On December 18, 2009, the Dutch Supreme Court provided an important judgment for companies in the pharmaceutical industry.
In this case, the product “absorbitol powder” was imported into the European Union (EU). The product contained 96 percent poliglusam (chitosan), three percent ascorbic acid and one percent tartaric acid. Import declarations were filed for the product classifying the product under Combined Nomenclature (CN) code 3913 9080. Although products classified under this CN code were, at the time of import (2002 / 2003), in principle, subject to a considerable duty of over seven percent, a relief from import duties was claimed for the product poliglusam, based on the list of International Non-Proprietary Names (INN), a list by the World Health Organization which provides duty-free treatment for certain pharmaceutical substances.5
However, as the product not only contained 96 percent poliglusam (chitosan), but also three percent ascorbic acid and one percent tartaric acid, the Customs inspector argued that the product was not the chemically pure poliglusam as provided for on the INN list. As a result, according to the Customs inspector, the duty relief could not be claimed and, as a result, Dutch Customs raised an additional assessment for the unpaid import duties.
The case went to Court, which initially agreed with the Customs Inspector’s argument. However, in the appeal case that followed, the Dutch Court in Amsterdam decided that the additions of ascorbic acid and tartaric acid to the poliglusam did not exclude the product from the duty-free import granted to poliglusam based on the inclusion of poliglusam on the INN list. The Court found the additions to be so minimal that the essential characteristics of poliglusam were not changed and the additions were merely intended to increase the tenability of the product.
The Dutch State Secretary of Finance did not agree with this judgment and filed an appeal in cassation with the highest Dutch Court: the Dutch Supreme Court.
Although the Advocate-General provided a lengthy conclusion in which he held that the appeal in cassation should be honored, the Supreme Court determined that the basic Regulation establishing the Combined Nomenclature6 and allowing the duty-free import of certain INN products, as such, does not explicitly state that the relief of import duties is limited solely to pharmaceutical products that are considered "pure" products. The Supreme Court therefore decided to raise prejudicial questions to the European Court of Justice (ECJ).7:
- Does the relief from import duties for pharmaceutical substances, as laid down in annex I of Regulation (EEC) No 2658/87 of July 23 1987, Part One, Section II, paragraph C, under i, in combination with the pharmaceutical substances included on the list of Part Three (Tariff Annexes), Section II, Annex 3, only apply to pharmaceutical substances in a pure form?
- In case additional substances may be added to the pharmaceutical substances included on the list, what limitations have to be taken into account in this respect?
The answer to these prejudicial questions will be very important for the pharmaceutical industry. Should the ECJ acknowledge the possibility that products on the INN list that have had a minor quantity of alternative products added to them are eligible for relief from import duties, it is expected that many more pharmaceutical substances will become eligible for duty-free import into the EU.
At the same time, if your company has been, or is, importing pharmaceutical substances into the EU, including pharmaceutical substances that have been subject to the addition of alternative products, and has been paying import duties, the opportunity for a refund of paid duties may arise. In anticipation of the judgment by the ECJ, it is therefore vital that all rights are safeguarded to ensure that companies do not miss out once refunds are granted.