AGENZIA DELLE ENTRATE - DEBIASI v Order of 13 December 2012 in Case C-560/11 BDO VAT Centre of Excellence

DEBIASI v
        AGENZIA DELLE ENTRATE
Order of 13 December 2012 in Case C-560/11

BDO VAT Centre of Excellence

Particulars
       Reference for a preliminary ruling from the Parma Provincial Tax Court lodged on
        7 November 2011.
       Subject: Articles 17 (2) (a) 19 (1) of Directive 77/388/EEC: Deduction of input VAT
        referred to goods or services used for transactions that are VAT exempt.

Background
Mr. Debiasi, providing medical care in the exercise of his medical profession - transactions
considered Vat exempt according to article 10, paragraph 1 points 18 and 19 of the Italian
Vat law (Dpr 633/72) - filed an application for VAT refund with the Italian Tax Authorities
(hereinafter ITA), concerning the VAT paid for the purchase of goods and services required
for his own professional activity but not deducted, owing to the fact that said VAT exempt
transactions are included in the pro rata calculation. The reasons for the application for
VAT refund lie in the alleged non-compliance of the domestic provisions with Article No.
17, paragraph No. 2, sub-paragraph a) of the sixth directive.
Mr Debiasi’s application for VAT refund was rejected by ITA, this causing Mr Debiasi to
lodge opposition against said rejection, by applying to the Lower Italian Court, which
referred the matter to the ECJ.

Question referred
Q1: Is there a conflict between national legislation and Community law, in particular
between, on the one hand, Articles 19(5) and 19a of Presidential Decree No 633/72 and,
on the other, Article 17(2)(a) of Directive 77/388/EEC, ( 1 ) document COM (2001) 260
final of 23 May 2001 and document COM (2000) 348 final of 7 June 2000, and ‘unequal
treatment’ as regards the VAT rules applied by the various Member States of the European
Union, given that different rates of VAT are applied to the same healthcare services?

Q2: Is there unequal treatment between Italian healthcare professionals deemed to be
‘final consumers’ (liable to VAT) and the healthcare professionals of other Member States
of the European Union (Belgium, Bulgaria, Greece, France and Spain), who are deemed to
be ‘intermediate operators’ (with the right to deduct VAT)?

Q3: Is there ‘unequal treatment’, as regards the rules on VAT, between the various
Members of the European Union, in so far as, unlike the situation in Italy where healthcare
services are exempt from VAT, in other Member States of the European Union (Belgium,
Bulgaria, Greece, France and Spain) the same healthcare services are subject to VAT, with
the result that different rates of VAT and, therefore, a different right to deduct are
applied to the same healthcare services?

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Q4: Is there inequality between Italian healthcare professionals (including Professor
Danilo Debiasi) and the professionals of other Member States of the European Union
(Belgium, Bulgaria, Greece, France and Spain) in that the latter are subject to value added
tax and, as a result, unlike Italian healthcare professionals, have the corresponding right
to the deduction and/or reimbursement of VAT paid on purchases?”

Order of ECJ
Question referred to the above points Q2, Q3 and Q4, has been declared manifestly
inadmissible.

In respect to the question Q1 the ECJ has held that the right to deduct VAT solely
concerns goods and services used in connection with taxable persons’ transactions that are
subject to VAT and that, on these grounds, should goods or services purchased by a
taxable person be used in connection with VAT exempt transactions, neither output VAT
collection nor input VAT deduction is allowed.

Furthermore ECJ pointed out that, according to the first paragraph of Article 17(5) of the
Sixth Directive, where a taxable person uses goods and services in order to carry out both
transactions in respect of which VAT is deductible and transactions in respect of which it is
not, a taxpayer may deduct only the proportion of the VAT which is attributable to the
former.

On those grounds, the Court hereby declares
Article No. 17, paragraph No. 2 No. 5 and Article No. 19 of the Sixth Directive do not
oppose domestic law which does not authorize deduction of the input VAT paid for the
purchase of goods and services used in connection with VAT exempt transactions. As a
consequence, it is allowed that the right to deduct VAT by a taxable person (involved in
both VAT exempt and taxable transactions) be calculated on a pro rata basis,
corresponding to the ratio between the amount of the transactions entitled to deduction
and the overall amount of the transactions performed during the whole year, including
VAT exempt medical/health services.

Related judgments
         judgment of 22 February 2001 in Case C-408/98 (Abbey National)
         judgment of 27 September 2001 in Case C-16/00 (Cibo Participations)

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Note
It is worth noticing that, despite the Court’s order, as to the determination of the right to
deduct VAT to be exercised by taxable persons carrying out both taxable and VAT exempt
activities, the Italian law does not seem to fully comply with some other ECJ judgments.

Indeed, pursuant to Article No. 19, fifth paragraph of Presidential Decree No. 633/1972, as
interpreted by Ministerial Circular Letter No. 328/E of December 24th 1997, the pro-rata
calculation applies not only to expenses pertaining to goods and/or services indefinitely
used to perform both transactions entitled to VAT deduction and VAT exempt transactions,
but to the overall purchases made by taxable persons. Nevertheless, the above does not
seem to conflict with Article No. 17, paragraph No. 5 of the VI Directive, which, in
paragraph No. 1, sets forth that the pro rata calculation be applied to goods and services
of the mixed type, whilst in sub-paragraph d) it sets forth that Member States may
authorize or require taxable persons to make the pro rata deduction in respect of all goods
and services used for all kind of transactions.

The misalignment lies in the fact that Court’s interpretations, according to which even in
the event of identification of deductibility of VAT through the pro rata calculation, the
right to fully deduct VAT charged on the acquisition of input goods or services, when such
expenses are directly connected with the carrying out of taxable transactions (see case C-
496/11 Portugal Telecom SGPS SA paragraphs 35 and 36; Case C-16/00 Cibo Participations,
paragraph 31; Case C-465/03 Kretztechnik, paragraph 35; Case C-435/05 Investrand,
paragraph 23; Case C-437/06 Securenta, paragraph 27), cannot be inferred from the
Italian law.

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