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Insurance transactions: limits to the application of the VAT exemption

30 March 2021
In the sentence of 25 March 2021, in case C-907/19, the Court of Justice of the European Union affirms that a service provided for an insurer, consisting of several services, is not exempt from VAT.

1. Premises
In the sentence of 25 March 2021, C-907/19, the Court of Justice of the EU has provided important clarifications regarding the VAT to be paid on services supplied to an insurer, including the granting of a licence to use an insurance product, the placement of that product by the insurer and the performance of the concluded insurance contracts.

The case concerns the companies that develop, commercialise and place insurance products.

Within the scope of its activities, these companies concluded a contract with an insurer under which it was supposed to provide three types of services:

  • firstly, it placed an insurance product designed to cover special risks under a non-exclusive usage licence;
  • secondly, it placed insurance contracts for this insurer, adjusting policies as needed and assessing risks;
  • thirdly and finally, it was responsible, in particular, for the management of such contracts and the settlement of claims.

These services were remunerated by means of a brokerage commission, which the company reported in its turnover tax return for 2011 as VAT-exempt. The Financial Office contested this conduct on the grounds that it identified that several separate supplies were provided, among which only the insurance brokerage activity was exempt from VAT.

Essentially, the EU Court of Justice is asked whether the VAT exemption applies to services carried out by a taxable person which include the supply of an insurance product to an insurance company and, as an ancillary activity, the placement of such product on behalf of that company, as well as the management of the concluded insurance contracts, as long as those services are to be qualified as a single supply for VAT purposes.

2. The Sentence
In the sentence of 25 March 2021 in Case C-907/19, the community judges held that the VAT exemption scheme established for insurance transactions cannot be applied to a single supply comprising - as its main element - the grant of a licence to use an insurance product to an insurance company and, as ancillary elements, the placement of such product on behalf of that company, as well as the management of the concluded contracts, as the grant of the licence to use the insurance product is not covered by the VAT exemption under Article 135(1)(a) of Directive 2006/112/EC for insurance and reinsurance transactions, since the grantor is contractually linked only to the insurer which uses the product and not to the person whose risks are covered by the insurance.

The doctrine that dealt with the matter notes that the service does not belong to the services 'relating' to insurance transactions referred to in Article 135 of the directive, since the service provider should be in contact with both the insurer and the insured and his activity should include essential aspects of the insurance intermediary function, such as searching for potential clients. In the present case, these conditions have not been met, nor has the fact that the company also provides intermediation services to the same insurer been considered, since only the content of the specific service should be taken into account for the purposes of the exemption.

3. Conclusions
The Court of Justice of the European Union has therefore ruled that when a transaction consists of several elements and acts, all the circumstances in which the transaction takes place must be taken into account in order to determine whether it gives rise to a single supply or separate supplies for VAT purposes. A single supply exists when two or more elements or acts supplied by the taxable person to the customer are so closely linked that they objectively form a single indissoluble economic supply, which would have to be artificially dismantled.

In the light of the above, the Court of Justice therefore held that if the various services rendered by the company in question constituted a single supply for VAT purposes, such supply could not in any event benefit from the exemption because the main supply was not exempt.

Authors: Matteo Cerretti, Tancredi Marino and Vincenzo Lorusso.

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