Boehringer Ingelheim Limited (BIL) is a pharmaceutical manufacturer which supplies medicines to the NHS, usually through wholesale distributors. After making those supplies, BIL made rebate payments to DHSC under the UK voluntary scheme - the Pharmaceutical Price Regulation Scheme (PPRS) pre-2019 and then  the Voluntary Scheme for Branded Medicines Pricing and Access (VPAS) between 2019 and 2023 (which since 1 January 2024 has been replaced by the Voluntary Scheme for Branded Medicines Pricing, Access and Growth (VPAG)).    These schemes controlled the ultimate price paid by the UK government for branded and biological medicines supplied to the NHS through a cap on the total sales value each year; any price paid above the cap was paid back to DHSC.

BIL claimed that these rebates should be deducted when calculating for VAT purposes the consideration for its supplies of medicines. As BIL had accounted for VAT on the full value originally paid, it claimed a refund of overpaid VAT.

The FTT held that the payments under the voluntary schemes reduced the consideration received by BIL for direct and indirect medicine supplies to the NHS because the payments were (i) calculated by reference to BIL’s sales of medicines to the NHS; and (ii) booked as a discount to the sales line in BIL’s accounts.

The FTT reviewed general European case law relating post-supply adjustments to consideration.    In the leading case, C-317/94 Elida Gibbs, the ECJ decided that the value of money-off coupons and cash-back coupons refunded by a manufacturer to retailers and consumers should be deducted when calculating the value of the manufacturer’s supplies.

The FTT also considered two CJEU cases specifically on price reductions for medicines applicable to Boehringer entities in Germany and Hungary.  In C-462/16 Boehringer 1 the medicines were supplied to wholesalers and then ultimately to patients insured by private health insurance funds, who reimbursed the patients for the cost of medicines.  The CJEU held that discount payments made by the manufacturer to the funds could be deducted from the value of supplies made by the manufacturer on the basis that the funds should be regarded as the final consumer as they bore the cost of the medicines supplied to patients. Similarly, in C-717/19 Boehringer 2, the CJEU held that payments to the Hungarian State Insurance Agency used to subsidise the cost of medicines supplied to patients could be deducted from the consideration for the supply of those medicines to wholesalers.

HMRC contended that no post supply price reduction was possible in this case. Its principal argument was that DHSC was not the final consumer of the medicines supplied by BIL. The FTT held that the position was similar to Boehringer 1 and Boehringer 2. It would be artificial to distinguish between DHSC and the NHS as the majority of DHSC’s budget was transferred to the NHS and funded the cost of the medicines.

HMRC also argued that BIL would be unjustly enriched by such a VAT refund, as its customers had paid it the VAT for which it sought a refund. The FTT dismissed this argument, saying that the payment to DHSC must have included VAT amounts, so BIL had already paid away the VAT amounts which it had previously received.

Authored by Rupert Shiers and Laura Hodgson.