The Court of Justice of the European Union (CJEU)’s decision of 25 March in Q-GmbH v Finanzamt Z (Case C-907/19) deals yet again with the scope of the insurance and related services exemption in article 135(1)(a) of the Principal VAT Directive.
Q offered an insurer ‘F’ three services:
- a licence to use a ‘special risks’ insurance product;
- placement of that product; and
- contract/claims management.
The latter services were described as ancillary. Policies were concluded between F and the policyholders. All quite insurancey stuff.
The framing of the reference in this case is important. It was apparently translated into English through the art of mime, so it may need more than one reading:
‘Does a service related to insurance and reinsurance transactions that is performed with exemption from tax by insurance brokers and insurance agents within the meaning of Article 135(1)(a) of Directive [2006/112/EC] exist if a taxable person who carries out intermediary work for an insurance company also provides that insurance company with the mediated insurance product?’
Note ‘carries out intermediary work for an insurance company’. We will come back to it later.
The decision was in two parts. First, the court considered whether there was a single supply of services. Second, it considered whether the grant of the licence and the mediation services were capable of falling within the insurance or ‘related services’ exemptions.
The court dealt with the single supply point briefly. It spent more time building the fence than sitting on it. On the facts available, it was unable to conclude with certainty whether there was a single supply of services, saying only that the grant of a licence and the mediation services ‘did not appear to have to be classified as a single supply for VAT purposes’.
It then turned to the services provided.
Granting a licence to an insurer to use a product is not an insurance transaction. The assumption of risk in return for payment presupposes the existence of a contractual relationship between insurer and insured, and in this case Q contracted only with the insurer.
It spent more time on the interesting question. Is the grant of a licence a ‘related service’ when linked to the existence of optional mediation services? Put differently, did the existence of linked intermediation modify the court’s conclusion on the grant of the licence? Spoiler alert: No.
The result in this case is not especially surprising. Q ‘carries out … work for an insurance company’. Its work was not aimed at the final consumer. The dominant element was a licence to insure, not the provision of insurance itself. The intermediation services were optional. Tails do not wag dogs.
The facts and analysis in this case are fairly pedestrian. The interesting part is where the two threads of the case meet. Card Protection Plan (Case C-349/96) (CPP) is often discussed in single/multiple supply cases. It is rarely discussed in insurance VAT liability cases. It should feature more often.
In para 23 of the CPP judgment, the court explains the purpose of the insurance exemption. Member states are permitted to introduce insurance premium taxes, so insurance transactions and related services aimed at consumers need to be exempt to avoid double taxation. Seen through a purposive filter, it becomes less surprising that so many cases involving otherwise very ‘insurancey’ services turn out not to be exempt.
Of course, the impact of a limited, consumer focused exemption is sticking VAT for the insurer. Sticking VAT inevitably affects pricing. The economic incidence of sticking VAT is as important as the formal incidence.
Post-Brexit, there is merit in a UK review of the insurance exemption, and lobbying may be better than litigation.
Victor wrote this article the Tax Journal’s In brief section, click here to view.
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