A company that provides medical tourism services was obligated to pay VAT for hospitalization and related services in cases where the tourist paid it and not to the medical service providers, and they obligated it to pay VAT.
The Court held that the cases should be examined on their merits and not on that the decision of the medical service provider. Israeli law stipulates that for the hospitalization services of a tourist in a registered hospital and other services in connection with such hospitalization, a zero percent value-added tax will apply, i.e., the service provider is not subject to transaction tax but is entitled to deduct input tax. Here, instead of reviewing all the transactions on their merits, the Tax Authority chose to obligate the company to pay VAT at the full rate in all transactions in which the service provider issued the company an invoice with VAT at the full rate. However, the decision of the service providers is not one of the conditions that qualify for a zero-rate VAT charge, and the Tax Authority should have examined the transactions on their merits.