Case law
16 December 2021

The Czech Supreme Court decided on invoicing of marketing services

The Supreme Administrative Court of the Czech Republic („SAC“) has published a judgment in the case of the pharmaceutical company which concerned the invoicing of marketing services. The SAC complied with the taxpayer's cassation complaint and cancelled the judgment of the Municipal Court in Prague.

Marianna Dávidová

The Tax Authorities within the tax audit concluded that marketing services provided by the distribution company to the Swiss pharmaceutical company within the group represent an inseparable part of the main supply (the drugs distribution). Following that, the consideration received for these services should be included in the tax base from the sale of pharmaceuticals in the Czech Republic. You can read more information about the case in our Article.

According to the SAC, the two questions are subject of the dispute:

  1. who is the recipient of marketing services and
  2. whether the distribution of the drugs and marketing services provided by distribution company represent the single supply from the VAT perspective.

Recipient of marketing services

Based on the SAC the Tax Authorities exchanged the term "recipient of the service", i. e. the person who ordered the service and benefits from it, and the term "recipient of marketing information", i. e. the one whom the content of the marketing service is meant to affect. In addition, the Tax Authorities did not take into consideration the specifics of strictly regulated pharmaceuticals market, nor the fact that the distributor has very limited possibilities to shift marketing costs to the end customer.

The SAC conclusion is that in accordance with the relevant agreement and the characteristics of the pharmaceutical market the recipient of the marketing service is the Swiss pharmaceutical company.

Composite supply

According to the SAC in order to address the second question it is important to consider how the possibility to split the taxable supply is perceived by so-called typical customer, while emphasizing that distribution of drugs and marketing services are rendered to different recipients (drugs are supplied to the customers and services are supplied to the Swiss pharmaceutical company). The so-called typical customer cannot perceive these supplies as a single supply, as he may not know about the distributor's marketing activities (and payments for them) at all.

With respect to the tax base for supply of drugs the SAC stated that it is apparent that the payments for marketing services cannot be included in the tax base, as the tax base would then exceed the amount of consideration received from the customer.

Distribution of drugs and marketing services represent single supplies and not the one composite supply and the tax base for supply of drugs can only include the consideration for this supply.

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