The Revenue Commissioners v Novartis Ireland Ltd

• Jurisdiction: Ireland
• Judge: Ms. Justice Emily Egan
• Judgment Date: 23 November 2022
• Neutral Citation: [2022] IEHC 642
• Court: High Court
• Docket Number: [2021 44 R] [TAC M 711/18]

Between

The Revenue Commissioners

Appellant

and

Novartis Ireland

Respondent

[2022] IEHC 642

[2021 44 R]

[TAC 21 44 R]

[TAC M 711/18]

THE HIGH COURT

JUDGMENT of Ms. Justice Emily Egan delivered on the 23 ^rd day of November, 2022

Introduction

1 . This is a case stated for the opinion of the High Court pursuant to s. 949 AQ of the Taxes Consolidation Act, 1997 in relation to a determination of the Tax Appeal Commission (“the TAC”) of the 24 ^th June, 2021 (“the determination”). This concerned an appeal by Novartis Ireland Ltd (“Novartis”) against a refusal of the Revenue Commissioners (“Revenue”) in respect of its claim for a refund of VAT in the total amount of €1,000,048.662. The substantive issue before the TAC was whether rebate payments made by Novartis to certain private health insurers (“the insurers”) constituted a reduction in the consideration received by Novartis for VAT purposes for its supply of Lucentis to certain private hospitals (“the hospitals”). The rebate payments in question were made by Novartis pursuant to contractual volume based discount agreements concluded as between it and the insurers in respect of its supply of Lucentis, a prescription only medicinal product, to the hospitals for use in the medical treatment of the insurer's policy holders. The TAC found that the rebate payments granted by Novartis to the insurers constituted a reduction in the consideration received by Novartis in respect of the supply of Lucentis. Consequently, the TAC found that Novartis was entitled to relief by way of repayment of VAT and that Revenue's refusal of a VAT refund could not stand. The sole question stated for this court is whether the TAC was correct in law in that determination.

Factual Background

2 . Novartis, a multinational healthcare company, supplies Lucentis. Lucentis is authorised for use in the treatment of age related macular degeneration and macular oedema caused by diabetes or by retinal vein occlusion. Lucentis is an ongoing treatment, rather than a once off treatment, and is administered by injection to patients by clinicians in the hospitals.

3 . Lucentis is supplied by Novartis to its wholesaler, Allphar, who then distributes it to the hospitals. To this end, Novartis entered into various agreements with insurers, described as volume based discount agreements. Pursuant to these agreements, Novartis agreed to grant the insurers volume based discounts in the form of rebate payments in respect of the insurers' reimbursement to their policy holders of the costs of the administration of Lucentis. Pursuant to these agreements, the insurers agreed to provide full reimbursement cover under their relevant health insurance policies for up to nine vials of Lucentis per eye per year. The relevant price discounts/rebates are calculated by reference to the average ex-factory 1 price of Lucentis in the relevant year exclusive of VAT and other applicable taxes. The volume based discount agreements provide that in return for the volume based rebates which will be paid to the insurers by Novartis, the insurers agree to provide Novartis with data and information concerning the use, prescription and/or administration of Lucentis by relevant different clinical indications on a national basis. The agreed mechanism for applying the volume based discounts is on a retrospective basis within sixty days of receipt by Novartis of the relevant invoice from the insurer on foot of which Novartis would collate and calculate the rebates due based on the volume of the insurer's reimbursement for Lucentis in each specific year. The relevant discounts are applied on an increasing basis depending on the volume of vials reimbursed by the relevant insurer in the relevant year.

4 . Two witnesses gave evidence at the hearing before the TAC. These witnesses were, respectively, Paul Johnson, head of finance with Novartis and Gilles Ducorroy, global head of real world evidence for global services with Novartis. These witnesses gave evidence that Novartis has concluded such volume based discount agreements with three insurers on the Irish market. The witnesses' evidence was that the information provided to Novartis by the insurers with reference to the number of vials of the medicinal product used was required to validate the calculation of the rebate. Information other than the number of vials of Lucentis was of no interest to Novartis. The validation process prior to the payment of rebates also involved checking the daily sales reports provided by the wholesaler to verify that the Lucentis administered was that distributed by Allphar and had not been sourced from outside Ireland. The witnesses clarified that the product flow of Lucentis was that Novartis provided the product to Allphar, who provided it to the hospitals after which the clinicians administered the product to patients in the hospitals. The funds flow in respect of the medicinal product was that Allphar made payments to Novartis, the hospitals made payments to Allphar, the insurers made payments to the hospital and Novartis made rebate payments to the insurers.

5 . It is important to note that Novartis offers two separate volume based discounts in respect of Lucentis. In addition to the volume based discounts agreements referred to above which it has concluded with insurers, Novartis has also concluded volume based discount agreements with the hospitals. In respect of a particular vial of Lucentis, therefore, both the rebate payment to the insurer and the rebate payment to the hospital are entered in Novartis's financial records as a sales deduction against medicinal product sales for which a repayment of VAT in the relevant amount is sought from Revenue. It is common case that Revenue have allowed a refund of VAT in respect of the volume based rebates paid by Novartis to the hospitals but not in respect of the volume based rebates paid by Novartis to the insurers.

6 . The witnesses' testimony was that the volume based discount agreements operating as between Novartis and the insurers, on the one hand, and as between Novartis and the hospitals on the other, facilitated patient access to Lucentis. In practice a clinician will not be in a position to prescribe a particular medication 2 unless it is included in the schedule of benefits of a private health insurance company such that the price thereof will be reimbursed by the insurer to the hospital. It is primarily a matter for an insurer to decide whether to include a product in the schedule of benefits. If it does so, the insurer generates a code and provides that coding information to the hospital and to Novartis.

7 . No oral evidence was presented to the TAC by Revenue.

The determination

8 . The determination does not separately identify the Commissioner's material findings of fact. However, in the case stated the TAC records its material findings of fact which accord with the above factual summary. After setting out the arguments and submissions of both Novartis and Revenue, the TAC determined that Novartis granted discounts to insurers in respect of Lucentis supplied to the hospitals. The TAC observed that the taxable amount attributable to Novartis should be an amount corresponding to the price at which Lucentis was supplied, reduced by the discounts granted to the insurers. The TAC held that, in failing to afford Novartis the VAT refund sought, Revenue was collecting an amount of VAT exceeding that which Novartis had received. The TAC further determined that the economic and commercial reality was that the insurers could be viewed as the final consumer of Lucentis supplied by Novartis, notwithstanding the fact that the insurers were not the direct beneficiaries of the supply of the medicinal product as same was administered to their policy holders. The TAC determined that this fact was not such as to break the direct link between the supply of Lucentis and the final consideration received by Novartis. The TAC further determined that having regard to the contractual agreements into which it had entered with the insurers, Novartis did not have freely at its disposal the full amount of the price received in respect of the supply of Lucentis and that this was the case even though Novartis was not legally obliged to grant the insurers a discount but did so pursuant to a private contractual agreement.

9 . Revenue appealed against this determination.

High Court's jurisdiction

10 . It is common case that the High Court's jurisdiction in appeals by way of case stated is as found in Mara v. Hummingbird [1982] ILRM 421, Kenny J. at p. 426, MacCarthaigh v. Cablelink [2003] 4 IR 510 and Ó Culacháin v. McMullan [1995] IR 217, Blaney J. at p. 223 as recently confirmed by Costello J. in Deane v. Revenue Commissioners [2018] IEHC 519 p. 3.

11 . These establish per Blaney J:

“(1) Findings of primary fact by the judge should not be disturbed unless there is no evidence to support them.

(2) Inferences from primary fact are mixed questions of fact and law.

(3) If the judge's conclusion show that he has adopted the wrong view of the law, they should be set aside.

(4) If his conclusions are not based on a mistaken view of the law, they should not be set aside unless the inferences which he drew were ones which no reasonable judge could draw.

(5) Some evidence will point to one conclusion, other evidence to the opposite: these are essentially matters of degree and the judge's conclusions should not be disturbed (even if the Court does not agree with them, for we are not retrying the case) unless they are such that a reasonable judge could not have arrived at them or they are based on a mistaken view of the law.”

12 . In reality, there is no dispute as to the TAC's findings of primary fact all of which were admitted or proved. Equally, no particular criticism is made by Revenue of the TAC's inferences from primary fact. However,...