The Dutch Ministry of Finance has published a proposal to limit the scope of the reduced (6%) VAT rate on pharmaceutical products. The wide application of the reduced VAT rate will, thus, come to an end as a result of the decision given by the Dutch Supreme Court at the end of last year. This decision enables those products that can only be presented as pharmaceuticals (such as specific toothpastes and sun protection products) to also benefit from the law VAT rate. In addition, the intended tightening of rules ensures products that are currently traded under a ‘medical device’ marketing authorization, will no longer be subject to the reduced VAT rate. In practice, the stricter rules will have drastic consequences.

The merits of the proposal

The Dutch Medicines Act (Geneesmiddelenwet) will be used as a basis for determining whether or not a product qualifies as a pharmaceutical product for the purpose of levying VAT. According to the Ministry’s proposal, the definition will be tightened to include an additional criterion; namely: that marketing authorization must have been granted or that a specific marketing-authorization exemption applies. A marketing authorization will only be granted if a product has an alleged therapeutic and/or prophylactic effect with regard to illnesses. Products for which such a marketing authorization has been granted will be entered into the public database, referred to as the Medicines Information Database (Geneesmiddeleninformatiebank).

Practical consequences

Products for which no marketing authorization has been granted or to which no specific authorization exemption applies, can therefore no longer benefit from the reduced VAT rate. Thus, 21% VAT will have to be charged on products that previously would have fallen under the reduced VAT rate as a result of the decision of the Dutch Supreme Court. The consequences of this are a higher VAT impact. Moreover, the proposal will also ensure that medical devices that have not been granted a pharmaceutical product marketing authorization, will also be subject to the high VAT rate (21%). All in all, the application of the reduced VAT rate will be much more limited than before the Supreme Court’s decision.

The advantage of the intended rules is that it will be easier to see what the applicable VAT rate is. In addition, the intended rules will prevent lengthy discussions with the Dutch Tax and Customs Administration on whether a product can benefit from the reduced VAT rate according to the Supreme Court’s decision.

Intended effective date

The plan is for the proposed rules to take effect on 1 January 2018.

Internet consultations

A text proposal with notes has been published online. The Ministry of Finance offers all those involved, the opportunity to react to the proposal. The consultations will end on 14 August 2017.