Upper Tribunal Tax and Chancery Chamber

UT/2023/000009 - [2024] UKUT 00162 (TCC)

Fecha: 21-Mar-2024

Klinikum

Klinikum

17.

The facts concerned whether anti-cancer drugs that were prescribed by doctors working independently in a hospital setting were exempt under Article 13A(1)(c).

18.

The Advocate General’s reasoning proceeded, in summary, as follows:

(1)

The words “closely-related activities” in exemption b) covered goods as well as services.

(2)

Medical care and related activities under exemption b) did not have to be undertaken by the same person.

(3)

Activities that were “closely-related” could not be exempt if the care to which they were closely related was under exemption c) rather than exemption b) ([40]).

(4)

The relevant care in Klinikum could not fall under exemption b) because it was not provided on the premises of the relevant body and it was not also provided by that body or establishment (as required by that provision) ([33]). The Advocate General therefore proceeded on the basis the care provided by doctors was exempt pursuant to exemption c).

(5)

The Advocate General highlighted the absence of the words “closely related activities” in 13A(1)(c), which exemption did not “extend beyond the provision of the care itself”. She went on to explain EC v UK as follows:

“37.

In that regard, the court declared in Commission v UK that, ‘apart from minor provisions of goods which are strictly necessary at the time when the care is provided, the supply of medicines and other goods, such as corrective spectacles prescribed by a doctor or by other authorised persons, is physically and economically dissociable from the provision of the service’.

38.

That case was concerned particularly with the supply of prescribed spectacles, and the court regarded the supply of prescribed medicines in the same light. In the circumstances considered, the acts of diagnosis (together with any minor and strictly necessary supplies of goods—such as, perhaps, the administration of eye-drops to enlarge the pupils) and prescription form a single supply falling within the exemption in art 13A(1)(c) of the Sixth Directive. The same would presumably apply to the supply of any items—such as, for example, ointments or bandages—essential to any actual treatment performed by the practitioner in the course of a consultation. By contrast, the supply by an optician or pharmacist of any items prescribed by the practitioner is a separate supply which does not fall within that exemption.”

(6)

Although the supply of prescribed drugs in the course of medical care could not fall under exemption b) if the care to which it was closely related was under c), that did not mean the drug supply could not be exempted under c) itself. At [41] AG Sharpston explained:

“However, it might not necessarily follow that, in the specific circumstances of the main proceedings, the supply of the drugs cannot be exempted under art 13A(1)(c) itself. The supply could perhaps be regarded not as a ‘closely related activity’ but as a supply ‘which is strictly necessary at the time when the care is provided’ and not ‘physically and economically dissociable from the provision of the service’, to use the court’s words in European Commission v UK.”

19.

At [42] the Advocate General continued “A variant of that possibility” might be a “single indivisible economic supply, which it would be artificial to split” (or “as ancillary to the principal service” footnoting the case-law referred to in Město [28]which in turn included references to Levob and CPP).

20.

The Advocate General went on to say that evaluation of these “possibilities” needed more information noting the necessary findings of fact were for the national court (although some answers had been provided in the hearing). The matters to be considered included: i) the precise nature of the medical care provided; ii) the identity of the provider; iii) whether the care could be provided without the supply of the drugs; and iv) the identity of the person to whom the right to dispose of the drugs as owner was transferred (in other words the recipient of the supply). The Advocate General found it clear that:

“46.…there is a therapeutic continuum, which encompasses both ‘the provision of medical care in the exercise of the medical and paramedical professions’ and a supply of drugs. It is also clear that, without the supply of the drugs, the medical care itself would serve no purpose; that supply is, therefore, ‘strictly necessary at the time when the care is provided’.”

21.

But at [47] the Advocate General found “it difficult to consider” the drugs were not “physically and economically dissociable” from the medical care or that they formed a Levob single supply. The Advocate General continued at [48]:

“…In that regard, it is necessary to consider by whom, and to whom, the supply of drugs is made. That question was addressed at the hearing and, although it was acknowledged that payment was made in almost every case by a private or public health insurance body, it seemed to be agreed that the ‘right to dispose of [the drugs] as owner’ is acquired by the patient. Neither the doctor nor the health insurance body may dictate to the patient whether to accept administration of the drugs or not. That makes it impossible to consider that the doctor passes on the supply of the drugs to the patient, as part and parcel of the medical care provided. It therefore seems necessary to proceed on the basis that the patient receives more than one supply: medical care from the doctor and healthcare staff; drugs from the hospital pharmacy.

49.

Where separate supplies are made by separate persons, it seems inevitable that those supplies cannot ‘form, objectively, a single, indivisible economic supply, which it would be artificial to split’ or be ‘physically and economically dissociable’. They may be (indeed, it appears that they are) ‘closely related’ and such a close relationship will qualify a supply of drugs to be exempted when the related provision of medical care is exempted under art 13A(1)(b) of the Sixth Directive, but not when it is exempted under art 13A(1)(c). In that regard, the separation between the person supplying the drugs and the person providing the medical care must in my view preclude the two from being regarded together as a single supply, regardless of the fact that neither supply can serve any useful purpose without the other—in contrast to, for example, the situation examined in Deutsche Bank, where two comparably interlinked supplies were made by the same taxable person.”

22.

The Advocate General thus rejected the possibility that there was a single supply, whether on a Levob or a CPP basis. This was not possible where two elements of the supply were supplied by different people.

23.

The CJEU in Klinikum also noted the absence of reference to closely linked activities in the wording in exemption c). In relation to exemption c) the Court referred to EC v UK holding for the proposition that, apart from the minor provisions of goods (strictly necessary at the time when care was provided), the supply of drugs and other goods was physically and economically dissociable from the provision of the service and therefore could not be exempted. Regarding “strictly necessary at the time…” the court noted the Advocate General’s observations that the drugs supplied were part of a therapeutic continuum and that the drugs were essential at the time of providing outpatient treatment of cancer. The Court also noted the treatment steps, although interrelated, were individually distinct, and that as the Advocate General had pointed out (at [48] and [49] of her opinion – see [21] above) the patient appeared to receive more than one supply namely medical care from the doctor and healthcare staff and drugs from the hospital pharmacy managed by Klinikum Dortmund (which prevented their being considered indissociable, physically and economically) ([36]). However, it was for the referring court to make the necessary findings ([37]). The Court thus left open the possibility the drugs could on the facts be indissociable but, subject to that, the Court considered the drugs were not exempt. The Court also considered that support for that conclusion was also derived from the fact drugs were subject to a separate VAT scheme (in Annex H to the Sixth Directive) ([39]).