Classic: medical or cosmetic in the PFC Clinic judgment
Only procedures that are medically necessary can be exempt. PFC Clinic shows that the purpose of the procedure is decisive, and how that purpose is to be established.
A treatment or procedure carried out purely for cosmetic purposes falls outside the medical exemption. When exactly a treatment is purely cosmetic rather than medically necessary was unclear in practice.
The Court of Justice judgment
The Swedish company PFC Clinic AB carried out cosmetic procedures such as facelifts, breast lifts and eye, ear and nose surgery, as well as treatments such as permanent hair removal and botox and filler treatments. In a dispute with the Swedish tax authorities over their VAT treatment, the Court of Justice of the EU was asked whether the medical exemption also covers those supplies, and whether a preventive or therapeutic purpose affects that assessment.
The Court held that cosmetic procedures and treatments whose purpose is the diagnosis, treatment and cure of diseases or health disorders can be brought within medical care. Where a procedure or treatment is purely cosmetic, it cannot: there must be a therapeutic purpose.
In assessing that purpose, the patient's subjective view may not be taken into account. A medical assessment by suitably qualified staff is, however, relevant.
Why this matters in practice
Following the judgment, the Dutch decree on the medical exemption was amended in 2013 to record that it is for the medical practitioner to assess whether a procedure serves a therapeutic purpose, and that the tax authorities may only review at a high level whether the exemption is being applied correctly to cosmetic procedures. The inspector cannot give a substantive medical judgment and in principle cannot ask to see the medical file, because of professional confidentiality.
In practice this allows a doctor to label files as medical and apply the exemption. The Dutch Tax Administration regards that as undesirable, and recent case law sets limits.
Last year the Supreme Court ruled in a case about circumcisions carried out by doctors at a clinic for religious or cultural reasons or on hygiene grounds. The exemption does not apply to them, because the procedure has no preventive effect. The exemption applies only where there is a medical necessity. The view of the person undergoing the treatment is irrelevant, the medical assessment by qualified staff is not.
The Supreme Court thereby confirmed the ruling of the Court of Appeal in Amsterdam, which held that the clinic must set out and if necessary prove the facts and circumstances making it plausible that its activities fall within the exemption. The clinic must therefore substantiate that the exemption applies.
That means the tax authorities may go further than a high-level review. The treating doctor's discretion is somewhat curtailed, with the aim of preventing incorrect application of the exemption. Doctors and other practitioners carrying out procedures that are not inherently medically necessary should therefore record, for each procedure, whether a medical necessity exists and why.