The Commissioners for HMRC v Boehringer Ingelheim Limited

Article 90(1) of Directive 2006/112/EC permits a post-supply adjustment only where a payment reduces the consideration for a supply into final consumption. The final consumer is identified by a relationship of reciprocal performance, not merely by the person who bears the cost in a general economic sense. General, non-ring-fenced public funding is too remote to establish the necessary direct link. A payment made outside the supply chain is not a rebate of the consideration for an individual supply.

Where the final supply is zero-rated or exempt and contains no VAT element, an upstream adjustment would create an impermissible tax loss and is unavailable.

HMRC appealed against the decision of the First-tier Tribunal Tax Chamber, [2024] UKFTT 948 (TC), which had allowed Boehringer Ingelheim Limited’s claims under section 80 of the Value Added Tax Act 1994 for repayment of output tax.

The claims concerned payments made by the pharmaceutical manufacturer to the Department of Health and Social Care under voluntary medicines-pricing schemes. The FTT held that the payments were post-supply price rebates because the Department ultimately bore the cost of medicines, and held that downstream zero-rating did not prevent an adjustment. The central issues were whether the payments were directly linked to supplies into final consumption and whether an adjustment was permissible where final consumption was zero-rated.

1. Appeal allowed. The FTT had applied the wrong test and its decision was set aside. The Upper Tribunal remade the decision on the facts.
2. Consideration is an EU law concept requiring a direct link and reciprocal performance between the supply and the value provided in return. The relationship need not be contractual, and the goods need not be physically supplied to the person providing the consideration. It must nevertheless be possible to identify who does what for whom and in return for what value.
3. A final consumer is not simply the person who bears the cost of a supply in a general economic sense. In Boehringer cases and Novo, the relevant insurer or health fund paid for particular identified medicines or reimbursed particular supplies. General public funding, without specific allocation or reimbursement, does not create the necessary relationship.
4. A rebate is negative consideration. Article 90(1) therefore requires a direct link between the claimed price reduction and the consideration given for the supply. Payments made from income received by the manufacturer, but outside the supply chain and without reducing the price paid at final consumption, are not Article 90 rebates.
5. The Department was the final consumer for medicines supplied directly to it and paid for by it. To the limited extent that the payments related to those identified supplies, the payments reduced the consideration and BIL could adjust its output tax.
6. For medicines supplied through wholesalers, pharmacies, hospitals and patients, the Department’s general, non-ring-fenced budgetary funding was too remote. The NHS bodies were distinct statutory entities which purchased and accounted for the medicines. The payments were not consideration paid by the Department by way of reciprocal performance and BIL had no right to adjust the taxable amount.
7. The Upper Tribunal also rejected the FTT’s interpretation of Commission v Germany. Where no VAT is paid at final consumption, an upstream adjustment would produce an absolute tax loss and breach fiscal neutrality. Any adjustment was therefore precluded insofar as the medicines were zero-rated at final consumption.
8. The payments were not price controls, although that characterisation was unnecessary to the result.

• Upper Tribunal (Tax and Chancery Chamber) — The appeal was allowed. The decision of the First-tier Tribunal, [2024] UKFTT 948 (TC), was set aside and remade.
• First-tier Tribunal (Tax Chamber) — BIL’s appeal was allowed and its section 80 claims were accepted.