veterinary purposes’.

47The result of those considerations is that point 3 of Annex III concerns only finished goods which may be used directly by final consumers, other than goods which may be used in the production of medicinal products, which normally require further processing.

48That interpretation is corroborated by the purpose of Annex III to Directive 2006/112, which is to render less onerous, and thus more accessible to final consumers – who ultimately bear the VAT – certain goods regarded as being particularly necessary.

49Finally, as the Advocate General stated in point 39 of his Opinion, in cases where a medicinal substance may be marketed as a finished product, without needing to be mixed with other substances, and where, consequently, it is likely to be used directly by final consumers ‘for health care, prevention of illnesses and as treatment for medical and veterinary purposes’, there is no reason why a reduced rate of VAT should not be applied to it.

50In the light of the foregoing, it must be found that point 3 of Annex III to Directive 2006/112 permits a reduced rate of VAT to be applied to medicinal substances only if they are likely to be used directly by final consumers for health care, prevention of illnesses and as treatment for medical and veterinary purposes.

51In those circumstances, it must be held that the Commission’s first complaint is well founded.

The second complaint, alleging the application of a reduced rate of VAT to medical devices, material, equipment and appliances which, viewed objectively, can be used only to prevent, diagnose, treat, alleviate or cure human or animal illnesses or ailments

Arguments of the parties

52The Commission considers that the application of a reduced rate of VAT to medical devices, material, equipment and appliances which, viewed objectively, can be used only to prevent, diagnose, treat, alleviate or cure human or animal illnesses or ailments, provided for in the second subparagraph of paragraph 1(6) of the first section of Article 91 of the Law on VAT, is contrary to Directive 2006/112.

53First, the application, by that provision of national law, of a reduced rate of VAT to medical equipment used for veterinary diagnosis and treatment is not consistent with point 4 of Annex III to Directive 2006/112, which refers only to equipment, aids and appliances for exclusive use by humans.

54Second, in the Commission’s view, point 3 of Annex III is not applicable. The concept of ‘pharmaceutical products’ within the meaning of that provision should be understood as being synonymous with that of ‘medicinal product’ within the meaning of Directive 2001/83. Therefore, those medical devices, material, equipment and appliances for general use cannot fall within the concept of ‘pharmaceutical products’.

55By contrast, the Kingdom of Spain considers that the goods referred to in the second subparagraph of paragraph 1(6) of the first section of Article 91 of the Law on VAT fall within the scope of point 3 of Annex III.

56It contends that the category referred to in point 3 of Annex III includes not only medicinal products, but also medical devices. In support of that interpretation, it submits that Article 168 TFEU refers to both medicinal products and devices for medical usage and that, consequently, the same protection should be granted to those two categories of goods, grouped together under the term ‘pharmaceutical products’.

57In addition, it claims that such an interpretation does not render point 4 of Annex III to Directive 2006/112 meaningless. The medical devices referred to in that point, which are ‘intended to alleviate or treat disability, for the exclusive personal use of the disabled’, are designed for a specific usage. It is thus not contradictory to consider that the concept of ‘pharmaceutical products’ within the meaning of point 3 of Annex III includes not only medicinal products, but also medical devices which are not designed for a specific usage, but which are ‘normally used for health care, prevention of illnesses and as treatment for medical and veterinary purposes’.

Findings of the Court

58The Commission accuses the Kingdom of Spain of having applied a reduced rate of VAT to the category of goods consisting of medical devices, material, equipment and appliances ‘which, viewed objectively, can be used only to prevent, diagnose, treat, alleviate or cure human or animal illnesses or ailments’.

59As submitted by the Commission, point 4 of Annex III to Directive 2006/112 does not authorise a reduced rate of VAT to be applied to that category of goods in so far as, first, it does not cover medical devices, material, equipment and appliances for general use and, second, it relates only to human and not veterinary use.

60Also, in order to assess the validity of the Commission’s second complaint, it needs to be assessed whether the goods referred to in the second subparagraph of paragraph 1(6) of the first section of Article 91 of the Law on VAT may be regarded as ‘pharmaceutical products’ within the meaning of point 3 of Annex III.

61In that regard, the Court notes that, as has been stated in paragraph 43 above, the concept of ‘pharmaceutical products’ within the meaning of point 3 of Annex III, while including the concept of ‘medicinal product’ within the meaning of Directive 2001/83, must be interpreted as having a broader meaning than the latter.

62None the less, the argument of the Kingdom of Spain that the concept of ‘pharmaceutical products’ may cover any medical devices, material, equipment and appliances for general use cannot be upheld.

63Not only must the categories referred to in Annex III to Directive 2006/112 be interpreted strictly, in so far as the European Union law measure at issue is a derogating measure, in accordance with the case-law set out in paragraph 18 above, but the concepts used in that annex must also be interpreted in accordance with the normal sense of the terms at issue. It must be found that, in the light of the normal sense, in everyday language, of the concept of ‘pharmaceutical products’, any device, equipment, appliances or material for medical or veterinary purposes cannot be regarded as falling within that concept.

64That interpretation is corroborated by the general scheme of Annex III to Directive 2006/112 and, in particular, the fact that, in point 4 of that annex, medical devices for specific uses are referred to specifically. As submitted by the Commission, that provision would be rendered meaningless if point 3 of Annex III were to be interpreted as authorising a reduced rate of VAT to be applied to any medical device or appliance, irrespective of the intended usage thereof.

65Moreover, the Court reiterates what it has stated above in paragraph 48, that the aim of applying reduced rates of VAT is, in particular, to lower the cost of certain essential goods for final consumers. However, the cost of devices, appliances, material and medical and veterinary equipment would rarely be borne directly by final consumers, since those products are primarily used by healthcare professionals to provide services which themselves may be exempt from VAT under Article 132 of Directive 2006/112.

66Such an interpretation is not, furthermore, incompatible with Article 168 TFEU. In that regard, suffice it to note that, although it is true that Article 168(4)(c) TFEU refers to medicinal products and devices for medical use, the objective pursued by that provision – to set high standards of quality and safety – differs substantially from that pursued by Annex III to Directive 2006/112, as set out above.

67It is apparent from the foregoing considerations that neither point 4 nor point 3 of Annex III authorises a reduced rate of VAT to be applied to ‘medical devices, material, equipment and appliances used only to prevent, diagnose, treat, alleviate or cure human or animal illnesses or ailments’.

68In those circumstances, the Commission’s second complaint must be regarded as founded.

The third complaint, alleging the application of a reduced rate of VAT to goods used to treat physical disabilities in animals

Arguments of the parties

69The Commission submits that the application of a reduced rate of VAT to goods used to treat physical disabilities in animals, provided for in the first subparagraph of paragraph 1(6) of the first section of Article 91 of the Law on VAT, is contrary to Directive 2006/112. As shown by the arguments raised by the Commission in the context of its first two complaints, neither point 3 of Annex III to Directive 2006/112 – limited to pharmaceutical products stricto sensu – nor point 4 of that annex – limited to human usage of the goods referred to – authorises the application of such a rate to those goods.

70In its defence, the Kingdom of Spain refers to the responses given during the various stages of the pre-litigation procedure, in which it stated, in essence, that point 3 of Annex III included medical and veterinary devices and apparatus.

Findings of the Court

71In order to assess the substance of the Commission’s third complaint, it should be noted, first of all, that, as set out in paragraphs 61 to 67 above, the concept of ‘pharmaceutical products’ within the meaning of point 3 of Annex III to Directive 2006/112 cannot be interpreted as including medical and veterinary apparatus and devices.

72It follows that that provision does not authorise a reduced rate of VAT to be applied to apparatus and accessories which may be used to treat physical disabilities in animals.

73Second, it is clear from the wording of point 4 of Annex III that that provision concerns only medical equipment, aids and other appliances normally intended to alleviate or treat human disabilities. It is well known that the term ‘disabled’, used in the second sentence of that provision, does not refer to animals affected by a physical handicap, but only to persons.

74In addition, as the Commission has rightly submitted, it must be considered that, if the European Union legislature had intended to include veterinary goods in the category of goods set out in point 4 of Annex III, it would have done so expressly, as is the case in point 3 of that annex.

75It follows that neither point 4 of Annex III to Directive 2006/112 nor point 3 thereof authorises a reduced rate of VAT to be applied to apparatus and accessories which may be used to treat physical disabilities in animals.

76In those circumstances, the Commission’s third complaint must be regarded as founded.

Fourth complaint, alleging the application of a reduced rate of VAT to apparatus and accessories essentially or primarily used to treat human disabilities, but which are not intended for the exclusive personal use of the disabled

Arguments of the parties

77The Commission submits that the application of a reduced rate of VAT to apparatus and accessories used essentially or primarily to alleviate physical disability in humans, but which are not intended for the exclusive personal use of the disabled – as provided for in the first subparagraph of paragraph 1(6) of the first section of Article 91 of the Law on VAT – is contrary to Directive 2006/112.

78In that regard, it points out that point 4 of Annex III to Directive 2006/112 authorises the Member States to apply a reduced rate of VAT to goods which fulfil certain conditions. First, those goods must be able to be regarded as ‘medical equipment, aids and other appliances’ and, second, they must ‘normally [be] intended to alleviate or treat disability, for the exclusive personal use of the disabled’.

79Consequently, point 4 does not include medical equipment for general use, but only that intended for ‘the exclusive personal use of the disabled’. That interpretation is also corroborated by the guidelines adopted within the VAT committee.

80In the light of those considerations, the Commission takes the view that, in so far as the Law on VAT applies a reduced rate of VAT to apparatus and accessories ‘used essentially or primarily to alleviate disability’, its scope goes beyond what is authorised under Directive 2006/112.

81In addition, the Commission considers that, in its response to the letter of formal notice, the Kingdom of Spain gave an excessively broad meaning to the concept of ‘disabled’, considering that concept to be synonymous with ‘illness’.

82The Kingdom of Spain contests the interpretation of the concept of ‘disabled’ proposed by the Commission. It contends that, in the absence of a uniform definition at the European Union level of that concept, it is necessary to apply the most recent concepts established by the World Health Organisation. Applying those concepts, it would be necessary to regard as a disabled person, any person incapacitated by an illness. Such a definition would also make it possible to consider persons affected by illnesses such as AIDS, cancer and renal insufficiency to be disabled persons, which would thus prevent persons with such illnesses from enduring the discrimination to which they might be subject. That interpretation cannot be different simply because the present case concerns a tax issue.

83The Kingdom of Spain contends, moreover, that it is difficult to differentiate between medical devices so as to determine those which are and are not used for disabled persons, illustrating once again the difficulties in basing a failure to fulfil obligations on the provisions of Annex III to Directive 2006/112 by reason of their lack of precision. Finally, it reiterates that the guidelines of the VAT committee, to which the Commission refers in its application, are not binding.

Findings of the Court

84In order to address the Commission’s fourth complaint, it is necessary to determine whether point 4 of Annex III to Directive 2006/112 may be applied to apparatus and accessories which are not intended for the exclusive personal use of the disabled, but which are used essentially or primarily to alleviate their disabilities.

85In that regard, the Court finds that it is apparent from the very meaning of the words ‘personal’ and ‘exclusive’ in point 4 of Annex III that that point does not relate to devices for general use.

86Thus, the objective, referred to above in paragraph 48, of reducing the cost for final consumers of certain essential goods does not justify the application of a reduced rate of VAT to medical devices for general use which are used in hospitals and by health-care professionals.

87That conclusion is not called into question by the Kingdom of Spain’s argument that certain devices and apparatus may be used both generally and for the exclusive personal use of the disabled. In that regard, it is sufficient to note that the Court has held that the application of a reduced rate of VAT, in the case of a product which may be put to different uses, is subject, for each supply of goods, to the product being used for its intended purpose by the purchaser (see, by analogy, Commission v Netherlands, paragraph 65).

88It follows that a reduced rate of VAT – under point 4 of Annex III to Directive 2006/112 – may not be applied to apparatus and accessories used essentially or primarily to alleviate physical disability in humans, but which are not intended for the exclusive personal use of the disabled.

89In those circumstances, the fourth complaint must be regarded as founded and, consequently, the Commission’s action must be upheld.

90In the light of all of the foregoing considerations, the Court finds that, by applying a reduced rate of VAT to

medicinal substances which can be used habitually and suitably in the manufacturing of medicinal products;

medical devices, material, equipment and appliances which, viewed objectively, can be used only to prevent, diagnose, treat, alleviate or cure human or animal illnesses or ailments, but which are not normally intended to alleviate or treat disability, for the exclusive personal use of the disabled;

aids and equipment which may be used essentially or primarily to treat physical disabilities in animals;

and, finally, to aids and equipment essentially or primarily used to treat human disabilities, but which are not intended for the exclusive personal use of the disabled,

the Kingdom of Spain has failed to fulfil its obligations under Article 98 of Directive 2006/112, read in conjunction with Annex III thereto.

Costs

91Under Article 138(1) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. Since the Commission has applied for costs and the Kingdom of Spain has been unsuccessful, the latter must be ordered to pay the costs.

Operative part

On those grounds, the Court (Third Chamber) hereby:

Declares that, by applying a reduced rate of value added tax to

medicinal substances which can be used habitually and suitably in the manufacturing of medicinal products;

medical devices, material, equipment and appliances which, viewed objectively, can be used only to prevent, diagnose, treat, alleviate or cure human or animal illnesses or ailments, but which are not normally intended to alleviate or treat disability, for the exclusive personal use of the disabled;

aids and equipment which may be used essentially or primarily to treat physical disabilities in animals;

and, finally, to aids and equipment essentially or primarily used to treat human disabilities, but which are not intended for the exclusive personal use of the disabled,

the Kingdom of Spain has failed to fulfil its obligations under Article 98 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, read in conjunction with Annex III thereto;

Signatures

Orders the Kingdom of Spain to pay the costs.

[Signatures]

( *1 ) Language of the case: Spanish.

OPINION OF ADVOCATE GENERAL

JÄÄSKINEN

delivered on 25 October 2012 ¹

‛Failure of a Member State to fulfil obligations — Directive 2006/112/EC — Points 3 and 4 of Annex III — Reduced rate of VAT — Supply of goods to which reduced rates can be applied — Pharmaceutical products normally used for health care, prevention of illnesses and as treatment for medical and veterinary purposes — Medical equipment, aids and other appliances normally intended to alleviate or treat disability, for the exclusive personal use of the disabled’

I – Introduction

Introduction

1Under European Union (‘EU’) law on value added tax (VAT), Member States may apply a reduced rate of VAT to pharmaceutical products and certain medical devices. The Commission has brought the present infringement action against the Kingdom of Spain as it considers that the Member State has applied a reduced VAT rate on broader categories of goods than what is provided for in points 3 and 4 of Annex III to Council Directive 2006/112/EC on the common system of value added tax (‘the VAT Directive’). ²

2The Kingdom of Spain contends that the action should be dismissed. It considers that the categories of goods and services in Annex III to the VAT Directive are not defined clearly enough to merit an infringement action.

II – Legal framework

EU law

3Article 96 of the VAT Directive provides that:

‘Member States shall apply a standard rate of VAT, which shall be fixed by each Member State as a percentage of the taxable amount and which shall be the same for the supply of goods and for the supply of services.’

4Article 98 of the VAT Directive under section 2 titled ‘reduced rates’ provides that:

‘1. Member States may apply either one or two reduced rates.

2. The reduced rates shall apply only to supplies of goods or services in the categories set out in Annex III.

…’

5Point 3 of Annex III to the VAT Directive (‘category 3’) covers the supply of the following goods:

‘pharmaceutical products of a kind normally used for health care, prevention of illnesses and as treatment for medical and veterinary purposes, including products used for contraception and sanitary protection’.

6Point 4 of Annex III to the VAT Directive (‘category 4’) covers the supply of the following goods and services:

‘medical equipment, aids and other appliances normally intended to alleviate or treat disability, for the exclusive personal use of the disabled, including the repair of such goods, and supply of children’s car seats’.

National law

7Paragraphs 1(5) and 1(6) of the first section of Article 91 of the Ley española del IVA (Spanish Law on VAT) ³ provides for the application of a reduced rate of VAT on supply of the following goods:

‘5. Medicaments for veterinary use and medicinal substances which can be used habitually and suitably in the production of medicinal products.

6. Appliances and accessories, including glasses with corrective lenses and contact lenses, which viewed objectively, can be used essentially or primarily to alleviate physical disability in humans and animals, including limitations in their mobility and communicational abilities.

Medical devices, material, equipment and appliances which, viewed objectively, can be used only to prevent, diagnose, treat, alleviate or cure human or animal illnesses or ailments.

Not included in this category are cosmetic products and personal hygiene products excluding sanitary towels, tampons and panty liners.’

8Paragraph 1(3) of the second section of Article 91 of the Ley española del IVA provides for the application of a reduced rate of VAT on the supply of the following goods:

‘Medicaments for human use, as well as medicinal substances, pharmaceutical forms and intermediary products which can be used habitually and suitably in the production of medicinal products.’

III – Pre-litigation procedure

9By letter of 22 March 2010, the Commission informed the Kingdom of Spain that it considered the regime of reduced rates of VAT provided in paragraphs 1(5) and 1(6) of the first section of Article 91 and paragraph 1(3) of the second section of Article 91 of the Spanish Law on VAT to be in breach of the obligations of the Kingdom of Spain under the VAT Directive.

10The Kingdom of Spain responded on 28 May 2010 that it considered the Spanish provisions on reduced rates of VAT to be in conformity with the VAT Directive.

11The Commission did not consider the arguments provided by the Kingdom of Spain sufficient and on 25 November 2010 issued a reasoned opinion, requesting the Kingdom of Spain to take appropriate action within a deadline.

12Since the Kingdom of Spain maintained its position in its reply to the reasoned opinion that the Spanish provisions concerning goods to which reduced rates of VAT are applied are in conformity with EU law, the Commission decided to bring the present action.

IV – Procedure before the Court

13By its application of 8 July 2011, the European Commission asks the Court to declare that the Kingdom of Spain has failed to fulfil its obligations under Article 98 of the VAT Directive in conjunction with Annex III thereto by applying a reduced rate of VAT to the following categories of goods:

Medicinal substances which can be used habitually and suitably in the manufacturing of medicinal products (paragraph 1(5) of the first section of Article 91 and paragraph 1(3) of the second section of Article 91 of the Spanish Law on VAT).

Medical devices, material, equipment and appliances which, viewed objectively, can be used only to prevent, diagnose, treat, alleviate or cure human or animal illnesses or ailments, but which are not ‘normally intended to alleviate or treat disability, for the exclusive personal use of the disabled’ (paragraph 1(6) of the first section of Article 91 of the Spanish law on VAT).

Aids and equipment which may be used essentially or primarily to treat physical disabilities in animals (paragraph 1(6) of the first section of Article 91 of the Spanish law on VAT).

Aids and equipment essentially or primarily used to treat human disabilities, but which are not intended for the exclusive personal use of ‘the disabled’; the common understanding of this term is to be assumed, that is as being different from and more restrictive than the term ‘the sick’ (first part of paragraph 1(6) of the first section of Article 91 of the Spanish Law on VAT).

14The Commission also asks that the Kingdom of Spain is ordered to pay the costs.

V – Admissibility

15Without raising a formal complaint of inadmissibility, the Kingdom of Spain pointed out in its reply to the Commission’s application that the Commission had in its application effectively included an additional complaint concerning the application of a reduced VAT rate to ‘intermediary products’ without having introduced this grievance in the pre-litigation procedure.

16Since no formal complaint of inadmissibility has been raised, I intend to analyse the Commission’s complaints as they have been presented in the application to the Court. Moreover, I find that the inclusion or exclusion of the term intermediary product within the scope of this infringement action makes no difference to the outcome of the action.

VI – Assessment

A – Preliminary observations

17At the outset it is necessary to recall that the common VAT system of the European Union ‘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’. ⁴ It is settled case-law of the Court that the introduction and maintenance of reduced rates of VAT are permissible only if they do not infringe the principle of fiscal neutrality. ⁵

18It should also be noted at the outset that the reduced VAT rate regime is an exception to the general rule that the standard rate of VAT applies. According to settled case-law of the Court, provisions which are in the nature of exceptions to a principle must be interpreted strictly and that applies also in the case of reduced rates of VAT. ⁶

19Taking into account these considerations, it should be recalled that the more supplies of goods and services are subject to a lower VAT rate or exempted from VAT altogether, the more important it becomes to define clearly the groups of goods and services to which a reduced rate of VAT or an exemption is applied. A reduced rate of VAT may be applied only to the supply of goods and services covered by the categories listed in Annex III to the VAT Directive. Since these are of the nature of exceptions, their scope is to be interpreted strictly.

20The Kingdom of Spain does not contest the Commission’s proposition that categories 3 and 4 should be interpreted strictly, but rather argues that because the expressions used in these provisions have not been defined in EU legislation, it is not clear which products are covered by them. This, according to the Kingdom of Spain, has necessitated their interpretation based on national health legislation.

21It should also be borne in mind that it follows from the need for uniform application of EU law and from the principle of equality that the terms of a provision of EU law which makes no express reference to the law of the Member States for the purpose of determining its meaning and scope must normally be given an autonomous and uniform interpretation throughout the European Union, having regard to the context of the provision and the objective pursued by the legislation in question. ⁷

22The expressions used in categories 3 and 4 form a part of EU law provisions which do not refer to the law of the Member States for the determining of their meaning and scope. ⁸ However, taking into account that the socio-political goals of the reduced VAT rate system cannot be attained without taking into consideration the particular circumstances in individual Member States, the tying of definitions used in national systems of reduced VAT rate to provisions of other national legislation may as such be justified and even reasonable, provided that these definitions do not extend the scope of provisions of the VAT Directive forming an exception to the general system.

23In this context it should be recalled that it was not the intention of the regime of reduced VAT rates to completely curb the discretion of Member States in determining the goods and services to which a reduced rate of VAT would be applied. This is at least partially due to the impracticality and inefficiency of attempting to provide detailed lists of goods and services on EU level.

24This intention is indeed evident in a report reviewing the scope of Annex H to the Sixth VAT Directive, ⁹ in which the Commission outlined the historical context of the categories listed in the annex as follows:

‘Instead of endless discussions about what should or should not be included in a category, it only became necessary for the Council to agree on the broad outline of a general definition for each category at Community level (i.e. essentially to decide what fell outside the scope of a category). Subject to respecting this general definition (by not enlarging the scope of a category) each Member State was subsequently free to use, in its implementing legislation, its own definition for categories depending on what particular group of products or services it wished to tax at the reduced rate.’ ¹⁰

25Therefore it should be concluded that the fact that the scope and meaning of categories 3 and 4 on the EU level should be interpreted strictly, taking into consideration the wording, context and the purpose of the provisions, ¹¹ does not preclude Member States from determining the individual products for which a reduced rate of VAT is applied, as long as these are within the scope of categories 3 and 4.

26I will discuss the scope of categories 3 and 4 in the order of the grounds for the present infringement action presented by the Commission.

B – First complaint: medicinal substances which can be used habitually and suitably in the manufacturing of medicinal products

27Under the first ground for the infringement action, the Commission considers that the application of a reduced rate of VAT to medicinal substances which can be used habitually and suitably in the production of medicine as provided by paragraph 1(5) of the first section of Article 91 and paragraph 1(3) of the second section of Article 91 of the Spanish Law on VAT is precluded by the VAT Directive.

28According to the Commission, category 3 allows Member States to apply a reduced rate of VAT to goods which fulfil two conditions. First, they have to be ‘pharmaceutical products’, and second, these products have to be ‘normally used for health care, prevention of illnesses and as treatment for medical and veterinary purposes’.

29The Commission claims that medicinal substances are not covered by category 3 because they are not final products and cannot therefore be considered to be ‘normally used for health care, prevention of illnesses and as treatment for medical and veterinary purposes’. The Commission argues that where the EU legislature has intended categories in Annex III to the VAT Directive to cover also substances used in the production of goods, this has been expressly stated. For example, category 1 of Annex III includes, in addition to ‘foodstuffs’, also ‘live animals, seeds, plants and ingredients normally intended for use in the preparation of foodstuffs’.

30The Kingdom of Spain claims that medicinal substances are pharmaceutical products in the sense of category 3. The Kingdom of Spain argues that in the absence of a definition on the level of EU law, it is justified to have had resorted to a definition in national law. The concept of medicinal substance used in the Spanish Law on VAT originates from a Spanish law (Law 25/1990) that has since been repealed. According to the Spanish authorities, this concept differs from the concept of raw materials [materias primas] used in the current law (Law 29/2006), and to the supply of which a reduced rate of VAT does not apply.

31I agree with the Commission’s interpretation of the criteria for goods to which a reduced rate of VAT can be applied under category 3. The first question is therefore whether medicinal substances habitually and suitably used in the manufacturing of medicinal products are pharmaceutical products.

32The Commission suggests that the concept of pharmaceutical product should be likened to medicinal product defined in Article 1 of Directive 2001/83/EC of the European Parliament and of the Council of 6 November 2001 on the Community code relating to medicinal products for human use ¹² as follows:

‘Any substance or combination of substances presented for treating or preventing disease in human beings.

Any substance or combination of substances which may be administered to human beings with a view to making a medical diagnosis or to restoring, correcting or modifying physiological functions in human beings is likewise considered a medicinal product.’

33Most language versions use different expressions in category 3 and in Article 1 of Directive 2001/83. ¹³ The Commission points out that in the German versions, however, the term ‘Arzneimittel’ is used in both provisions. This is indeed a narrower term than ‘pharmaceutical product’, but it seems to be an exception to the more general trend of using differing expressions.

34In my view it is clear that medicinal products are pharmaceutical products, but I am doubtful whether it is appropriate to assume that the opposite is also true as the Commission posits. The two directives pursue rather different objectives, and without an express reference to a definition in another directive, I would refrain from establishing a connection between them.

35Moreover, the definition of medicinal product in Article 1 of Directive 2001/83 ties the concept to the medical care of human beings. For its part, the concept pharmaceutical product in category 3 covers also veterinary use. It seems to me that the expression pharmaceutical product used in category 3 is intended to be broader than the term medicinal product as it is defined in Directive 2001/83.

36The second criterion of the products being ‘normally used for health care, prevention of illnesses and as treatment for medical and veterinary purposes’ is in my opinion the decisive one in determining whether category 3 precludes the application of a reduced rate of VAT to medicinal substances which can be used habitually and suitably in the production of medicinal products.

37The wording of category 3 ties the definition of the concept of a pharmaceutical product to its usage. It indicates that pharmaceutical products have reached a certain stage in their manufacturing process at which point they can be used ‘for health care, prevention of illnesses and as treatment for medical and veterinary purposes’. This mature stage also reflects the objectives of the reduced VAT rate regime.

38The objective of value added tax is to tax goods destined for personal consumption, and as such it comes to burden the final consumer. ¹⁴ The purpose of the reduced VAT rate regime is to ease the impact of VAT on final consumers in relation to goods deemed as necessities, such as pharmaceutical products and medical equipment for the disabled. ¹⁵

39It seems to me clear that medicinal substances used in the manufacturing of pharmaceutical products cannot be sold to final customers as such, but only as components of the final product. However, to the extent that such medicinal substances also are ‘normally used for health care, prevention of illnesses and as treatment for medical and veterinary purposes’ and placed on the market for consumers to buy, there is no reason why a reduced rate of VAT could not be applied to them.

40It is also clear that if a reduced rate of VAT is applied to pharmaceutical products it is applied to them regardless of their pharmaceutical, or dosage form. Fiscal neutrality requires that similar goods in competition with each other are subject to a uniform rate in order to eliminate distortion in competition. Mere difference in the physical form in which the goods are sold, for example pills or liquid form, cannot as such justify different VAT treatment.

41It seems to me therefore clear that the application of a reduced rate of VAT to medicinal substances habitually and suitably used in the manufacturing of medicinal products cannot be considered to comply with the VAT Directive, unless they are ‘normally used for health care, prevention of illnesses and as treatment for medical and veterinary purposes’ and placed on the market for consumers to buy.

42I therefore conclude that the Commission’s first complaint must be upheld.

C – Second complaint: medical devices, material, equipment and appliances used only to prevent, diagnose, treat, alleviate or cure human or animal illnesses or ailments

43With the second ground of the infringement action, the Commission considers that the application of a reduced rate of VAT on medical devices, material, equipment and appliances which, viewed objectively, can be used only to prevent, diagnose, treat, alleviate or cure human or animal illnesses or ailments, but which are not ‘normally intended to alleviate or treat disability, for the exclusive personal use of the disabled’ provided for in paragraph 1(6) of the first section of Article 91 of the Spanish law on VAT is not in line with the VAT Directive because such goods are not covered by categories 3 and 4.

44As concerns category 4, the Commission’s argument is two-fold. First, medical equipment used for veterinary purposes is not covered by category 4 which refers to medical equipment, aids and appliances for the exclusive use by humans. Second, category 4 refers to exclusive personal use, thus excluding general use.

45The Kingdom of Spain claims that the expression pharmaceutical product used in category 3 covers also medical devices because Article 168 TFEU has grouped the terms medicinal product and devices for medical use under the same objective in the protection of public health, indicating that the protection given to one should also cover the other. ¹⁶ According to the Kingdom of Spain this interpretation does not render category 4 meaningless because it refers to a very specific usage of medical devices not covered by the term pharmaceutical product used in category 3. The inclusion under category 3 of medical devices not intended for this specific usage, but which are ‘normally used for health care, prevention of illnesses and as treatment for medical and veterinary purposes’ is therefore in their opinion not a contradictory conclusion.

46The broad interpretation of pharmaceutical products adopted by the Kingdom of Spain has lead the Spanish tax authority (Dirección General de Tributos, ‘the DGT’) to apply a VAT rate of 8 per cent to, for example, appliances for measuring blood pressure, thermometers, acupuncture needles and materials, and gloves, masks, gowns and caps for medical use.

47To start with, I must agree with the Commission in that Article 168 TFEU is not relevant in this context as the provision refers only to the quality and security of medicinal products and medical devices.

48As to the Kingdom of Spain’s argument of pharmaceutical products covering medical devices beyond those referred to in category 4, it seems to me that the wording and structure of categories 3 and 4 is self-evident. If indeed pharmaceutical products were intended to cover medical devices beyond what is referred to in category 4, it would have been simpler just to have one category covering all ‘pharmaceutical products’, including also the specific use indicated in category 4, and not two separate more defined categories.

49Most language versions of the VAT Directive use a word deriving from the Latin pharmaceuticus, denoting ‘of drugs’ in category 3. Hence, the relevant factor determining the goods falling under this category is the chemical or biochemical ¹⁷ constitution of the goods, not solely the purpose of their usage to prevent, diagnose, treat or alleviate illnesses.

50The wording of category 4 attributes the following criteria to medical equipment to which a reduced rate of VAT can be applied: such goods have to be ‘for the exclusive personal use of the disabled’. Two observations can be made of this wording: first, category 4 refers to medical devices used exclusively by humans, with no mention of veterinary use. Second, the application of a reduced rate of VAT to medical devices is reserved for ‘exclusive personal use’, excluding general use.

51It can be assumed that had the legislator intended to include also medical equipment for veterinary use, as is the case with pharmaceutical products in category 3, this would have been expressly included in category 4. It is therefore obvious that the application of a reduced rate of VAT to medical devices, material, equipment and appliances used to diagnose and treat illnesses in animals is not in line with the VAT Directive.

52It appears equally obvious from the wording of category 4 that it excludes general use of medical equipment, aids or appliances used in health care to prevent or diagnose illnesses by, for example, doctors and nurses, in hospitals or clinics. Any general use of pharmaceutical products, even if the term were interpreted broadly as the Kingdom of Spain suggests, would be excluded from the application of a reduced rate of VAT. There does not seem to be variation in the requirement for personal use of the equipment in the different language versions. ¹⁸

53As I have noted above, the objective of the exception of reduced rates of VAT is a socio-political one, intended to ease the VAT burden on individuals in regard to goods considered as necessities. It is not consistent with this objective to apply a reduced rate of VAT on goods which are used by professionals in the provision of medical care, the supply of which, for its part, can be exempted from VAT according to Article 132 of the VAT Directive.

54Therefore, I am of the opinion that the application of a reduced rate of VAT to the supply of medical devices, material, equipment and appliances which, viewed objectively, can be used only to prevent, diagnose, treat, alleviate or cure human or animal illnesses or ailments, but which are not ‘normally intended to alleviate or treat disability, for the exclusive personal use of the disabled’ is not covered by the scope of categories 3 and 4.

55I therefore conclude that the Commission’s second complaint must be upheld.

D – Third complaint: aids and equipment which may be used essentially or primarily to treat physical disabilities in animals

56The Commission’s third ground for the infringement action concerns the application of a reduced rate of VAT on aids and equipment which may be used essentially or primarily to treat physical disabilities in animals. This, according to the Commission, is not in line with category 4 because the provision makes no reference to animals. Neither, argues the Commission, is the Spanish provision covered by category 3 because such goods are not pharmaceutical products.

57The Kingdom of Spain argues that medical and veterinary devices are pharmaceutical products in the sense intended in category 3.

58The wording of category 4 covering medical equipment, aids and other appliances does not make any reference to veterinary use of such devices. As category 3 expressly mentions veterinary use, it can be concluded that had the EU legislator intended to include equipment for alleviating and treating animal disabilities, it would have worded category 4 in accordance with this intention.

59Taking into account furthermore that veterinary medicine has been distinguished from human medicine also in other areas of the VAT regime, ¹⁹ I must conclude that the application of a reduced rate of VAT to aids and equipment which may be used essentially or primarily to treat physical disabilities in animals does not comply with the VAT Directive.

60I therefore conclude that the Commission’s third complaint must be upheld.

E – Fourth complaint: aids and equipment essentially or primarily used to treat human disabilities, but which are not intended for the exclusive personal use of ‘the disabled’

61As the fourth ground, the Commission considers that the application of a reduced rate of VAT on medical aids and equipment used essentially or primarily to alleviate physical disability in humans, but which are not intended for the exclusive personal use of ‘the disabled’ is not in line with the VAT Directive because category 4 does not cover medical equipment intended for general use. The Commission also claims that the Spanish interpretation of the term ‘disabled’ is too broad, being in practice synonymous with ‘ill’.

62The Kingdom of Spain argues that in the absence of an EU law definition of the term ‘disabled’, it has defined ‘disabled’ in accordance with terminology used by the World Health Organisation (WHO). This, according to the Kingdom of Spain, leads to an interpretation, also in the field of taxation, that the term ‘disabled’ indicates all persons incapacitated by an illness.

63It is clear from the wording of category 4 that the reduced VAT rates regime is intended for medical equipment which is for the exclusive use of disabled people, and that this use has to be personal, i.e. not general as discussed above. Two questions arise from this: first, how is the term ‘disabled’ to be understood in the VAT regime of the European Union, and second, does ‘exclusive use’ cover also the use referred to in the first part of paragraph 1(6) of the first section of Article 91 of the Spanish Law on VAT.

64Concerning the interpretation of the term disabled used in category 4, I find that in the absence of an express definition of the term in the context of VAT, one can refer to the definition given in the UN Convention on the Rights of Persons with Disabilities, to which the European Union is party: ²⁰‘[p]ersons with disabilities include those who have long-term physical, mental, intellectual or sensory impairments which in interaction with various barriers may hinder their full and effective participation in society on an equal basis with others’. ²¹

65As this suggests, an essential part of the definition of disabled is an impairment which hinders an individual’s normal functioning in society in the long-term. In my opinion the cause of the impairment is not relevant, the term ‘disabled’ used in category 4 being broad enough to include also disabilities stemming from serious or chronic illness, without it being synonymous with ‘ill’ or ‘sick’. ²²

66The scope of category 4 is further limited by the requirement that a reduced rate of VAT can be applied only to medical equipment, aids and appliances that are for the exclusive personal use of the disabled. This excludes general use of goods which, although used to alleviate or treat physical disability are used in hospitals, health centres, clinics or other institutions taking care of the disabled. This also excludes goods that are needed by the disabled, but have also other uses.

67Certain goods may be intended both for the use of the disabled and for other purposes. The Court has considered that the purpose of a supply of a good may indeed indicate whether a reduced rate of VAT can be applied or not. ²³ In the context of the present proceedings however, it would be impossible in practice to ensure that only the disabled, clearly intended to be the beneficiaries of a reduced VAT rate scheme, would benefit from the reduced VAT rate.

68The VAT Committee has stated in its guidelines that ‘Member States may apply a reduced VAT rate to products specifically designed for disabled people (medical equipment, aids and other similar appliances) which are normally purchased or used only by (permanently or temporarily) disabled people to alleviate or treat their complaints. Products normally used for other purposes (e.g. cordless telephones) are excluded by the provision, as are also medical equipment and aids designed for general use and not specifically for disabled people (e.g. x-ray equipment)’. ²⁴

69The Commission recently proposed to include in category 4 equipment or apparatus specially designed or adapted for the disabled (e.g., Braille keyboards, specially adapted cars, etc.) that are not eligible for the reduced rate even though they reply to the same needs, ²⁵ but these changes were not included in Directive 2009/47/EC amending the VAT Directive. ²⁶

70In this context it should be recalled that there are methods other than reduced VAT rates available to Member States wishing to ease the financial burden of the disabled in need of equipment that can be used also for other purposes.

71Consequently, I am of the opinion that the scope of category 4 excludes the application of a reduced rate of VAT to goods used essentially or primarily by the disabled.

72I therefore conclude that the Commission’s fourth complaint must be upheld.

VII – Conclusion

73In light of these considerations, I propose that the Court should:

Declare that, by applying a reduced rate of VAT to the following categories of goods, the Kingdom of Spain has failed to fulfil its obligations under Article 98 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, in conjunction with Annex III thereto:

medicinal substances which can be used habitually and suitably in the manufacturing of medicinal products;

medical devices, material, equipment and appliances which, viewed objectively, can be used only to prevent, diagnose, treat, alleviate or cure human or animal illnesses or ailments, but which are not ‘normally intended to alleviate or treat disability, for the exclusive personal use of the disabled’;

aids and equipment which may be used essentially or primarily to treat physical disabilities in animals;

aids and equipment essentially or primarily used to treat human disabilities, but which are not intended for the exclusive personal use of the disabled.

Order the Kingdom of Spain to pay the costs.

¹ Original language: English.

² OJ 2006 L 347, p. 1.

³ Law 37/1992.

⁴ See recital 7 of the VAT Directive.

⁵ See Case C-442/05 Zweckverband zur Trinkwasserversorgung und Abwasserbeseitigung Torgau-Westelbien [2008] ECR I-1817, paragraph 42 and case-law cited.

⁶ See Case C-83/99 Commission v Spain [2001] ECR I-445, paragraph 19 and case-law cited, and more recently Case C-3/09 Erotic Center [2010] ECR I-2361, paragraph 15.

⁷ See, for example, Case C-174/08 NCC Construction Danmark [2009] ECR I-10567, paragraph 24 and case-law cited.

⁸ According to Article 100 of the VAT Directive, it is for the Council, based on a report from the Commission, to review the scope of the reduced rates every two years and alter the list of goods and services set out in Annex III if necessary.

⁹ 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 (‘the Sixth VAT Directive’), OJ 1977 L 145, p. 1. Annex H to the Sixth VAT Directive was transferred to Annex III to the recast VAT Directive with no changes to the wording of points 3 and 4.

¹⁰ See Report from the Commission to the Council in accordance with Articles 12(4) and 28(2)(g) of the Sixth Council Directive of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, COM(94) 584 final, p. 14.

¹¹ See NCC Construction Danmark, paragraph 23 and case-law cited.

¹² OJ 2001 L 311, p. 67.

¹³ For example, in English ‘pharmaceutical product’ and ‘medicinal product’, in French ‘les produits pharmaceutiques’ and ‘médicament’, Italian ‘prodotti farmaceutici’ and ‘medicinale’.

¹⁴ See, for example, Case C-520/10 Lebara [2012] ECR, paragraph 24 and case-law cited.

¹⁵ See, for example, Case C-481/98 Commission v France [2001] ECR I-3369, paragraph 32.

¹⁶ Article 168(4)(c) TFEU lists ‘measures setting high standards of quality and safety for medicinal products and devices for medical use’ as subject for the achievement of the objectives set in Article 168.

¹⁷ I recall that in substitution treatment of diseases such as hypothyroidism and insulin dependent diabetes, hormones of animal origin were used before the developments in biotechnology allowed the synthetic production of human hormones.

¹⁸ For example, the Spanish version of point 4 of Annex III uses the term ‘uso personal y exclusivo’.

¹⁹ In Case 122/87 Commission v Italy [1988] ECR 2685 the Court stated that services provided by veterinary surgeons could not be exempted from VAT although the provision of medical care in the exercise of the medical and paramedical professions were exempted.

²⁰ Council Decision of 26 November 2009 concerning the conclusion, by the European Community, of the United Nations Convention on the Rights of Persons with Disabilities (2010/48/EC) (OJ 2010 L 23, p. 35).

²¹ The Convention on the Rights of Persons with Disabilities, United Nations Treaty Series, vol. 2515, p. 3.

²² See also, by analogy, Case C-13/05 Chacón Navas [2006] ECR I-6467, paragraph 44, in which the Court concludes that the concepts ‘disability’ and ‘sickness’ cannot be treated as being the same in the context of Council Directive 2000/78/EC of 27 November 2000 establishing a general framework for equal treatment in employment and occupation (OJ 2000 L 303, p. 16).

²³ See Case C-41/09 Commission v Netherlands [2011] ECR I-831, paragraph 57, in which the Court found that supplies of horses for slaughter in order to be used in the preparation of foodstuffs may be subject to a reduced rate of VAT although supplies of horses in general could not.

²⁴ See VAT Committee guidelines, guidelines resulting from the 54th meeting of 16-18 February 1998, available at: http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/key_documents/vat_committee/2012_guidelines-vat-committee-meetings_en.pdf.

²⁵ COM(2008) 428 final.

²⁶ OJ 2009 L 116, p. 18.