Refund of VAT allowed for Pharma Co providing indirect rebates to health insurer

13/01/21

On 6 January, a Dutch court case was published regarding the Dutch VAT treatment of indirect rebates from a pharmaceutical company to private health insurers. The pharmaceutical company concerned granted rebates to private health insurers under financial arrangements with the Dutch Minister of Health, Welfare and Sport.

The decision of the Dutch court of first instance leads to a reduction of the taxable amount on which the pharmaceutical company concerned paid Dutch VAT to the Dutch VAT authorities.

In essence, the court granted a VAT refund to the pharmaceutical company based on the CJEU Boehringer case (C-462/16) although the pharmaceutical company was not obliged to grant the rebates directly under Dutch law.

What can this possibly mean for your company?

Although the court case was limited to price arrangements with the Dutch Minister of Health, Welfare and Sport, this confirms the opportunities to pursue Dutch VAT refunds on other (indirect) rebate schemes in- and outside the pharma sector as well.

Main facts

A Dutch established pharmaceutical company produces medicines (the Medicines) with a so-called high list price. The list price is the price that is generally known in the market and is the price at which manufacturers sell medicines to pharmacists/wholesalers/etc. for use by patients. The Minister of Health, Welfare and Sport has decided to negotiate the price of medicines with a high list price first, before a decision is made about the inclusion of the expensive medicine in the basic insurance package. If medicines are not included in the basic insurance package, patients will not be reimbursed for these medicines.

The supply pattern is as follows: The pharmaceutical company sells the Medicines for the high list price to for instance Dutch pharmacists. If a patient orders the Medicines from the pharmacist, the pharmacist hands the Medicines directly to the patient and sends an invoice to the health insurer. The patient does not pay the pharmacist himself. The health insurer pays the pharmacist (and settles the excess with the patient if necessary).

At the end of the year, the pharmaceutical company transfers the difference between the high list price (received from the pharmacists) and the price as negotiated with the Minister of Health, Welfare and Sport - i.e. the rebate - to a Third Trusted Party. This Third Trusted Party distributes the rebates to the insurance companies.

Judgment

The court of first instance ruled that the financial arrangements meet the requirements set by the CJEU in the Boehringer case and that the pharmaceutical company can reduce the taxable amount with the rebate. In other words, the pharmaceutical company is allowed to receive a Dutch VAT refund on the rebates granted to the insurance companies via the Third Trusted Party.

How can we help?

This judgment reveals the complexity of the VAT treatment of rebates in the strictly regulated health sector. We can help you to assess the possibilities to enhance benefits for you.