Could pharmaceutical pricing schemes lead to VAT repayments? The Boehringer case

The ongoing Boehringer litigation is one of the most significant VAT developments affecting the pharmaceutical sector in recent years.

While the dispute focuses on pharmaceutical pricing schemes, the wider significance lies in whether mandatory payments made after medicines have been supplied should reduce the amount of VAT originally accounted for.

For many pharmaceutical manufacturers, the outcome could have significant cashflow implications and potentially create opportunities to revisit historic VAT positions.

Background

In Boehringer Ingelheim Pharma GmbH & Co. KG (Case C-462/16), the European Court of Justice considered whether payments made by a pharmaceutical manufacturer to health insurers reduced the value of medicines previously supplied through the distribution chain.

The Court concluded that where such payments effectively reduce the consideration ultimately retained by the supplier, the VAT taxable amount should also be reduced. The decision reinforced the principle that VAT should generally be based on the amount ultimately retained by the supplier rather than amounts subsequently paid back under pricing arrangements.

More recently, similar arguments have been raised in the UK in relation to payments made under VPAG (Voluntary Scheme for Branded Medicines Pricing, Access and Growth) and its predecessor schemes.

Why does it matter?

The potential impact extends far beyond a technical VAT point.

If payments made under pharmaceutical pricing arrangements are properly characterised as reductions in the value of medicines supplied, rather than separate regulatory obligations, businesses may have accounted for VAT on amounts they did not ultimately retain.

This could create opportunities to:

• Review historic VAT positions
• Submit VAT repayment claims
• Improve cashflow
• Reassess ongoing VAT treatment

Given the four-year cap that generally applies to UK VAT repayment claims, businesses may wish to assess their position sooner rather than later.

Who should be considering this?

The issue is likely to be particularly relevant for:

• Pharmaceutical manufacturers participating in VPAG or previous pricing schemes
• Businesses making mandatory rebate or clawback payments
• Life sciences businesses operating reimbursement mechanisms
• Organisations subject to regulated pricing arrangements

As with most VAT matters, the contractual arrangements and commercial reality will be critical in determining the correct treatment.

Key takeaway

The Boehringer litigation is a reminder that VAT should reflect economic reality.

Businesses should consider:

• Whether pricing scheme payments are linked to supplies of medicines
• Whether those payments reduce the consideration ultimately retained
• Whether VAT has been accounted for on amounts subsequently paid back
• Whether historic repayment opportunities may exist

A proactive review could identify both risks and opportunities.

How Gravita can help

Our specialist VAT team works with pharmaceutical, healthcare and life sciences businesses across the UK and internationally.

We can assist with:

• VPAG and pharmaceutical pricing scheme reviews
• VAT repayment opportunity assessments
• Quantification of historic claims
• VAT error correction and repayment claims
• Contractual and supply chain reviews
• HMRC enquiries and dispute support

Could your business be entitled to a VAT repayment?

For businesses making payments under VPAG or similar pharmaceutical pricing arrangements, the amounts at stake could be significant.

With claim windows continuing to close, now is an ideal time to review your VAT position and understand whether the Boehringer principles could apply to your arrangements.

Our VAT specialists can assess your position, quantify any potential repayment opportunity and support any claim through to resolution with HMRC. If your business participates in pharmaceutical pricing, rebate or clawback schemes, contact Gravita’s VAT team to discuss whether a VAT repayment opportunity may be available.