Revenue fails in bid to prevent €1m VAT refund to drugmaker Novartis

Revenue Fails In Bid To Prevent €1M Vat Refund To Drugmaker Novartis
Swiss drugmaker Novartis employs more than 1,000 Irish staff, with offices in Cork and Dublin. Photo: AP.
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High Court Reporters

Revenue has failed to convince the High Court that Swiss drugmaker Novartis, which employs more than 1,000 Irish staff, should not be refunded €1 million in Value-Added Tax.

Ms Justice Emily Egan ruled that rebate payments the pharmaceutical company made to private health insurers, relating to its supply of an injectable eye drug to private hospitals, reduced the amount taxable for VAT.


Novartis, which has offices in Dublin and Cork, made the rebate payments to insurers pursuant to contractual volume-based discount agreements for the supply of Lucentis, which is used to treat macular degeneration, to private hospitals.

The judge held that Revenue was not permitted to levy VAT on the pre-discount consideration.

Contractually bound

She said a tax authority may not levy VAT in excess of the amount received by the manufacturer, but this was what occurred in this instance.

Novartis was contractually bound to grant the rebate to insurers and does not have freely at its disposal the full amount of the price received for supplying Lucentis, she said.


Revenue had refused the firm’s claim for a €1 million VAT refund. This decision was overturned when Novartis appealed to the Tax Appeal Commission.

The commission’s decision was then appealed by Revenue to the High Court, which on Wednesday upheld the findings.

Ms Justice Egan noted the discounts were applied retrospectively.

The drugmaker had similar volume-based discount agreements with the hospitals themselves, and Revenue allowed a VAT refund in respect of those rebates, the judge said.


While the hospitals and the insurers each benefited from only one price reduction, the medication vials were subject to both discounts, she added.

Revenue submitted that the Lucentis supply chain links Novartis with its wholesaler and ends with the hospitals. It said the insurers were outside the chain.

Revenue contended that consideration for VAT concerning supply of a product is the payment or proceeds received less discounts offered. If a company decides to make a discrete payment to third parties, which it claimed the insurers are, this does not affect the amount to be considered for VAT, it said.

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Ms Justice Egan did not accept Revenue’s argument that the contractual agreements between Novartis and the insurers are separate from the supply chain. Such arrangements were, in her view, “integral” to the supply chain.


The judge said consideration of economic realities is a “fundamental criterion” for the application of VAT.

A pharmaceutical company will be unable to secure a market for its products in private hospitals in Ireland unless the insurers are prepared to reimburse the costs of the products, she said. Few patients could afford medication such as Lucentis if it was not covered by insurance, she added.

Novartis was entitled to a VAT repayment under section 39 of the Value Added Tax Consolidation Act, 2010, she ruled.

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