EC Okays Belgian Pharmaceutical Turnover Tax

by Ulrika Lomas, Tax-News.com, Brussels

31 January 2008

The European Commission has decided not to raise any objections, under EU state aid rules, to a series of tax reductions introduced by Belgium as part of the reform of the tax paid by pharmaceutical companies on sales of reimbursed medicines.

The pharmaceutical tax contributes to the financing of the Belgian health system, and proposed tax exemptions and reductions would represent an annual budget of around EUR47 million. But following adjustments made by the Belgian authorities in order to better target the aid and assess its effects, the Commission has concluded that the measures were now compatible with the common market.

Competition Commissioner Neelie Kroes commented: "As shown by the sector inquiry into the pharmaceutical industry launched on 16 January, I am determined to ensure that competition plays a full role in the pharmaceutical sector. The detailed review carried out by the Commission indicates that the Belgian tax reductions, in particular those granted for research, are not against EU interests."

In November 2005, the Belgian government announced a series of tax measures to assist the pharmaceutical sector. In Belgium, pharmaceutical companies contribute around EUR300 million a year to the financing of the health system, through a tax calculated on the basis of sales of reimbursed medicines.

The Belgian government has decided to grant two types of exemption/reduction in relation to this tax.

Firstly, it has granted exemption for orphan medicinal products (medicines for serious and rare diseases), medicines which are reimbursed at a low rate (such as class Cx contraceptive pills) and medicinal products derived from blood from voluntary unpaid donors (the use of voluntary donors enables greater protection of public health).

Secondly, it has granted a reduction to pharmaceutical companies which invest in research and development (R&D), companies which voluntarily reduce their marketing budgets, and small companies which invest in the production of medicinal products. The reduction for R&D is the centrepiece of the tax package, since EUR35 million of this package is allocated for this reduction each year, out of a total estimated budget of EUR47 million.

The law reforming the Belgian tax on the turnover of pharmaceutical companies was adopted on 10 June 2006. It has been amended twice, in December 2006 and April 2007, but has not yet come into force, since the Belgian authorities were waiting for it to be approved by the Commission in accordance with Article 88(3) of the EC Treaty. Belgium formally notified these measures on 26 June 2007.

At the time of its review, the Commission asked Belgium to adjust the tax reductions for investments in R&D and for reducing marketing budgets. These adjustments have made it possible to target the aid better, so that it achieves its objectives without any adverse effect on the functioning of the European pharmaceutical markets. It is now considered compatible with the common market.

Also, the Belgian authorities have undertaken to assess rigorously the efficiency of the aid for R&D, which has only been approved by the Commission for six years.

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