Distinction between medical activity and hospital

In decision E. 19 June 2002, 2001/15/0053, the Supreme Administrative Court (VwGH) sets out the following criteria for distinguishing the activities of a doctor from those of a healthcare institution (e.g., a clinic), deviating from the VAT guidelines, para 950:

::For the Medical activity is the treating doctor's personal responsibility to the patient after the
Doctors Act.

::Hospitals establish an organisational entity according to the Hospitals Act Provision. As a result of the obligation to appoint a deputy medical director, at least two doctors from the hospital must be available. The treatment contract is concluded not only with the doctor but also with the institution, which is under sanitary supervision. Furthermore, it is crucial that the possibility of treating several people simultaneously exists.
Current position – in accordance with the VAT guidelines – where the focus tends to be on a pragmatic approach to apportionment (allocation based on the predominant nature of the activity in question), the Supreme Administrative Court resolves the allocation issue purely on the basis of the legal framework (the Medical Practitioners Act and the Hospitals Act).

Tax implications of the distinction

::Income tax
The income from medical activity income within the meaning of § 22 no. 1 b EStG from independent work, the income from Hospitals contrary to Section 23 of the Income Tax Act, income from Commercial enterprise.

The attribution to different types of income results in a separate profit determination:
– Accounting obligation for income from commercial operations (medical institution) where the accounting thresholds set out in Section 125 of the Federal Tax Code (BAO) are exceeded (annual turnover exceeding S 5 million up to 2001, and exceeding € 400,000,–).
The obligation to keep accounts (accounting obligation) begins when these sales thresholds have been exceeded in two consecutive years.

– Income and Expenditure Account for income from medical activities.

::Value Added Tax
Deliver from medical activity, as far as they Medical treatment are exempt from turnover tax within the meaning of Section 6(1)(19) of the Turnover Tax Act (therefore no input tax deduction).
In accordance with Section 10(2)(15) of the Value Added Tax Act (UStG), revenue from a hospital is subject to the reduced rate of 10 %, and input tax is deductible.

::Operational audit risk
In the event of a reclassification of income, the following risks arise: If, to date, no distinction has been made between revenue from medical practice and revenue from the hospital, and the revenue from the hospital has been taxed under code 10 %, whilst revenue from medical practice was exempt from VAT, the following consequences are to be expected: If the criteria for a hospital are met and the accounting thresholds are exceeded, this constitutes a breach of the accounting regulations. If, on the other hand, the criteria for a hospital are not met, the revenue is falsely exempt from VAT. This would result in the loss of the right to deduct input VAT, whilst the VAT liability remains in force by virtue of the invoicing. However, if the VAT exemption was wrongly claimed for the healthcare facility’s revenue, the facility will be subject to a retrospective VAT charge, whilst input VAT, if not precisely determinable, may be estimated.

::Social security
If the healthcare facility is a commercially registered one, the person acting as the „legal entity“ (the responsible medical director) is subject to the obligation to take out comprehensive insurance pursuant to § 2(1)71 GSVG – as a member of the Chamber of Commerce –. Finally, it should be noted that the Federal Ministry of Finance (BMF) has not yet issued a statement on this new case law. The impact on administrative practice is therefore not yet foreseeable.

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