In an Opinion by Advocate General Ćapeta delivered earlier this summer on 6 June 2024, she stated, in Case C-248/23, Novo Nordisk AS v Appeals Directorate of the National Tax and Customs Administration of Hungary, referred to the Court of Justice of the European Union (CJEU) by the Budapest High Court (Fővárosi Törvényszék) in Hungary, that Novo Nordisk – Denmark’s largest publicly listed company – may indeed deduct payments that it must make according to Hungarian law, from its owed value-added (VAT) to the Member State.
Novo Nordisk is a pharmaceutical company that supplies medical products. It is best known for its insulin products to treat diabetes, but is more lately known for producin Wegovy, a weight-loss drug. Novo Nordisk is active in the Hungary market.
In Hungarian law, such a manufacturer of pharmaceutical products must make a mandatory payment to the state, depending on the manufacturing price base. The company had requested a reduction in the amount of value-added tax (VAT) it had to pay on the basis of its subsidised medicinal products as part of this mandatory payment. This was, however, refused by the Appeals Directorate of the National Tax and Customs Administration (Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatósága) of Hungary.
The case concerns an interpretation of Article 90(1) of the VAT Directive (Directive 2006/112) which allows for the reduction of the taxable amount if the price is reduced after the supply takes place. It stated that,
‘In the case of cancellation, refusal or total or partial non-payment, or where the price is reduced after the supply takes place, the taxable amount shall be reduced accordingly under conditions which shall be determined by the Member States.’
The referring court wants to known what this payment is a ‘price reduction’ or a ‘tax’. If it is the former, Novo Nordisk will qualify for the VAT reduction. If it is the later, Novo Nordisk does not.
The factual situation of how the Hungarian marketplace for medicines was summarised by Advocate General Ćapeta:
‘Medicinal products may be subsidised by the Nemzeti Egészségbiztosítási Alapkezelő (National Health Insurance Fund Management Agency, Hungary; ‘the NEAK’) through the ‘purchase price subsidy’ scheme. Under that scheme, the NEAK subsidises the purchase price of medicinal products that are sold on prescription and funded by the social security system in the context of outpatient care. The price of the subsidised medicinal product is then shared between the NEAK and the patient. The patient pays the pharmacy an amount –the ‘subsidised price’ –, which is the difference between the price of the medicinal product and the subsidy paid by the NEAK. The NEAK subsequently reimburses to the pharmacy the amount of the subsidy paid. The price of the medicinal products received by the pharmacy, which is the taxable amount for VAT purposes, thus comprises two parts: the subsidy paid by the NEAK and the ‘subsidised price’ paid by the patient. The pharmacy is therefore required to pay VAT on both the amount paid by the patient and the sum paid by the NEAK.’ (para 6).
On the basis of all the arguments presented to the Court, Advocate General Ćapeta found that
‘even though the payment at issue possesses most of the elements of a special tax, it may not be considered as such in the present case‘ (para. 27).
From there, she states that,
‘Given that the amount owed by Novo Nordisk under the Hungarian law to the NEAK is calculated on the basis of the price of the supplied prescription medicinal products, and that the reimbursement is made to the same institution which is also a final consumer, such reimbursement represents the price reduction of the supplied medicinal products granted after the supply took place within the meaning of Article 90(1) of the VAT Directive.’ (para. 33).
And that consequently,
‘an ex lege payment obligation such as the one in the main proceedings, may constitute a price reduction so that, for the purpose of VAT, the ‘taxable amount’ of that company may be reduced as a result of the price reduction resulting from such ex lege payment.’ (para. 34).
The operative part of her Opinion, which she submits that the Court should adjudicate, was as follows:
‘as precluding a national legislation, under which a pharmaceutical undertaking which, by law, is obliged to pay to a State health insurance body a proportion of its turnover deriving from its sales of pharmaceutical products financed by public funds, is not entitled to an ex post reduction in the taxable amount in respect of those payments if the national legislation at issue does not state in a clear, precise and foreseeable manner that the payment at issue is owed as a tax.’
The Opinion of Advocate General Ćapeta in Case C-248/23, Novo Nordisk AS v Appeals Directorate of the National Tax and Customs Administration of Hungary, which was delivered on 6 June 2024, is available here.