[2009] UKFTT 187 (TC)

TC00142
VALUE ADDED TAX- cosmetic intervention carried out in hospitals and licensed premises – exempt  because care or medical or surgical treatment  carried out in a hospital or approved institution paragraph 4 Group 7 Schedule 9 VATA 1994 – or only if the purpose of the intervention is for the treating of disease or health disorders - not for the treating of disease or health disorders - appeal allowed
	
FIRST-TIER TRIBUNAL
TAX CHAMBER
TRIBUNAL CENTRE MANCHESTER

					ULTRALASE MEDICAL AESTHETICS LIMITED	Appellant

- and -

THE COMMISSIONERS FOR
				HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

Tribunal: David S Porter (Judge) 
						     Ann Christian (Member)						
					
Sitting in public in Manchester on 29 June 2009

Hilary Stone for the Appellant 
 
Brian T McLuggage, of counsel, instructed by the Acting Solicitor for HM Revenue and Customs for the Respondents 

© CROWN COPYRIGHT 2009

AMENDED DECISION

1.	   Ultralase Medical Aesthetics Limited (the Appellant) appeals against the decision contained in letter of 7 March 2007 that procedures performed by the Appellant in hospitals and at the Appellant’s premises are exempt from VAT by virtue of Schedule 9, Group7, and paragraph 4 to the VATA 1994. The Respondents say that as the operations took place in a hospital or at the Appellant’s premises the location of those operations was sufficient to give rise to the assessment. The Appellant says that they were carrying out cosmetic surgery and as this was not medical care the supply must be standard rated
2.	   Brian T McLuggage, of counsel, appeared for the Respondents but called no witnesses. He produced a bundle of documents for the tribunal. Hilary Stone appeared for the Appellant’s but called no witnesses because her witnesses had been unable to attend as they lived in Spain. At an earlier directions hearing the Judge had ordered that the witness statements of Dr Stanhope Maxwell and Vanessa Perez could be produced to the tribunal at the hearing and the tribunal could take such notice of them as the tribunal thought fit. Ms Stone also produced a bundle of cases and legislation.
3.	   We  were referred to the following cases:-
a.	D’Ambrumenil and another v Customs and Excise Commissioners Case C-307/01
b.	Diagnostiko & Therepftiko Kento Athinon-Ygeia AE v Ipourgos Ikonomikon Cases C – 394/04 and C- 395,/04
c.	Christoph-Domnier-stiftung fuer Klinische Psychololgie v Finanzamt Giessen Case C-0 45/01
d.	Ambulanter Pflegedienst Kugler GmbH v Finanzamt fuer Korperschaften 1 in Berlin case C- 141/00
e.	Joan Burke TC 00055
f.	D v W (Osterreichischer Bundesschatz intervening) [2002] STC 1200 
       The facts 
4.	  . The Appellant provides surgical and cosmetic treatments for patients. Its registered office is at 3 The Embankment, Sovereign House, Leeds, and West Yorkshire. We read both Dr Maxwell’s and Vanessa Perez’ statements. Dr Maxwell said that he held the position of Aesthetic Doctor and Dermatologist at the Hammersmith Clinic Limited under the control, at that time, of the Appellant. The clinic was concerned with the aesthetics of the human body and face and offered a range of treatments and procedures for face lifts, hair removal and anti-cellulite treatment. The treatments were all based around enhancing the customer’sappearance. The bundle included the advertising details from the clinic. Specific examples of some of the treatments offered were given by Dr Maxwell and included:
a.	Lumenis IPL Quantum system which uses an intense pulsed light source (not laser). The light energy is transformed to heat energy which achieves a temperature that is high enough to eliminate the hair bulb without damaging the surrounding tissues whilst destroying the germinative cells which are responsible for hair growth (this treatment was the subject matter in the case of  Joan Burke referred to below)
b.	Malarplasty is where implants are inserted into the chin by way of incisions in the inside of the mouth.
c.	Massages which are used to help improve skin texture
d.	Skin Peel which is a chemical treatment which removes the dead cells which give the skin a dull and grey appearance.

He added that the clinic did not carry out what he would classify as ‘medical treatment’. The concept of beauty is promoted throughout the literature and identified (from the dictionary definition) as ‘the quality that gives pleasure to the site, or aesthetic pleasure generally’
5.	  Mr McLuggage pointed out that the Appellant’s patients would expect to see   doctors and nurses at the clinics. Patients would feel better in themselves mentally if their bodies were positively enhanced. The advertising identifies that the patient will obtain ‘the right treatment whatever the problem’; that ‘Finding the right solution’ is ‘the first step for a more confident you’. In the board minutes, produced in the bundle, he pointed out that there are references to ‘feeling unattractive and inferior’ and that that ‘effects life very deeply/depressed’, ‘Size- they want to feel more ‘normal’. The minutes also refer to ‘Other reasons for cosmetic surgery; GI Balloon- more medical than cosmetic’. Mr McLuggage submitted that many of the treatments fall on the side of medical rather than cosmetic treatment. The Judge and member are satisfied that the most of the treatments are cosmetic.
6.	  Vanessa Perez was the clinical manager for the Appellant. She arranged the initial appointments for the patients in order to assess what was required. She would then arrange for the patient to see either a doctor or a nurse, if either thought that there were concerns of a medical nature they would insist that the patient saw their own doctor before any cosmetic action took place. The Appellant predominately catered for middle class clients, more often than not they would be female, and concerned about their appearance. The Appellant functions in the beauty market, rather than the medical market.
The Law
7.	  It was accepted by both parties that the clinics, as distinct from the hospitals, were  licensed under the Care Standards Act 2000 which defines an independent hospital and its activities as follows:
             2 (3) “Hospital” (except in the expression health service hospital) means-
				(a) an establishment-
					(i)………….
		(ii) in which  (whether or not other services are also provided) any                    of the listed services are provided;
(4) “Independent clinic” means an establishment of a prescribed kind (not being a hospital) in which services are provided by medical practitioners (whether or not any services are also, provided for the purposes of the establishment elsewhere)
 (7)  In this section “listed services” means-
		(e) cosmetic surgery;
		(f) treatment using prescribed techniques or prescribed technology
The exemption from the payment of VAT which extended to certain medical services is derived from Directive 2006/112/EC. Article 132 of the principle directive and in particular articles 132 (1) (b) and (c).
Exemptions for certain activities in the public interest
1.Without prejudice to other Community provisions, Member States shall exempt the following under the conditions which they shall lay down for the purpose of ensuring the correct and straight forward application of such exemptions and of the preventing any possible evasion, avoidance or abuse.
Article 132 (1) (b) reads;
Hospital and medical care and closely related activities undertaken by bodies governed by public law or, under social conditions comparable to 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.
Article 132 (1) (c)
The provision of medical care in the exercise of the medical and paramedical profession as defined by the member state
The exemptions appear in the domestic legislation as group 7 Schedule 9 VATA 1994
	Item No
1.  The supply of services by persons registered or enrolled in any of the following
		a. the register of medical practitioners.
		d. the register of qualified nurses….
	4.  The provision of care or medical or surgical treatment and, in connection with it the supply of any goods in any hospital or other institution approved,
      Submissions
8.	Mr McLuggage submitted that the Respondent’s case in short is that the Appellant’s provision of cosmetic treatment in hospitals and their own private clinics constitutes an exempt supply from VAT. He confirmed that an assessment had been raised of approximately £400,000 and that the appeal is merely against the decision on the principle of the issue as to whether exemption for the purposes of item no 4 should be based on the location of the activity or the purpose for which it was performed. For the purposes of his submissions it will be assumed that the Appellant’s services were provided for cosmetic rather than medical interventions for the purpose of treating diseases or health disorders. In Christoph-Domnier-stiftung fuer Klinische Psychololgie v Finanzamt Giessen at paragraph 47 the Court of justice said;
   “ .. the criterion for drawing a clear distinction between  the two tax exemptions provided for in articles 13 A (1) (b) and (c) (Note: now Articles 132(1)(b) and (c) of Directive 2006/112) is less the nature of the service than the place where it is provided….”
Advocate-General Stix-Hackl gave the following opinion at paragraphs 44 and 45:
	“44. The court of Justice’s most recent discussion in the relationship between the two exemptions is in its judgement in Ambulanter Pflegedienst Kugler GmbH v Finanzamt fuer Korperschaften 1 in Berlin (para 36). In that judgment the Court of Justice stated, ‘it follows that Article 13(A)(1)(b) and (c)  of the Sixth Directive, which have separate fields of application, are intended to regulate all exemptions of medical services in the strict sense. Article 13(A) (1)(b) exempts all services supplied in a hospital environment while Article13(A)(1)(c) is designed to exempt medical services provided outside such a framework, both at the private address of the person providing the care and at the patient’s home or at any other place
45. That indicates that the court of Justice considers it possible to draw a clear distinction between the two tax exemptions, but that the criterion is less the substance of the supply than the place it is provided……. 
Ambulanter Pflegedienst Kugler GmbH v Finanzamt fuer Korperschaften 1 in Berlin is the crucial case on the subject. The case concerned a limited company which provided various types of care, including medical care, general care and domestic help through the out-patient facility. The court held:
36.	It follows that Article 13(A)(1)(b) and (c) of the Sixth Directive, which have separate fields of application, are intended to regulate all exemptions of medical services in the strict sense. Article 13(A)(1)(c) is designed to exempt medical services provided outside such a framework, both at the private address of the person providing the care and at the patient’s home or any other place
38	The Court has already held… that the concept of ‘provision of medical care’ does not lend itself to an interpretation which includes medical intervention  carried out for a purpose other than that of diagnosing, treating and, in so far a possible, curing diseases of health disorders.
39	Accordingly, services not having such a therapeutic aim must, having regard to the principle that any provision establishing an exemption from VAT is to be interpreted strictly, be excluded from the scope of Article 13(A)(1)(c) of the Sixth Directive.
40	It follows that only medical care provided in the exercise of the medical and paramedical professions, outside a hospital setting, for the purpose of prevention diagnosis or treatment qualifies  for exemption under Article 13(A)(1)(c) of the Sixth Directive, to the exclusion of any other activities relating to general care and domestic help 
The ECJ recognises the purposive approach, but applies it only outside of the hospital setting. Both the cases of Diagnostiko & Therepftiko Kento Athinon-Ygeia AE v Ipourgos Ikonomikon and Christoph-Domnier-stiftung fuer Klinische Psychololgie v Finanzamt Giessen  need to be treated with care as they were concerned with the application of the concept of “closely related activities” within article 13 (a) (1)(b) . It is agreed that all of the Appellant clinics are registered with the Healthcare Commission as independent healthcare providers for the purposes of the Care Standards legislation. However, given the Appellant’s services are carried on in hospitals and clinics (as opposed to private rooms or patients’ homes) the services are exempt and the appeal should be dismissed.
9.	Ms Stone submitted that the Commissioners’ practice is detailed in Notices 701/31/07 “Health and Care Institutions” (February 2007) and 701/57/07 “Health Professionals”  (January 2007) and Business Brief 29/03
Notice 701/57
“3 Cosmetic services. Each case will need to be considered on its individual merits. However, we will generally accept that cosmetic services are exempt where they are undertaken as an element of a health care treatment programme. Where the services are undertaken purely for cosmetic reasons, they will be standard rated.
Notice 701/31 
Schedule 9, Group 7, item 4 provides exemption for care or medical or surgical treatment and, in connection with it, the supply of goods in any hospital or state regulated institution. A qualifying institution is one which is either:
•	A hospital; or
•	A hospice or nursing home that is either approved licensed or registered under the relevant social legislation or is exempt from obtaining such approval or registration by the relevant legislation.
       Supplies made by qualifying institutions are exempt when both the following conditions are met:
•	The supply consists of care or medical or surgical treatment in connection with the health of the beneficiary; and
•	The care or treatment is provided under the terms of 
o	An approval, license, registration or
o	An exemption form registration under the appropriate social legislation
Customs guidance states that medical care or treatment, provided by a qualifying institution includes:
•	Performing medical or surgical procedures
•	Nursing sick or injured patients in a hospital, hospice or nursing home, and
•	Meals and accommodation provided for in-patients, residents or other care beneficiaries
Class 3B and 4 Lasers and Intense Pulse light Source Machines are now used in many medical and cosmetic procedures carried out on the premises of approved, licensed or registered institutions. However, it should not be assumed that all treatments using this equipment are exempt from VAT.
“ Where the procedure utilising this equipment is supplied as part of a treatment programme drawn up by a registered health professional following the diagnosis of a medical condition, this treatment is exempt from VAT. But where it is carried out for cosmetic reason rather than as an element of a medical or surgical treatment, this service is taxable at the standard rate of VAT”.
Business Brief 29/03. This article provides interim advice on the decision of the ECJ in the case of D’Ambrumenil and affects the VAT treatment of certain medical services supplied by doctors and health professionals. Currently these services are exempt from VAT. This ruling introduces, for the first time, a purpose test to determine whether a medical service is exempt from VAT or not. Essentially the ECJ ruling means that if the principal purpose of the medical service is the protection, maintenance or restoration of the health of an individual then the service will continue to be exempt from VAT. Primary health care provided through the NHS or the private sector will remain VAT free.
The European cases relating to article 13(A)(1)(c) require exemption only to apply to the provision of ‘medical care’ when it was carried out for the purpose of diagnosing, treating, and if possible, curing disease or health disorders. D v W
 (Osterreichischer Bundesschatz intervening), which concerned a doctor giving medical evidence in a court of law, decided that VAT had to be charged on his fee ‘medical care’ did not include giving advice to a court of law. The court concluded “the reference to care of the person which feature in the provisions at issue make it fairly clear that the exemption is justified by the need to reduce medical costs and thus promote access to health”. D’Ambrumenil and another v Customs and Excise Commissioners came to the same conclusion. Diagnostiko & Therepftiko Kento Athinon-Ygeia AE v Ipourgos Ikonomikon related to the provision of telephones and televisions to in-patients as an ‘activity closely related’ to hospital or medical care. The court said in relation to article 13(A)(1)(b):
	“23 The exemption of activities closely related to hospital and medical care provided by …the article…is designed to ensure that access to such care is not prevented by the increased costs of providing it that would follow if it, or closely related activities, were subject to VAT
24.	The hospital and medical care envisaged by this provision is, according to the case law, that which has as its purpose the diagnosis, treatment, and, in so far as possible, cure of disease and health disorders.
The Appellant maintains that Article 132 (1) has direct effect and must be considered in the light of the overall purpose of the Directive and the general requirement for this to be a matter of public interest (ie) to increase the access to health care. Further the exemption should be construed narrowly. The tribunal must therefore look to the purpose of the procedure/treatment to determine whether the exemption applies. It has been accepted that the Appellant’s activities are cosmetic, and this is in line with Notice 701/57:
“…..Where the services are undertaken purely for cosmetic reasons, they will be standard rated”.
The domestic legislation must be viewed on the same basis. The Respondents’ own guidance clearly acknowledges and differentiates procedures carried out as part of a treatment programme following diagnosis of as medical condition (exempt of VAT), from those that are carried out for cosmetic reason ( standard rated for VAT).
The issue therefore turns on whether the Appellant provides services with the purpose of diagnosing, treating, and curing diseases or health disorders and whether the exemption should be applied to fulfil the public interest of improving the access to health care. On the basis of the evidence the Appellant argues that al processes and procedures offered by the Appellant were solely to improve the personal appearance of a customer and indeed the Appellant actively ensured that they did not engage with any client in relation to a health issue. Consequently (again as confirmed in the Respondents’ guidance) the purpose of all the treatment is cosmetic and therefore standard rated.
The decision
10.	We have considered the facts and the law and have decided that the cosmetic supplies of the Appellant do not fall within the exemption and are therefore standard rated. It has been agreed that the Appellants services are cosmetic and that they are carried out in a hospital and/or other licensed institution. The question is whether the fact that they are carried out in a hospital or other licensed institutions is sufficient to bring the services within the exemption, or whether a decision has to be made as to the purpose for which the services are rendered? 
11.	The European Directive, now Article 132, appears to anticipate that the provision of medical care and treatment should, in the interest of the general public, be exempt “to ensure that access to such care is not prevented by the increased costs of providing it that would follow if it, or closely related activities, were subject to VAT” (see Diagnostiko & Therepftiko Kento Athinon-Ygeia AE v Ipourgos Ikonomikon). It would also appear that articles 132(1)(b) and (c) have in part  been amalgamated in item 4 group 7 Schedule 9 VATA 1994 by the provision of “care or medical or surgical treatment in any hospital or state-regulated institution’. 132 (1)(b) being ‘Hospital and Medical care’ and (c) ‘the provision of medical care’. The European case law in relation to the interpretation of ‘ medical care’ in relation to 132(1) (c) is clear and identifies it as:
“ that which has as its purpose the diagnosis, treatment, and, in so far as possible, cure of disease and health disorders.” (see Diagnostiko)
In Christoph-Domnier-stiftung fuer Klinische Psychololgie v Finanzamt Giessen the court stated at paragraph 48:
	“48. It should also be borne in mind that, given the objective of reducing health care costs, the term medical care in article 13 (a)(1) (b)  does not call for an especially narrow interpretation. However, the services covered by that term , like those covered by provision of medical care in letter (c) of the same provision, must have as its purpose the diagnosis, treatment, and in so far as possible, cure of diseases or health disorders.”
We are satisfied that it is necessary for the Appellant to be shown to be providing a service which has as its purpose “the diagnosis, treatment, and in so far as possible, cure of diseases or health disorders” for the VAT exemption to apply. It would be illogical for the interpretation of medical care in 132(1)(c) to be different to that in 132(1)(b). Cosmetic intervention does not need to be available to the general public “to ensure that access to such care is not prevented by the increased costs of providing it…” If cosmetic intervention is required in circumstances where it does assist “health disorders”, after a road accident for example, then that assistance should be available in a hospital (through the NHS or privately) and ought properly to be exempt. Mr McLuggage kindly referred us to the tribunal decision in Joan Burke. The dispute concerned whether IPL supplies by the Appellant were exempt from VAT under item 4 (which we have referred to above). The Appellant failed to establish that medical disorders were the sole cause for the variation in hair growth, fFurther the Appellant could not prove that the treatment was for medical rather than cosmetic purposes. The tribunal dismissed the appeal and confirmed that the treatment should be standard rated. The decision agrees with the statement in Notice 701/31 which states:
	“Class 3B and 4 Lasers and Intense Pulse light Source Machines are now used in many medical and cosmetic procedures carried out on the premises of approved, licensed or registered institutions. However, it should not be assumed that all treatments using this equipment are exempt from VAT.”
We allow the Appellants appeal and confirm that the Appellant’s supply of cosmetic intervention should be standard rated and that the test should be the purpose for which the supply is made.
We reserve our decision with regard to costs. We consider that costs must be decided under the earlier rules as the Appellant entered into this appeal on the basis of those rules and not the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. We direct that the Appellant submit its application for costs to the Tribunal and to the Respondents within 28 days from the release of the decision. The Respondent shall reply within 56 days with the Appellant’s right to reply within 70 days. The tribunal will decide the costs on the basis of written representations.

JUDGE
Release Date:31 July 2009
MAN/08/0389