Marketing services from VAT perspective

Pharmaceutical company ELI LILLY provided marketing services to a foreign group company and treated them as a separate supply – the provision of services with a place of supply outside the Czech Republic. However, the tax administrator regarded the services as an ancillary supply - an integral part of the main supply provided by ELI LILLY, which is the distribution of pharmaceuticals in the Czech Republic. Therefore, according to the tax administrator, payments for these services should be included in the tax base for the sale of pharmaceuticals in the Czech Republic.

The SAC had previously dealt with an identical dispute between the same parties. In previous judgments, the SAC emphasised that it was necessary to distinguish between the recipient of the marketing service (the one who ordered the service and benefits from it) and the recipient of the marketing information (the one whom the content of the marketing service is intended to influence). According to the SAC, the tax administrator's factual conclusions did not reflect the complexity of trading on the strictly regulated pharmaceutical market.

The SAC concluded that ELI LILLY does not supply to its customers any other supplies together with the medicines. The only supply that the customers received from the company was the medicine. Therefore, in the context of medicine distribution, payment for marketing services cannot be regarded as part of the consideration, as those services were not provided to customers: they were only the recipients of the marketing information.

The SAC was of the opinion that in the case at hand, the distribution of pharmaceuticals and the provision of marketing services represent separate supplies, as they were provided to different entities and from the perspective of the average customer are not a single indivisible supply. Thus, only the first supply can be included in the tax base.