Doctors vs. tax office: freelance or commercial?

The Cologne Finance Court has decided. Is this the big test case?

Frankfurt am Main

October 21, 2024

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Swabs carried out by doctors in Corona test centers are freelance activities

The Cologne Finance Court had to decide whether the taxpayer earned income from self-employment or from a commercial enterprise in 2020 through the swab/testing center it operated for the detection of coronavirus pathogens. The latter would mean that the income would also be subject to trade tax.

In the year in question, the taxpayer operated a swab/testing center (testing center) for the detection of coronavirus pathogens in Z, in the legal form of a civil law partnership (GbR). The taxpayer's direct and indirect shareholders were exclusively general practitioners and a specialist in laboratory medicine. The testing center was operated outside the shareholders' original practice premises. The participating physicians performed the swabs themselves at the testing center. Required laboratory services were outsourced.

The testing center was opened at the request of the Z District Health Department to positively influence the infection rate in doctor's offices, as sick individuals could be tested outdoors by the participating doctors and no longer had to visit the doctor's offices. The swab center was legally licensed as a branch of the partners' practices. The services were billed to the North Rhine Association of Statutory Health Insurance Physicians. The taxpayer declared income from self-employment from the operation of the testing center for the year in question.

However, the tax office classified the activity as a commercial activity following an audit. This activity is only freelance if medically freelancers carry out the testing in their practice premises, where they also otherwise pursue their freelance activities. If the testing is carried out outside of the original practice, they are no longer acting freelance, but commercially. Furthermore, the overall activity is detached from the respective original medical activities of the participants. It was an independent activity, for the exercise of which no professional qualifications are required. No professional qualifications are required for additional services, such as communicating test results by telephone or advising on applicable quarantine regulations.

However, the Cologne Finance Court has now confirmed in its judgment of April 24, 2024 (case number 3 K 910/23) that a freelance activity was carried out. In the case in dispute, the coronavirus tests carried out by the taxpayer's shareholders, as licensed physicians, by means of nasal and/or throat swabs constitute a preliminary diagnostic measure that, as a typical professional measure in the broadest sense, serves to determine an illness and thus corresponds to the medical practice of a physician. This applies regardless of the fact that this is a relatively simple auxiliary activity. However, this is not atypical for a medical activity, because in the context of medical practice, there are numerous auxiliary activities, such as measuring blood pressure and fever, applying bandages, and the like, which can be performed not only by physicians and medically trained personnel such as nurses or medical assistants, but also by the patient themselves, usually with equal success.

The Fiscal Court also disagrees with the tax office's view that additional services provided by the taxpayer, such as telephone notification of test results or advice on quarantine regulations – regardless of how extensive such services may have been – are irrelevant in this regard. In conjunction with the hygiene concept presented by the taxpayer and the statement that medical issues were also discussed during both the testing and the notification of the test results, this rather reveals a comprehensive package of services provided by the taxpayer that clearly relate to the medical services typical of the profession.

The Tax Court further argues that if one considers the initial situation in the year in dispute, 2020, i.e., the beginning of the coronavirus pandemic in Germany, when the specific pandemic threat caused by the coronavirus was not yet fully understood and taking swabs for PCR tests was still the only way to detect individual infections and measure the social spread of the virus, it becomes clear that, according to common understanding, the swab and testing center operated by licensed physicians was to be regarded as part of an original medical activity in the field of diagnostics. This is all the more so since both the local health authority and the local doctor's offices viewed the outsourced testing center operated by the taxpayer as an important measure to have potentially infected persons tested outside of the doctor's offices to prevent the further spread of the coronavirus.

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The Finance Court has granted leave to appeal due to the fundamental importance of this issue. It now remains to be seen whether an appeal against this ruling will be filed with the Federal Finance Court.

In the case at hand, it remained open whether this also applies to later years of the pandemic. The dispute only concerned the year 2020.