ECJ C-248/23 (Novo Nordisk) – Judgment – Reduction taxable amount on ex lege payments to the State health insurance agency

On September 12, 2024, the ECJ released the Judgment in the case C-248/23 (Novo Nordisk).

The European Commission has issued a ruling on the VAT obligations of pharmaceutical companies in Hungary. The judgment concerns a dispute between Novo Nordisk and the Hungarian tax authorities over the reduction of the VAT base for payments that Novo Nordisk had to make to the national health insurance system. The court ruled that Novo Nordisk is entitled to a VAT reduction on these payments, as these payments should be considered a price reduction. This is based on the principle of fiscal neutrality, which means that VAT is only due on the amount actually received by the supplier.

Context: Reference for a preliminary ruling – Taxation – Value added tax (VAT) – Directive 2006/112/EC – Article 90(1) – Reduction of the taxable amount – National tax legislation excluding from the benefit of the reduction of the taxable amount contributions paid by a pharmaceutical undertaking to the public sickness insurance body pursuant to a statutory obligation – Price reduction)

Article in the EU VAT Directive

Article 90(1) of the EU VAT Directive 2006/112/EC.

Article 90
1. In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.

Facts

The applicant Novo Nordisk A/S is a company established in Denmark which is engaged in the manufacture and distribution of pharmaceutical products and sells, as part of its activities, the pharmaceutical products it manufactures in Hungary. The public health insurer NEAK decides whether a medicine should be included in the list of subsidized medicines after a study that takes into account various aspects, and then determines the amount of the subsidy. The price of medicines, which is the taxable amount for VAT purposes, consists of two components: firstly, the subsidy from NEAK and secondly, the ‘personal contribution’ paid by the patient. The pharmacy therefore pays VAT on both the amount paid by the patient and the NEAK. Novo Nordisk A/S has made payments to NEAK on the sale of medicines and pays a contribution of 20% or 10% on the subsidy of all medicines sold by it (hereinafter: statutory payment obligation). Novo Nordisk A/S filed a corrective VAT return for January 2016 with the Hungarian tax authority and reduced the amount of VAT due for that period by reference to payments it had made under the legal obligation to pay, which was rejected by the tax authority. The applicant has appealed against this. Novo Nordisk A/S filed a corrective VAT return for January 2016 with the Hungarian tax authority and reduced the amount of VAT due for that period by reference to payments it had made under the legal obligation to pay, which was rejected by the tax authority. The applicant has appealed against this. Novo Nordisk A/S filed a corrective VAT return for January 2016 with the Hungarian tax authority and reduced the amount of VAT due for that period by reference to payments it had made under the legal obligation to pay, which was rejected by the tax authority. The applicant has appealed against this.

Consideration:

It follows from the case-law of the Court that Article 90 of the VAT Directive must be interpreted as meaning that a price reduction granted by a pharmaceutical company to a private health insurer under national law leads, according to that article, to a reduction of the taxable amount in favor of this pharmaceutical company. This article precludes national legislation which provides that a pharmaceutical company may not deduct from its taxable amount for VAT the part of its turnover from the sale of medicines that is subsidized by the public health insurance company.

The referring court observes that distributors of medicinal products owe an amount of 10% and 20% of the producer price for medicinal products financed by the public authorities. The characteristic of this is that the national tax authorities collect the amounts and check the payments, but immediately transfer the collected amounts to the NEAK. Compliance with the payment obligation means that the taxable drug distributor does not receive part of the consideration. The defendant argues that the legal obligation to pay is not a price reduction because it is not provided to the final consumer, so that there is no direct link between the consideration for the sale by the debtor, the payment and the consideration paid by the final consumer.

Source ecer.minbuza.nl

Questions

Must Article 90(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax be interpreted as precluding the national legislation at issue in the main proceedings, under which a pharmaceutical company which makes payments ex lege to the State health insurance agency based on the revenue obtained from publicly funded pharmaceutical products is not entitled subsequently to reduce the taxable amount, by reason of the fact that the payments are made ex lege, that payments made under a funding volume agreement and investments made by the company in research and development in the health sector may be deducted from the base amount for the payment obligation, and that the amount payable is collected by the State tax authority, which immediately transfers it to the State health insurance agency?

AG Opinion

Article 90(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted

as precluding a national legislation, under which a pharmaceutical undertaking which, by law, is obliged to pay to a State health insurance body a proportion of its turnover deriving from its sales of pharmaceutical products financed by public funds, is not entitled to an ex post reduction in the taxable amount in respect of those payments if the national legislation at issue does not state in a clear, precise and foreseeable manner that the payment at issue is owed as a tax.

Decision

Article 90(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax,

must be interpreted as meaning that:

it precludes national legislation under which a pharmaceutical company which is obliged to pay back part of its turnover from its sales of publicly financed pharmaceutical products to the State health insurance body is not entitled to a subsequent reduction of the taxable amount in respect of those payments, in view of the fact that these are made by law, that their basis of assessment may be reduced by deduction of payments made under a support agreement and of the expenses incurred by the company for research and development in the health sector, and that the sums due are collected by the tax authorities, which immediately transfers them to the state health insurance body.

Summary

Judgment Release: On September 12, 2024, the European Court of Justice (ECJ) released its judgment in case C-248/23 involving Novo Nordisk and the Hungarian tax authorities.
VAT Reduction Entitlement: The court ruled that Novo Nordisk is entitled to a VAT reduction for payments made to Hungary’s national health insurance system, recognizing these payments as price reductions in line with the principle of fiscal neutrality.
Legal Context: The judgment interprets Article 90(1) of the EU VAT Directive 2006/112/EC, which mandates that the taxable amount for VAT should be reduced when the price is reduced after the supply takes place.
Dispute Details: The dispute arose because Novo Nordisk sought to reduce its VAT base by referencing statutory payments made to the health insurance system, which the Hungarian tax authorities initially rejected.
Court’s Interpretation: The court found that national legislation excluding such payments from VAT reduction benefits is incompatible with EU law, as the payments should be considered a reduction in the taxable amount for VAT purposes.

Source