Sales, Use and International Tax Activity Update - August 2010

Stemming the Tide of Stem Cell Storage Confusion in EU

The Dutch had referred this case to the European Court of Justice to determine if the collection, transportation, analysis and storage of umbilical cord blood performed by a private stem cell bank are exempt from VAT.

CopyGene is a privately owned biobank that collects, transports, analyzes and stores the umbilical cord blood of newborns. The intent is to use the stem cells contained in the blood to treat the child in the event of serious disease. The blood is extracted by medical personnel under contract with CopyGene, transported to their lab, analyzed and frozen once it is determined that there are a sufficient number of live cells. The blood remains the property of the child and the stem cells can only be used for hospital care. Since CopyGene does not own the stem cells they have no legal right to use them for any other purpose. The services provided are not covered expenses by the Dutch public health insurance system.

Article 132 (1)(b) of the Principal VAT Directive exempts hospital and medical care and closely related activities undertaken by bodies governed by public law or, under social conditions comparable with those applicable to bodies governed by public law, by hospitals, centers for medical treatment or diagnosis and other duly recognized establishments of a similar nature.

The ECJ ruled that the activities in question do not fall under Article 132 (1)(b) because the activities have not been performed and may never be performed. They only have the potential to be closely related activities under the Article. There is no evidence that the stem cells would be able to be used to treat the disease.

The nature of the services would not be entitled to the exemption despite being supplied by public hospitals. Any hospitals supplying these services must charge VAT.

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