Reduction of the taxable base for one transaction cannot be taken into account when calculating the taxa | Deloitte Nederland

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Reduction of the taxable base for one transaction cannot be taken into account when calculating the taxable base for another transaction

On March 11, 2021, the Court of Justice of the European Union (“CJEU”) ruled in the Firma Z case with respect to the reduction of the taxable base.

12 March 2021

The CJEU ruled that the pharmacy in this situation does not have a taxable base eligible for reduction in relation to the discount paid.

Background

In the Firma Z case (C-802/19), a Dutch pharmacy (Firma Z) supplied medicines from the Netherlands to private individuals insured under the statutory health insurance scheme in Germany. In this case, two relevant supplies can be distinguished:

  1. The supply from Firma Z to the German health insurer;
  2. The supply from the German health insurer to the German insured individual

The supply by Firma Z to the German health insurer qualifies as an intra-Community supply which is subject to the 0% VAT rate in the Netherlands. The subsequent supply by the German health insurer to the German insured individual is outside scope of VAT in Germany.

Firma Z also paid the insured individuals a compensation for participation (‘discount’) which was deducted from the personal contribution these individuals had to pay for the medicines.

In addition, Firma Z performs distance sales directly to persons insured under private health insurance schemes (B2C) in Germany. These distance sales are subject to VAT in Germany.

Firma Z argued that it could reduce the taxable base of the distance sales (B2C) in Germany with the discount paid. This would lead to a VAT refund of German VAT for Firma Z.

The CJEU ruled that a reduction of the taxable base for one transaction cannot be taken into account when calculating the taxable base for another transaction. Since the discounts paid were not connected to the distance sales, Firma Z did not have a taxable base that can be reduced and was thus not allowed to reduce the taxable base of the distance sales in Germany.

Practical impact

Given the fact that no VAT was effectively charged by Firma Z, nor was VAT due either on the supplies of the medicines in the final leg of the supply chain (to the insured individual) or on the personal contribution paid by the insured individuals, we understand why the CJEU came to this conclusion.

However, there are a couple of points to consider:

  1. The facts and circumstances in this case are very specific and the relevant question is completely directed to answer whether a discount can reduce the taxable base of unlinked distance sales. As a result, even though the CJEU stresses the importance of a direct link between a discount and the final supply, this does in our view not mean that VAT refunds will not exist for other (international) discount schemes;
  2. The CJEU did not discuss the impact for VAT refunds in discount schemes in the situation that the final leg of the supply chain (to the insured individual) is outside the scope of VAT. In practice we see in that this can lead to discussion in various countries.

Furthermore, we note that there is still a case pending with the CJEU regarding the VAT position of pharmaceutical companies paying rebates in the pharmaceutical supply chain (Boehringer Ingelheim case, C-717/19). In this case, Hungary requested the CJEU for a preliminary ruling on a national rule under which a pharmaceutical company makes payments to a public health insurer under a voluntary agreement. Hungary wants to know if in those circumstances the pharmaceutical company is entitled to reduce its taxable amount.

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