Court of Justice of the EU: judgement Novo Nordisk

Dispute Background:

• Novo Nordisk, a pharmaceutical company, sells medicinal products in Hungary, some of which are subsidized by the National Health Insurance Fund Management Agency (NEAK). 
• Novo Nordisk is required to make payments to NEAK based on an ex lege obligation to make payments corresponding to 20% and 10%, respectively, of a portion of the social security subsidies relating to all medicinal products that are sold in pharmacies and benefit from public funding.
• Novo Nordisk sought to reduce its taxable amount for VAT purposes by the amounts paid under this obligation. The claim was rejected based on the consideration that those payments, which were made pursuant to a statutory obligation, do not constitute a price reduction deductible from the taxable amount for VAT purposes.

Court’s Consideration:

• The Court examined whether these payments could be considered a price reduction under Article 90(1) of the EU VAT Directive. 
• It was determined that these payments are not part of the financial consideration received by Novo Nordisk. More specifically, the Court anaylsed that since the portion of the sale price of the subsidised medicinal products which is paid by Novo Nordisk, through the tax authority, to the NEAK is fixed in advance and is mandatory, it cannot be regarded as part of the financial consideration for the supply of those medicinal products actually received by Novo Nordisk.
• The Court clarified once more that the scope of Article 90(1) of the VAT Directive covers price reductions resulting both from agreements concluded between a pharmaceutical company and a State health insurance agency and from ex lege obligations such as those at issue in the main proceedings.  

Conclusion: 

The judgment clarifies that pharmaceutical companies are entitled to reduce their taxable amount for VAT purposes by the amounts paid to state health insurance agencies under statutory obligations, as these payments constitute a price reduction within the meaning of Article 90(1) of the VAT Directive. 

Given this positive decision, I recommend to further analyse the impact of the case and how to best utilize it for rebates projects opened.

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