Swedish court ruling: impact on EU pharma sales

Dr Sandra Ragaz-Fumia

Partner, Leader Pharma & Life Science – International Indirect Tax & ReguIatory, PwC Switzerland

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Dominik Hofstetter

Senior Associate, Pharma & Life Science Regulatory, PwC Switzerland

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Chapter 1 Introduction

The trade of pharmaceutical products within the European Union (EU) is subject to strict rules and regulations to ensure the quality, safety, and integrity of the medicines and to protect public health. However, a recent court ruling in Sweden has put into question the interpretation and application of these rules, especially regarding the role of financial transactions and third-country actors in the supply chain. In this blog post, we will summarize the background, the ruling, and the appeal of this case, which has implications for the pharmaceutical industry and the EU regulatory, tax and transfer pricing framework.

Chapter 2 The background to the case

The case involves a Swedish company (‘the Company’), which is part of a global group supplying pharmaceuticals to approximately one billion patients worldwide. The company holds a wholesale authorisation in Sweden, which allows it to conduct wholesale trade in pharmaceuticals within the EU. The company purchases the products from a Swiss company and ownership transfers to the Company when the products arrive at the Swedish distribution centre. This arrangement is sometimes called ‘fiscal import’ and is motivated by issues related to tax and transfer pricing.

Chapter 3 The ruling of the Administrative Court

In April 2024, the Swedish Medical Products Agency (‘the Agency’) sent a letter to the Company, stating that its procurement of pharmaceuticals from the Swiss company was in violation of the law on the trade in pharmaceuticals, which implements the EU directive on the community code relating to medicinal products for human use (Directive 2001/83/EC). The Agency argued that this procurement constituted wholesale trade and that the Company could only procure pharmaceuticals from persons who themselves hold a wholesale authorisation issued by a competent authority within the EEA, as required by the law and the directive. The Agency requested that the Company provide information on what measures it would take to address the alleged deviation and also to specify a date by which the measures would be implemented. The Agency also stated that it could make a decision on the matter even if the Company did not submit the requested information.

The Company appealed to the Administrative Court against the letter, claiming that the Agency lacked legal grounds to require the Company to change its current economic structure as it was in compliance with the law on the trade in pharmaceuticals and with the good distribution practice (GDP) guidelines issued by the European Commission. The Company argued that the directive and the law did not cover financial transactions and that the wholesale trade did not commence until the products were transferred to the sellable stock in Sweden. The Company also argued that the current supply chain structure did not pose any risk to the quality of the products or to patient safety, and that the Agency should await further guidance from the EU Commission, which was in the process of proposing a new directive on human medicines that would clarify the issue.

Find out more about the proposed directive and its implications on Swiss-based pharmaceutical companies:

EU pharma legislation reform blog series: EP1

The Administrative Court overturned the Agency’s letter, finding that it constituted an appealable decision that had actual effects on the Company. The court also found that the Agency did not have statutory support for its decision, as the directive and the law did not include financial transactions in the definition of wholesale trade. The court considered that the directive and the law focused on the physical handling and delivery of the products and not the economic transactions that may occur within the same group. The court also noted that the Agency had not claimed that there were any public health risks associated with the current procurement process, and that there was no clear position from the EU Commission or the EU Court of Justice on the matter. The court concluded that the procurement of pharmaceuticals did not deviate from the law on the trade in pharmaceuticals and the GDP guidelines in the manner alleged, and that there was no legal basis to demand measures against the alleged deviation.

Chapter 4 The appeal by the Medical Products Agency

The Agency appealed the court’s ruling to the Administrative Court of Appeal, requesting that the court grant leave to appeal and overturn the ruling. The Agency argued that there were reasons to doubt the correctness of the court’s assessment that the letter was an appealable decision, as it did not have such actual effects for the Company that it should be considered appealable. The Agency also argued that there were reasons to doubt the correctness of the court’s assessment that the provisions on wholesale trade in the law and the directive related only to the physical handling of pharmaceuticals, and that the Agency therefore lacked legal grounds for the disputed measure. The Agency maintained its view that the procurement of pharmaceuticals from the Swiss company constituted wholesale trade and that it was not permitted because the Swiss company did not have a wholesale authorisation issued by a state within the EEA. The Agency referred to the wording and the purpose of the law and the directive, as well as the Commission’s GDP guidelines and the EU common template for wholesale authorisations, to support its interpretation. The Agency also referred to a recent ruling by the Federal Administrative Court in Germany (BVerwG 3 C 1.20), which examined a similar business arrangement and found it to be contrary to the directive. The Agency argued that a thorough examination of the issue was necessary for both the Agency and the Company as there was no guidance from Swedish courts on the matter, and that it was important for the application of the law to have the issue reviewed.

Chapter 5 What happens next

The next phase of the litigation process involves the Company filing a response to the appeal and engaging in limited written exchanges with the opposing party until the court determines that the issues have been sufficiently clarified. The court will then issue its decision. The timing of the decision is uncertain, but based on the court’s own benchmark of resolving tax cases within nine months, we expect that this case will follow a similar timeline.

Chapter 6 The conclusion

The case illustrates the complexity of the regulation of the trade in pharmaceuticals in the EU, especially regarding the role of financial transactions and third-country actors, such as companies based in Switzerland, in the supply chain. The case raises questions about the interpretation and application of the current law and the directive until such time as the proposed new directive on human medicines is implemented.

The case is pending before the Administrative Court of Appeal, which will decide whether to grant leave to appeal and, if so, whether to uphold or overturn the ruling of the Administrative Court. The outcome of the case may have notable consequences for the best practices adopted by many European health authorities and subsequently for Swiss-based companies operating in those countries until such time as the proposed directive on human medicines is implemented.

Chapter 7 What does it mean for you?

If you have already implemented a solution to comply with other EU member state regulations, we recommend assessing whether the implemented model satisfies the current legal framework in Sweden.

If you have not yet implemented the relevant safeguards for your operating model in the EU from a cross-functional perspective (Tax, Transfer Pricing and Regulatory) we recommend that you analyse your operating model to mitigate the risk of supply chain disruptions and to ensure business continuity.

We will continue to monitor the developments in this case and provide updates as they become available and would be delighted to help you navigate through this new legislation.

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Chapter 8 FAQs

The case illustrates the complexity of the regulation of the trade in pharmaceuticals in the EU, especially regarding the role of financial transactions and third-country actors, such as companies based in Switzerland, in the supply chain. The case raises questions about the interpretation and application of the current law and the directive until such time as the proposed new directive on human medicines is implemented.

The case is pending before the Administrative Court of Appeal, which will decide whether to grant leave to appeal and, if so, whether to uphold or overturn the ruling of the Administrative Court. The outcome of the case may have notable consequences for the best practices adopted by many European health authorities and subsequently for Swiss-based companies operating in those countries until such time as the proposed directive on human medicines is implemented.

A: The main issue is whether the procurement of pharmaceuticals from the Swiss company by the Swedish company constitutes wholesale trade and whether it is permitted under the law and the directive regulating the trade in pharmaceuticals in the EU. This is a common issue

A: Fiscal import is an arrangement whereby the ownership of the pharmaceuticals is transferred from the seller to the buyer when the products arrive at the buyer’s distribution centre in the EU, but the products are not physically imported into the EU until they are sold to the end customer. Physical import is an arrangement whereby the ownership and the physical delivery of the pharmaceuticals are transferred from the seller to the buyer at the same time, usually at the border of the EU.

A: The case is pending before the Administrative Court of Appeal, which will decide whether to grant leave to appeal and, if so, whether to uphold or overturn the ruling of the Administrative Court. The timing of the decision is uncertain, but based on the court’s own benchmark for resolving tax cases within nine months, we expect that this case will follow a similar timeline.

A: The proposed new directive on human medicines aims to modernise and harmonise the rules and procedures for the authorisation, supervision and distribution of medicinal products in the EU. It also intends to clarify the roles and responsibilities of the actors involved in the supply chain, including the wholesalers, the manufacturers and the importers. The proposed directive may have implications for the interpretation and application of the current law and the directive, as well as for the business arrangements and practices of the companies that trade pharmaceuticals in the EU – especially those involving third-country actors, such as companies based in Switzerland. However, the proposed directive is still subject to negotiation and amendment by the EU institutions and the member states, and it is not clear when it will be adopted and implemented.