In this article, David Duffy considers a recent Tax Appeals Commission (TAC) determination on VAT refunds on certain volume based rebates, as well as new Revenue guidance on their powers to protect against VAT evasion.

TAC decision – VAT on volume based rebates

The TAC case (95TACD2021) confirmed that a pharmaceutical company is entitled to claim VAT relief on payments of certain volume based rebates to health insurance companies. The company sold medical products subject to Irish VAT to wholesalers who, in turn, sold the products to public and private hospitals. The private hospitals were then reimbursed for the costs by their patient’s private health insurer. The company paid rebates to the hospitals as well as to the insurers, based on the volume of the products they paid for. The company claimed VAT refunds from Revenue as they argued the rebates were a reduction in the taxable amount for their product sales to the wholesalers. Revenue allowed the VAT refunds for rebates paid directly to hospitals, as the hospitals actually purchased the medical products, but disallowed the claim for rebates paid to private health insurers, as the insurers did not purchase the products themselves but instead reimbursed the hospitals.

The TAC concluded that the company was entitled to VAT refunds on the rebates paid to the insurance companies, as well as the hospitals. The TAC relied heavily on the principles established by the European Court of Justice (CJEU) in similar cases dealing with rebates, such as Elida Gibbs (C-317/94) and Boehringer Ingelheim (C-462/16). The latter case was particularly relevant as it concerned rebates which Boehringer, also a pharmaceutical manufacturer, paid to private health insurance companies which were required under German law. The TAC concluded that the rebates paid by the company to the health insurers in this case should follow the same principles as the CJEU decision in the Boehringer case. Revenue had sought to differentiate the facts in the company’s case to that in Boehringer and while this argument did not succeed at the TAC, we understand Revenue intend to appeal the point to the High Court. Therefore, this is potentially not the end of the matter.

There may be further developments at an EU level as the CJEU delivered another judgment – also involving Boehringer (C-717/19) – in early October. This facts in the new case differ from the earlier Boehringer case as the rebates are voluntary rather than statutory payments. The findings in the latest CJEU case could influence the ultimate decision in the Irish case.

While the facts in these cases are quite specific to the pharmaceutical industry, the payment of rebates by manufacturers or other parties is also a feature of other industries. The decisions delivered by the courts to date confirm that, depending on the facts, VAT may be recoverable on such rebates, which may represent a saving for the party making the payments.

Revenue Powers to counteract VAT evasion

Revenue published two VAT e-Briefs which provide guidance on Revenue’s powers to detect and prevent tax evasion.

Revenue e-Brief 173/21, issued on 15 September 2021, concerns section 108B of the VAT Consolidation Act 2010. This provision allows Revenue to serve notice on a taxpayer requiring him/her to issue a document to customers in the same format as a VAT invoice in circumstances where a VAT invoice is not required by VAT law. A supplier is generally only obliged to issue a VAT invoice to business customers. However, this provision allows Revenue to require a supplier to issue a document equivalent VAT invoice in other circumstances where they have reason to believe this would help to prevent fraud or evasion. Revenue indicate that this could help to change behaviour by forcing the supplier to fully comply with invoicing obligations and to help identify cash purchases.

Revenue e-Brief No. 174/21 includes guidelines on the application of section 108C of the VAT Consolidation Act 2010. This section allows Revenue to issue a notice to make a person jointly and severally liable for VAT ordinarily due by another person, where the first mentioned person knowingly or recklessly participated in transaction(s) connected to VAT fraud. The guidance outlines the circumstances in which Revenue can invoke these powers, how the VAT liability is computed as well as confirming that person(s) with secondary liability will also be liable for interest due on late payment of the VAT. This emphasises the importance for bona fide traders to take steps (e.g., through due diligence of their suppliers and customers) to minimise the risk of being unintentionally a party to a fraudulent transaction.