CJEU: input VAT deduction for mandatory hospital equipment depends on its actual use
The Court of Justice of the EU (CJEU) confirmed that input VAT deduction for healthcare providers depends on the asset’s actual use, not on the fact that its acquisition is required by law. According to the CJEU, the decisive factor is always a direct link to specific taxable supplies or to the taxpayer’s overall economic activity.
We have been following the disputes between the tax authority and the Regional Hospital in Kolín concerning the right to deduct input VAT on medical equipment for some time – for example, in this article.
In the case now considered, the hospital claimed a proportionate input VAT deduction on technical and tangible equipment that, under a decree, it is required to have for providing healthcare services exempt from VAT without the right to deduct. However, it argued that part of this equipment was also used for taxable activities, such as clinical trials, doctors’ internships or certain examinations, and should therefore be treated as overhead costs.
The tax authority recognised the deduction only to a limited extent, arguing that the equipment in question was used predominantly for exempt healthcare services. Most of the claim was thus denied. The case ultimately reached the Supreme Administrative Court, which referred a preliminary question to the CJEU as to whether mandatory hospital equipment can be regarded as overhead costs linked to the taxpayer’s overall economic activity, thus allowing a proportionate input VAT deduction.
In its judgment No. C 513/24, the CJEU referred to its settled case law and held that input VAT deduction requires a direct and immediate link between the input and the taxable outputs, or, alternatively, the taxpayer’s overall economic activity. Where such a link to overall activity exists (e.g., the equipment is used for the hospital’s entire operation, such as a defibrillator), the input may constitute an overhead cost. The key factor is how the equipment is actually used.
A statutory requirement to acquire an asset does not, on its own, give rise to a right to deduct input VAT. However, the CJEU also held that a right to deduct may arise for assets ensuring safety and comfort on the premises, provided they relate to the overall operation and the taxable activity. Such inputs may be regarded as overhead costs giving rise to a proportionate deduction. The judgment therefore suggests that deduction may be claimed for a broader range of equipment than tax authority practice has so far allowed.