Internet consultation on refinement definition medicine for VAT purposes
On July 17, 2017 the Dutch Ministry of Finance launched an internet consultation on the proposal for a refinement of the definition of medicine for the application of the reduced VAT rate.
26 july 2017
Dutch Supreme Court
The direct reason for the launch of this internet consultation was the judgment of November 11, 2016 of the Supreme Court that ruled that sunscreen lotions containing UVA and UVB filters and toothpaste containing fluoride qualify as medicines in the VAT definition of the word and are therefore subject to the reduced VAT rate of 6%.
As reported in our previous alert, the broad interpretation by the Supreme Court of the term medicine also creates opportunities for other products to be subject to the 6% VAT rate. The purpose of the proposal is to put an end to this broad interpretation.
By refining the VAT legislation, as of January 1, 2018 the reduced VAT rate of 6% will only be applicable to products for which a marketing authorisation has been issued as stipulated in the Dutch Medicines Act (Geneesmiddelenwet) or which are specifically excluded thereof. As of January 1, 2018 products which are currently subject to the reduced VAT rate of 6% due to their presentation, but which from the perspective of the Dutch Medicines Act and the European regulations for cosmetics, medicinal products and medical devices are evidently not allowed into be introduced into circulation as medicines, will no longer be subject to this reduced VAT rate. According to the Ministry of Finance the large majority of the products that currently qualify as medicines for VAT purposes will remain subject to the reduced VAT rate of 6%.
The internet consultation
This consultation was launched on July 17, 2017 and will close on August 14, 2017. The consultation is open to the public and will seek the views of business, the public and representative organisations. It is our expectation that the Dutch Association of Tax Advisers (Nederlandse Orde van Belastingadviseurs) will comment on the proposal.
Impact on the Dutch practice
The proposal aims to achieve clarification, legal certainty and unambiguous VAT treatment of products qualifying as medicine in relation to the current situation. By linking products to the marketing authorisation as stipulated in the Dutch Medicines Act, or the explicit exclusion thereof, cosmetic, cleansing and care products such as sunscreen lotions and toothpastes containing fluoride and other pharmaceuticals for which an authorization as medical device has been issued, will no longer qualify as a medicine for VAT purposes.
Examples of these products are certain (baby) creams, mouth wash, insect spray and anti-dandruff shampoo, certain products against haemorrhoids, acne, bladder inflammation, heartburn, gastrointestinal cramps, diarrhoea, eczema, cough, head lice, lime, sore throat, scars, fungal infections, colds, blocked nose, warts and kidney dialysis concentrates. As of January 1, 2018 these products will possibly no longer be subject to the reduced VAT rate.
Since it involves an internet consultation, it is not yet clear what the final version of the proposal will be like.
Please note that (i) the Supreme Court considers that the term "medicine for VAT purposes" should be interpreted in accordance with the definition of the term "medicine" in the Medicinal Products Directive, including a broad explanation of the presentation criterion on the basis of European case law and (ii) an earlier attempt to amend the law has not been successful.
Parties selling medicines and like products should monitor these developments, in order to process possible changes in their administration in a timely manner.