Czech Republic: Pharmaceutical marketing services are separate supply of services not subject to VAT (Supreme Administrative Court decision)

Only the distribution services were subject to VAT

Only the distribution services were subject to VAT

The Supreme Administrative Court recently held that the distribution of pharmaceuticals and the provision of marketing services were separate supplies for value added tax (VAT) purposes, and only the distribution services were subject to VAT.


The taxpayer distributed pharmaceuticals to customers within the Czech Republic and also provided marketing services to a foreign group company outside the Czech Republic. The taxpayer treated such marketing services as a separate supply of services for VAT purposes not subject to VAT in the Czech Republic.

The tax authority argued that the marketing services were an ancillary supply of services and an integral part of the main supply provided by the taxpayer—the distribution of pharmaceuticals in the Czech Republic. Therefore, payments for those services must be included in the VAT base for the sale of pharmaceuticals in the Czech Republic.

The court emphasized that it was necessary to distinguish between the recipient of the marketing services (the one who ordered the services and benefited from it) and the recipient of the marketing information (the one whom the content of the marketing service was intended to influence). The court concluded that the taxpayer did not supply any marketing services or other supplies to its customers other than medicine. The customers were only the recipients of the marketing information. Therefore, payment for the taxpayer’s marketing services cannot be regarded as part of the consideration subject to VAT.

Read an October 2023 report prepared by the KPMG member firm in the Czech Republic



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