Companies marketing medicines must accrue full VAT upon delivery

The timing of Value Added Tax (VAT) accrual in goods delivery operations is a critical aspect for the financial and tax management of companies in the pharmaceutical sector. Recently, the Directorate General of Taxes (DGT) has specified the applicable treatment when the marketing of medicines is subject to payment conditions or performance milestones.

What the DGT has ruled

The administration has determined that the accrual of the tax on the delivery of goods occurs at the moment the good is made available to the acquirer. This taxable event occurs regardless of whether the payment of the price has been deferred or is conditional upon future circumstances.

In those cases where, due to the failure to meet performance milestones, part of the agreed price is not received, the regulations require acting upon the tax base. To this end, the rectification of VAT amounts must mandatorily be managed through a credit note or through the procedure for rectifying self-assessments provided for in the current regulations.

What it means for you

If your entity markets medicines under deferred payment models or subject to compliance milestones, you must consider that the obligation to declare the total VAT arises at the moment of the physical or legal delivery of the product. It is not possible to defer the accrual of the tax based on the contract's collection structure.

This criterion implies that the tax burden must be settled in the period in which the delivery is made, which may create a timing difference between the cash outflow and the obligation to pay the tax to the Tax Agency (Agencia Tributaria). Likewise, any subsequent modification in the price due to the failure to meet milestones requires precise documentary and accounting management to correctly rectify the tax amounts.

What should be done

It is necessary to review supply contracts and billing models to ensure that VAT accrual is recorded at the moment the goods are made available. In the event that there are variations in the final price due to the failure to meet milestones, an operating procedure must be in place for the issuance of credit notes to guarantee the correct rectification of the tax base and the corresponding tax amounts.