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Case C-248/23: Novo Nordisk AS v. Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága
The EU VAT law (Article 90 (1) of the EU VAT Directive) provides that the taxable amount for VAT should be reduced by price reductions granted after the sale takes place.
Several ECJ referrals have been made on this subject. This recent Novo Nordisk judgment builds on previous ECJ judgments that provide that the taxable amount must be reduced by retrospective discounts, rebates, or contributions that are not given directly to the customer but indirectly to other parties in the supply chain.
The ECJ stated in its Elida Gibbs judgment that the taxable amount for VAT purposes should reflect the amount actually received which was the initial price charged less the discount provided after the sale took place. Furthermore, the ECJ has ruled that taxable persons are allowed to reduce the taxable amount in case of various retroactive price reductions such as quarterly bonuses based on sales results. In its judgment in the case Commission vs. Germany (C-427/98), the ECJ ruled that the taxable amount should be corrected if a supplier grants discounts after the sale takes place, by issuing the coupons. The ruling in the World Comm Trading case (C‑684/18) clarified that the obligation to correct taxable amounts also applies to volume bonuses.
In the first Boehringer (C-462/16) case, the ECJ stated that the tax authorities should allow the reduction of taxable amounts even if there is no statutory requirement to provide volume rebates to private insurers. In the second Boehringer case (C-717/19), the ECJ decided that the manufacturer was allowed to reduce the taxable amount by the payments to the state insurer under the volume agreements. The ECJ found that the taxpayer effectively waived a portion of the consideration received from the wholesaler.
Novo Nordisk is a company that manufactures and distributes medicinal products. It sold subsidised medicines to wholesalers who in turn sold the medicines to pharmacies which sold them to patients. The Hungarian state health insurer operates a subsidy system under which it pays pharmacies a proportion of the price of the medicine while the patients pay the balance of the price to the pharmacy.
Manufacturers/distributors such as Novo Nordisk must pay contributions corresponding to the percentage of a portion of the subsidies relating to all medicines that are sold in pharmacies. This payment is made to the tax authorities who then immediately forward this amount to the state insurer, which reimburses the pharmacy that ultimately supplies the patient with the medicine. The Hungarian tax authorities did not allow Novo Nordisk to reduce the taxable amount by these mandatory payments.
The ECJ was asked whether these mandatory payments should be treated in the same way for VAT purposes as volume rebates and consequently, the taxable amount for VAT should be reduced by these payments.
The ECJ ruled that the payments made by Novo Nordisk in Hungary should be considered price reductions after the supply took place.
The ECJ argues that even if the formal recipient of the disputed payments is the tax authority, that authority is required to transfer immediately the amounts paid to the state insurer.
Furthermore, it is apparent that by making these mandatory payments, Novo Nordisk is waiving a proportion of the consideration it receives from the wholesaler. The ECJ stated that it would not be consistent with the principle of fiscal neutrality for the taxable amount to be higher than the amount which the seller ultimately receives. Thus, since a portion of the consideration obtained from the sale of the medicinal products by the pharmaceutical company has not been received by the latter because of the contribution it pays to the state insurer, which refunds part of the price of those medicinal products to the pharmacy, it must be found that there has been a reduction in the price of the medicinal products after the supply took place. This means that the taxable amount and thus the amount of VAT payable by the taxable person should be reduced by this contribution.
The ECJ concluded that even though the mandatory discount takes the form of a tax or levy, it is still considered as a reduction of price. A pharmaceutical company is entitled to a subsequent reduction of the VAT taxable amount for these mandatory contributions.
The judgment reminds us that the taxable amount should be what the supplier actually receives and should be reduced by discounts provided or rebates given or contributions made after the sale takes place.
The mandatory contributions should be treated in the same way as volume rebates. If the seller’s consideration is reduced by a mandatory contribution that could be linked to the price received by the seller, then the taxable amount for VAT should be reduced by this contribution.
Please contact us if you have any questions about similar reductions in the prices and possible (retroactive) VAT refunds.
