Court of Justice

In Boehringer Ingelheim RCV GmbH & Co KG Magyarorszagi Fioktelepe (C-717/19), the taxpayer was a pharmaceutical company which marketed state-subsidised drugs to wholesalers. The wholesalers in turn sold the drugs to pharmacies which sold them to patients. The Hungarian state health insurance body operated a “purchase price subsidy” system under which it paid pharmacies a proportion of the price of a drug while the patients paid the balance of the price to the pharmacy. The pharmacies paid VAT on the sum of the amount paid by the patients and the amount paid by the state health insurance body. In order to ensure that the medicines it distributed on the Hungarian market remained subsidised, the taxpayer concluded “reimbursement agreements” with the state health insurance body undertaking to pay the body a defined percentage of each subsidy in relation to particular drugs. In some cases, once a ‘subsidy ceiling’ was exceeded for the product in question the amount was 100% of the subsidy. The “reimbursement agreements” gave the taxpayer a guarantee that its drugs would be subsidised. It was not required by law to enter into the agreements however.

The taxpayer argued that it should account for VAT on the amount for which it sold the drugs to wholesalers reduced by the amount it paid the state body. The Hungarian tax authority refused to allow the taxpayer to account for VAT on the reduced amount on the basis that its national legislation required that any price reduction must be part of its fixed terms or be carried out for promotional purposes.

The Court found however that by entering into the “reimbursement agreements” the taxpayer effectively waived a portion of the consideration paid by the wholesaler. The price on which VAT was chargeable was therefore reduced within the meaning of the VAT Directive and the Hungarian legislation which required that the price reduction be part of the company’s fixed terms or be made for promotional purposes was precluded by the VAT Directive. The fact that it was the patient who was the beneficiary of the subsidy rather than the state health insurance body (which passed the subsidy onto the pharmacy) did not sever the direct link between the delivery of the goods and consideration received, in the view of the Court. Further the Directive precluded the Hungarian tax authorities from requiring an invoice to evidence the price reduction; the principles of neutrality and proportionality require that the taxpayer be allowed to establish by other means that the transaction reducing the price has taken place.

DLA Piper comment:

The conclusion of this lawsuit is particularly favourable for pharmaceutical companies who give rebates to public health insurers. The tax authorities were hesitant to grant a decrease in the taxable amount in the first Boehringer instance (C-462/16) because, among other things, there was no statutory requirement to pay the refunds. We perceive no legal basis for tax authorities to continue to employ this argument, given that the CJEU confirmed that a (voluntary) contribution made under a contractual duty should likewise result in a reduction of the taxable amount.