Download the protocol concerning drug purchase terms and conditions of the

THE PROTOCOL CONCERNING DRUG PURCHASE TERMS AND CONDITIONS OF THE
SOCIAL SECURITY INSTITUTIONS FOR 2005 AND TAX EVALUATION
Tuba Aydın
The protocol concerning the drugs that would be provided by the pharmacies that has been concluded
between the Ministry of Finance and the Turkish Pharmacists’ Association Board of Directors relating
to the contracts that would be concluded between the institutions and pharmacies has been concluded
on 14.12.2004 and has come into effect as of 10 February 2005. The subject of our present article is the
adjustments introduced through the protocol in question and its tax effects.
The Deductions to be Effected within the Scope of the Protocol
In the protocol dated 14.12.2004 the deductions for the Institution to be made by pharmacies on the
drugs to be sold under prescription that would be purchased by the insured and their beneficiaries have
been determined as follows:
a. All generic drugs shall be subject to 11% producer and importer deduction over the retail sales price
(VAT included) and a further 3.5% pharmacist deduction shall be applied over the reduced price.
b. The original drugs shall be treated under two different categories and the deduction shall be
applicable for the two categories.
The First Group: Over drugs whose related drug molecule has not filled its 6 th year since the date it has
first received a license, a 4% producer or importer deduction shall be applied on the retail sales price
(VAT included) and a further pharmacist deduction of 3.5% shall be effected over the reduced price.
Second Group: Over drugs other than those specified above, 11% producer or importer deduction shall
be applied on the retail sales price (VAT included) and a further pharmacist deduction of 3.5% shall be
effected over the reduced price.
c. Pursuant to the “ Decree Concerning Pricing of Human Pharmaceuticals” that has been promulgated
under the Council of Ministers Decree No. 2004/6781 dated 06.02.2004, the producer or importer
deduction rate applying on original drugs that remain below the maximum prices that have been
determined by the Ministry of Health shall be applied at a lesser amount, which is equal to the rate the
price has remained below the reference price, as of 15.06.2004.
d. Over drugs that have a VAT-included retail sales price no higher than NTL 3.24, 4% producer or
importer deduction shall be applied on the retail sales price (VAT included) and a further pharmacist
deduction of 3.5% shall be effected over the reduced price.
In application of the deduction rates that have been elucidated above, the producer or importer
deduction rate that has been indicated in the “List of Drugs whose Prices shall be Paid” to be
promulgated shall be applied on the retail sales price of the drugs (VAT-included) which is not higher
that NTL 3.24 and then the deduction rate that would be reduced on the basis of a reference, if any, and
a further 3.5% pharmacist deduction shall be applied on the calculated value.
Reflecting the Discounts to the Producer/Importer Firms
Within the scope of the protocol provision that are analyzed in our present article, the costs that would
be generated as a result of the discounts applied by pharmacies in favor of the Institution might be
wanted to be the producer/importer firms through the pharmacy warehouses. At this point hesitations
have arisen on whether the issue whether the discounts thus effected in favor of the Institution shall be
invoiced to the producer/importer firms as discount of price difference.
Discounts involve various campaigns, incentive elements, and marketing techniques that are applied on
sellers at the sales stages until the drug reaches the final consumer or directly to the consumers of the
drugs to increase the demand to these drugs that are traded as a requirement of trade.
In article 25 of the Value Added Tax Code it has been stipulated that in deliveries and services
transactions, discounts shown in invoices and similar documents made in amounts in conformity with
commercial practice shall not be included in the taxable portion.
In section B/1 of the Value Added Tax Code General Communiqué Series No. 26 that has been
promulgated in relation with the issue it has been stipulated that “on the invoices that would be issued
in relation with the delivery of the good and performance of the service, the discounts that are
separately shown on the invoices in accordance with the commercial tendencies shall not be included in
the VAT base. In other words, the discount shall not be included in the VAT base, provided that the
transaction requiring issuance of an invoice and the discount accordingly effected shall be explicitly
written on the invoice.”
Meanwhile, in section 1/be of the same Communiqué it has been stipulated that “the payments that are
not separately shown on invoices and similar documents but are effected at year-end, at the end of a
certain period or when a certain turnover is exceeded (such as sales premium, revenue premium, yearend discount, etc.) shall be subject to VAT, and the payments that have arisen as a result of an
additional work or effort, therefore has acquired the status of a service rendered to the head office and
the seller firm has become entitled to an additional payment in return for the service in question and
therefore should be subjected to taxation pursuant to article 1/1 of the Law”.
Within the scope of the elucidations above, the discounts that have not been shown on the invoices and
have constituted the payment for a certain effort, the amounts in question should be subjected to VAT
and invoiced. The rate of the invoice to be calculated over the invoice should be 18%, since the
discounts in question are evaluated within the scope of “service”.
When article 25 of the Value Added Tax Code and the provisions of the VAT General Communiqué
Series No. 26 are taken into consideration, the reflection of the discounts that are granted to the
Institution by pharmacies to the producer/importer firms cannot be evaluated as discounts granted by
the producer/importer firms because, the deductions in question are clearly not the results of the
additional effort of pharmacies or pharmacy warehouses or the fact that they have exceeded the predetermined turnovers. Therefore, these are adjustments that have been retroactively effected on
warehouse sales prices with a requirement of sale of the commodities, which have been purchased by
warehouses, to final consumers over reduced prices, rather than a deserved discount. In other words,
the deductions that have been undertaken by producer/importer firms should be evaluated as price
difference, rather than discount, since they do not involve service elements and arise from legal
obligation.
Meanwhile, in article 25 of the Value Added Tax Code where adjustments have been introduced on
price differences it has been stated that in cases which the merchandise is returned, the transaction does
not take place, the transaction is not carried through or the tax base is changed for any other reason
whatsoever, the taxpayer who has effected the taxable transaction shall amend the corresponding tax;
and the taxpayer who is the addressee of the transactions shall correct the tax in the period it has
generated and in the manner compliant with the nature of the change. The rate that should be taken into
account in the correction shall be the rate that is applicable in the period the delivery is made.
Within the scope of the elucidations above, the discounts made by pharmacies in accordance with the
provisions of the protocol dated 1.12.2004 that have been reflected to producer/importer firms by
pharmacy warehouses should be evaluated as price difference and in the price difference invoices to be
issued, the VAT rate applying on the commodities that have been sold shall be taken into account.