The Romanian High Court of Cassation and Justice has ruled in favour of the Swiss-headquartered pharmaceutical giant Roche in a long-running dispute over VAT payments, awarding the company a €12 million tax refund. The taxpayer is also entitled to a 45% interest repayment and compensation of the inflation rate, which was over 50%. The case – in which Bancila, Diaconu and Associates (an EY-affiliated law firm), together with EY Tax Romania, advised and represented Roche – revolved around the VAT treatment of clawback payments and marks a significant victory for pharmaceutical firms operating under similar price-volume agreements across the EU.
The decision follows a 2021 ruling by the Court of Justice of the European Union in the Boehringer case, which allowed pharmaceutical companies to apply to reduce their VAT base when they reimburse a portion of sales to governments under a price-volume agreement. The case set a precedent that EY teams in several other countries, including Hungary and Germany, have successfully applied to other pharmaceutical companies with local operations.
EY Law had approached several businesses regarding the opportunity to recover overpaid VAT in this regard, but Roche was the first that was prepared to go to litigation with the Romanian tax authority.
Before taking the clawback opportunity, Roche was interested in being supported in another matter relating to bad debts. Almost in parallel to appointing Bancila, Diaconu and Associates and EY Romania on the first clawback-related matter, it turned its attention to the bad debts matter. The latter was resolved within six months, enabling Roche to recover a significant amount of overpaid taxes.
Using a Romanian tax procedural code provision to good effect
EY Romania led the Roche case and took a rarely used approach in attempting to reclaim overpaid taxes. Instead of adjusting past VAT returns for any impacted years – an approach recommended by many other practitioners but one that carries significant risks – the EY Romania legal team utilised a provision in the country’s tax code that allows businesses to request tax refunds without adjusting the VAT return. This has the advantage of not risking late-payment interest charges.
The litigation spanned six years; during which, a legislative change confirmed the VAT clawback position for future tax years. Nevertheless, the Romanian tax authorities do not recognise EU jurisprudence for past periods until the law is modified accordingly, which happened in March 2024. This enabled EY Romania to focus on the previous seven years, beyond the statute of limitations period.
The wider significance of the Roche case
The ruling – in May 2024, with the grounds of the ruling communicated in December 2024 – is expected to have broader implications, with at least 15 other pharmaceutical companies pursuing retrospective VAT claims through EY Romania. The firm is also exploring the possibility of supporting Roche in claiming beyond the seven-year period already repaid.
The case highlights the evolving VAT landscape for pharmaceutical companies in the EU and the increasing willingness of businesses to challenge tax authorities over retrospective claims. As more firms look to capitalise on this precedent, the decision could set the stage for further legal battles in the sector.
