Greece reduces VAT on pharmaceutical rebates

After a long-standing debate, Greece's tax authority has reduced the VAT threshold for pharmaceutical rebates. EY Greece's Nikoletta Merkouri discusses the impact for pharmaceutical companies.

Greece’s Tax Administration acknowledged in Decision A. 1035 on February 5 2019 a reduction in the taxable amount for value added tax (VAT) for rebates granted by pharmaceutical companies to social security organisations and hospitals (Article 35, Paragraph 3 of Law 3918/2011).

The issue has been a long-standing debate between pharmaceutical businesses and the Greek State. Under the former system, VAT corresponding to rebates was a cost suffered by the pharmaceutical businesses.

Greece’s Supreme Administrative Court has already issued decisions that determine that rebates constitute an obligatory limitation of monetary claims by pharmaceutical companies against the social security organisations, when supplying medicinal products to the latter for the benefit of the insured persons. The cost of these supplies is covered totally or partially by the social security organisation.

In simple terms, this is a reduction/discount to the original amount for the supply of the medicinal products. This is seen in Decisions 3447/2015, 3448/2015, 3449/2015 and 3450/2015, 2049/2017 and 1282/2017 of Greece’s Supreme Administrative Court.

Greece’s Tax Administration has previously accepted in Decision 1115/2016 a reduction in the taxable amount for VAT in similar situations where there is a claw-back granted by pharmaceutical companies to social security organisations (Article 11 of Law 4052/2012) and hospitals.

This is also the case of rebates granted by private pharmacies (Article 34 of Law 3918/2011) and private health services providers (Article 100 of Law 4172/2013) to social security organisations. As a result, rebates and claw-backs are now treated in a uniform manner from a VAT point of view, on account of application of the principle of equal treatment.

Consequently, the Greek Tax Administration is aligned with the judgment of the Court of Justice of the European Union (CJEU) in C-462/16 (Boehringer Ingelheim Pharma GmbH. & Co. KG), as well as in C-317/94 (Elida Gibbs), with respect to the correct interpretation and application of Article 90, Paragraph 1 of Directive 2006/112/EC (VAT Directive).

This provision embodies one of the fundamental principles of the VAT Directive, according to which the taxable amount is the consideration received, and the corollary of which is that the tax authorities may not collect an amount of VAT exceeding the tax that the taxable person received.

Finally, the CJEU has upheld that one of the principles on which the VAT system is based is neutrality. In that sense, each country with similar goods should bear the same tax burden, whatever the length of the production and distribution chain.

The impact of this development is that pharmaceutical companies will now be able to enhance their cash position by the amount of VAT corresponding to the rebates granted to social security organisations and hospitals.