Important change as regards VAT on the contracting of medical care personnel

The Supreme Administrative Court (HFD) has determined that a staffing agency’s contracting out of medical care personnel is liable to VAT. This decision implies a change in the current legal position, which is significant for both private and public care providers.

The case pertains to a staffing agency, recruiting and contracting out medical care personnel to private and public medical care providers. This contracting includes everything from individual temporary staff to the staffing of entire departments, units and hospital surgery teams. The company applied for an advance ruling in order to know if the contracting of qualified doctors is liable to VAT.

Medical care is exempt from VAT due to public interest implying that VAT is usually not reported on the sale of medical care services, regardless of whether those services are performed through a private provider or a public provider. Previously, this exemption for medical care services also included the contracting of qualified medical care personnel on the condition that the personnel in question were contracted to provide medical care services.

HFD’s decision changes the legal position and determines that a staffing agency’s contracting of medical care personnel is always liable to VAT regardless of the purchaser of the services. HFD is of the opinion that, with the contracting of personnel, it is the contracted service, itself, which is to be tested in determining exemption from VAT and not the work duties executed by the contracted personnel. HFD motivates its decision with reference to the Court of Justice of the European Union practice regarding exemption from VAT on educational services and social services.

On the other hand, HFD indicates that the contracting of medical care personnel under certain circumstances can be VAT exempt if the entity contracting out the personnel is comprised of such a medical care facility as defined in the EU VAT Directive, that is, a hospital, a center for medical treatment or diagnosis and other established, recognized facilities of a similar nature. However, HFD does not provide more detailed information as to the exact premises under which such contracting is to be VAT exempt.

Comments

HFD’s decision will have a major effect on many medical care operators. The decision implies, amongst other things, that it will be more expensive for private medical care companies with VAT exempt operations to contract in qualified medical care personnel from staffing agency’s as in addition to the fees for the contracting there will be a cost in the form of non-deductible VAT. For private medical care companies it can, therefore, be more beneficial from a VAT point of view to employ one’s own personnel compared with contracting in the personnel from a staffing agency.

What is more, unfair competition can also arise if the contracting of qualified medical care personnel from a medical care facility is seen to be VAT exempt, as HFD indicates, while the equivalent contracting from a staffing company is VAT liable.

The decision can also lead to unfair competition between private and public medical care providers as the municipalities and county councils, in contrast to private medical care companies, can usually obtain VAT compensation via the so-called municipality VAT system. HFD’s decision can also have effect on public medical care providers as VAT compensation is calculated in a variety of ways depending on whether the purchased services are VAT liable or VAT exempt.

Should you have any questions about the VAT impact of this decision on your company’s operations, you are most welcome to contact us.