VAT base reduction – favourable CJEU decisions
In 2021, a favourable judgement in favour of pharmaceutical manufacturers was already adopted by the CJEU (Boehringer case) on VAT base reduction, where the payments made to the National Health Insurance Fund (NEAK) under the funding volume agreements reduced the amount of VAT.
In the Novo Nordisk CJEU judgement, published in autumn 2024, a further favourable interpretation was given to the reduction of the VAT base by the special tax on pharmaceutical manufacturers and distributors.
Favourable CJEU judgement in the Novo Nordisk tax base reduction case
In the judgement, the CJEU ruled that the pharmaceutical tax is paid to NEAK in the same way as payments made under the funding volume agreements and is used by NEAK to subsidise the purchase price of medicines. As the final beneficiaries of the payment are therefore the customers who buy medicine from the pharmacy, there is a direct link between the payment and the final consideration.
Ultimately, by paying the pharmaceutical tax, the distributor forgoes a portion of the consideration paid by the final customer. Therefore, the pharmaceutical tax can be regarded as a price reduction, which may reduce the VAT base.
I am interested in potential tax base reduction for pharmaceutical companies
The impact of the CJEU decision on the pharmaceutical tax
The CJEU's preliminary ruling clearly reveals its guiding principle: only what the taxpayer receives as consideration from the buyer can be regarded as the tax base. Regardless of whether the "discount" granted by the taxpayer is voluntary or based on a legal obligation, whether it is provided directly to the buyer or through an institutional system, the only relevant factor is the final price paid by the end buyer of the medicine.
Although member states are free to lay down detailed rules within the limits of the Directive, such detailed rules must not run counter to the systemic principles of VAT and must not restrict the right of deduction.
Therefore, the Hungarian regulation that allows for a retroactive reduction of the tax base without invoice correction only in the case of a commercial discount is unnecessarily restrictive and does not comply with the VAT Directive.
What can pharmaceutical manufacturers and distributors do now?
Do not miss the opportunity to reduce the tax base with the tax payable on publicly funded medicines sold in pharmacies—both retrospectively and going forward!
Taking into account the 5-year limitation period, this VAT tax base reduction will result in significant tax savings – up to tens of millions of euros – for the pharmaceutical manufacturers and distributors concerned.
By engaging a tax advisor, you have the chance to claim a VAT refund, even retroactively, for a significant amount.
