Boehringer Ingelheim Pharma: Pharmaceutical manufacturer can deduct rebates paid to third parties
On 20 December 2017 the Court of Justice of the European Union (“CJEU”) ruled in the Boehringer Ingelheim Pharma case (C-462/16) concerning rebates paid to insurers or health bodies.
22 December 2017
Boehringer Ingelheim Pharma GmbH & Co. KG (‘Boehringer’) is a Germany-based manufacturer of pharmaceutical products at the head of a supply chain that is obliged by a statutory provision of German law to pay price rebates to public health insurance funds and private health insurers after supplies takes place which is indexed to the price of its products.
Pharmaceutical products intended for persons with public health insurance funds are supplied by the pharmacies to the health insurance funds and subsequently made available to persons insured by them. Pharmaceutical products intended for persons with private health insurance are supplied by the pharmacies to those persons. The private health insurance company does not purchase the products, but merely reimburses the persons insured by it, upon request by them, for the costs they have incurred. In such cases, Boehringer Ingelheim Pharma must grant the public health insurance funds and private health insurance company a discount on the price of the medicinal product.
The German Tax Authorities decided that Boehringer is allowed to reduce the taxable amount for rebates to public health insurance funds. However, it was not allowed to adjust its output tax position in relation to rebates paid to private health insurers, as they were insufficiently linked to the supply chain.
Judgement of the CJEU
The CJEU disagrees with the German Tax Authorities and follows the opinion of the AG.
Based on the CJEU judgment in Elida Gibbs, the principles on which the VAT system was based was neutrality, in the sense that within each country similar goods should bear the same tax burden whatever the length of the production and distribution chain. As a result a pharmaceutical company such as Boehringer is allowed to reduce the taxable amount if:
- it supplies those medicinal products to pharmacies via wholesalers,
- the pharmacies supply those products, subject to tax, to persons with private health insurance,
- the insurer of the medical expense insurance (the private health insurance company) reimburses the persons insured by it for the costs of purchasing the medicinal products, and
- the pharmaceutical company is required to pay a ‘discount’ to the private health insurance company pursuant to a statutory provision.
As a result of the CJEU judgement in our opinion two aspects are in this case relevant.
The CJEU decided that the payments made by the insured person for the purchase of the medicinal products must be regarded as consideration provided by a third party (the third party being the insured persons). This means that the private health insurance companies, in this case, are regarded as the end user in the supply chain and not the insured persons.
With respect to the discount the CJEU furthermore states that the discount is fixed by the law and that the pharmaceutical company is obliged to grant it to private health insurance companies which have reimbursed the insured persons. In those circumstances, the pharmaceutical company was not able to freely dispose of the full amount of the price received on the sale of its products to pharmacies or to wholesalers
Although in the Netherlands discounts paid by pharmaceutical company to third parties are not required by law we see arguments to state that discounts paid by pharmaceutical company to health insurance companies based on contractual agreements can also lead to situations in which the pharmaceutical company is not able to freely dispose of the full amount of the price received on the sale to pharmacies or to wholesalers and as a consequence should be able to reduce its taxable amount.
Please note that this could lead to discussion with the tax authorities.
As the outcome of this case is of great importance to the suppliers of pharmaceutical products that grant rebates to third parties outside the supply chain in EU Member States we advise you to explore your VAT position together with our VAT advisors to establish the possible VAT consequences.