Fiscal neutrality and proportionality are the most crucial core features in the VAT system. The ECJ has reconfirmed this in a recent court case, C-717/19, by its rationale in the final judgment by confirming that “the amount collected by the tax authorities must not exceed the amount paid by the final consumer, i.e., member states are obliged to reduce the taxable amount in all cases where the taxable person does not receive the whole or part of the consideration after the transaction has been completed”.
This ECJ decision has left its mark in the EU and will likely result in millions of VAT savings for pharma companies.
We agree with the ECJ assessment in this case, and this is also in line with what has been stated by the Directorate of taxes in Norway with regards to discounts provided in chains of sales.
We expect that this judgment should be relevant to - and may create opportunities for - pharmaceutical companies that conduct business in Norway and are part of a discount arrangement with a public or private entity. Many pharmaceutical companies are, for instance, partaking in the “Blåresept” prescription scheme administered by Helfo. We recommend that such pharma companies should take a closer look at how the discount is currently handled for VAT purposes.
We recommend that pharma companies that supply pharmaceuticals in Norway and offer retrospective discounts to public and/or private entities review their VAT accounting procedures and assess how the ECJ court case might benefit their VAT position in Norway.
Summary of the case
The Boehringer Ingelheim ECJ case concerns a Hungarian subsidiary of Boehringer Ingelheim and the subsidiary's agreement with the National Health Insurance Fund Management (NEAK) to sell subsidized medicine to wholesalers in Hungary.
The wholesaler resells the medicine to the pharmacies in Hungary, which in turn resells it to private patients covered by the NEAK. The patient pays a proportional amount for the medicine to the pharmacy - here the difference between the price of the product and the funding provided by social security-, and the rest of the payment will be covered directly by NEAK to the pharmacy as social security funding. This scheme is pretty much like the blue prescription scheme (“blåresept”) we have through Helfo in Norway.
NEAK will in practice claim for a repayment (discount) from the pharmaceutical company that is part of this scheme (here The taxpayer). The taxpayer will also as a result of that need to use part of the payment received from the wholesaler to pay NEAK. As a result of the arrangement, the total VAT liable revenue was hence reduced for The taxpayer, see illustration below.
In this particular case, The taxpayer filed a supplementary VAT return to the tax authorities to correct the VAT basis by reducing it in line with the discount. However, the Hungarian tax authorities declined the request and were of the view that The taxpayer has not provided sufficient evidence (audit trail) to support the reduction. More specifically, they argued that:
- The price reduction cannot be granted as this was not part of The taxpayer’s terms of business or a business promotion, and
- There was no credit invoice issued to support the reduction.
The case was brought into the ECJ, and the ECJ voted in favor of The taxpayer. ECJ also pointed out in its assessment that a reduction shall as a starting point be granted if the taxpayer, in the end, has not received all or part of the consideration for its supplies.
Furthermore ECJ also explicitly stated that “the amount collected by the tax authorities must not exceed the amount paid by the final consumer, i.e Member States are obliged to reduce the taxable amount in all cases where the taxable person does not receive the whole or part of the consideration after the transaction has been completed”. Which will have been the case here if The taxpayer is not granted with the reduction.
Regarding the proof, it is not necessary to provide invoice/credit notes to prove that the VAT basis has been reduced. This can be verified by other evidential documents, like bank statements, agreements, etc. In this respect, the ECJ voted in favour of The taxpayer and granted The taxpayer to reduce the amount retroactively due to the discount arrangement with NEAK.
Please find attached the link to the ECJ judgment (C-717/19)
For further information on this case and how this case might impact your business, please feel free to contact us for a further discussion.
Jeg heter Lars Flatåker og er direktør/advokat i Advokatfirmaet PwC.
Jeg har jobbet med import/eksport, toll, særavgifter og mva siden 2003. Siden 2007 har jeg bistått store og små, norske så vel som utenlandske, klienter med å navigere veg gjennom jungelen av norske avgiftsregler og administrative forpliktelser. Jeg prøver selvsagt også å hjelpe mine klienter med å betale riktig mengde indirekte skatt. Denne jobben er både morsom og utfordrende.
I denne bloggen vil jeg dele mine erfaringer på disse områdene med deg og ta opp problemstillinger som jeg ser skaper utfordringer for klientene mine i praksis. Kanskje klarer jeg å gi litt faglig påfyll, eller til og med å peke deg i retning av løsningen på en konkret utfordring du har. Hvis du finner noe av det jeg skriver interessant eller tankevekkende er det hyggelig om du tar kontakt.
My name is Lars Flatåker, and I work as a Director/Lawyer in the International Trade/Indirect Tax Team of PwC Oslo.
I have been specialising in import/export issues, customs and excise, as well as VAT, since 2003. I assist clients with navigating through the complexities of customs and VAT rules, as well as bookkeeping- and other compliance obligations, often in connection with cross border activities. I also provide advice on supply chain structuring, customs valuation and other specific customs issues. I have been with PwC since 2007. Before that, I worked as a legal advisor in the Norwegian Customs & Excise Administration.
Mitt navn er Jennifer Wong og jeg jobber som advokat i PwC. Mitt arbeidsfelt er merverdiavgift og toll, med særlig fokus på internasjonale forhold og cross border transactions. Jeg har arbeidet i PwC siden 2018 og til daglig bistår jeg norske og utenlandske virksomheter med blant annen rådgivning, strukturering og spørsmål knyttet til rapportering av merverdiavgift og tilsvarende indirekte skatter i Norge og utlandet.
My name is Jennifer Wong and I work as a lawyer at PwC Tax and Legal Services. I assist clients with VAT advice on Norwegian and international queries, as well as indirect tax analysis, cross-border planning, merger and acquisition and efficiency improvement from a vat compliance perspective. Please do not hesitate to contact me if you have any questions.