HMRC v Boehringer Ingelheim: Upper Tribunal rejects pharmaceutical VAT rebate claims

The Upper Tribunal (Tax and Chancery Chamber) has allowed HMRC's appeal in The Commissioners for HMRC v Boehringer Ingelheim Limited [2026] UKUT 00135 (TCC), setting aside the First-tier Tribunal's decision and holding that payments made by a pharmaceutical manufacturer to the Department of Health and Social Care (DHSC) under voluntary pricing schemes did not constitute post-supply price reductions entitling the company to recover output VAT under Article 90(1) of the Principal VAT Directive (PVD).

Boehringer Ingelheim Limited (BIL) manufactures and supplies branded medicines to the NHS, principally via wholesale distributors, at standard-rated prices. Between April 2014 and September 2020, BIL participated in voluntary pricing schemes — the Pharmaceutical Price Regulation Scheme and its successor — under which it made payments to the DHSC calculated as a percentage of net sales growth above an agreed threshold. BIL treated these as sales discounts in its accounts and claimed repayment of approximately £21.5 million in output tax on the basis that the payments constituted retrospective price reductions on its taxable supplies.

The FTT agreed, treating DHSC as the economic final consumer because it ultimately funded NHS medicine expenditure, and holding that Article 90(1) applied regardless of whether downstream supplies by pharmacies were zero-rated.

Judges Swami Raghavan and Amanda Brown KC set aside both conclusions.

On the question of final consumer, the Tribunal held that the FTT had applied the wrong test. Drawing on the line of CJEU authority from Tolsma and Rayon d'Or through Boehringer Ingelheim GmbH (Germany), Boehringer Ingelheim (Hungary) and Novo Nordisk, the Tribunal held that a final consumer must be identified by reference to a relationship of reciprocal performance: a party who pays value directly in return for an identified supply, even if the goods are physically delivered to a third party. It is not sufficient that a party merely "bears the cost" of medicines in a general economic sense.

The DHSC's budgetary role — allocating block funding to NHS England, which cascades through commissioning bodies to hospitals and pharmacies — was too remote to satisfy that test. The DHSC does not reimburse specific supplies or pay for identified products; it provides non-ring-fenced general funding. The NHS architecture, whatever its governance structure or consolidated accounting presentation, comprises legally distinct statutory entities that purchase medicines in their own right. That architecture cannot be collapsed to treat DHSC as a single final consumer.

The payments themselves were also distinguished from those found to be rebates in the German and Hungarian pharmaceutical cases. In those cases, private insurers or the NEAK paid pharmacies directly for identifiable supplies to specific insured patients. The BIL payments arose only where aggregate sales growth exceeded a scheme threshold: a portfolio-wide affordability mechanism rather than a transaction-linked price adjustment.

The Tribunal also addressed HMRC's alternative argument, disagreeing with the FTT's narrow reading of Commission v Germany [C-427/98]. Where the final supply in a chain bears no VAT — whether through zero-rating or exemption — any attempted adjustment by the manufacturer to its output tax would produce an absolute tax loss. The AG's analysis in Commission v Germany, endorsed by the CJEU, makes clear that the manufacturer's adjustment right is constrained by the VAT actually borne at the point of final consumption. Where no VAT is included in the final price, there is no VAT element in the rebate to justify an upward adjustment.

BIL's claims were rejected in principle, save for a narrow category of medicines supplied directly by BIL to DHSC — such as vaccines distributed through national vaccination programmes — where DHSC was itself the final consumer and the payment could be directly referable to those specific supplies.

The decision will affect a large number of stayed appeals by other pharmaceutical manufacturers pursuing equivalent claims. Proceedings covering periods after September 2020 remain pending before the FTT.

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