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First-tier Tribunal (Tax) |
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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Boehringer Ingelheim Ltd v Commissioners for His Majesty's Revenue and Customs (VALUE ADDED TAX - Article 90(1) Directive 2006/112/EC - whether payments to the Department of Health and Social Care by a supplier of medicines under voluntary price control schemes reduced the consideration obtained by the supplier and the taxable amount of the supplies) [2024] UKFTT 948 (TC) (21 October 2024) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2024/TC09329.html Cite as: [2024] UKFTT 948 (TC) |
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Appeal reference: TC/2021/02828 |
TAX CHAMBER
Judgment Date: 21 October 2024 |
B e f o r e :
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| BOEHRINGER INGELHEIM LIMITED |
Appellant |
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| - and - |
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| THE COMMISSIONERS FOR HIS MAJESTY'S REVENUE AND CUSTOMS |
Respondents |
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For the Appellant: Kieron Beal KC, instructed by PricewaterhouseCoopers LLP
For the Respondents: John Brinsmead-Stockham KC with Sarah Black, counsel, instructed by the General Counsel and Solicitor to His Majesty's Revenue and Customs
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Crown Copyright ©
VALUE ADDED TAX – Article 90(1) Directive 2006/112/EC – whether payments to the Department of Health and Social Care by a supplier of medicines under voluntary price control schemes reduced the consideration obtained by the supplier and the taxable amount of the supplies – if consideration is reduced by payments under the schemes, whether the supplier would be unjustly enriched by a repayment of overpaid VAT – appeal allowed
Introduction and issues
(1) the DHSC was not the final consumer of the health service medicines supplied by BIL;
(2) even if the DHSC was or could be regarded as the final consumer, there is not a sufficient link between the payments under the Schemes and the supply of the health service medicines; and
(3) reducing the taxable amount of supplies by BIL which were subsequently used to make zero-rated supplies would lead to a distortion of the principle of fiscal neutrality.
Evidence
(1) Benjamin Moynihan, Finance and Administration Director of BIL;
(2) Ben Day, a member of the NHS England Strategic Finance and Planning team; and
(3) Stephen Hennigan, a member of the DHSC Medicines Pricing Team.
Legal and regulatory framework for price control of health service medicines
(1) limiting the prices which may be charged for the supply of health service medicines by any manufacturer or supplier to whom the scheme applies;
(2) limiting the profits made on the supply of health service medicines by any manufacturer or supplier to whom the scheme applies; and
(3) requiring any manufacturer or supplier to whom the scheme applies to pay to the Secretary of State, ie the DHSC, an amount calculated by reference to sales or estimated sales of any health service medicines.
"… scheme members will make percentage payments. The percentage will be derived from the difference between allowed percentage growth and actual percentage growth in NHS expenditure on branded medicines."
"The scheme is a single, holistic, UK pricing agreement covering all the relevant key issues that underpin the pricing of NHS branded medicines."
"… designed to cap branded medicines' Sales at an agreed level of growth. Any growth in Sales above this level results in payments made by the Scheme Members, determined as a percentage of Sales."
Factual background
VAT legislation on value of supply
"... everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply."
"... 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."
Case law on Article 90(1)
"26. By virtue of art 11A(1)(a) of the Sixth Directive [now Article 73 PVD], the taxable amount for supplies of goods and services within the territory of a state comprises all sums which make up the consideration which has been or is to be obtained by the supplier from the purchaser.
27. According to the court's settled case law, that consideration is the 'subjective value', that is to say, the value actually received in each specific case, and not a value estimated according to objective criteria (…).
28. In circumstances such as those in the main proceedings, the manufacturer, who has refunded the value of the money-off coupon to the retailer or the value of the cash-back coupon to the final consumer, receives, on completion of the transaction a sum corresponding to the sale price paid by the wholesalers or retailers for his goods, less the value of those coupons. It would not therefore be in conformity with the directive for the taxable amount used to calculate the VAT chargeable to the manufacturer as a taxable person, to exceed the sum finally received by him. Were that the case, the principle of neutrality of VAT vis-à-vis taxable persons, of whom the manufacturer is one, would not be complied with.
29. Consequently, the taxable amount attributable to the manufacturer as a taxable person must be the amount corresponding to the price at which he sold the goods to the wholesalers or retailers, less the value of those coupons.
30. That interpretation is borne out by art 11C(1) of the Sixth Directive [now Article 90(1) PVD] which, in order to ensure the neutrality of the taxable person's position, provides that, 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 is to be reduced accordingly under conditions to be determined by the member states.
31. It is true that that provision refers to the normal case of contractual relations entered into directly between two contracting parties, which are modified subsequently. The fact remains, however, that the provision is an expression of the principle, emphasised above, that the position of taxable persons must be neutral. It follows therefore from that provision that, in order to ensure observance of the principle of neutrality, account should be taken, when calculating the taxable amount for VAT, of situations where a taxable person who, having no contractual relationship with the final consumer but being the first link in a chain of transactions which ends with the final consumer, grants the consumer a reduction through retailers or by direct repayment of the value of the coupons. Otherwise, the tax authorities would receive by way of VAT a sum greater than that actually paid by the final consumer, at the expense of the taxable person."
"… the concept of consideration in art 11A(1)(a) of the Sixth Directive had to be interpreted as the 'subjective' value, that is to say, the value actually received in each specific case, and not a value estimated according to objective criteria. The court concluded that it would not be in conformity with that directive for the taxable amount used to calculate the VAT chargeable to the manufacturer, as a taxable person, to exceed the sum finally received by him. Were that the case, the principle of neutrality of VAT vis-à-vis taxable persons, of whom the manufacturer is one, would not be complied with."
"… although the manufacturer may in fact be regarded as a third party as regards the transaction between the retailer who receives reimbursement of the value of the voucher and the final consumer, that reimbursement entails a corresponding reduction in the amount finally received as consideration for the supply by him and that consideration constitutes, pursuant to the principle of VAT neutrality, the basis for calculating the tax for which he is liable …"
"In particular, as regards normal intracommunity transactions the reason why the manufacturer using sales promotion schemes such as those at issue in the main proceedings is authorised subsequently to reduce his taxable amount is that the price paid by the final consumer includes VAT, and accordingly any reduction in that price likewise includes a VAT element. Conversely, where, owing to an exemption, the value stated on the money-off coupon is not chargeable to tax in the member state from which the goods are despatched, no price invoiced at that stage of the distribution chain, or at a later stage, includes VAT, which means that a reduction or a partial reduction of that price cannot in turn include a VAT element capable of giving rise to a reduction of the tax paid by the manufacturer."
"The court's approach to that issue [in Elida Gibbs], however, was still premised on the fact that the discounts served to reduce the price paid by consumers for specific items purchased by them."
"I find it helpful to talk in terms of what the customer pays even though the ultimate question under art 11A(l) [of the Sixth Directive, now Article 73 PVD], as [counsel for Total] stressed, is the consideration obtained by the supplier. The two amounts will generally be the same (though the interposition of third party distributors may give rise to additional issues);"
"29. … In the case which gave rise to the judgment in Elida Gibbs, the consideration received by the taxpayer, who was at the head of a chain of operations, was, in fact, actually reduced by the reduction granted by that taxpayer directly to the final consumer.
30 However, in the circumstances at issue in the main proceedings, the tour operator is not at the head of a chain of operations, as it provides its services directly to the final consumer, with Ibero Tours intervening as an intermediary in that single transaction only. Ibero Tours, however, provides a service, namely as an intermediary, which is totally separate from that provided by the tour operator."
(1) persons with statutory (public) health insurance provided by public health insurance funds; and
(2) persons with private health insurance pursuant to individual contracts with private health insurance funds.
"… I am unable to draw from the ruling of the Court in Ibero Tours any express finding or necessary implication that the Elida Gibbs rule only applies when the recipient of a discount is the final consumer in a supply chain beginning with the taxable person providing the discount."
"… 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. …
40. 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 …"
"Article 90(1) of the [PVD] … 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."
"46 In so far as the pharmacy must pay VAT on the amount paid by the patient and on the amount paid to it by the State health insurance agency for the subsidised medicinal products, the State health insurance agency 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, judgment of 20 December 2017, Boehringer Ingelheim Pharma, C-462/16, EU:C:2017:1006, paragraph 41).
47 Given that part of the consideration obtained from the sale of the medicinal products by the pharmaceutical company has not been received by the latter because of the contribution it pays to the State health insurance agency, which refunds part of the price of those medicinal products to the pharmacy, it must be found that there has been a reduction in the price of the medicinal products after the supply took place within the meaning of Article 90(1) of the VAT Directive."
"51 In that regard, it should be noted that … it matters only that the taxable person has not received all or part of the consideration for the medicinal products. In the present case, Boehringer Ingelheim was not able to dispose of the full amount of the price received on the sale of the products, but only part of the final amount paid by wholesalers to which it sold its products, after deduction of the amounts paid to the State health insurance agency.
52 Furthermore, where the price is reduced after the supply has taken place, Article 90(1) of the VAT Directive provides that the taxable amount is to be reduced accordingly under conditions to be determined by the Member States."
"57. … In Boehringer 1, the European Court concluded that the private insurance funds were the final consumers, essentially because they paid for the medicinal product. This was despite the fact that, unlike the public health insurance funds, the private insurance funds never purchased the product. The private insurance funds were held to be the final consumers despite the fact that, on Revenue's analysis, they also did not take part in a supply of goods. The European Court did not find that the final consumer was the party acquiring ownership in the medicinal product, but rather the party paying for same.
58. There is therefore no particular reason to treat the hospitals, rather than the insurers as the final consumers in this case. It matters not that in the present case, as in Boehringer 1, the medicinal product is supplied directly to the ultimate beneficiary of the product, the patient, by another party, (in Boehringer, the pharmacy and in the present case, the private hospital). In Boehringer, the Court found that the final consumer in the supply chain was the private health insurance fund as this accorded more with the economic realities of the case. The same may be said of the private health insurers in the present case.
59. In any event, it can be seen that at a higher level of principle, the identity of the final consumer is not in any event crucial. This is of course because … the crucial issue is not the identification of the final consumer or the amount paid by that person, but rather the amount actually received by Novartis."
"If a taxable person, for whatever reason, reduces the price of a good or service it supplies, such a reduction is deductible from the taxable amount on the basis of which the VAT is calculated. Price reductions can be offered at the moment of supply, in which case Article 79 of the VAT Directive is applicable. However, prices can also be reduced after the supply takes place. In that case, Article 90(1) of the VAT Directive provides for the reduction of the taxable amount."
"Without prejudice to other provisions of Community law, this Directive shall not prevent a Member State from maintaining or introducing taxes on insurance contracts, taxes on betting and gambling, excise duties, stamp duties or, more generally, any taxes, duties or charges which cannot be characterised as turnover taxes, provided that the collecting of those taxes, duties or charges does not give rise, in trade between Member States, to formalities connected with the crossing of frontiers."
"In accordance with Article 90(1) of the VAT Directive, in the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the Member States are required 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."
"… in order for taxes, duties, levies and charges to be included in the taxable amount for VAT, even though they do not represent any added value and do not constitute the financial consideration for the supply of goods or services, they must have a direct link with that supply, and the question whether the chargeable event for the tax, duty, levy or charge concerned coincides with that for VAT is a decisive factor for the purposes of establishing the existence of such a direct link …"
"The fact that Member States may maintain or introduce certain taxes, duties or charges under the conditions laid down in [Article 401 PVD] does not, in any way, prevent such taxes, duties or charges from being taken into account, pursuant to point (a) of the first paragraph of Article 78 of that directive, for the purposes of determining the taxable amount for VAT, as a price reduction, within the meaning of Article 90(1) of that directive."
"55 It would not be consistent with the principle of fiscal neutrality … for the taxable amount on which the VAT, for which the pharmaceutical company is liable, as a taxable person, is calculated to be higher than the amount which it ultimately received. If this were the case, that principle would not be complied with.
56 Thus, since a portion of the consideration obtained from the sale of the medicinal products by the pharmaceutical company has not been received by the latter because of the contribution it pays to the State health insurance agency, which refunds part of the price of those medicinal products to the pharmacy, it must be found that there has been a reduction in the price of the medicinal products after the supply took place within the meaning of Article 90(1) of the VAT Directive.
57 The pharmaceutical company was not able to freely dispose of the full amount of the price received on the sale of its products to wholesalers."
Principles and factors derived from European cases
(1) The taxable amount for supplies of goods and services is everything which constitutes consideration for the supply obtained or to be obtained by the supplier from the customer/purchaser or a third party. (Article 73 PVD)
(2) The taxable amount includes taxes, duties, levies and charges but not the VAT chargeable on the supply. (Article 78(a) PVD)
(3) There must be a direct link between the supply and the consideration received. (Boehringer 1 paragraph 40, Boehringer 2 paragraph 45 and Novo Nordisk paragraph 35)
(4) Consideration is the 'subjective value', that is to say, the value actually received in each specific case, and not a value estimated according to objective criteria. (Elida Gibbs paragraph 27 and EC v Germany paragraph 30)
(5) The taxable amount serving as the basis for the VAT to be collected by the tax authorities cannot exceed the consideration actually paid by the final consumer. (Elida Gibbs paragraph 19 and EC v Germany paragraph 29)
(6) The taxable amount used to calculate the VAT chargeable cannot exceed the sum finally received by the taxable person (Elida Gibbs paragraph 28, EC v Germany paragraph 30, Boehringer 1 paragraph 32 and Boehringer 2 paragraph 41).
(7) The tax authorities may not collect an amount of VAT exceeding the tax which the taxable person received. (Boehringer 1 paragraphs 32, Boehringer 2 paragraph 41 and Novo Nordisk paragraph 30)
(8) VAT is intended to tax only the final consumer. (Elida Gibbs paragraphs 19, 22 and 23, EC v Germany paragraph 29, Boehringer 2 paragraph 39 and Novo Nordisk paragraph 32)
(9) As VAT is intended to tax only the final consumer, it follows that the taxable amount for VAT purposes may not exceed the amount paid by the final consumer. (Elida Gibbs paragraph 31, Boehringer 1 paragraph 42, Boehringer 2 paragraph 46 and Novo Nordisk paragraph 50)
(10) The final consumer does not have to be a participant in the contractual chain of supply. (Boehringer 1 paragraph 39)
(11) The final consumer may be a person other than the purchaser or direct beneficiary of the supply. (Boehringer 1 paragraphs 40 and 41, Boehringer 2 paragraphs 45 and 46 and Novo Nordisk paragraphs 49 and 50)
(12) The final consumer is the person who, in economic reality, bears the cost of the supply at the stage of final taxation. (Boehringer 1 paragraph 41 and Boehringer 2 paragraph 46)
(13) The position of taxable persons involved in the production and distribution process prior to the stage of final taxation should be neutral, regardless of the number of transactions involved. (Elida Gibbs paragraph 31)
(14) Whenever, after a transaction has been concluded, part or all of the consideration has not been received by the taxable person, the taxable amount and, consequently, the amount of VAT payable by the taxable person must be reduced. (Article 90(1), Boehringer 1 paragraphs 32 and 39, Boehringer 2 paragraph 41 and Novo Nordisk paragraph 30)
(15) A price reduction need not be voluntary but can result from an obligation imposed by law. (Novo Nordisk paragraphs 46 – 48 and 50 - 52)
(16) The taxable amount of a supply is not reduced where the supplier makes a payment to another person that is not linked to that supply. (Ibero Tours)
(17) The taxable amount of a supply and, consequently, the amount of VAT payable by the taxable person is not reduced where the price invoiced at that stage of the distribution chain, or at a later stage, does not include VAT as any reduction or partial reduction of that price cannot in turn include a VAT element. (EC v Germany paragraph 64)
Discussion
(1) one of the purposes of the Schemes under Section 261 of the NHS Act was to limit the prices charged for the supply of health service medicines by a manufacturer such as BIL;
(2) the prices were limited by requiring BIL to pay the DHSC amounts calculated by reference to sales of the health service medicines by BIL;
(3) BIL submitted quarterly returns of its UK-wide sales and made payments to the DHSC in accordance with the returns; and
(4) the payments under the Schemes were booked as a discount against the 'sales' line in BIL's accounts.
Disposition
Costs
Right to apply for permission to appeal
