In a significant decision, the First-tier Tribunal (Tax Chamber) ruled in favor of Boehringer Ingelheim Limited (BIL) in its appeal against His Majesty’s Revenue and Customs (HMRC). The case, cited as [2024] UKFTT 00948 (TC), centered on whether payments made by BIL to the Department of Health and Social Care (DHSC) under voluntary price control schemes should reduce the taxable amount of its supplies for VAT purposes.
Case Background
BIL, a supplier of branded pharmaceutical products, participated in the Pharmaceutical Price Regulation Scheme (PPRS) and the Voluntary Scheme for Branded Medicines Pricing and Access (VPAS) between 2014 and 2020. These schemes required BIL to make payments to the DHSC, calculated as a percentage of net sales, to control the prices of health service medicines supplied to the NHS. BIL argued that these payments should reduce the consideration received for its supplies, thus reducing the taxable amount for VAT purposes under Article 90(1) of Directive 2006/112/EC.
HMRC rejected BIL’s claim for a VAT refund, contending that the payments to the DHSC did not reduce the consideration obtained by BIL for the supply of medicines. The case was heard by Tribunal Judge Greg Sinfield, with Kieron Beal KC representing BIL and John Brinsmead-Stockham KC representing HMRC.
Tribunal’s Analysis
The tribunal examined key legal provisions, including Article 73 and Article 90(1) of Directive 2006/112/EC, and relevant case law from the European Court of Justice (ECJ) and the Court of Justice of the European Union (CJEU).
Judge Sinfield found that the payments made by BIL to the DHSC under the schemes indeed reduced the consideration received for its supplies of health service medicines. The tribunal rejected HMRC’s arguments that the DHSC was not the final consumer and that there was no direct link between the payments and the supply of medicines. Judge Sinfield emphasized that in economic reality, the DHSC bore the cost of purchasing the medicines, making it a final consumer.
The tribunal also dismissed concerns about distorting fiscal neutrality principles, affirming that VAT should only tax the final consumer and not exceed the amount paid by them. Furthermore, the tribunal rejected the unjust enrichment defense put forward by HMRC, stating that any reduction in price must include VAT to maintain fiscal neutrality.
Conclusion and Implications
The tribunal’s decision underscores the importance of considering economic realities in VAT assessments and reinforces the principle that VAT should not exceed the amount paid by the final consumer. By ruling that the payments to the DHSC under the PPRS and VPAS schemes reduced the taxable amount of BIL’s supplies, the tribunal allowed BIL’s appeal for a VAT repayment. This decision may have broader implications for other suppliers participating in similar price control schemes, offering a precedent for VAT treatment and taxable amounts in such contexts.
Source
See also
- Roadtrip through ECJ cases: Focus on Promotional activities/Discounts (Art. 79, 87, 90(1))
- C-462/16 – Boehringer Ingelheim Pharma GmbH & Co. KG – Discounts reduce the VAT value of pharmaceutical supplies
- C-717/19 – Boehringer Ingelheim – Reduction of the taxable amount – Agreement between pharmaceutical company and health insurer
- C-248/23 (Novo Nordisk) – Reduction taxable amount on ex lege payments to the State health insurance agency
