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Possible VAT Impact of IPHA Agreement Rebates Following European Court Decision

AUTHOR(S): Michael Finn, Matthew Broadstock
PRACTICE AREA GROUP: Life Sciences, VAT
DATE: 20.07.2018

A European Court decision relating to VAT may be of interest to those who are providing rebates under the IPHA Agreement in Ireland on products which are subject to VAT.

The Boehringer Ingelheim (C-462/16) judgment addresses the question of the VAT impact of rebates provided under arrangements with private health insurers in Germany which are arguably analogous to rebates made to the HSE in Ireland under the IPHA Agreement. It raises the argument that the rebates under the IPHA Agreement should give rise to a reduction in the amount of VAT due on the supply of the products by the party paying the rebate. Where the customer to whom that supply is made is not entitled to recover the VAT incurred on their purchase, for example a hospital, this reduction in the VAT amount due could represent a real benefit to the customer. Where VAT has been historically over accounted for on these supplies, the possible refund of such amounts of VAT to hospitals and other public bodies by pharmaceutical companies may represent a welcome injection of funds into the sector. Consideration of this point may also extend to equivalent rebate arrangements with private health insurers.

The Boehringer Ingelheim judgment addressed the VAT treatment of statutory rebates provided to private health insurers in Germany. Under such arrangements medicinal products are supplied by pharmacies to patients with private health insurance, and such patients are reimbursed for such cost by the insurers. In these circumstances, Boehringer Ingelheim, the pharmaceutical company, is statutorily required to provide the private health insurer a rebate on the price of the medicinal product which they supplied to a pharmacy or wholesaler. The German tax authority did not accept that this rebate was a reduction in remuneration for the purposes of VAT. By contrast, with respect to the German statutory (public) health insurance system, pharmacies provide medicinal products to patients by supplying the products to the health insurance funds and the latter make them available to patients insured by them. The pharmacies under such arrangements grant the health insurance funds a discount on the price of the medicinal products. Boehringer Ingelheim, as a pharmaceutical company, must reimburse the pharmacies or, where relevant, the wholesalers for this discount. The German tax authority in these circumstances has accepted that the discount was a reduction in remuneration for the purposes of VAT. The court in its judgment concluded that the discount granted, under German law, by a pharmaceutical company to a private health insurance company should also result in a reduction of the amount upon which VAT is accounted for.

If you have any questions as regards how VAT should be operated in the context of rebates provided under the IPHA Agreement please contact us and we would be happy to discuss what impact this judgment may have on your business and customers.

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