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Germany: Pharmaceutical industry not entitled to reduce its VAT burden


The German Federal Fiscal Court denied the claim of a drug manufacturer to reduce its VAT after it had paid a solidarity contribution to the health insurance fund.

In 2002, the pharmaceutical industry paid a solidarity contribution totalling €400 million to the health insurance fund. The German Federal Tax Court had to decide whether the solidarity contribution affected the VAT liability of the drug manufacturers.

As the cost of certain drugs had increased, the German government made the decision to set a price limit for these drugs. The pharmaceutical industry wanted to avoid such implementation of a price limit. Therefore, it was agreed that the drug manufacturers would pay the solidarity contribution of €400 million to the health insurance fund as compensation for the financial burden caused by the high costs of the drugs. Each drug manufacturer was required to pay a solidarity contribution in proportion to its drug sales. The proportion of €400 million each health insurance fund received was calculated based on its expenses it incurred purchasing these drugs in 2001.

In the case before the German Federal Tax Court, a drug manufacturer adjusted his VAT after he paid his share of the solidarity contribution. In his opinion, the solidarity contribution had reduced the taxable base for his drug sales (article 90, section 1 Council Directive 2006/112/EC).

The court denied the VAT adjustment, ruling that the principles of the European Court of Justice’s Elida Gibbs (C-317/94) decision were not applicable in this case. In the Elida Gibbs case the manufacturer could reduce his VAT liability if he granted a price reduction to a later customer in the supply chain. However, in the same case, price reductions granted by the manufacturer referred to the supply of goods carried out by the manufacturer. In this respect, there was a direct link between the manufacturer’s supply of goods and the subsequent price reduction granted.

In contrast, in this German case, a direct link between the solidarity contribution and the supply of goods by the drug manufacturer could not be determined. It was also unclear whether all health insurance funds which received a proportion of the solidarity contribution had actually even purchased the plaintiff’s drugs. The fact that the contribution of the drug manufacturer was based on its drug sales was regarded purely as a calculation method.

The solidarity contribution was also meant to prevent price regulation in the future. Therefore, the solidarity contribution was not granted by the drug manufacturer as price reduction for previously carried out supply of drugs.

Eveline Beer ( is a lawyer and certified tax consultant with Küffner Maunz Langer Zugmaier, the principal correspondent for Germany for the indirect tax channel of

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