German Drugmakers Buoyed by ECJ Adviser Support on VAT Dispute

Trust Bloomberg Tax for the international news and analysis to navigate the complex tax treaty networks and global business regulations.

By Joe Kirwin

The German pharmaceutical industry hailed a European court opinion stating German tax authorities must allow drugmakers to calculate value-added tax on sales to private health insurance companies as they would for public health insurance funds.

In a case ( C-462/16) that could have a major VAT impact on drug sales in Germany and other EU member states, European Court of Justice Advocate General Evgeni Tanchev July 11 backed a challenge by German drugmaker Boehringer Ingelheim Pharma GmbH, which was denied the right to take into consideration discounts when calculating VAT prices to private health insurance funds.

The legal dispute stems from a position taken by German tax authorities, who insisted that because individuals are reimbursed for discounts on sales to private insurance funds, they are not—legally speaking—the final consumers. Upon an appeal by Boehringer, the German tax court asked the ECJ to rule, based on EU VAT law, on the different treatment when it comes to determining VAT turnover taxes “considering public health insurance funds are ultimate consumers in the chain of supply of Boehringer’s pharmaceutical products and private health insurers are not.”

U.K. Backs German Tax Authorities

Indicative of the importance of the case, the U.K. intervened on behalf of German tax authorities. Both the German and U.K. governments argued that a previous ECJ ruling (C-317/94) supports their argument that if discounts are to be taken into consideration when calculating VAT, the consumer must be part of the transaction chain.

Klaus Herkenroth, a German-based attorney with Jones Day, told Bloomberg BNA July 12 that on one hand, it seems obvious the position of pharmaceutical companies vis-a vis private insurance companies is no different from those of public health insurance companies, but on the other hand, “VAT is of a very formalistic nature and in that respect, the position of public and private health insurance companies is different.

“Nevertheless, in my view it should be controlling that the VAT base is formed by the consideration obtained, and here the consideration obtained by pharmaceutical companies is equally reduced in both cases,” Herkenroth said.

The final judgment of the ECJ is due later in 2017. In the majority of ECJ cases, the EU high court supports the position of the AG.

To contact the reporter on this story: Joe Kirwin in Brussels at

To contact the editor responsible for this story: Penny Sukhraj at

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request International Tax