Federal Fiscal Court strengthens doctors’ tax position
VAT exemption for groups of doctors: Federal Fiscal Court strengthens cost-sharing model
In medical practice, it is common for several doctors to join together to form a community in order to share medical equipment, staff or IT infrastructure.
VAT law provides a special regulation for such cases: If the shared services are organized by a so-called cost-sharing community, these services can be passed on to the members free of VAT. This prevents an additional tax burden – particularly because doctors generally provide VAT-free services and therefore have no right to deduct input tax.
With its ruling from 4 September 2024 (case no. XI R 37/21), the Federal Fiscal Court (BFH) has now specified and extended this regulation in favor of joint practices. In the case in dispute, two doctors had founded a joint practice that managed rooms, facilities and staff. The community was structured as a pure cost community and was not intended to make a profit. The members made monthly contributions to cover the joint costs.
The joint practice also concluded independent contracts with third parties, for example with a cleaner. One of the two doctors took over the management of the practice and was paid by the group. The tax authorities wanted to subject these internal services, in particular the management and cleaning services, to VAT.
Justification: These services were not directly used to provide tax-exempt medical treatment and were therefore not tax-privileged.
The BFH expressly contradicted this view. The services provided by the group practice to its members are exempt from VAT overall – even if they are general organizational activities such as cleaning or management. The court thus clarifies that such internal services can also fall under the VAT exemption for cost-sharing groups.
Legal basis: When a joint practice may operate VAT-free
The VAT exemption for joint practices is based on:
- § 4 No. 29 UStG
- EU VAT system directive
These regulations enable independent associations – such as medical practice groups – to invoice their internal services tax-free. But only if certain conditions are met:
These conditions must be met:
- Services to members only: The community may only make its services available to its own members.
- Activities for the common good: The benefits must be used to carry out activities that benefit the common good – such as medical or healthcare work.
- Reimbursement of costs only: No profits may be made. The community may only pass on the actual costs incurred on a pro rata basis.
- No distortion of competition: The tax exemption must not lead to an unfair advantage over other taxable providers.
Important:
If the community also provides services to third parties (i.e. non-members), these are not covered by the tax exemption – and must be taxed as normal.
Conclusion and recommendation
The BFH decision provides more legal certainty for medical practice groups. If administrative services such as the provision of staff, room cleaning or management are to remain VAT-exempt, the joint structure must be precisely defined. The services may only benefit the members, no profits may be made and the costs must be passed on in accordance with the costs-by-cause principle.
Our tip: Anyone planning or already running a joint practice should definitely have the contractual structure checked for tax purposes – it’s a matter of hard cash.
