Novo Nordisk VAT Case: When Statutory Payments Reduce the VAT Taxable Amount

The VAT implications of mandatory contributions to public healthcare institutions form a legal tension field where commercial practice, national legislation, and EU law intersect. When a pharmaceutical company is legally obliged to hand over part of its revenue to a public health insurer, the question arises whether such payments reduce the taxable amount for VAT purposes. This issue was central in the Novo Nordisk case (C-248/23), in which the Court of Justice of the European Union (CJEU) delivered its ruling on 12 September 2024.

Core issue

The dispute centered on the application of Article 90(1) of Directive 2006/112/EC, which allows for a reduction in the taxable amount in case of price reductions after the supply. The Hungarian tax authorities classified Novo Nordisk’s payments as a special tax, not a price reduction. The key question for the Court was: may the pharmaceutical company correct its VAT base due to legally mandated payments to a health insurer, even if these are collected via the tax authority? The judgment offers a guiding answer that has implications for all Member States with similar arrangements.

Facts and background

Novo Nordisk A/S, a Denmark-based pharmaceutical company, operates in the Hungarian market for the distribution of medicines. The company sells its products to wholesalers, who then distribute them to pharmacies. In Hungary, retail sale of medicines takes place almost exclusively through pharmacies. The end consumers are patients enrolled in the public health insurance system, managed by the national authority NEAK (Nemzeti Egészségbiztosítási Alapkezelő).

A significant share of the medicines Novo Nordisk sells in Hungary is eligible for government funding through a co-financing scheme. Under this system, patients pay only part of the price — their personal contribution — while the remainder is subsidized by NEAK and paid directly to the pharmacies. The full price (including both the subsidy and patient contribution) is treated as the VAT taxable amount at the pharmacy level. Therefore, the subsidy is considered a component of the consideration for the supply for VAT purposes.

To qualify for this subsidy and facilitate price control, Novo Nordisk concludes price-volume agreements with NEAK. Under these contracts, the company agrees to repay part of the received compensation to NEAK if certain sales thresholds are exceeded. Separately from these agreements, Hungarian law also obliges Novo Nordisk to make statutory payments to NEAK. 

These mandatory contributions are calculated as a percentage of the government subsidy on the sold medicines, with rates ranging from 10% to 20% depending on the product type and the period of reimbursement.

These statutory payments are not made directly to NEAK but via the Hungarian tax authority (NAV), which acts as an intermediary and forwards the collected amounts to NEAK. This obligation is codified in national legislation, including the Hungarian Medicines Act (Gyftv).

Novo Nordisk deducted both the repayments under the price-volume agreements and the statutory contributions from its VAT taxable base, arguing that these reduced the actual compensation received. The Hungarian tax authorities partially accepted this argument — allowing the deduction for contractual repayments but denying it for statutory contributions. According to the tax authority, the latter were special taxes, not price reductions, and thus did not qualify for correction under Article 90 of the VAT Directive.

Novo Nordisk challenged this decision. The appeals body upheld the tax authority’s view, asserting that the statutory payments stemmed solely from legislation and did not involve an agreed price reduction between the parties. Novo Nordisk appealed to the Fővárosi Törvényszék (Budapest Municipal Court), which considered that the statutory nature of the payments did not necessarily exclude their qualification as a price reduction — especially since the payments arose from the revenue of subsidized medicine sales.

As the CJEU had not yet ruled on whether legally required payments to a public health insurer (via the tax authority) could lead to a reduction in the VAT base, the Hungarian court referred a preliminary question to the Court.

Legal framework

The core of the Novo Nordisk case lies in the interpretation of Article 90(1) of Directive 2006/112/EC (VAT Directive). This provision obliges Member States to reduce the VAT base where the price is reduced after the supply — such as in cases of cancellation, non-payment, or discount. The underlying principle is that VAT should only be levied on the actual consideration received by the supplier. This is a manifestation of the principles of neutrality and proportionality in the VAT system.

Article 73 of the Directive states that the taxable amount includes all payments received from the buyer or a third party, including subsidies directly linked to the price of the supply. This aligns VAT with its economic nature as a consumption tax.

Conversely, Article 78(a) provides that taxes, duties, and charges can be included in the taxable amount if they are directly related to the supply. The Hungarian tax authority invoked this article, arguing that the contributions to NEAK constituted a special tax that should be included in the VAT base. They claimed the payments were not commercially negotiated but legally imposed and calculated as a fixed percentage of the subsidized value of the medicines.

Thus, the legal debate turned on the classification of these payments: were they “taxes” or “price reductions”? This classification is decisive. If the contributions qualify as taxes under Article 78, they form part of the consideration and are subject to VAT. If, however, they are deemed price reductions under Article 90, the taxable amount must be reduced accordingly — to the benefit of the supplier.

A complicating factor is that these payments are mandated by law rather than arising from a commercial agreement. The Hungarian government argued this rules out the possibility of a price reduction. Furthermore, it pointed out that the payments are made not to the end user (the patient), but to a public insurer via the tax authority — suggesting the payment is an external charge, not a reduced consideration for a specific supply.

The referring Hungarian court questioned whether this formal distinction was truly decisive. It cited prior CJEU case law — including Elida Gibbs, Boehringer Ingelheim Pharma (C-462/16), and Boehringer Ingelheim (C-717/19) — which acknowledged that payments to health insurers can qualify as price reductions if they effectively reduce the supplier's revenue, regardless of whether they are contractually or legally mandated.

The preliminary question to the Court, therefore, was whether Article 90(1) precludes a national rule that denies a pharmaceutical company a reduction in the VAT base for mandatory payments to a public health insurer related to subsidized sales. The Court had to further define the scope of Article 90 and clarify the meaning of ‘price reduction’ in the context of mandatory payments to third parties like public health insurers.

CJEU Judgment

The Court ruled that the Hungarian system, in which Novo Nordisk is required to pay amounts to a public health insurer, is not compatible with Article 90 of the VAT Directive. According to the Court, such mandatory payments do constitute a price reduction. Crucial to this assessment is the fact that Novo Nordisk relinquishes part of the received consideration for the supply of medicines. These amounts, although collected by the tax authority, ultimately benefit NEAK — not the state treasury.

The Court reaffirmed the fundamental VAT principle that tax should not be levied on amounts not actually received by the supplier. Even if the payments are imposed by law and collected through the tax authority, this does not mean they qualify as a “tax” under Article 78. Since the payment reduces the actual amount Novo Nordisk retains in return for its supplies, it qualifies as a price reduction within the meaning of Article 90.

The Court referenced its prior rulings in Elida Gibbs, Boehringer Ingelheim Pharma, and Boehringer Ingelheim. These cases had already established that discounts and repayments to insurers related to subsidized medicines can reduce the VAT base. The novelty in this case is that the Court extends this reasoning to statutory payments, not just voluntary contractual arrangements.

Practical implications

The ruling’s impact extends beyond the specifics of the Novo Nordisk case. For pharmaceutical companies operating under similar systems, the judgment opens the door to adjust their VAT returns. If they are legally required to transfer part of their revenue from subsidized medicine sales to public institutions, they may now deduct these amounts from the VAT base.

This ruling strengthens the tax position of pharmaceutical companies in Member States with comparable regimes, such as Germany or the Netherlands, where price arrangements with the government may also exist. Tax authorities in those countries must assess whether the amounts retained by the supplier are genuinely reduced by such mandatory payments — potentially requiring a VAT base correction.

Moreover, the judgment narrows the interpretation of ‘taxes’ under Article 78. Not every government-imposed contribution can automatically be included in the VAT base. This limits the ability of Member States to erode the Directive’s scope via mandatory levies.

Conclusion

The Novo Nordisk ruling underscores the centrality of the VAT neutrality principle. The Court makes clear that the actual economic transaction determines the taxable amount. If a supplier like Novo Nordisk does not retain part of its compensation due to a legal obligation to transfer it to a public institution, this results in a price reduction under Article 90 of the VAT Directive. The ruling sends a strong signal to Member States: fiscal obligations must not undermine the neutrality of VAT. For taxpayers, the judgment offers legal clarity to critically assess and — where appropriate — adjust the VAT base in light of payments to public bodies.

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