On December 20, 2017 the Court of Justice of the European Union (CJEU) judged in Case C-462/16, Finanzamt Bingen-Alzey versus Boehringer Ingelheim Pharma GmbH & Co. KG (ECLI:EU:C:2017:1006).
This request for a preliminary ruling concerns the interpretation of Article 90(1) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1; ‘the VAT Directive’).
The request has been made in the context of proceedings between the Finanzamt Bringen-Alzey, (the tax authority of Bringen-Alzey, Germany) (‘the tax authority’) and the pharmaceutical company Boehringer Ingelheim Pharma GmbH & Co. KG concerning the determination of the amount of value added tax (‘VAT’) payable by the latter for the 2011 tax year.
The dispute in the main proceedings and the question referred for a preliminary ruling
· Boehringer is a pharmaceutical company which manufactures medicinal products and supplies those products, subject to tax, to pharmacies via wholesalers.
· As regards the system of statutory (public) health insurance, pharmacies deliver medicinal products to persons covered in the context of a framework contract with the national association of health insurance funds. The medicinal products are supplied to the health insurance funds and the latter make them available to persons insured by them. The pharmacies grant the health insurance funds a discount on the price of the medicinal products. Boehringer Ingelheim Pharma, as a pharmaceutical company, must reimburse the pharmacies or — where wholesalers are involved — the wholesalers for this discount. For the purpose of VAT, the discount is treated by the tax authority as a reduction in remuneration.
· As regards, on the other hand, medicinal products intended for persons with private health insurance, the pharmacies issue those products to those persons pursuant to individual contracts with them. The private health insurance company does not purchase medicinal products, but merely reimburses the persons insured by it, upon request by them, for the costs they have incurred. In such a case, Boehringer Ingelheim Pharma must grant the private health insurance company a discount on the price of the medicinal product. The tax authority does not treat this discount as a reduction in remuneration for the purposes of VAT.
· In 2012, Boehringer Ingelheim Pharma submitted an annual VAT declaration for the 2011 financial year, mentioning, in particular, the taxable transactions and the applicable taxable amounts.
· In that declaration, in respect of the transactions relating to medicinal products purchased by insured persons covered by private health insurance, Boehringer Ingelheim Pharma corrected the taxable amount by deducting the reimbursements required to be paid by it.
· The tax authority considered that there was no reason justifying the reduction of Boehringer Ingelheim Pharma’s taxable amount as regards reimbursements of private health insurance companies. It therefore fixed the VAT that was due from it on the basis of the taxable amount without the reduction.
· Boehringer Ingelheim Pharma lodged, before the Finanzgericht Rheinland-Pfalz (Finance Court, Rhineland-Palatinate, Germany), an appeal against the decision of the tax authority concerning the reimbursements to private health insurance companies.
· It submitted that the statutory health insurance fund and the private health insurance company were at the end of the supply chain, so that the taxable amount must be reduced in both cases. It is not significant, according to it, whether it is reimbursements or reductions in price that have been granted, both must be treated in the same way from the viewpoint of VAT.
· The Finanzgericht Rheinland-Pfalz (Finance Court, Rhineland-Palatinate), upheld Boehringer Ingelheim Pharma’s appeal, ruling that it was not necessary to make the distinction made by the tax authority between the reductions in price granted to statutory health insurance funds for the medicinal products purchased and the reimbursements made at the time of purchase of those products in the context of a private health insurance regime.
· The tax authority lodged, before the Bundesfinanzhof (Federal Finance Court, Germany) an appeal on a point of law against the judgment of the Finanzgericht Rheinland-Pfalz (Finance Court, Rhineland-Palatinate).
· The referring court recalls that when a manufacturer of a product who, having no contractual relationship with the final consumer but being the first link in a chain of transactions which ends with that final consumer, grants the final consumer a price reduction, the taxable amount for VAT purposes must, in accordance with the case-law of the Court, be reduced by that reduction (see to that effect, the judgments of the Court of Justice of 24 October 1996, Elida Gibbs, C‑317/94, EU:C:1996:400, paragraphs 28 and 31, and of 16 January 2014, Ibero Tours, C‑300/12, EU:C:2014:8, paragraph 29).
· It observes that the Court of Justice has, however, ruled that there should be no reduction when a travel agent, acting as an intermediary, grants to the final consumer, on the travel agent’s own initiative and at his own expense, a price reduction on the principal service provided by the tour operator (judgment of 16 January 2014, Ibero Tours, C‑300/12, EU:C:2014:8, paragraph 33). The ground relied on by the Court in that judgment is that the travel agent is not part of a supply chain leading from the tour operator to the final consumer.
· According to the referring court, the Court’s case-law must be understood as meaning that price reductions that an operator grants to a third party which is not contractually linked to it can reduce the taxable amount for VAT due on the supply made by that operator only where a chain of transactions leads from the company to the third party entitled to a discount. In the present case, the discounts in favour of private health insurance companies do not therefore reduce the taxable amount for VAT due in respect of the supplies made by Boehringer Ingelheim Pharma, since private health insurance companies who benefit from the discount are not part of the supply chain leading from that company to the final consumer.
· However, the referring court considers that it is incompatible with the general principle of equal treatment enshrined in Article 20 of the Charter of Fundamental Rights of the European Union for discounts for private health insurance companies not to reduce the taxable amount, unlike discounts in connection with statutory health insurance, even though the pharmaceutical company is encumbered in the same way by both discounts. Since comparable situations are involved, the referring court wonders what the objective justification is for that unequal treatment.
· It also recalls that, although infringement of the principle of fiscal neutrality may be envisaged only as between competing traders, infringement of the general principle of equal treatment may be established, in matters relating to tax, by other kinds of discrimination which affect traders who are not necessarily in competition with each other but who are nevertheless in a similar situation in other respects (judgments of 10 April 2008, Marks & Spencer, C‑309/06, EU:C:2008:211, paragraph 49, and of 25 April 2013, Commission v Sweden, C‑480/10, EU:C:2013:263, paragraph 17). It follows that the principle of equal treatment, in matters relating to tax, does not coincide with the principle of fiscal neutrality (judgment of 25 April 2013, Commission v Sweden, C‑480/10, EU:C:2013:263, paragraph 18).
· In those circumstances, the Bundesfinanzhof (Federal Finance Court) decided to stay the proceedings and to refer the following question to the Court of Justice for a preliminary ruling:
‘On the basis of the case-law of the Court of Justice of the European Union (judgment of 24 October 1996, Elida Gibbs, C‑317/94, EU:C:1996:400, paragraphs 28 and 31) and having regard to the principle of equal treatment under EU law, is a pharmaceutical company which supplies medicinal products entitled to a reduction of the taxable amount under Article 90 of the VAT Directive in the case where:
– it supplies those medicinal products to pharmacies via wholesalers,
– the pharmacies supply those products, subject to tax, to persons with private health insurance,
– the insurer of the medical expense insurance (the private health insurance company) reimburses the persons insured by it for the costs of purchasing the medicinal products, and
– the pharmaceutical company is required to pay a “discount” to the private health insurance company pursuant to a statutory provision?’
Judgment
The CJEU ruled as follows:
In the light of the principles defined by the Court in the judgment of 24 October 1996, Elida Gibbs (C‑317/94, EU:C:1996:400, paragraphs 28 and 31), regarding the determination of the taxable amount for value added tax and having regard to the principle of equal treatment under EU law, 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 the discount granted, under national law, by a pharmaceutical company to a private health insurance company results, for the purposes of that article, in a reduction of the taxable amount in favour of that pharmaceutical company, where it supplies medicinal products via wholesalers to pharmacies which make supplies to persons covered by private health insurance that reimburses the purchase price of the medicinal products to persons it insures.
From the considerations of the Court
· By its question, the referring court asks, in essence, whether, in the light of the principles defined by the Court in the judgment of 24 October 1996, Elida Gibbs (C‑317/94, EU:C:1996:400, paragraphs 28 and 31), regarding the determination of the taxable amount for VAT and having regard to the principle of equal treatment under EU law, Article 90(1) of the VAT Directive must be interpreted as meaning that the discount granted, in accordance with national law, by a pharmaceutical company to a private health insurance company results, for the purposes of that article, in a reduction of the taxable amount in favour of that pharmaceutical company, when it supplies medicinal products via wholesalers to pharmacies which make supplies to persons covered by private health insurance that reimburses the purchase price of the medicinal products to persons it insures.
· In order to reply to that question, it must be pointed out first of all that Article 73 of the VAT Directive states that the taxable amount, in respect of supplies of goods and services, is everything which constitutes the value of the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies.
· Next, it must also be recalled that Article 90(1) of the VAT Directive, which relates to cases of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, requires the Member States to reduce the taxable amount and, consequently, the amount of VAT payable by the taxable person whenever, after a transaction has been concluded, part or all of the consideration has not been received by the taxable person. That provision embodies one of the fundamental principles of the VAT Directive, according to which the taxable amount is the consideration actually received and the corollary of which is that the tax authorities may not collect an amount of VAT exceeding the tax which the taxable person received (judgment of 15 May 2014, Almos Agrárkülkereskedelmi, C‑337/13, EU:C:2014:328, paragraph 22 and the case-law cited).
· Finally, the Court has held that one of the principles on which the VAT system was based was neutrality, in the sense that within each country similar goods should bear the same tax burden whatever the length of the production and distribution chain (judgment of 24 October 1996, Elida Gibbs, C‑317/94, EU:C:1996:400, paragraph 20).
· In the present case, the order for reference states that the pharmaceutical company is required, under national legislation, to grant to private health insurance companies, in respect of prescription only medicinal products the cost of which the latter have reimbursed the insured persons in part or in full, discounts according to the sharing of the costs in the same proportions as provided for statutory health insurance companies. The tax authority does not regard this discount as a reduction of the taxable amount.
· Thus, as a result of that legislation, Boehringer Ingelheim Pharma could dispose of a sum corresponding to the price of the sale of those products to pharmacies, reduced by that discount. It would not therefore be in conformity with the VAT Directive for the taxable amount used to calculate the VAT chargeable to the pharmaceutical company, as a taxable person, to exceed the sum finally received by him. If that were the case, the principle of neutrality of VAT vis-à-vis taxable persons, of whom the pharmaceutical company is one, would not be complied with (see, to that effect, the judgment of 24 October 1996, Elida Gibbs, C‑317/94, EU:C:1996:400, paragraph 28).
· Consequently, the taxable amount applicable to Boehringer Ingelheim Pharma as a taxable person must be made up of the amount corresponding to the price at which it sold the medicinal products to pharmacies, reduced by the discount made to private health insurance companies when they reimbursed the expenses incurred by their insured persons when purchasing those products.
· It is true that the Court held, in paragraph 31 of the judgment of 24 October 1996, Elida Gibbs (C‑317/94, EU:C:1996:400), that Article 11C(1) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1) (‘the Sixth Directive’), which corresponds to Article 90 of the VAT Directive, refers to the normal case of contractual relations entered into directly between two contracting parties, which are modified subsequently.
· However, in that regard, it must be held, first, that, also in paragraph 31 of that judgment, the Court stated that that provision is an expression of the principle of neutrality and, consequently, its application must not undermine the achievement of that principle (see, to that effect, the judgment of 24 October 1996, Elida Gibbs, C‑317/94, EU:C:1996:400, paragraph 31).
· In the second place, it is clear from the case-law of the Court that Article 90(1) of the VAT Directive does not presuppose such a subsequent modification of the contractual relations in order for it to be applicable. In principle, it requires the Member States to reduce the taxable amount whenever, after a transaction has been concluded, part or all of the consideration has not been received by the taxable person. Moreover, there is no indication that in its judgment of 24 October 1996, Elida Gibbs (C‑317/94, EU:C:1996:400), the Court wished to restrict the scope of application of Article 11C(1) of the Sixth Directive which corresponds to Article 90 of the VAT Directive. On the contrary, it is apparent from the facts of the Elida Gibbs case that there had been no modification of the contractual relations. Nevertheless, the Court held that Article 11C(1) of the Sixth Directive was applicable (see, to that effect, the judgment of 29 May 2001, Freemans, C‑86/99, EU:C:2001:291, paragraph 33).
· Furthermore, the fact that, in the case in the main proceedings, the direct beneficiary of the supplies of the medicinal products in question was not the private health insurance company which reimbursed the insured persons but the insured persons themselves, is not such as to break the direct link between the supply of services made and the consideration received (see, by analogy, the judgment of 27 March 2014, Le Rayon d’Or, C‑151/13, EU:C:2014:185, paragraph 35).
· As the Advocate General observed in points 44 and 45 of his opinion, the payments made at the point of purchase of the medicinal products must be regarded as consideration provided by a third party within the meaning of Article 73 of the VAT Directive when those third parties, namely insured persons, requested reimbursement by the private health insurance companies and the latter obtained, in accordance with the national law, the discount owed to them by the pharmaceutical company. Therefore, having regard to the facts at issue in the main proceedings, the private health insurance companies must be regarded as being the final consumer of a supply made by a pharmaceutical company, which is a taxable person for the purposes of VAT, such that the amount payable to the tax authority may not exceed that paid by the final consumer (see, to that effect, the judgment of 24 October 1996, Elida Gibbs, C‑317/94, EU:C:1996:400, paragraph 24).
· Consequently, in must be held that, in the case in the main proceedings, since part of the consideration is not received by the taxable person because of the discount granted by the latter to private health insurance companies, there has in fact been a reduction in price after the time at which the supply took place, in accordance with Article 90(1) of the VAT Directive.
· Moreover, as regards the discount at issue in the main proceedings, it must be held that that discount is fixed by the law and that the pharmaceutical company is obliged to grant it to private health insurance companies which have reimbursed the persons they insure for the expenses incurred by those persons when purchasing medicinal products. As has been stated in paragraph 35 above, in those circumstances, the pharmaceutical company was not able freely to dispose of the full amount of the price received on the sale of its products to pharmacies or to wholesalers (see, to that effect, the judgment of 19 July 2012, International Bingo Technology, C‑377/11, EU:C:2012:503, paragraph 31).
· In that regard, the Court held, in paragraph 28 of the judgment of 19 July 2012, International Bingo Technology (C‑377/11, EU:C:2012:503), concerning a legal requirement for the payment of winnings in a bingo game, that since the part of the sale price of the cards which is distributed as winnings to players is fixed in advance and is mandatory, it cannot be regarded as forming part of the consideration received by the organiser of the game for the supply of the service provided to players.
· As the Advocate General observed in point 42 of his opinion, even though, in that judgment, the Court’s analysis concerned the interpretation of Article 73 of the VAT Directive, the interpretation that the judgment provided of the notion of ‘consideration’ laid down in that provision may apply in respect of the words ‘where the price is reduced’ used in Article 90 of the directive, given that both that provision and Article 73 of the directive address the components of the taxable amount.
· Having regard to the foregoing considerations, the answer to the question referred is that, in the light of the principles defined by the Court in the judgment of 24 October 1996, Elida Gibbs (C‑317/94, EU:C:1996:400, paragraphs 28 and 31), regarding the determination of the taxable amount for VAT and having regard to the principle of equal treatment under EU law, Article 90(1) of the VAT Directive must be interpreted as meaning that the discount granted, under national law, by a pharmaceutical company to a private health insurance company results, for the purposes of that article, in a reduction of the taxable amount in favour of that pharmaceutical company, where it supplies medicinal products via wholesalers to pharmacies which make supplies to persons covered by private health insurance that reimburses the purchase price of the medicinal products to persons it insures.
For further information click here to be forwarded to the text of the judgment as published on the website of the CJEU, which will open in a new window.
The opinion of the Advocate General Tanchev in this case as delivered on July 11, 2017 can be found here.
Did you know that in our section CJEU Rulings we have made a selection of rulings of the CJEU? We have organized these rulings based on the subject they relate to (e.g. Freedom of establishment, Free movement of capital, Indirect taxes on the raising of capital, etc).
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