CJEU: Finanzamt Bingen-Alzey v Boehringer Ingelheim Pharma GmbH & Co. KG (C-462/16)
In its decision of 20 December 2017, the CJEU ruled that the divergent treatment of discounts on medical products paid to private and statutory health insurance providers for VAT purposes violates EU law. The court held that discounts granted to private health insurance companies are - like discounts to statutory health insurance providers - to be treated as a reduction in remuneration for purposes of VAT.
German pharmacies deliver medical products to persons with statutory health insurance under a framework contract between the pharmacy and the statutory health insurance provider. Pharmacies are obliged to grant discounts to the statutory health insurance provider. Pharmaceutical companies have to reimburse pharmacies or, where wholesalers are involved, the wholesalers for the discounts in respect of prescription only medicinal products. For purposes of VAT, the discount is treated as a reduction in remuneration.
Persons with private health insurance, however, receive medical products from the pharmacies under an individual contract with the pharmacy. The private health insurance provider does not purchase the medical products but merely reimburses the persons insured by it, upon request by them. In such cases, the pharmaceutical company is obliged to reimburse the private health insurance provider. German tax authorities do not treat this reimbursement as reduction in remuneration for the purpose of VAT arguing that the private health insurance provider is not part of the supply chain from the pharmaceutical company to the final consumer.
Dispute in the main proceedings
The case related exclusively to discounts granted to private health insurance companies. The taxpayer is a pharmaceutical company which manufactures medicinal products and supplies those products, subject to VAT, to pharmacies via wholesalers. In the context of its annual VAT declaration, the taxpayer deducted reimbursements paid by it from the taxable amount. The tax authority rejected the reduction in respect to reimbursements to private health insurance companies. The taxpayer filed an appeal with the State Finance Court Rhineland-Palatinate which was successful. Upon appeal lodged by the tax authority, the Federal Tax Court referred to the CJEU the question as to whether a pharmaceutical company is entitled to a reduction of the taxable amount under Article 90 of the VAT Directive where it supplies medicinal products via wholesalers to pharmacies which make supplies to persons covered by private health insurance that reimburses the purchase price of the medicinal products to persons it insures.
Decision of the CJEU
The CJEU followed the view of the Advocate General and ruled that a taxable person is not required to be directly contractually bound with the beneficiary of the discount in order to be able to consider the discount in the calculation of the taxable amount. According to the CJEU the discount granted to private health insurance companies results in a reduction of the taxable amount of the pharmaceutical company, provided that:
- It supplies those medicinal products to pharmacies via wholesalers.
- The pharmacies supply those products, subject to tax, to persons with private health insurance.
- The provider of the medical expense insurance (the private health insurance company) reimburses the persons insured by it for the costs of purchasing the medicinal products.
- The pharmaceutical company is required to pay a "discount" to the private health insurance company pursuant to a statutory provision.
According to the CJEU, for the purposes of VAT, the private health insurance companies are to be regarded as the final consumer of a supply made by the pharmaceutical company with the result that the amount payable to the tax authority may not exceed the amount paid by the final consumer. With this decision, the CJEU confirms its principles for the determination of the taxable basis in respect to discounts laid down in its judgment of 24 October 1996 in Elida Gibbs (C‑317/94). In light of the principle of fiscal neutrality, the CJEU extends those principles to matters where payer and payee are not part of the same supply chain.
Different approaches of the CJEU and German courts
The judgment demonstrates once more that the CJEU is prepared to refine the law based on overall principles of law. In the case at hand, the CJEU first established the result that would appear fair and in line with the overall VAT neutrality, ie, a pharmaceutical company should not need to remit VAT calculated from a (gross) amount that would be higher than what the company ultimately received. And in a second step, the CJEU provides legal arguments mainly based on general VAT principles to support this result.
The German courts on the other hand, were more concerned with the wording of the law and the prior case law (CJEU eg, in Elida Gibbs, Ibero Tours et al.), which would have rather suggested that the taxable base could be decreased only if the rebate would have been paid to a recipient in the same supply chain.
To the contrary, the CJEU even argues that the concept of German (social) law, under which privately insured patients have individual contracts with the pharmacies in Germany (and hence the German individuals and not their insurance providers are "recipients" of the supplies in Germany), should rather be regraded as a "legal fiction". The CJEU refers to the Advocate General's opinion on this point, who concluded that the insurance providers could in fact be regarded as "VAT recipients" of the relevant supplies. This line of argument underlines the essential difference of the (rather flexible) interpretation of EU law by the CJEU in contrast to the German Federal Courts' (more formalistic) efforts to adhere to the wording of the law and the prior case law to determine the supply-recipient relationship and thus to help taxpayers to more reliably determine (or anticipate) the VAT treatment of their supplies.
Pharmaceutical companies who, so far, have not declared discounts granted to private health insurance companies should review the status of assessments and, to the extent, possible, consider correcting the respective declarations or appealing the assessment notices. More generally speaking, it should be noted that following this judgment, even other kinds of rebates provided in different industry sectors and outside of formal supply chains might qualify for VAT repayments under certain, however, limited conditions.