CJEU Decision: pharmaceutical companies may reduce output VAT related to price reductions granted to third parties


In brief

The Court of Justice of the European Union (“the Court) recently released its decision in Case C-462/16 Boehringer Ingelheim Pharma GmbH & Co. KG, confirming the right of pharmaceutical manufacturers to reduce the VAT taxable base for price reductions granted to private health insurers.  

In detail

In Germany, when pharmacies supply medical products to patients with public or private health insurance, they offer price reductions to the health insurance companies. Producers of those products are also required to grant the same price reductions to those pharmacies, as follows:

  • For public health insurance: pharmaceutical products are supplied to health insurance companies, which then provide them to insured individuals. Pharmacies grant price reductions to health insurance companies. The German tax authorities consider that the price reductions granted by producers to pharmacies represent reductions of the VAT taxable amount of the supplies of goods made by producers to pharmacies; in this respect, producers have the right to diminish the output VAT;
  • For private health insurance: private insurers do not acquire the goods from pharmacies (pharmacies sell products directly to patients), but rather they refund the expenses incurred by insured individuals. As such, the German tax authorities considered that these price reductions do not represent a reduction of the VAT taxable amount of the supplies of goods made by producers; in this respect, producers are not entitled to diminish the output VAT. 

Boehringer manufactures pharmaceutical products and supplies them to pharmacies (through wholesalers). Pharmacies subsequently resell the pharmaceutical products to patients with public or private health insurance. As Boehringer reduced the output VAT of its sales with respect to the the price reductions related to patients with private health insurance (the German tax authority did not agree with this approach), the Court was asked whether Boehringer was right to do so.

The Court concluded that, as long as producers are required to offer a price reduction for their sales, this price reduction must qualify as a reduction of the VAT taxable base of their sales, even if the price reduction is granted to a third party which is not part of the chain of supply of those goods (in the case at hand, the private insurance company).

[Source: Judgment of the European Court of Justice in Case C-462/16 Boehringer, published on Curia.europa.eu, on 20 December 2017]

The takeaway

Since the judgement of the Court is highly important for all EU medical producers offering price reductions to third parties outside the supply chain, it remains to be seen to what extent the principles set out in the decision can also be transposed into Romanian tax legislation, given the specifics of the local pharmaceutical industry.

For a more detailed discussion of the impact that these provisions may have on your specific situation, you can contact the following people:

Contact us

Ionut Simion

Country Managing Partner, Romania

Daniel Anghel

Partner, Tax and Legal Services Leader, Romania

Diana Coroaba

Partner, Tax Services, Romania

Ionut Sas

Partner, Tax Services, Romania

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