A further case of deduction of VAT on importations of goods not owned by the importer

Prepared by Davide Accorsi and Stefano Luigi Airaghi

Allowed the deduction of VAT paid on the importation of “modified genes” not owned by the importer and destined to clinical trials conducted by third parties which, if successfully concluded, will allow the importer to market the relevant drugs obtained

With the Reply to ruling No. 410, dated 4 August 2022, the Italian tax authorities have once again provided clarifications on the deductibility of VAT on importation of goods not owned by the importer (on this topic, see also our previous Newsalerts dated 27 October 2020 and 2 August 2021).

In the case under discussion, the pharmaceutical company GAMMA (parent company of the Applicant Company) intends to conduct clinical trials in a number of countries using a particular gene editing technology to treat patients. To this end, GAMMA has entered into an agreement (partnership) with the company DELTA.

Specifically, the process in question involves taking blood from patients, transporting it to non-EU countries to one of the processing sites where the gene editing takes place, and finally transporting it back to patients to be transfused as part of their treatment.

The Applicant Company (ALFA), which normally carries out various clinical trials as a promoter on behalf of the pharmaceutical group BETA, of which GAMMA is a member, is the importer into Italy of the “modified genes”[1] owned by GAMMA[2] and bears the relevant customs duties.

In the event of a positive outcome of the clinical trial requested by the Promoter (EPSILON[3]) and once the necessary authorizations have been obtained, the Applicant Company could market the drugs thus obtained in Italy.

In such circumstances, the Applicant Company has requested the Italian tax authorities to clarify whether (i) the importation of the “modified genes” can be considered as not subject to VAT pursuant to Article 68 of Presidential Decree 633/72 and whether (ii) regardless of the outcome of the first question, the Applicant Company is entitled to deduct the VAT paid on the importation of the goods, pursuant to Article 19 of Presidential Decree 633/72, acting as the importer of the goods without holding the ownership thereof.

With reference to the first question, the Italian tax authorities have not clarified whether the importation can be considered as not subject to VAT pursuant to Article 68, first paragraph, letter c[4], of Presidential Decree 633/72, since, in the absence of a confirmation from the Ministry of Health and the National Drugs Authority as to the possible classification of such genes in the category of “organs, blood and blood plasma”, it was not possible to assess whether the supply of such goods is exempt pursuant to Article 10, first paragraph, No. 24, of Presidential Decree No. 633/72.

With reference to the second question, the Italian tax authorities, while noting some inconsistencies in the facts set forth by the Applicant Company, in a perspective of mutual trust and on the basis of Article 168 and Article 201 of Directive 2006/112/EC, as well as on the basis of the principles expressed by the Court of Justice of the European Union in case C-132/16, Iberdrola, and by the Italian tax authorities themselves with Resolution no. 96/E dated 11 May 2007, concluded that the VAT paid at customs by the Applicant Company at the time of importation of the goods in question can be considered “a cost related to the taxable transactions (rectius, those conferring the right to deduct) that will be carried out by the Applicant Company (i.e., to the activity of marketing the drug)“.

Therefore, the amount of VAT paid at customs by the Applicant Company upon importation of the “modified genes” may be deducted, provided that, in accordance with the principles inferable from EU case law, the costs relating to the importation are capable of influencing the price of the output transactions (i.e., marketing of the drug) that the Applicant Company will carry out following the positive outcome of the clinical trial and subject to authorization by the competent authorities (see Reply to ruling No. 6/2019).

The Reply in comment does not clarify whether the right to deduct VAT may be exercised by the Applicant Company even if the clinical trial is not successful and ALFA does not obtain the authorization to market the relevant drugs.

[1] Classifiable under the Combined Nomenclature heading “3002 9090 90”, namely “human blood; animal blood prepared for therapeutic, prophylactic or diagnostic uses; antisera, other blood fractions or immunological products, whether or not modified or obtained by means of biotechnological processes; vaccines, toxins, cultures of micro-organisms (excluding yeasts) and similar products – other – – other.”

[2] The entity exporting the blood cells from Italy may alternatively be DELTA or the authorized clinical center performing the collection of blood on the patients under treatment. The entity importing blood cells from patients in non-EU countries is DELTA.

[3] In the supplementary documentation, the Applicant Company reported that it has no direct role in the clinical trial in Italy of the modified genes. However, should the clinical trial have a positive outcome, the Applicant Company will be directly involved in the marketing of the relevant drugs in Italy (once approved by the competent authorities).

[4] According to which VAT is not due on “any other final importation of goods the supply of which is exempt or not subject to VAT according to Article 72. […]”.

Let’s Talk

For a deeper discussion, please contact:

Davide Accorsi

PwC TLS Avvocati e Commercialisti

Tax Director

Stefano Luigi Airaghi

PwC TLS Avvocati e Commercialisti

Tax Senior Manager


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