Czech Republic vs. Eli Lilly ČR, s.r.o., August 2023, Supreme Administrative Court, No. 6 Afs 125/2022 – 65

Posted on | By Courts of the Czech Republic
Category: Benchmark, Range and Median, Limited Risk Distributor, Losses, Marketing and Procurement Hubs, Services and Fees, VAT and Customs Valuation | Tag: , , , , , , , , , , , , ,
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Eli Lilly ČR imports pharmaceutical products purchased from Eli Lilly Export S.A. (Swiss sales and marketing hub) into the Czech Republic and Slovakia and distributes them to local distributors. The arrangement between the Czech company and the Swiss company is based on a Service Contract in which Eli Lilly ČR is named as the service provider to Eli Lilly Export S.A. (the principal).

Eli Lilly ČR was selling the products at a lower price than the price it purchased them for from Eli Lilly Export S.A. According to the company this was due to local price controls of pharmaceuticals. However, Eli Lilly ČR was also paid for providing marketing services by the Swiss HQ, which ensured that Eli Lilly ČR was profitable, despite selling the products at a loss.

Eli Lilly ČR reported the marketing services as a provision of services with the place of supply outside of the Czech Republic; therefore, the income from such supply was exempt from VAT in the Czech Republic.

In 2016 a tax assessment was issued for FY 2011 in which VAT was added to the marketing services-income.

An appeal was filed with the Administrative Court by Eli Lilly, but the Court dismissed the appeal and decided in favour of the tax authorities.

An appeal was then filed with the Supreme Administrative Court.

Judgment of the Court

The appeal of Eli Lilly was again dismissed and the decision of the administrative court – and the assessment of additional VAT upheld.

“The complainant’s objections were not capable of overturning the conclusion that the supply of marketing services and the supply of the distribution (sale) of medicines were provided to different entities and that, in the eyes of the average customer, they were not one indivisible supply.”

 

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