Federal Fiscal Court on the insolvency of a paying agent

Facts

A pharmacist supplied medicines subject to VAT to statutory health insurance funds, among others. He transferred the settlement with the health insurance funds to a paying agent. The agreement with the paying agent provided that the pharmacist would assign his claims against the health insurance funds to the paying agent and, in return, receive payments from the paying agent. As agreed, the paying agent maintained an account with a bank that was clearly assigned to the pharmacy by means of a so-called institution code. Payments from the health insurance funds were received in this account, but due to the insolvency of the paying agent, the corresponding payments from the paying agent to the pharmacist were not made. The pharmacist therefore claimed debt relief for his supplies to the health insurance funds in accordance with section 17 of the German Value Added Tax Act (UStG), which the tax office rejected.

BFH decision

The BFH ruled that the legal relationship between the pharmacist as the supplier and the statutory health insurance funds as the recipients was the only factor relevant for determining the remuneration subject to VAT. An independent legal relationship existed with the paying agent. Under civil law, the pharmacist's claim against the health insurance funds expired upon payment by the health insurance funds to the paying agent. Withholdings or payment defaults in that separate legal relationship cannot affect the assessment basis for the pharmacist's supplies to the health insurance funds. The pharmacist must accept responsibility for the receipt of payment from the health insurance funds by the paying agent. The pharmacist's objection that he had no effective disposal over the remuneration was not valid; Article 90 of the VAT Directive (the EU legal basis for Section 17 of the German VAT Act) also focused on whether the supplier had received the remuneration, which was the case here.

Impacts

Although he did not receive any money, the pharmacist must pay VAT, which at first glance may seem contrary to the system. However, for a reduction under Section 17 of the UStG, the disruption must occur within the VAT system, i.e. the relationship between the supply and the consideration must be affected. This was not the case here because the paying agent was outside the supply relationship. This becomes even clearer if we imagine an alternative scenario in which the pharmacist's payment for the service was stolen – it is immediately obvious that this cannot affect the VAT treatment, and the same applies if a paying agent is involved.

Author: Nadia Schulte