Hungary: Medicine-related subsidies paid to health insurance company treated as price reduction for VAT purposes

A case concerning whether contributions paid to an insurance company for subsidized medicines constitute a reduction in invoiced price

Medicine-related subsidies paid to health insurance company for VAT purposes

The Court of Judgment of the European Union (CJEU) issued a judgment in a case concerning whether for value added tax (VAT) purposes, contributions paid to an insurance company for subsidized medicines constitute a reduction in the invoiced price.

The CJEU upheld a prior determination that in such instances, the insurer is in the position of the final consumer vis-à-vis the supplier and that the payment of contributions calculated from revenues derived from medicines sold would result in a subsequent reduction in the tax base. The supplier, therefore, would be entitled to reduce the originally declared tax base, since the price had been reduced.

The case is: Boehringer Ingelheim C-717/19 (6 October 2021)


The taxpayer, a Hungarian company, markets subsidized medicines. It supplies medicines to wholesalers (distributors) who resell them to pharmacies. For final consumers, medicines may be subsidized by a health insurance company with the result that the consumer pays only a “residual portion” of the price (the difference between the price of the medicine and the subsidy paid by the insurance company) to the pharmacy. The subsidy is paid by the insurance company to the pharmacy.

The amount that pharmacies receive for the medicines, which constitutes a VAT tax base, therefore has two components: (1) the health insurance company subsidy, and (2) the “residual portion” paid by the patient. The pharmacy pays VAT on both components of the price.

The taxpayer concluded cost reimbursement agreements with the health insurance company for the purpose of providing contributions for certain medicines. By doing so, the taxpayer paid amounts to the insurance company for the subsidy (the amounts were determined based on the medicines sold)—thus paying them a part of its revenues from the sales. The health insurance company did not issue an invoice for the payments, but sent a request to pay the amount. The payment was supported by a bank statement.

Due to the payment, the taxpayer reduced the amount of VAT originally paid (or, more precisely, reduced the originally declared output tax base) on the grounds of a reduction in the price of the medicine.

In line with the conclusions of earlier CJEU case law, the Hungarian referring court held that the health insurance company must be considered to be a final consumer. Therefore, if the taxpayer did not receive a part of the price of the medicines because it had paid an amount to the insurance company, the price of the medicine had thereby been reduced.

The CJEU confirmed that since the pharmacy must pay VAT on the amount paid by both the patient and the insurance company, then the insurance company must be considered to be a final consumer of the supply of the medicine by the taxpayer. Since the taxpayer did not receive part of the consideration for the medicine sold because of an insurance company payment contribution, this would be viewed as a subsequent reduction in the price of the medicines (on the basis of a contractual arrangement).

Another issue addressed by the CJEU was the question of whether an invoice is a possible precondition for adjusting the tax base. On this issue, the CJEU concluded that holding an invoice is not necessary for correcting the tax base if the supply (and its payment) can be supported otherwise.

Read a November 2021 report prepared by the KPMG member firm in the Czech Republic


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