Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Court rules ‘rebates’ to doctors should be taxed
By Yi Whan-woo
An appeals court ruled Sunday that taxes should be imposed on kickbacks pharmaceutical firms provide in “rebates” to doctors or pharmacists who prescribe their products.
Turning down an appeal from a local drug firm, the Seoul High Court said tax authorities should now deal strictly with the long-held practice of offering money because it drives up the costs for patients.
Since rising drug prices stem from covering the cost of those rebates, the ruling came amid a government drive to enhance transparency in the price-setting process in the medical industry.
The drug firm filed a lawsuit after being levied 7.1 billion won on sums paid to doctors and pharmacists. The company claimed that the money was eligible for tax exemption.
The tax authorities imposed the tax after finding that the company falsely reported its corporate tax between 2000 and 2007. The company, in response, said they spent the amount on the rebates to promote medical goods and equipment among doctors, so the expenditure should be excluded from corporate tax.
The court, however, ruled that this practice was exploited as a means to avoid paying tax.
“The amount of rebates can hardly be deemed as extra sales expenses,” the court said.
It added that pharmaceutical companies can commit accounting fraud by excluding the payments from their budgets.
The ruling came after the anti-trust Fair Trade Commission (FTC) revealed that the amount of rebates paid last year totaled some 9.69 billion won.
Wrapping up a six-month nationwide crackdown, the government said in December that about 1,600 doctors allegedly received kickbacks from drug makers in return for prescribing their products.
In 2011 alone, pharmaceutical companies were ordered to pay 14.3 billion won in fines for offering nearly 97 billion won in illegal rebates to over 8,000 doctors and pharmacists from 2006-2010, according to the FTC.
The average selling or marketing expenses of pharmaceutical companies is said to be about 35 percent of their total sales, with the amount paid to doctors and pharmacists believed to account for nearly 20 percent of their sales.