At the end of April 2025, just over two months from now, the deadline for the refund of VAT on pharmaceutical tax payments, i.e. the VAT paid by pharmaceutical manufacturers and distributors on the sectoral special tax, will expire in Hungary. The possibility to claim the refund is based on the European Court of Justice’s judgment in the Hungarian case C-248/23 Novo Nordisk, and the deadline is also based on the publication of the ruling in the Official Journal of the EU, i.e. 180 days from the date of the judgment.
The retroactive recovery of VAT on pharmaceutical tax payments is a great opportunity for pharmaceutical companies in Hungary to improve their cash-flow situation, so it is worthwhile for all those entitled to benefit from it. They can also claim interest on late payment in addition to the VAT refund.
How to claim back VAT on pharmaceutical tax payments?
There are several ways of claiming a refund, but the different ways of claiming involve different possibilities and risks.
On the one hand, companies can reclaim the VAT on pharmaceutical tax payments on the basis of the European Court of Justice’s judgment in the Novo Nordisk case. The mechanism of the payment of pharmaceutical tax is deceptively similar to payments made under funding volume agreements. In the Boehringer case, the European Court of Justice ruled years ago that the VAT base can be reduced ex post by the value added tax on funding volume agreements. The legal basis for the VAT recovery in both cases is therefore that these payments can be considered as a discount for VAT purposes, i.e. the supplier cannot freely dispose of part of the consideration received from the ‘purchaser’.
In addition to or instead of a claim, VAT on pharmaceutical tax payments can also be reclaimed in the VAT return under the provisions of the Hungarian VAT Act in force from 29 November 2024.
Which refund method should you choose?
When reclaiming VAT on pharmaceutical tax payments, there are a number of questions that need to be clarified beforehand in order to maximise the amount to be refunded (e.g. how and when to claim the refund, calculation of the limitation period, what other taxes/paid VAT may be reclaimed, interest claim, etc.).
The main dilemma to be clarified is the method of refund. As in the present case the European Court of Justice has ruled with a retroactive effect that the Hungarian VAT law is against the EU law, an application under Article 196 of the Hungarian Act on the Rules of Taxation can be made until the end of April 2025. After the 180-day statutory limitation period, it will no longer be possible to submit an application, and from then on, the retroactive reduction of the taxable amount will be possible only in the VAT return for payments of pharmaceutical tax made after 31 December 2023. It therefore makes a difference to the scope of the claim whether VAT is claimed back before or after the end of April 2024.
What are the advantages of making a claim?
A claim under Article 196 of the Hungarian Act on the Rules of Taxation allows you to claim back more VAT without risk than you could reclaim in a VAT return. This is because VAT on pharmaceutical tax payments made before 31 December 2023 (not time-barred) can be reclaimed under the application method, whereas this will not be possible under the return method. An additional advantage of the application procedure is that in the worst case, the applicant will not receive the VAT claimed, but will not be subject to a tax penalty. On the other hand, in the case of a refund in the VAT return, the Hungarian tax authority may impose penalties for any unauthorised claim.
In the case of an application under Article 196 of the Hungarian Act on the Rules of Taxation, another fundamental question is how the limitation period is to be interpreted: do the five-year limitation rules generally limit the scope of the VAT refund claim, or could the law be interpreted to mean that the 180-day limitation period in this type of case is also the limitation period itself, which starts to run from the publication of the European Court judgment. Under the latter interpretation, it would be possible to recover past VAT without any time limitation when making an application.
As can be seen from the above, the timing of the claim and the way in which it is made have a significant impact on the amount of VAT that can be recovered and the risk of recovery. Since more VAT can be recovered in a claim under Article 196 of the Hungarian Act on the Rules of Taxation with less risk, it is worthwhile to try to do so in the remaining few weeks for those who are entitled to a refund of VAT on pharmaceutical tax payments but have not yet done so for whatever reason.
The VAT advisers of WTS Klient Hungary are constantly monitoring domestic and international tax law cases and the changing regulations that follow them. If you need expert support on any of the above, please do not hesitate to contact us!
This article is for general information purposes only and should not be considered as advice.
