Opinion of the Advocate General — ECLI:EU:C:2021:762
Date: 2021-09-23
Language of the case: German
Subject matter: Taxation;Value added tax
Procedure: Reference for a preliminary ruling
Origin: Germany

Translation C-228/20 — 1 
Case C-228/20 
Request for a preliminary ruling 
Date lodged: 
2 June 2020 
Referring court: 
Niedersächsisches Finanzgericht (Germany) 
Date of the decision to refer: 
2 March 2020 
Applicant: 
I GmbH 
Defendant: 
Finanzamt (Tax Office) H 
  
Niedersächsisches Finanzgericht 
(Finance Court, Lower Saxony) 
Order 
[…] 
In the case 
I GmbH, […] 
– applicant – 
[…] 
v 
Finanzamt H 
– defendant – 
EN 
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concerning turnover tax for the period 2009 to 2012 
the 5th Chamber of the Niedersächsische Finanzgericht, on 2 March 2020, made 
the following order: 
I. The following questions are referred to the Court of Justice of the 
European Union for a preliminary ruling: 
1. Is Paragraph 4, point 14(b), of the Umsatzsteuergesetz (Law on Turnover 
Tax) (UStG) compatible with Article 132(1)(b) of Council Directive 
2006/112/EC of 28 November 2006 on the common system of value added 
tax (‘the VAT Directive’), in so far as hospitals which are not bodies 
governed by public law qualify for exemption from tax on condition that 
they are approved within the meaning of Paragraph 108 of the 
Sozialgesetzbuch (SGB) V (Social Security Code, Book V)? [Or. 2] 
2. If Question 1 is to be answered in the negative: When do hospitals 
governed by private law provide hospital care under social conditions 
comparable with those applicable to bodies governed by public law within 
the meaning of Article 132(1)(b) of the VAT Directive?  
II. The proceedings are staid until such time as the Court of Justice of the 
European Union gives a ruling. 
Grounds 
I. 
The issue is whether turnover from the operation of a hospital is exempt from tax 
under Paragraph 4, point 14, of the UStG and Article 132(1)(b) of the VAT 
Directive. 
The applicant, a company incorporated in the form of a GmbH (private limited 
liability company) was established in … . The founding member and medical 
director, Professor …, who initially held a 51% share in the company, now has a 
13.33% share in the applicant following a capital increase in … (and thus in the 
years at issue, 2009 to 2012). Further shareholders in the years at issue were K 
GmbH, B GmbH, Beteiligungskapital H GmbH & Co. KG und, initially, … AG, 
whose shareholding in the applicant company was taken over by K GmbH. 
Management of the business is entrusted to K GmbH. 
The object of the business, according to Paragraph 2 of the memorandum and 
articles of association, is the planning, establishment and operation of a … in … in 
which all areas of … neurology … are represented. The applicant provides 
hospital services within the meaning of Paragraph 2 of the 
Bundespflegesatzverordnung (Federal Regulation on Hospital Fees) (BPflV) and 
Paragraph 2 of the Krankenhausfinanzierungsgesetz (Law on the Financing of 
Hospitals) (KHG). Its operation is State-approved within the meaning of 
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Paragraph 30 of the Gewerbeordnung (Regulation on Trade, Commerce and 
Industry) (GewO). However, because it was not included in the hospital 
requirements plan for the Land of Niedersachsen (Lower Saxony), the applicant is 
not a plan-listed hospital within the meaning of Paragraph 108, point 2, of the 
SGB V. Applications to be so listed which the applicant made on 8 April 1999 and 
11 July 2008 have not as yet been decided upon. What is more, the applicant is not 
a hospital contracted to supply care to a statutory health insurance fund (a 
‘contracted hospital’ within the meaning of Paragraph 108, point 3, of the SGB V) 
and it is not one of the establishments funded under the KHG. It therefore has no 
care supply contracts with the statutory health insurance funds (in their current or 
previous manifestations in Germany). 
The applicant’s patients consist of self-funding persons who pay for their 
treatment in advance (known as ‘pre-pay patients’), privately insured persons 
and/or persons entitled to financial assistance, known as ‘embassy patients’, for 
whom the embassy of a foreign State issues a cost of treatment guarantee, 
members of the federal armed forces, patients affiliated to occupational insurance 
associations and patients covered by statutory health insurance. Patients benefiting 
from private or statutory health insurance were each treated following the issue of 
a cost of treatment guarantee provided by a financial assistance body, a health 
insurance fund or a private health insurance establishment. In the case of embassy 
patients, costs were borne by foreign social security institutions acting through the 
embassies concerned. [Or. 3] 
According to information supplied by the applicant, the patient categories break 
down as follows: 
2009 Cases Occupancy days 
Pre-pay 391 5.052 
Privately insured 534 4.771 
-including financially assisted 67 677 
Statutorily insured 143 1.309 
Federal armed forces 9 44 
Occupational insurance 1 2 
Embassy 64 1.716 
total 1.132 12.838 
 
2010 Cases Occupancy days 
Pre-pay 362 5.043 
Privately insured 456 3.755 
-including financially assisted  68 562 
Statutorily insured 150 1.312 
Federal armed forces 13 83 
Occupational insurance 0 0 
Embassy 50 1.743 
total 1.017 11.853 
 
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2011 Cases Occupancy days 
Pre-pay 420 5.784 
Privately insured 434 3.327 
-including financially assisted 67 430 
Statutorily insured 150 1.324 
Federal armed forces 22 99 
Occupational insurance 1 22 
Embassy 57 2.708 
total 1.060 13.143 
 
First six months of 2012 Cases Occupancy days 
Pre-pay 218 2.922 
Privately insured 193 1.477 
-including financially assisted 23 169 
Statutorily insured 74 606 
Federal armed forces 16 90 
Occupational insurance 0 0 
Embassy 34 1.647 
total 465 6.652 
 
[Or. 4] Initially, the applicant charged for its hospital and medical care services 
and closely related activities on the basis of fixed-rate daily fees, in accordance 
with Paragraph 13 of the BPflV, as was the usual practice among the hospitals 
provided for in Paragraph 108 of the SGB V. Patients accommodated in single or 
double rooms were charged a supplement. Elective medical services were charged 
separately in accordance with the Gebührenordnung für Ärzte (Regulation on 
Doctors’ Fees) (GOÄ). Over the course of time, the applicant gradually switched 
its charging system to the Diagnosis Related Group (DRG) System). At the 
hearing of 13 February 2020, the applicant stated that, in 2011, only 15% to 20% 
of treatment days had been charged on the basis of the DRG system. 
On 28 June 2012, the applicant concluded with the … accident insurance fund, in 
its capacity as provider of statutory accident insurance, a framework agreement, 
within the meaning of Paragraph 4, point 14(b), second sentence, letter (cc), of the 
UStG, which came into effect on 1 July 2012. 
In its turnover tax returns for the period 2009 to 2012, the applicant treated the 
hospital services charged on the basis of fixed-rate daily fees and the user fees 
charged to non-resident doctors as being exempt from tax. […] 
In the course of a special turnover tax audit conducted by the Finanzamt (Tax 
Office) […], the auditor formed the view that the vast majority of the applicant’s 
turnover was not exempt from tax. In accordance with Paragraph 4, point 14(b), 
second sentence, letter (aa), of the UStG, only turnover generated by approved 
hospitals within the meaning of Paragraph 108 of the SGB V are exempt from tax. 
The applicant, however, is not an approved hospital. 
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Article 132(1)(b) of the VAT Directive does not indicate otherwise. Hospital care 
is provided under social conditions comparable with those applicable to bodies 
governed by public law only in the case where a substantial proportion of patients 
are entitled to have their medical expenses reimbursed under Paragraph 13 of the 
SGB V. In the case at issue, the share of occupancy days represented by patients 
falling into those categories is only 10.2% (2009), 11.1% (2010), 10.10% (2011) 
and 9.1% (first six months of 2012) and is not therefore substantial. The turnover 
at issue must therefore be treated as being subject to tax. That contested turnover 
did not become exempt from tax under Paragraph 4, point 14(b), second sentence, 
letter (cc), of the UStG until the entry into force of the agreement with the … 
accident insurance fund on 1 July 2012.  
The view thus taken following the tax audit was endorsed by the defendant in its 
decision of 6 September 2017 on the objection to the outcome of the audit, and in 
the action brought [against that decision]. 
The applicant considers that the contested turnover is exempt from tax under 
Article 132(1)(b) of the VAT Directive. It operates a hospital recognised under 
Paragraph 30 of the GewO which provides hospital and medical care services in 
the same way as a body governed by public law. The applicant’s activities are 
pursued in the public interest, since it offers a range of services comparable with 
that provided by public hospitals or those included in the hospital plan. The public 
interest it serves also follows from the fact that it is one of the world’s leading 
specialist neurosurgery hospitals and provides its services in principle to anyone, 
whether statutorily insured, privately insured or not insured at all. Treatment costs 
are to a large extent [borne] by social security institutions, including not only 
statutory health insurance funds but also the federal armed forces, occupational 
insurance associations, financial assistance bodies and embassies. Thus, 33.08% 
(2009), 34.31% (2010), 38.15% (2011) and 40.30% (2012) of occupancy days are 
attributable to patients whose medical expenses are covered by social security 
bodies. [Or. 5] 
II. 
The Chamber refers to the Court of Justice of the European Union (‘the Court of 
Justice’) the questions on the interpretation of the VAT Directive which are set 
out in the operative part of this order and stays the proceedings pending the 
Court’s ruling. 
1. Legal provisions relevant to the ruling 
a) National law 
Paragraph 4, point 14(b), of the UStG: 
Paragraph 4, point 14(b), of the UStG, in the version in force since 1 January 
2009, provides that, of the transactions falling within the scope of Paragraph 1(1), 
point 1, of the UStG the following shall be exempt from tax: hospital and medical 
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care including diagnostics, assessment, prevention, rehabilitation, obstetrics and 
hospice services and closely related activities undertaken by bodies governed by 
public law. The services described in Paragraph 4, point 14(b), of the UStG shall 
also be exempt from tax in the case where they are provided by 
aa) approved hospitals within the meaning of Paragraph 108 of the SGB V 
(…) 
cc) bodies which have been engaged to supply care by providers of statutory 
accident insurance within the meaning of Paragraph 34 of the SGB VII […] 
Paragraph 108 of the SGB V — Approved hospitals 
Health insurance funds may procure hospital care only from the following 
hospitals (approved hospitals): 
1. University hospitals […], 
2. Hospitals which are included in a Land–level hospital plan (plan-listed 
hospitals), or 
3. Hospitals which have concluded a care supply contract with the Land 
health insurance fund associations. 
Paragraph 109 of the SGB V — Conclusion of care supply contracts with 
hospitals 
(…) 
(2) There shall be no right to conclude a care supply contract as referred to in 
Paragraph 108, point 3, of the SGB V 
(3) A care supply contract as referred to in Paragraph 108, point 3, of the SGB V 
must not be concluded in the case where the hospital 
1. does not offer a guarantee of efficient and cost-effective hospital care, 
[Or. 6] 
2. […] [does not meet certain quality requirements] or 
3. is not necessary for the purposes of providing need-based hospital care for 
insured persons. 
(…) 
Paragraph 1 of the Law on the financing of hospitals (KHG) — Principle 
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(1) The purpose of this Law to provide economic security for hospitals in order to 
ensure high-quality, patient-centred and need-based care for the population 
through efficient, high-quality and independently operated hospitals and to 
contribute towards socially sustainable healthcare charges. 
Paragraph 6 — Hospital planning and investment programmes 
(1) The Länder shall draw up hospital plans and investment programmes aimed at 
attaining the objectives set out in Paragraph 1; the costs associated with these, in 
particular their impact on healthcare charges, shall be taken into account. 
b) EU law 
Article 132(1) of the VAT Directive 
In accordance with Article 132(1) of the VAT Directive, Member States are to 
exempt the following transactions: 
b) hospital and medical care and closely related activities undertaken by 
bodies governed by public law or, under social conditions comparable with 
those applicable to bodies governed by public law, by hospitals, centres for 
medical treatment or diagnosis and other duly recognised establishments of a 
similar nature. 
2. The legal position under national law; Question 1 
The applicant is not a body governed by public law, with the result that its 
turnover is not exempt from turnover tax under Paragraph 4, point 14(b), first 
sentence, of the UStG. What is more, the applicant has not concluded a care 
supply contract with the Land health insurance fund associations, and it has not 
(so far) been included in the hospital plan for the Land of Lower Saxony. It 
follows, by extension, that the conditions for exemption from turnover tax under 
Paragraph 4, point 14(b)(aa), of the UStG are not met. Since the framework 
contract which the applicant concluded with the … accident insurance fund did 
not take effect until 1 July 2012, it can claim a tax exemption under Paragraph 4, 
point 14(b), letter (cc), of the UStG only from that date onwards. 
Both the Fifth Chamber of the Bundesfinanzhofs (Federal Finance Court) (BFH) 
and the Eleventh Chamber of the BFH assume that Paragraph 4, point 14(b)(aa), 
of the UStG is not consistent with the requirements of Article 132(1)(b) [Or. 7] of 
the VAT Directive because it makes the exemption from tax for services provided 
in hospitals operated by undertakings which are not bodies governed by public 
law subject to a reservation of need under social insurance law […]. 
This Chamber is inclined to agree with the view of the Fifth and Eleventh 
Chambers of the BFH. Since the Land health insurance fund associations may 
conclude a care supply contract with a hospital only where this is necessary in 
order to provide need-based care for insured persons (Paragraph 108, point 3, of 
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the SGB V in conjunction with Paragraph 109(3), point 3, of the SGB V), and cost 
effectiveness criteria (‘contribute towards socially sustainable healthcare charges’) 
apply even if a hospital is included in a hospital plan in accordance with 
Paragraph 1 of the KHG, a closed shop is effectively in operation; accordingly, a 
(non-listed) hospital has no prospect of being included in the hospital plan for the 
Land in which it is located, or, therefore, of concluding care supply contracts with 
the statutory health insurance funds, if enough hospital beds for a particular 
specialty are already available within the Land in question. The consequence of 
this, if true, would be that similar services in different hospitals are treated 
differently for the purposes of turnover tax, the advantage enjoyed by some 
hospitals over others being based solely on the fact that the former were founded 
earlier and were the first to be included in the relevant hospital plan or to conclude 
care supply contracts. In accordance with the case-law of the Court of Justice, the 
interpretation by the national legislature of the conditions governing the 
application [of the exemptions provided for in] the VAT Directive must be 
consistent with the objectives pursued by those exemptions and comply with the 
requirements of the principle of fiscal neutrality inherent in the common system of 
VAT (Court of Justice, judgment of 10 June 2010 — C-262/08, CopyGene, [2010] 
ECR I-5053). This Chamber considers a provision such as that in Paragraph 4, 
point 14(b)(aa), of the UStG, which effectively operates a quota system for tax 
exemptions and reserves these for those hospitals that are the first to be included 
in a hospital plan, to be incompatible with the principle of the competitive 
neutrality of turnover tax. 
For that reason, this Chamber asks the Court of Justice, in Question 1, to indicate 
whether the provision contained in Paragraph 4, point 14(b)(aa), of the UStG is 
compatible with Article 132(1)(b) of the VAT Directive. This question is relevant 
to the judgment to be given not least because, if the national rule were 
incompatible with EU law, the action in this case would have to be dismissed, and 
the question as to whether the applicant provides hospital services under social 
conditions comparable with those applicable to bodies governed by public law 
would be immaterial.  
3. Legal position under Community law; Question 2 
If Question 1 is to be answered in the negative, the applicant could rely directly on 
Article 132(1)(b) of the VAT Directive. The issue relevant to the judgment to be 
given would then be whether the applicant undertook hospital care and closely 
related activities under social conditions comparable with those applicable to 
bodies governed by public law. 
The Eleventh Chamber of the BFH, which, at the outset, also assumes that 
Paragraph 4, point 14(b)(aa) of the UStG misinterprets Community law, refers to 
the introductory sentence of Article 132 of the VAT Directive and notes that it is 
for each Member State, within the framework of its discretion, to lay down the 
rules for granting the necessary recognition […]. In its view, the German 
legislature exceeded its discretion only in so far as, in referring to Paragraph 108 
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of the SGB V [Or. 8], for the purposes of recognition of the tax exemption 
provided for in Paragraph 4, point 14(b)(aa), of the UStG, it made the inclusion of 
a hospital in a hospital plan or the conclusion of a care supply contract subject to 
the reservation of need and thus infringed the principle of neutrality. It regards as 
unobjectionable, on the other hand, the fact that the chain of reference from 
Paragraph 4, point 14(b)(aa) of the UStG, via Paragraph 108, points 2 and 3, of 
the SGB V, to Paragraphs 1 and 6 of the KHG and Paragraph 109 of the SGB V 
makes recognition of the tax concession provided for in Paragraph 4, 
point 14(b)(aa), of the UStG conditional upon the hospital’s efficiency in terms of 
personnel, space and equipment and the cost effectiveness of its management; to 
take no account whatsoever of the conditions laid down by the national legislature 
would be to deprive the Member States of the discretion granted to them […]. 
The adjudicating Chamber is uncertain whether, in a case in which the national tax 
legislation refers to a complex system of non-tax rules and the application of the 
entirety of those non-tax rules gives rise to an interpretation of the tax exemption 
provision which is incompatible with Community law, it is possible to preserve 
the discretion granted to the national legislature by refraining from applying only 
those conditions governing the application of the non-tax rules which directly 
render the national tax exemption provision contrary to Community law, while 
continuing to apply the other conditions of application. For, in the opinion of the 
adjudicating Chamber, it is open to question whether it is in fact in keeping with 
the national legislature’s intention, and operates to preserve its discretion in 
transposing the VAT Directive into national law, for the recognition of the tax 
concession to be made subject not to an assessment of each hospital on the basis 
of need — which is incompatible with Community law — but to other criteria for 
making that decision which the national legislature — even if it had recognised 
the aforementioned incompatibility with Community law — might not have taken 
into account at all.  
This Chamber is uncertain whether the interpretation of whether a hospital 
operates under ‘comparable social conditions’ for the purposes of 
Article 132(1)(b) of the VAT Directive should include an assessment of its cost-
effectiveness […]. In this regard, it is also important to note that a specialist 
hospital such as the applicant, which performs particularly complex and difficult 
neurosurgical procedures, must necessarily charge more for its services than a 
hospital which largely but not exclusively performs simple medical procedures 
that do not require expensive medical equipment. This Chamber does not 
therefore consider a hospital’s costs to be a suitable criterion for assessing whether 
that hospital offers its services under social conditions comparable with those 
applicable to a public hospital. It is also to be noted, finally, that an excessive 
burden would be placed on both the tax authority and the tax courts if they had to 
carry out a comprehensive cost effectiveness and efficiency assessment in every 
case in order to be able to decide whether a hospital’s activities are exempt from 
tax. 
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The adjudicating Chamber therefore considers it appropriate, in a case in which 
the national legislature has incorrectly transposed the provisions of Community 
law into national law, to allow direct reliance to be placed on Community law and 
to interpret the relevant provision of Community law autonomously in its own 
right. In this particular case, the adjudicating Chamber therefore considers it 
relevant to the judgment to be given to determine whether the applicant offers its 
hospital services under social conditions comparable with those applicable to a 
hospital governed by public law; this Chamber is inclined to answer the question 
as to the comparability of social conditions not by reference to a hospital’s 
operating procedures and cost structures but from the point of view of its patients; 
on that basis, the social conditions under which it operates would be comparable if 
the treatment costs of the majority of its patients were covered by social security 
institutions. [Or. 9] 
The relevance of Question 2 to the judgment to be given follows from the fact 
that, in interpreting Article 132(1)(b) of the VAT Directive, the adjudicating 
Chamber would like to employ interpretative criteria different from those applied 
by the BFH in its appellate jurisdiction.  
III. 
The legal basis for the reference to the Court of Justice is the second paragraph of 
Article 267 of the Treaty on the Functioning of the European Union. 
IV. 
Procedural matters