Romania: pharmaceutical giant's €12m VAT refund sets precedent for clawbacks

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Romania: pharmaceutical giant's €12m VAT refund sets precedent for clawbacks

Sponsored by

EY_Logo_Beam_STFWC_Horizontal_Large_RGB_OffBlack_Yellow_EN.gif
Tablets and euro

The decision’s implications for pharmaceutical firms seeking to recover overpaid taxes on clawback payments are considered by Emanuel Bancila and Andrei Boian of Bancila, Diaconu and Associates, which is part of the EY Law network

The Romanian High Court of Cassation and Justice has ruled in favour of a pharmaceutical giant in a long-running dispute over VAT payments, awarding the company a €12 million tax refund. The taxpayer is also entitled to a 45% interest repayment and compensation of the inflation rate, which was over 50%. The case – in which Bancila, Diaconu and Associates (an EY-affiliated law firm), together with EY Tax Romania, advised and represented the company – revolved around the VAT treatment of clawback payments and marks a significant victory for pharmaceutical firms operating under similar price-volume agreements across the EU.

The decision follows a 2021 ruling by the Court of Justice of the European Union in the Boehringer case, which allowed pharmaceutical companies to apply to reduce their VAT base when they reimburse a portion of sales to governments under a price-volume agreement. The case set a precedent that EY teams in several other countries, including Hungary and Germany, have successfully applied to other pharmaceutical companies with local operations.

EY Law had approached several businesses regarding the opportunity to recover overpaid VAT in this regard, but the company in question was the first that was prepared to go to litigation with the Romanian tax authority.

Before taking the clawback opportunity, the pharmaceutical giant interested in being supported in another matter relating to bad debts. Almost in parallel to appointing Bancila, Diaconu and Associates and EY Romania on the first clawback-related matter, it turned its attention to the bad debts matter. The latter was resolved within six months, enabling the company to recover a significant amount of overpaid taxes.

Using a Romanian tax procedural code provision to good effect

EY Romania led the case and took a rarely used approach in attempting to reclaim overpaid taxes. Instead of adjusting past VAT returns for any impacted years – an approach recommended by many other practitioners but one that carries significant risks – the EY Romania legal team utilised a provision in the country’s tax code that allows businesses to request tax refunds without adjusting the VAT return. This has the advantage of not risking late-payment interest charges.

The litigation spanned six years; during which, a legislative change confirmed the VAT clawback position for future tax years. Nevertheless, the Romanian tax authorities do not recognise EU jurisprudence for past periods until the law is modified accordingly, which happened in March 2024. This enabled EY Romania to focus on the previous seven years, beyond the statute of limitations period.

The wider significance of the case

The ruling – in May 2024, with the grounds of the ruling communicated in December 2024 – is expected to have broader implications, with at least 15 other pharmaceutical companies pursuing retrospective VAT claims through EY Romania. The firm is also exploring the possibility of supporting the company in claiming beyond the seven-year period already repaid.

The case highlights the evolving VAT landscape for pharmaceutical companies in the EU and the increasing willingness of businesses to challenge tax authorities over retrospective claims. As more firms look to capitalise on this precedent, the decision could set the stage for further legal battles in the sector.

more across site & shared bottom lb ros

More from across our site

Setu Kamal became the first practising barrister to be added to the UK’s tax avoidance promoter list; in other news, UHY expanded its network in Canada
US President Donald Trump’s tariffs may get thrown out by courts in the future and taxpayers should already be planning for that possibility, BDO’s Dustin Stamper tells ITR
Awards
ITR is delighted to reveal the first shortlisted nominees for the Middle East Tax Awards
The firm has appointed Deloitte’s former tax leader for Thailand to lead the new operation, which builds on considerable Asian investment in recent months
The Donald Trump administration could use legislation from 1930 if the Supreme Court blocks its tariffs; in other news, China has updated its VAT refund procedures
Braun gives ITR an exclusive insight into WTS Digital’s UK launch of its AI product, which can free up more than 1,500 hours per month by reducing routine tasks
Long tells ITR about her varied role, why curiosity is a key characteristic for the tax professional, and what she’d be doing if she wasn’t working in tax
The choice facing governments is not whether to adopt AI in taxation, but how to do so in a way that upholds the principles of tax fairness, writes Neil Kelley
As ITR’s client data reveals discontent with German tax advisers’ cost management, Grant Thornton’s local TP head insists it’s a two-way street
Uncertainty isn’t always a bad thing, but it’s easy to see how the Trump administration’s IRS commissioner merry-go-round may serve to undermine business confidence
Gift this article