C-394/04 Ygeia

JUDGMENT OF THE COURT (Third Chamber)

Legal context and the dispute

1 December 2005 *

In Joined Cases C-394/04 and C-395/04,

REFERENCES for a preliminary ruling under Article 234 EC from the Simvoulio tis Epikratias (Greece), made by decisions of 16 June 2004, received at the Court on 17 September 2004, in the proceedings

Diagnostiko & Therapeftiko Kentro Athinon-Ygeia AE

v

Ipourgos Ikonomikon,

THE COURT (Third Chamber),

composed of A. Rosas, President of the Chamber, J.-P. Puissochet, S. von Bahr, U. Lõhmus and A. Ó Caoimh (Rapporteur), Judges,

* Language of the case: Greek.

Advocate General: P. Léger,

Registrar: L. Hewlett, Principal Administrator,

having regard to the written procedure and further to the hearing on 29 June 2005,

after considering the observations submitted on behalf of:

— Diagnostiko & Therapeftiko Kentro Athinon-Ygeia AE, by K. Karlis, dikigoros,

— the Greek Government, by E.-M. Mamouna, S. Trekli and V. Kiriazopoulos, acting as Agents,

— the German Government, by W.-D. Plessing and A. Tiemann, acting as Agents,

— the Cypriot Government, by A. Miltiadou-Omirou, acting as Agent,

— the Commission of the European Communities, by D. Triantafyllou, acting as Agent,

after hearing the Opinion of the Advocate General at the sitting on 15 September 2005, gives the following

Judgment

1These references for a preliminary ruling concern the interpretation of Article 13A (1)(b) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1, 'the Sixth Directive').

2These references were made in the course of proceedings between Diagnostiko & Therapeftiko Kentro Athinon-Ygeia AE ('Ygeia'), a legal person governed by private law whose objects are the provision of hospital and medical care, and Ipourgos Ikonomikon (Minister for Economic Affairs), concerning the refusal of Dimosia Ikonomiki Ipiresia Forologias Anonimon Emporikon Etairion Athinon (State Financial Service for the Taxation of Public Limited Trading Companies, Athens) to exempt from value added tax ('VAT'), as activities closely related to hospital and medical care, the provision of telephone services and the hiring out of televisions to in-patients and the provision of beds and meals to persons accompanying them. Law

Community legislation

3Article 13A(l)(b) of the Sixth Directive provides:

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

(b) 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'.

4Article 13A(2)(b) of that directive provides:

(b) The supply of services or goods shall not be granted exemption as provided for in (1)(b), (g), (h), (i), (1), (m) and (n) above if:

— it is not essential to the transactions exempted,

— its basic purpose is to obtain additional income for the organisation by carrying out transactions which are in direct competition with those of commercial enterprises liable for value added tax.'

National legislation

5Article 18(l)(d) of Law No 1642/1986 on the application of value added tax and other provisions (FEK (Official Gazette), A' 125) provides:

'The following shall be exempt from tax:

(d) hospital and medical care services and closely related supplies of goods and services, provided by persons operating lawfully. Services supplied in establishments offering spa therapy and medicinal springs shall be placed on the same footing as those services'.

The main proceedings and the question referred for a preliminary ruling

6Following an audit of Ygeia's accounts for the taxation periods corresponding to the years 1992 and 1993, the Dimosia Ikonomiki Ipiresia Forologias Anonimon Emporikon Etairion Athinon considered that the income earned by this company from, firstly, the provision of telephone services and the hiring out of televisions to in-patients and, secondly, the provision of beds and meals to persons accompanying them should be subject to VAT on the ground that those services could not be considered to be activities closely related to hospital and medical care. Consequently, it adjusted the company's tax liability by two separate decisions relating to each of the two years at issue.

7Ygeia brought applications against those decisions before the Diikitiko Protodikio Athinon (Administrative Court of First Instance, Athens), then, on appeal, before the Diikitiko Efetio Athinon (Administrative Appeal Court, Athens). In support of those applications, Ygeia claimed that the services at issue contribute to patient care and to maintenance of patients' social contacts and, consequently, help to hasten their recovery by creating favourable conditions from a psychological point of view. These applications were dismissed on the ground that since the services at issue are intended to facilitate patients' hospital stays and do not contribute to their care, they cannot be considered closely related to hospital care.

8Ygeia appealed to the Simvoulio tis Epikratias (Council of State) against the judgments given by the Diikitiko Efetio Athinon.

9In its orders for reference the Simvoulio tis Epikratias states that it is common ground that Ygeia, as a legal person governed by private law, satisfies the conditions for exemption from VAT as regards hospital and medical care and closely related activities. According to it, the only issue to be examined relates to whether the services at issue fall within the concept of 'activities closely related' to hospital and medical care.

10The referring court points out that that concept is not defined in Article 13A(1) of the Sixth Directive. It notes, however, that, on the basis of the conditions laid down in Article 13A(2)(b) of that directive, it could be considered that a transaction is closely related to hospital and medical care where, firstly, it is essential to the transactions exempted and, secondly, its purpose is not to obtain additional income for the person carrying out the exempted transactions. It adds, moreover, that, in its judgment in Case C-45/01 Dornier [2003] ECR I-12911, paragraphs 33 to 35, the Court held that the question as to whether an activity falls within the concept of 'closely related activities' depends on whether it is ancillary in nature. That means that it must be determined whether the service is provided to the recipients as a means of enhancing the enjoyment of other services or constitutes for them an end in itself.

11In those circumstances, the Simvoulio tis Epikratias decided, in the action relating to the tax period corresponding to the year 1992, to stay proceedings and to refer to the Court for a preliminary ruling the following question (Case C-394/04):

'Do services supplied by persons referred to in Article 13A(1)(b) of [the Sixth Directive] comprising the grant of use of a telephone and a television to patients and the provision of food and a bed to persons accompanying patients come under activities closely related to hospital and medical care, within the meaning of that provision, as activities ancillary to that care but also essential to it?'

12In relation to the tax period corresponding to the year 1993, the Simvoulio tis Epikratias decided to stay the proceedings before it until the Court had replied to the question cited above (Case C-395/04).

13By order of the President of the Court of 14 October 2004, Cases C-394/04 and C-395/04 were joined for the purposes of the written and oral procedure and of the judgment.

Consideration of the question

14By its question, the referring court essentially asks whether the supply of telephone services and the hiring out of televisions to in-patients by a medical establishment referred to in Article 13A(1)(b) of the Sixth Directive and the supply by that establishment of beds and meals to persons accompanying in-patients amount to activities closely related to hospital and medical care within the meaning of that provision.

15It should be noted at the outset that, according to the Court's case-law, the terms used to specify the exemptions provided for by Article 13 of the Sixth Directive are to be interpreted strictly, since they constitute exceptions to the general principle that VAT is to be levied on all services supplied for consideration by a taxable person (Case C-287/00 Commission v Germany [2002] ECR I-5811, paragraph 43, and Case C-498/03 Kingscrest Associates and Montecello [2005] ECR I-4427, paragraph 29). Those exemptions constitute independent concepts of Community law whose purpose is to avoid divergences in the application of the VAT system from one Member State to another (Case C-349/96 CPP [1999] ECR I-973, paragraph 15, and Case C-240/99 Skandia [2001] ECR I-1951, paragraph 23).

16Moreover, the aim of Article 13A of the Sixth Directive is to exempt from VAT certain activities which are in the public interest. That provision does not, however, provide exemption from VAT for every activity performed in the public interest, but only for those which are listed therein and described in great detail (see, inter alia, Case C-149/97 Institute of the Motor Industry [1998] ECR 1-7053, paragraph 18, and Case C-8/01 Taksatorringen [2003] ECR I-13711, paragraph 60).

17As the Court has already stated, Article 13A(l)(b) of the Sixth Directive does not include any definition of the concept of 'activities closely related' to hospital and medical care (Case C-76/99 Commission v France [2001] ECR I-249, paragraph 22). None the less, it is apparent from the very terms of that provision that it does not envisage services which are unrelated to hospital care for the patients receiving those services or to any medical care which they might receive (Dornier, cited above, paragraph 33).

18Accordingly, services fall within the concept of an 'activity closely related' to hospital or medical care appearing in Article 13A(1)(b) of that directive only when they are actually supplied as a service ancillary to the hospital or medical care received by the patients in question and constituting the principal service (Dornier, paragraph 35).

19It is apparent from the case-law that a service can be considered to be ancillary to a principal service where it constitutes not an end in itself but a means of enhancing the enjoyment or benefit of the principal service supplied by the provider (see, to this effect, in particular, Joined Cases C-308/96 and C-94/97 Madgett and Baldwin [1998] ECR I-6229, paragraph 24, and Dornier, paragraph 34).

20In that regard, Ygeia maintains that the provision of accommodation and food to persons accompanying in-patients, which has the effect of assisting the in-patients from a psychological point of view and helping them where, by reason of their health, they would no longer be able to perform on their own the tasks of everyday life, facilitates their recovery while reducing the workload on auxiliary hospital staff. Telephone services provided to in-patients and the hiring out to them of televisions enable them to remain in contact with the outside world, which puts them in a psychological state facilitating a faster recovery, thereby reducing the final cost of hospitalisation. It follows, according to Ygeia, that the relevant criterion in order to determine whether or not such services come within the concept of 'activities closely related' to hospital and medical care is the intention of the patient himself who has sought to benefit from those services as he judged them to be necessary to his recovery.

21That proposition cannot be upheld.

22For the purpose of determining whether services such as those at issue in the main proceedings amount to a means of enhancing the benefit of hospital and medical care dispensed by Ygeia, it is appropriate, as maintained by all of the governments of the Member States which have submitted observations and the Commission of the European Communities, to take into account the purpose for which those services are carried out (see, in this regard, Commission v France, cited above, paragraph 24).

23The exemption of activities closely related to hospital and medical care provided for in Article 13A(1)(b) of the Sixth Directive is designed to ensure that access to such care is not prevented by the increased costs of providing it that would follow if it, or closely related activities, were subject to VAT (Commission v France, paragraph 23).

24The hospital and medical care envisaged by this provision is, according to the case-law, that which has as its purpose the diagnosis, treatment and, in so far as possible, cure of diseases or health disorders (Dornier, paragraph 48).

25Accordingly, taking account of the objective pursued by the exemption provided for in Article 13A(1)(b) of the Sixth Directive, it follows that only the supply of services which are logically part of the provision of hospital and medical-care services, and which constitute an indispensable stage in the process of the supply of those services to achieve their therapeutic objectives, is capable of amounting to 'closely related activities' within the meaning of that provision. Only such services are of a nature to influence the cost of health care which is made accessible to individuals by the exemption in question.

26That finding is confirmed, as is correctly maintained by those governments that submitted observations, by the first indent of Article 13A(2)(b) of that directive, according to which the Member States are not to exempt the supply of services envisaged, inter alia, in Article 13A(1)(b) if they are not essential to the transactions exempted. As the Advocate General noted at points 30 to 32 of his Opinion, that provision, which is binding on the Member States, lays down conditions which must be taken into account for the interpretation of the various exemptions referred to VGEIA

therein, which, like that provided for in Article 13A(1)(b), relate to the supply of services or goods which are 'closely related' or 'closely linked' to an activity in the public interest.

27In addition, at paragraphs 48 and 49 of the judgment in Commission v Germany, cited above, the Court held, in relation to the exemption provided for in Article 13A (l)(i) of the Sixth Directive concerning the supply of services 'closely related' to university education, that the carrying out of research projects for consideration, even though it may be regarded as of great assistance to university education, is not essential to attain its objective, that is, in particular, the teaching of students to enable them to pursue a professional activity, and that, accordingly, it could not benefit from that exemption.

28Taking into account the objective of the exemption provided for in Article 13A( 1)(b) of that directive and having regard to the wording of Article 13A(2)(b), those findings are equally valid, as the Advocate General has essentially noted in point 35 of his Opinion, for the interpretation of the concept of 'an activity closely related' to hospital and medical care featuring in the first of those provisions.

29It follows that the provision of services which, like those at issue in the main proceedings, are of such a nature as to improve the comfort and well-being of in patients, do not, as a general rule, qualify for the exemption provided for in Article 13A(1)(b) of the Sixth Directive. It can be otherwise only if those services are essential to achieve the therapeutic objectives pursued by the hospital services and medical care in connection with which they have been supplied.

30It falls to the referring court, taking account of all of the specific facts in the litigation before it and, if appropriate, of the content of the medical prescriptions drawn up for the patients concerned, to determine whether or not the services supplied are essential in nature.

31Those findings are not affected by the arguments relied on by Ygeia, according to which the concept of 'activities closely related' to hospital and medical care featuring in Article 13A(1)(b) of the Sixth Directive does not, taking account of the objective of the exemption, call for an especially narrow interpretation (Commission v France, paragraph 23). As is already clear from paragraph 25 of the present judgment, subjecting services which are not of an ancillary character to VAT does not have the effect of increasing the cost of the hospital and medical care the accessibility of which this provision seeks to ensure for individuals, since those services are not essential to achieve the therapeutic objectives pursued by that care (see, to this effect, Case C-307/01 D'Ambrumenil and Dispute Resolution Services [2003] ECR I-13989, paragraph 59).

32Moreover, as observed by the Advocate General at point 47 of his Opinion, the imposition of VAT on such services respects the principle of fiscal neutrality, which precludes, in particular, treating similar supplies of services, which are thus in competition with each other, differently for VAT purposes (Case C-109/02 Commission v Germany [2003] ECR I-12691, paragraph 20).

33Contrary to Ygeia's submission and as correctly claimed by the German Government, when a medical establishment provides services such as the services at issue, it is in competition with taxable persons who provide services of the same nature, such as providers of telephone and television services as regards services of this nature offered to in-patients and hotels and restaurants as regards the provision of accommodation for people accompanying them.

VGEIA

34Thus, in conformity with the second indent of Article 13A(2)(b) of the Sixth Directive, services such as those at issue in the main proceedings are also not to be granted exemption as provided for in Article 13A(1)(b) of the directive if their basis purpose is to obtain additional income for the person who provides them, a matter which is for the referring court to verify on the basis of the specific facts of the litigation before it.

35Consequently, the answer to the question asked must be that the supply of telephone services and the hiring out of televisions to in-patients by persons covered by Article 13A(1)(b) of the Sixth Directive and the supply by those persons of beds and meals to people accompanying in-patients do not amount, as a general rule, to activities closely related to hospital and medical care within the meaning of that provision. It can be otherwise only if those supplies are essential to achieve the therapeutic objectives sought by the hospital and medical care and their basic purpose is not to obtain additional income for the supplier by carrying out transactions which are in direct competition with those of commercial enterprises liable for VAT.

It is for the referring court, taking account of all of the specific facts in the litigation before it and, if appropriate, of the content of the medical prescriptions drawn up for the patients concerned, to determine whether the services supplied satisfy those conditions.

Costs

Costs

36Since these proceedings are, for the parties to the main actions, a step in the actions 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 (Third Chamber) hereby rules:

1. The supply of telephone services and the hiring out of televisions to in patients by persons covered by Article 13A(1)(b) of 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, and the supply by those persons of beds and meals to people accompanying in-patients do not amount, as a general rule, to activities closely related to hospital and medical care within the meaning of that provision. It can be otherwise only if those supplies are essential to achieve the therapeutic objectives sought by the hospital and medical care and their basic purpose is not to obtain additional income for the supplier by carrying out transactions which are in direct competition with those of commercial enterprises liable for value added tax.

2. It is for the referring court, taking account of all of the specific facts in the litigation before it and, if appropriate, of the content of the medical prescriptions drawn up for the patients concerned, to determine whether the services supplied satisfy those conditions.

[Signatures]

OPINION OF ADVOCATE GENERAL

LÉGER delivered on 15 September 2005 1

Introduction

1These two requests for a preliminary ruling, which have been submitted to the Court by the Simvoulio tis Epikratias (Council of State) (Greece), concern the interpretation of the concept of 'activities closely related' to hospital and medical care, which appears in Article 13A(1)(b) of Sixth Council Directive 77/388/EEC. 2

2The question asked by the national court concerns whether the supply of telephone services and a television set by a hospital to an in-patient and the supply of meals and a bed by the hospital to persons accompanying the in-patient may be considered to be activities closely related to hospital and medical care and therefore exempt from 3 value added tax pursuant to that provision.

1 — Original language: French.

2 — Council Directive of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1, 'the Sixth Directive'). 3 — 'VAT'.

I — The legal context

A — Community law

3The object of the Sixth Directive is to establish a system of VAT common to all the Member States. For this purpose, first, it defines taxable transactions uniformly. 4 Accordingly Article 2(1) provides that the supply of goods or services effected for consideration by a taxable person acting as such is to be subject to VAT. Under Article 4, any person who independently carries out in any place any economic activity, such as that of a person supplying services, whatever the purpose or results of that activity, is deemed to be a taxable person.

4Secondly, Title X of the Sixth Directive contains a common list of exemptions in order, according to the 11th recital in the

4 — See Case C-305/01 MKG-Kraftfahrzeuge-Factoring [2003] ECR I-6729, paragraph 38, and Case C-25/03 HE [2005] ECR I-3123, paragraph 36.

VGEIA preamble to the Directive, that the Communities' own resources may be collected in a uniform manner in all the Member States.

5Article 13A of the Sixth Directive lists the exemptions in favour of certain activities in the public interest. Article 13A(1) is worded as follows:

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

(b) 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;

6Article 13A(2)(a) of the Sixth Directive provides that the Member States may make the granting to bodies other than those governed by public law of the exemption provided for in Article 13A(1)(b) subject in each individual case to one or more conditions specified therein.

7Article 13A(2)(b) reads as follows:

'The supply of services or goods shall not be granted exemption as provided for in (1)(b), (g), (h), (i), (1), (m) and (n) above if:

— it is not essential to the transactions exempted,

— its basic purpose is to obtain additional income for the organisation by carrying out transactions which are in direct competition with those of commercial enterprises liable for value added tax.'

B — National law

8Article 18(1) of Law No 1642/1986 on the application of value added tax and other provisions (FEK, A' 125) provides as follows:

'1. The following shall be exempt from tax:

(d) hospital and medical care services and closely related supplies of goods and services, provided by persons operating lawfully. Services supplied in establishments offering spa therapy and medicinal springs shall be placed on the same footing as those services.

5

…'

5 — See the order for reference, pp. 3-4 of the English version.

II — Facts

9Diagnostiko & Therapeftiko Kentro Athi-6 non-Ygeia AE is a legal person governed by private law which has the object of providing hospital and medical care services.

10Following an audit of Ygeia's accounts for the 1992 and 1993 tax years, the competent administrative authority found that Ygeia's income from the provision, first, of telephone services and television sets for in-patients and, second, of meals and beds for persons accompanying them should be subject to VAT. Consequently the authority adjusted Ygeia's tax liability for the two years in question.

11The actions brought by Ygeia against the authority's decisions were dismissed by the Diikitiko Protodikio (Administrative Court of First Instance) and by the Diikitiko Efetio (Administrative Appeal Court), both of which held that the services cannot by nature be regarded as closely related to hospital and medical care because they are intended to

6 — 'Ygeia'.

facilitate patients' hospital stays and do not contribute to their care.

12Ygeia appealed against the judgments of the Diikitiko Efetio.

III — The question referred

13The referring court states that it is common ground that Ygeia, as a legal person governed by private law, satisfies the conditions for exemption from the tax in question in relation to the hospital and medical care which it provides. According to the court, the only question that arises is whether the services in question constitute 'activities closely related' to such care.

14The referring court observes that this concept is not defined in Article 13A(1) of the Sixth Directive and that, in the judgment in Commission v France, 7 the Court held that the concept does not call for an

7 — Case C-76/99 (21)01] ECR I-249. paragraph 23.

especially narrow interpretation since the exemption of such activities is designed to ensure that hospital and medical care and related activities do not become inaccessible by reason of the increased cost that would follow if they were subject to VAT.

15The referring court also mentions the 8 judgment in Dornier; in which the Court held that the question of whether an activity falls within the concept of 'closely related activities' depends on whether or not it is ancillary in nature, that is to say, whether the service is provided to the recipients as a means of enhancing the enjoyment of other services or constitutes for them an end in itself. The referring court considers that, from this point of view, the services in question could be classified as ancillary to the care provided by Ygeia, but that this classification is not sufficient for them to be categorised as activities closely related to hospital and medical care.

16On this point, the referring court adds that, according to the first criterion set out in Article 13A(2)(b) of the Sixth Directive, in order to be deemed closely related to hospital and medical care, an activity must be essential. As an example of applying this test, the referring court cites the judgment in 9 Commission v Germany, where the Court held that the concept of a supply of services

8 - Case C-45/01 [2003] ECR [-12911.

9 - Case C-287/00 [2002] ECR I-5811, paragraphs 31 and 18. 'closely related' to university education covers the supply of services or of goods directly necessary for education. The Court concluded that, on the basis of that test, the activities in question could not be exempted from VAT.

17In the light of these considerations, the Simvoulio tis Epikratias decided to stay proceedings and to refer the following question to the Court for a preliminary ruling:

'Do services supplied by persons referred to in Article 13A(1)(b) of Directive 77/388/EEC comprising the grant of use of a telephone and a television to patients and the provision of food and a bed to persons accompanying patients come under activities closely related to hospital and medical care, within the meaning of that provision, as activities ancillary to that care but also essential to it?'

IV — Discussion

18In essence, the referring court asks whether Article 13A(1)(b) of the Sixth Directive must be interpreted as meaning that the supply by a hospital of telephone services and a television set to an in-patient and the supply by it of meals and a bed to persons accompanying the in-patient constitute activities closely related to hospital and medical care within the meaning of that provision.

19This question arises because the supply of telephone services and a television set, and that of meals and sleeping accommodation, are, in principle, transactions subject to VAT where they are effected for consideration by a taxable person. It is also normal, in the common system of VAT, for one and the same person to be able to carry out transactions exempt from VAT and to make taxable supplies. 10

20The referring court's question seeks therefore to establish whether the services in question amount, by nature, to activities closely related to hospital and medical care

10 — Where a taxpayer uses goods and services for both exempt and taxed activities, Articles 17(5) and 19 of the Sixth Directive lay down how he is to deduct input VAT paid in respect of the pursuit of his taxed activities.

VGEIA and whether they must therefore always be exempt from VAT pursuant to Article 13A (1)(b) of the Sixth Directive.

21Ygeia proposes that the reply to this question be in the affirmative. It considers, first, that the conditions set out in Article 13A(2)(b) of the Sixth Directive are not necessarily relevant for defining the concept of 'activities closely related' to hospital and medical care. According to Ygeia, the conditions in question may be conditions to which the Member States may make the exemption at issue subject in relation to service providers other than legal persons governed by public law.

22Secondly, Ygeia considers that the services in question are not, for patients, an end in themselves, but are a means of maximising the benefit from hospital and medical care. Therefore, according to Ygeia, those services are indeed ancillary to hospital care and must be treated for VAT purposes in the same way as hospital care. Ygeia also refers to the fact that, in Greece, it is customary for members of the patient's family to accompany the patient and in that way to assist the hospital staff. Their presence puts the patient in a better psychological state and thus contributes to recovery. The same applies to the provision of telephone services and a television set because it enables the patient to remain in contact with the outside world. It follows, according to Ygeia, that the relevant test for determining whether such services are 'activities closely related' to hospital and medical care is the will of the patient himself who has asked to receive those services because he considers them necessary for his recovery.

23Finally, Ygeia observes that, as the services in question were provided only on the hospital premises, they are not in competition with similar services offered by other undertakings liable for VAT.

24I do not agree with this analysis. I consider, together with the Hellenic Republic, the Federal Republic of Germany, the Republic of Cyprus and the Commission of the European Communities, that, as the relevant Community law stands at present, none of the services in question can be regarded as an activity which is, by nature, 'closely related' to hospital and medical care.

25However, unlike those Member States, I think that none of those services is to be systematically refused exemption from VAT. In my opinion, they must be exempted from VAT where it is found that they are essential for the treatment of the in-patient and the only relevant criterion which, in reality, appears capable of being used for determining whether they are actually necessary is a doctor's prescription. I base this position on, first, Article 13A of the Sixth Directive and, secondly, the purpose underlying the exemption of hospital and medical care in a hospital from VAT.

26First of all, with regard to Article 13A, as the referring court observes and as the Court 11 has found, it does not define what is covered by the concept of 'activities closely related' to hospital and medical care. I likewise find no indication in the wording of Article 13A(1)(b) as to whether one or other of the services at issue is covered by the concept.

27As the Commission points out, it may be inferred from the wording of that provision that it refers to services provided by the hospital staff because it covers services provided by 'bodies governed by public law or, under social conditions comparable to those applicable to bodies governed by public law, by hospitals'. However, I do not share the Commission's opinion that it is also clear from the wording of that provision that 'closely related activities' can consist only of

11 — See Commission v France, cited above, paragraph 22. services supplied to the patient himself. In my view, a literal interpretation of Article 13A(1)(b) shows that the concept of 'activities closely related' to hospital and medical care covers all services provided by a hospital which have a close connection with the hospital and medical treatment of the 12 patient.

28Therefore it cannot be inferred from the wording of Article 13A(1)(b) of the Sixth Directive that services provided by a hospital to a close relative of the patient, such as meals and a bed, may not be exempted.

29On the other hand, Article 13A(2)(b) of the Sixth Directive offers some guidance as to the reply to be given to the question under consideration. According to that provision, the supply of goods or services is not to be granted exemption as provided for, inter alia, in Article 13A(l)(b) if, first, it is not essential to the transactions exempted or, second, its basic purpose is to obtain additional income for the organisation by carrying out transac-

12 — See. to that effect, Case 353/85 Commission v United Kingdom [1988] ECR 817, paragraph 32, and Dornier, cited above, paragraph 33.

tions which are in direct competition with those of commercial enterprises liable for VAT.

30Although the Court did not refer to Article 13A(2)(b) in the judgment in Commission v France, cited above, in which it ruled on the interpretation to be given to 'activities closely related' to hospital and medical care, I consider, like the referring court and the abovementioned Member States, that this provision is relevant to that interpretation. It is clear from its wording that it requires the Member States to fulfil two obligations in relation to each of the individual exemptions expressly mentioned, that is to say, those set out in Article 13A(1) (b), (g), (h), (i), (1), (m) and (n). It may also be noted that each of those individual exemptions relates to supplies of services or goods which are 'closely related' or 'closely linked' to an activity in the public interest. 13

31Contrary to Ygeia's hypothesis, Article 13A(2)(b) of the Sixth Directive does not therefore lay down additional conditions which would apply only in the particular

13 — For example, Article 13A(1)(g) exempts the supply of services and of goods 'closely linked' to welfare and social security work, Article 13A(1)(h) exempts the supply of services and of goods 'closely linked' to the protection of children and young persons, and Article 13A(1)(i) exempts children's or young people's education, school or university education and vocational training or retraining, including the supply of services and of goods 'closely related' thereto, and so forth.

situation where a Member State decides to extend the exemption to service providers other than legal persons governed by public law. If that were the case, there is every reason for thinking that those conditions would appear not in a separate point, but following the conditions set out in Article 13A(2)(a), which gives Member States the 14 right to extend the exemption. It is also clear from the wording of Article 13A(2)(b) that the two conditions which it contains are mandatory for the Member States, unlike those in Article 13A(2)(a), which are optional.

32In view of the content of Article 13A(2) (b), the conditions which it sets out must be taken into account for interpreting the terms of the various individual exemptions to

14 — Article 13A(2)(a) is worded as follows:'Member States may make the granting to bodies other than those governed by public law of each exemption provided for in (1)(b), (g), (h), (i), (I), (m) and (n) of this Article subject in each individual case to one or more of the following conditions:

— they shall not systematically aim to make a profit, but any profits nevertheless arising shall not be distributed, but shall be assigned to the continuance or improvement of the services supplied, — they shall be managed and administered on an essentially voluntary basis by persons who have no direct or indirect interest, either themselves or through intermediaries, in the results of the activities concerned, — they shall charge prices 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 value added tax, — exemption of the services concerned shall not be likely to create distortions of competition such as to place at a disadvantage commercial enterprises liable to value added tax.'

which it refers, that is to say, the exemptions in Article 13A(1)(b), (g), (h), (i), (1), (m) and (n).

33This analysis of the purport of Article 13A(2)(b) is confirmed by the judgment in Commission v Germany, cited above, where the Court ruled on the question of whether research activities carried out for consideration by higher education establishments could be exempted from VAT under Article 13A(1)(i) of the Sixth Directive.

34In those proceedings, the German Government contended that research is a service closely related to education in public higher education establishments, on the ground that because they need research in order to succeed in their teaching as it allows them to develop and convey new knowledge. The Court did not accept this analysis and found that, although research may be regarded as 'of great assistance to university education, it is not essential to attain its objective, that is, in particular, the teaching of students to enable them to pursue a professional activ-15 ity'.

15 — See paragraph 48. The Court also justified this conclusion on the ground that 'many universities achieve this aim without carrying out research projects for consideration and there are other ways to ensure a link between university education and professional life'.

35This requirement, which was taken into account by the Court when interpreting the concept of 'activities closely related' to university education, as provided for in Article 13A(1)(i), also applies, in light of the content of Article 13A(2)(b), for the purpose of interpreting the concept of 'activities closely related' to hospital and medical care, referred to in Article 13A(1)(b).

36It follows that, as the law stands at present, under the first condition in Article 13A(2)(b) of the Sixth Directive it is not sufficient in order for the services provided in a hospital to be exempt from VAT that they be potentially or actually of assistance in the patient's recovery. In accordance with that provision, only activities which are essential to hospital and medical care are activities closely related to it.

37If we look at the services in question, none of them appears to be capable of being regarded as essential or necessary for hospital or medical care generally, that is to say, whoever the in-patient may be and whatever the reasons for his hospital treatment. Although it can hardly be denied that each of them may help more or less to improve the conditions of a hospital stay and, consequently, may assist recovery, it seems to me that the contribution to the healing process varies considerably, depending on the individual and the reasons for his being in hospital. For example, the situation seems to differ greatly according to whether the patient is a small child or an adult and whether the reason for hospitalisation is a minor surgical operation, necessitating a short stay, or treatment of a serious illness threatening the patient's life and justifying a lengthy stay in hospital.

38Therefore I do not think that the services in question can be regarded, by nature, as 'closely related' to hospital and medical care. They seem to differ clearly, for example, from the activity before the Court in Commissionv v France, cited above, which the Court found to be 'closely related' to a VAT-exempt medical analysis.

39In that case, the Court had to consider French legislation which required certain biological analyses to be carried out only by specialised laboratories. The legislation also required the specialised laboratory that carried out the analysis to pay a fee, for transmission of the sample, to the laboratory which took the sample from the patient. The Commission's objection to this legislation was that, unlike the cost of the analysis and of the taking of the sample, the cost of transmission was subject to VAT. The Court accepted the Commission's argument in this regard and held that the transmission of the sample was an activity closely related to the VAT-exempt analysis because transmission logically took place between the act of taking 16 the sample and the analysis.

40I also agree with the Commission that none of the services in question can be equated with providing the patient himself with meals and a bed, which does indeed appear to be, by nature, closely related to hospital treatment. It follows that none of the services in question can be systematically exempted from VAT pursuant to Article 13A (1)(b) of the Sixth Directive.

41This analysis seems to me to be confirmed, secondly, by the purpose of the exemption provided for by that provision. As the Court has held, the exemption is intended to ensure that medical and hospital care does not become inaccessible by reason of the increased costs of providing it that would follow if it, or closely related activities, 7 were subject to VAT. 1 According to the case-law, it is a question of exempting from VAT services which are provided in estáb 16 — See paragraph 24.

17 — See Commission v France, cited above, paragraph 23. .má Dormer, paragraph 43.

lishments pursuing social purposes such as the safeguarding of human health and which have the object of diagnosing, treating and, so far as possible, curing diseases or health 18 disorders. Consequently the object of the exemption is to reduce the cost of medical care and to make such care more accessible 19 to individuals.

42In order to qualify for the exemption under Article 13A(1)(b) of the Sixth Directive, the services provided in the medical establishment concerned must actually pursue a therapeutic objective. It is only in light of that objective that, according to the case-law, the concept of 'activities closely related' to hospital and medical care must not be construed too restrictively. Therefore the case-law does not support the view that the services at issue necessarily constitute activities closely related to hospital and medical care when, as we have seen, they cannot generally and systematically be considered to be services necessary or essential for hospital care.

43In addition, as the Commission observes, the systematic exemption of the services in issue could have a result contrary to the aim

18 — See Dormer, paragraphs 47 and 48.

19 — Ibid., paragraph 43.

of Article 13A(1)(b) of the Sixth Directive. Where a taxable person pursues a VAT-exempt activity, he in fact bears the VAT charge which he has paid by way of input tax on the purchase of goods and services necessary for that activity because he cannot pass it on to the final consumer. I have also pointed out that, where he pursues at one and the same time taxable activities and exempt activities, he can deduct the input tax only in proportion to the ratio between taxable and exempt activities. Therefore increasing the proportion of exempt activities leads to a reduction in the taxable person's rights of deduction and, consequently, to an increase in the VAT remaining payable by him. In so far as he must balance his budget, the increase in the tax liability will be reflected in a rise in the price of his VAT-exempt services. In other words, the systematic exemption of the supply of telephone services and a television set to in-patients and of accommodation services to persons accompanying them may very well result in an increase in the daily price of hospital stays.

44Nor do I consider that the services at issue can be systematically exempted from VAT by examining them by reference to the test of whether or not they are ancillary. As the referring court observes, this test was used by the Court in Commission v France, cited above, and Dormer to determine whether the services at issue in those cases fell within the concept of 'activities closely related' to hospital and medical care. It is true that the concept of an 'ancillary service' may appear broader than the requirement that an activity be essential to the pursuit of the public interest in question. According to the case-law, a service must be regarded as ancillary to a principal service if it does not constitute for customers an end in itself, but a means of enhancing the enjoyment of the 20 principal service supplied.

45However, even on the basis of that test and assuming that it can be applied disregarding the first condition in Article 13A (2)(b) of the Sixth Directive, it seems very difficult to presume systematically that the services at issue are not an end in themselves. As I have stated, providing a patient with telephone services and a television set does not always have a therapeutic purpose. The patient may choose to obtain these services from the hospital rather than another enterprise for reasons of convenience and they may not necessarily form part of the therapeutic measures which are the reason for hospitalisation. In the same way, the use by the patient's close relatives of accommodation facilities provided by the

20 — See Joined Cases C-308/96 and C-94/97 Madgett and Baldwin [1998] ECR I-6229, paragraph 24, and Case C-349/96 CPP [1999] ECR I-973, paragraph 30.

hospital is not always necessitated by the patient's age or illness, but may also arise from the mere wish to use the accommodation facilities offered by the hospital, which are less costly and closer to the patient than equivalent services offered by another taxable person, hotel or restaurant.

46In addition, systematic exemption of the services in question would be contrary to the principles developed by case-law which provide a framework for interpretation of the exemptions provided for by the Sixth Directive. As all the interveners have observed, it is settled case-law that the exemptions referred to in Article 13 of the Sixth Directive must be interpreted strictly because they are exceptions to the general principle that VAT is to be levied on all services supplied for consideration by a 21 taxable person. It must also be noted that, similarly, the Sixth Directive does not exempt from VAT every activity performed in the public interest, but only those which 22 are listed and described in great detail. Therefore the services in question can be

21 — See, inter alia, Case C-2/95 SDC [1997] ECR I-3017, paragraph 20, Case C-141/00 Kugler [2002] ECR I-6833, paragraph 28, and Case C-307/01 D'Ambrumenil and Dispute Resolution Services [2003] ECR I-13989, paragraph 22 — See Case C-149/97 Institute of the Motor Industry [1998] ECR I-7053, paragraph 18, Case C-384/98 D. [2000] ECR I-6795, paragraph 20, and D'Ambrumenil and Dispute Resolution Services, cited above, paragraph 54.

exempted from VAT only if they fulfil exactly the conditions laid down by Article 13A(1) (b).

47The interpretation of this provision must also observe the principle of fiscal neutrality inherent in the common system of VAT, whereby economic operators who carry on the same activities must not be treated differently as far as the levying of VAT is 23 concerned. In this respect, contrary to Ygeia's argument and as the Member States which have lodged observations in the present proceedings correctly observe, when the hospital provides the services in question it is indeed competing with other taxable persons who provide services of the same nature, such as hotels and restaurants so far as the accommodation services supplied to persons accompanying the patient are concerned, and suppliers of telephone services and television sets. As the Federal Republic of Germany points out, patients who use a mobile phone pay VAT on the cost of the telephone services and members of their family who sleep and take their meals at a hotel pay VAT on the cost of their accommodation.

48Finally, it is clear from the case-law that the exemptions listed in Article 13 of the Sixth Directive constitute independent concepts of Community law whose purpose is to avoid divergences in the application of the VAT system from one Member State to 2 another. 4 This means that the concept of 'activities closely related' to hospital and medical care cannot be defined differently depending on the socioeconomic characteristics of each Member State.

49Taking all these factors into account, I consider that the services in question cannot be generally and systematically deemed to be services closely related to hospital and medical care within the meaning of Article 13A(1)(b) of the Sixth Directive.

50However, it cannot be ruled out that the services may, under certain circumstances, fall within the exemption in Article 13A(1) (b). As we have seen, this exemption aims to reduce the cost of healthcare, that is to say, of services which have the object of protecting, maintaining and restoring health. Consequently it is the purpose of a service which determines whether it must be exempted from VAT.

24 — See Case 348/87 Stichting Uitvoering Financiële Acties [1989] ECR 1737, paragraph 11, CFP, cited above, paragraph 15, Commission v France, cited above, paragraph 21, and D'Ambrumenil and Dispute Resolution Services, paragraph 23 — See Kiigler, cited above, paragraph 30, and Dormer, paragraphs 42 and 44.

52.

51It seems to me to be perfectly conceivable that, in certain circumstances, the presence of a close relative may be essential for the in-patient's treatment and that the provision of a bed and meals for that relative may prove necessary to ensure that he remains at the patient's side. This could be the case where, for example, the patient is a small child or has an illness which gives rise to serious concern.

52Providing a patient with telephone services may enable him to remain in touch with his relatives and to obtain from them significant moral support which may appear essential in certain circumstances. Although this may seem less obvious at first sight, it is also difficult to rule out absolutely the possibility that the availability of a television set, which is a means of information and entertainment appreciated by most people, could in some cases be necessary for the treatment of an in-patient. Once again, I have in mind children who, because of a serious illness or the treatment for it, cannot have visitors or can have them only under restricted conditions. Providing these children with a television set may appear to be a means of amusement essential for their treatment in a hospital.

53However, although it can quite easily be envisaged that the provision of these services may, in some situations, be considered essential for the treatment of an in-patient, it appears, on the other hand, very difficult to specify those situations in objective terms, given the enormous variety of situations which may exist in practice. It must also be remembered that the Sixth Directive aims to establish a common system of VAT and that that system must display certainty and 25 foreseeability. It would not therefore be consistent with that aim and with those requirements if the task of assessing in each individual case whether the services in question are actually necessary were left to hospitals and the competent national authorities. Consequently it is incumbent on the Court to establish an objective criterion common to all the Member States.

54As Community law stands at present, I do not think that this criterion can be constituted by a request by the patient himself, as proposed by Ygeia, or a request by the patients close relatives. This would not ensure that the exemption is limited to supplies which are genuinely necessary for hospital and medical care. Furthermore, the question whether the provision of one or other of the services in issue is necessary for the in-patient's treatment does appear to entail an assessment of a medical nature. It is indeed the doctor in charge of his treatment

25 — See, in particular, Case C-30/89 Commission v France [1990] ECR I-691, paragraph 23.

in the hospital who seems to be the authority best able to determine whether services such as those in issue, which are not, by nature, closely related to hospital and medical care, must nevertheless be considered essential to treatment. This criterion also has the advantage of being objective and of meeting the requirements of certainty and foreseeability.

55Under this criterion, the supply by a hospital of telephone services and a television set to an in-patient and the supply by it of meals and a bed to persons accompanying him would thus constitute activities closely related to hospital and medical care if those facilities or the permanent presence of a close relative were prescribed by a doctor.

56When, at the hearing, the parties were asked for their opinion on this criterion, Ygeia's representative stated that doctors never prescribe services of that kind. The Greek Government's representative stated on the other hand that the criterion could lead to abuse.

57First of all, I conclude from the Greek Government's response that, contrary to Ygeia's submission, the criterion which I propose may be applied in practice. Secondly, I do not deny that the use of the criterion may give rise to abuse and, at the very least, to differing practice from one hospital to another. However, both that risk and that disadvantage are inherent in the application of any criterion based on human assessment and, in my view, the advantage of not categorically excluding the services in question from the ambit of the exemption outweighs the practical difficulties posed by use of the proposed criterion. It must also be remembered that the Member States may, if necessary, take appropriate measures to prevent abuse in the application of this criterion in the same way as they are called on to do by Article 13A(1) of the Sixth Directive in relation to each of the individual exemptions for which it provides.

58If the Court agrees with my proposal, it will be for the national court to examine in the present case whether the services in question supplied by Ygeia to its in-patients were prescribed by a doctor. It must also verify that basic purpose of the supply of those services was not to obtain additional income for Ygeia, in accordance with Article 13A(2)(b) of the Sixth Directive.

59In light of the foregoing, I propose that of meals and a bed to persons accompanying the reply to the question referred for a him constitute activities closely related to preliminary ruling should be that Article 13A hospital and medical care pursuant to that (1)(b) of the Sixth Directive must be inter provision only if the provision of those preted as meaning that the supply by a facilities to the patient or the permanent hospital of telephone services and a televi presence of a close relative at his side are sion set to an in-patient and the supply by it prescribed by a doctor.

V — Conclusion

60I accordingly propose that the following reply be given to the question referred to the Court by the Simvoulio tis Epikratias:

Article 13A(1)(b) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment must be interpreted as meaning that the supply by a hospital of telephone services and a television set to an in-patient and the supply by it of meals and a bed to persons accompanying him constitute activities closely related to hospital and medical care pursuant to that provision only if the provision of those facilities to the patient or the permanent presence of a close relative at his side are prescribed by a doctor.