THE BOTTOM LINE
- A Dutch Court of Appeal has ruled that services provided by a hospice constitute a single, composite service that is subject to the standard rate of VAT.
- The ruling rejects the application of common VAT exemptions for medical care, social services, or property rental, fundamentally changing the tax treatment for these institutions.
- This decision, while requiring hospices to charge VAT, crucially allows them to deduct input VAT on major expenses like construction and renovation, potentially leading to significant tax refunds.
THE DETAILS
The central question before the Arnhem-Leeuwarden Court of Appeal was how to classify a hospice’s offering for VAT purposes. The institution provided terminally ill guests with a room, meals, and non-medical personal and emotional support for a fixed daily fee. The court determined that these elements are not separate services but are so closely intertwined that they form a single, indivisible service: the ‘hospice service.’ From the perspective of the average guest, the goal is not merely to rent a room or receive care, but to access a complete package that provides comfort and support in their final stage of life. The court emphasized that a hotel room would not be a realistic alternative, distinguishing the hospice’s unique service from standard accommodation.
Having defined the service, the court then navigated the complex maze of potential VAT exemptions. It concluded that the ‘hospice service’ did not qualify as medical care, which is strictly defined as services aimed at diagnosis, treatment, and cure. The exemption for social services was also inapplicable because the foundation, despite its public benefit status (ANBI), had not been specifically recognized by tax authorities as a ‘social institution’ for VAT purposes. Finally, since the offering was deemed a single, composite service and not just the provision of lodging, the general exemption for renting immovable property did not apply.
With all exemptions ruled out, the court was left with the default position: the service is taxable. The hospice had hoped for the reduced VAT rate, arguing its service was analogous to short-term hotel accommodation. However, the court disagreed, finding that the unique, care-focused ‘hospice service’ did not fall into any category eligible for a reduced rate. Consequently, the standard 21% VAT rate must be applied. This landmark decision forces a recalculation for the sector but provides a significant silver lining: the ability to reclaim input VAT on costs, which in this case resulted in a substantial refund due to a recent property renovation.
SOURCE
Source: Gerechtshof Arnhem-Leeuwarden
