Contributions to insurance company viewed as price reduction for VAT purposes

Judgment C-717/19 (Boehringer Ingelheim) dealt with a question of whether for VAT purposes, contributions paid to an insurance company for subsidised medicines constitute a reduction in the invoiced price. The Court of Justice of the European Union (CJEU) confirmed its previous conclusions, stating that the insurer is in the position of the final consumer vis-à-vis the supplier, and that the payment of contributions calculated from the revenues from the medicines sold shall lead to a subsequent reduction in the tax base. The supplier shall therefore be entitled to reduce their originally declared tax base, as the price had been reduced.

Boehringer Ingelheim is a Hungarian company that markets subsidised medicines. It supplies medicines to wholesalers (distributors) who resell them to pharmacies. For final consumers, medicines may be subsidised by a health insurance company (NEAK), which means that the consumer only pays a ‘residual portion’ of the price in the pharmacy (the difference between the price of the medicine and the subsidy paid by NEAK). The subsidy is paid by NEAK to the pharmacy.

The amount that pharmacies receive for the medicines, which constitutes a VAT tax base, therefore has two components: the NEAK subsidy, and the ‘residual portion’ paid by the patient. The pharmacy pays VAT on both components of the price.

Boehringer concluded cost reimbursement agreements with NEAK for the purpose of providing contributions for selected medicines. By doing so, Boehringer de facto contributed to NEAK for the subsidy (the contributions were determined based on the medicines sold) – paying them a part of its revenues from the sales in question. NEAK did not issue an invoice for the contributions, but sent a request to pay the contribution, and the payment was supported by a bank statement.

Due to the payment of the contribution, Boehringer reduced the VAT originally paid (or, more precisely, reduced the originally declared output tax base), on the grounds of a reduction in the price of the medicines.

In line with the conclusions of C-426/16 of 2017, the previous Boehringer Ingelheim Pharma judgment, the referring court held that NEAK must be considered a final consumer. Therefore, if Boehringer did not receive a part of the price of the medicines because they had paid a contribution to NEAK, the price of the medicines had thereby been reduced.

The CJEU confirmed that since the pharmacy must pay VAT on the amount paid by both the patient and NEAK, NEAK must be considered a final consumer of the supply effected by Boehringer. Since Boehringer did not receive part of the consideration for the medicines sold due to the NEAK contribution, this should be viewed as a subsequent reduction in the price of the medicines.

The above cannot be disproved by the fact that the contributions are paid to NEAK not on the basis of a statutory duty, but on the basis of a contractual arrangement.

Another issue addressed by the CJEU in the case at hand was the question of holding an invoice as a possible precondition for adjusting the tax base. On this issue, the court concluded that holding an invoice is not necessary for correcting the tax base if the supply (and its payment) can be supported otherwise.

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