Facts

Parties and procedural history:

The Stiftung A. (Taxpayer 1) and B. AG (Taxpayer 2) are part of a corporate group of the Stiftung F. and operate rehabilitation clinics at various locations in Switzerland. Taxpayer 2 was registered in the Value Added Tax (VAT) register of the Federal Tax Administration (FTA) from 1 January 2002 to 30 June 2013 and accounted for VAT using the flat-rate taxation method. Since 1 January 2013, Taxpayer 2 has belonged to the tax group of Taxpayer 1. In 2017, the FTA conducted an audit and imposed a VAT reassessment of CHF 329,378.- on Taxpayer 2 for the period from 1 January 2012 to 30 June 2013 and a reassessment of CHF 958,835.- on Taxpayer 1 for the period from 1 July 2013 to 31 December 2016. The reassessments related, inter alia, to revenue from outpatient services in the field of Traditional Chinese Medicine (TCM).

Taxpayers 1 and 2 contested the reassessments in relation to TCM services and filed appeals, which were partially granted by the FTA. The FTA’s appeal decisions of 7 May 2020 were confirmed by appeal decisions of 31 May 2021. Against these appeal decisions, Taxpayers 1 and 2 filed an appeal with the Federal Administrative Court, which dismissed the appeals with a judgment of 30 November 2022. Against this judgment, Taxpayers 1 and 2 filed an appeal in public law matters with the Federal Supreme Court.

Subject matter of the dispute:

The central issue in the proceedings is whether the TCM services provided by Taxpayers 1 and 2 in the cantons of Aargau and Zurich are to be classified as taxable services or as exempt healthcare services. Taxpayers 1 and 2 argued that the service providers held the professional practice licences required under cantonal law and that the services were therefore exempt from tax under Art. 21 para. 2 item 3 VATA. The FTA and the Federal Administrative Court, however, took the view that the service providers did not hold the required licences and that the services were therefore taxable.

Considerations

Legal basis and interpretation:

The Federal Supreme Court first examined the conditions for the tax exemption under Art. 21 para. 2 item 3 VATA. Under this provision, healthcare services provided by doctors, naturopaths or members of similar healthcare professions are exempt from VAT, provided that the service providers hold a professional practice licence under cantonal law. Taxpayers 1 and 2 argued that the service providers in the cantons of Aargau and Zurich held the required licences or were at least permitted to provide healthcare services under cantonal law.

Cantonal healthcare legislation and licensing requirements:

The Federal Supreme Court analysed the cantonal healthcare legislation of the cantons of Aargau and Zurich. In the canton of Aargau, the provision of TCM services (including acupuncture) was not subject to licensing requirements until the end of 2017, as the relevant professions were not listed in the Ordinance on Professions, Organisations and Establishments in the Healthcare Sector (VBOB/AG). As of 1 January 2018, a licensing requirement for naturopaths was introduced, which also covered TCM treatments. In the canton of Zurich, the independent practice of acupuncture was subject to licensing requirements, while other TCM services were not. However, service providers practising under a recognised complementary medicine title required a title-holding licence.

Meaning of 'admission' under Art. 35 para. 1 lit. b VATO:

The Federal Supreme Court emphasised that 'admission to provide healthcare services under cantonal legislation' within the meaning of Art. 35 para. 1 lit. b VATO can only be understood as a positive approval, not merely as toleration or a lack of regulation. The French and Italian versions of the provision ('autoriser' and 'ammettere') underline that an active permission is required. In the canton of Aargau, there was no such positive approval for TCM services until the end of…