On 12 September 2024, the Court of Justice of the European Union delivered its judgment 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.
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 – to the National Health Insurance Fund Management Agency, Hungary (the NEAK) – 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.
Opinion of the Advocate General
Advocate General Ćapeta delivered her Opinion in June 2024, and was analysed here.
Judgment of the Court
The Court stated that Article 90(1) of the VAT Directive requires Member States to reduce the taxable amount for VAT when the price is reduced after the supply takes place. The Court emphasized that the taxable amount should reflect the actual consideration received by the supplier.
The Court then examined whether the payments made by Novo Nordisk to the NEAK could be considered a price reduction. It noted that these payments are directly linked to the sales of subsidized medicinal products and are calculated based on the volume of sales and the amount of the subsidy.
However, the Court found that these payments do not represent ‘added value’ and are not part of the financial consideration for the supply of medicinal products. Therefore, they should not be included in the taxable amount.
The Court reiterated that VAT is intended to tax the final consumer. In this case, the NEAK, which subsidizes the purchase price of the medicinal products, should be considered the final consumer. Consequently, the taxable amount should not exceed the amount ultimately received by Novo Nordisk after making the mandatory payments to the NEAK.
Thus, the conclusion of the Court was that Article 90(1) of the VAT Directive does not allow for national legislation that does not allow a reduction in the taxable amount for VAT purposes for payments made by pharmaceutical companies to state health insurance agencies, even if these payments are made pursuant to statutory obligations. Or in the formal wording,
‘Article 90(1) of…[the VAT Directive]…must be interpreted as precluding national legislation under which a pharmaceutical company, which is under an obligation to pay to the State health insurance agency a portion of its revenue obtained from its sales of publicly funded pharmaceutical products, is not entitled to a subsequent reduction in the taxable amount under those payments by reason of the fact that those payments are made ex lege, while its taxable amount can be reduced by deducting payments made under a price volume agreement and expenses incurred by the company in research and development in the health sector, and where the amounts due are collected by the tax authority, which immediately transfers them to the State health insurance agency.’
This judgment was in line with the Opinion of Advocate General Ćapeta, and constitutes a victory for Novo Nordisk.
Reading the judgment of the Court
The judgment of the First Chamber of the Court in Case C-248/23, Novo Nordisk AS v Appeals Directorate of the National Tax and Customs Administration of Hungary, delivered 12 September 2024, can be read here.