In Finanzamt Bingen-Alzey v Boehringer Ingelheim Pharma GmbH & Co. KG C-462/16, the Court of Justice of the European Union (CJEU) has confirmed that consideration for VAT purposes should be reduced by any discount applied, regardless of who benefited from the discount.
Boehringer is a pharmaceutical company which manufactures and supplies medicinal products to various wholesalers and pharmacies. Consumers who purchased the medicines from the pharmacies obtain reimbursement of the full cost from their private health insurer.
Under German law, Boehringer was required to offer a cash discount to the private health insurers on the medicines supplied by it. As a result, Boehringer sought to reduce the consideration received for VAT purposes by the amount of the discount. The German tax authorities challenged this approach. They argued that as the discount provided was not received by the consumer of the products, Boehringer’s consideration should not be reduced.
The matter was referred to the CJEU to consider the impact of discounts on consideration for VAT purposes.
The Court concluded that the discount resulted in a reduction in the taxable amount.
In reaching its decision, the CJEU considered the principles defined by it in Elida Gibbs Ltd v Customs and Excise Commissioners C-317/94 regarding the determination of the taxable amount for VAT.
The CJEU commented that Article 90(1) of the VAT Directive embodies one of the fundamental principles of VAT law that the taxable amount is the consideration actually received. It is an expression of the principle of neutrality of VAT requiring the taxable amount to be reduced when, after a transaction is concluded, part or all of the consideration has not been received by the taxable person. There is no rule that the person who receives the discount must be the final consumer in the supply chain and there was no indication in the judgment in Elida Gibbs that the Court wished to restrict the scope of Article 11C(1) of the Sixth Directive (which corresponds to Article 90 of the VAT Directive) in such a way.
The CJEU agreed with the Advocate General’s earlier opinion (released on 11 July 2017) that the private health insurance companies must be regarded as being the final consumer of the supply, such that the amount payable to the tax authority may not exceed that paid by the final consumer. Accordingly, as part of the consideration is not received by Boehringer because of the discount granted to the private insurer, the CJEU held that there had been a reduction in price in accordance with Article 90 of the VAT Directive.
Applying International Bingo Technology C-377/11, the CJEU concluded that as the discount was fixed by statute (the pharmaceutical company was not able to freely dispose of the full amount of the price received on sales to pharmacies and wholesalers) the discount was not part of the consideration received.
In this case the CJEU refused to restrict the ambit of the principles set out Elida Gibbs in which the CJEU confirmed that the amount of VAT collected in a single supply chain did not need to exceed the amount of VAT paid by the final consumer and that a broad interpretation must be given to Article 90(1).
This decision provides helpful guidance on how rebates should be treated for VAT purposes when provided to parties who do not operate in the same distribution chain and it will be of particular interest to pharmaceutical companies and health insurers.
A copy of the judgment is available to view here.