Taxation issues

Taxation issues

Background

Financial and insurance services are today exempt from VAT as provided in the EU VAT Directive which dates back to 1977.

On 27 November 2007, the European Commission adopted two proposals for a new Directive and a new Regulation with the objective of simplifying and updating the current VAT rules for financial and insurance services. However, since the EU Member States failed to reach a unanimous agreement, the European Commission decided in 2016 to withdraw the two proposals.

Since the VAT exemption dates from 1977, the legislation has not kept abreast of latest developments and the recent judgments of the Court of Justice of the EU (CJEU) have shown that there is a need to adapt the VAT Directive to current market realities in order to ensure legal certainty and establish a level-playing field on VAT for all financial service providers.

The VAT rules for financial and insurance services are back on BIPAR’s agenda since the Commission is currently analysing the existing VAT rules in the aim of assessing the impacts of possible future changes to the current rules.

In recent years, there have been problems in ensuring a clear and consistent application of exemption across the EU countries which led to a significant growth in litigation with the European Court of Justice (ECJ) being asked to clarify the correct interpretation of the legislation. The rulings in the Skandia case (C-7/13) and the Aspiro case (C-40/15) have had an impact on the insurance business model by considering the head office-branch transactions as taxable transactions provided by a separate taxable person and by limiting the application of the VAT exemption to outsourced services respectively. Moreover, decisions in the DNB Banka case (C-326/15) and Aviva case (C-605/15) also have the potential to do so in relation to the supply of services by independent groups of persons (IGP) whose members carry out activities under the public interest exemption (e.g. education, healthcare), excluding thereby the financial sector from benefitting thereof (Article 132 (1) (f)). Previously, it had been understood that this provision can cover services provided by cost-sharing groups (CSGs) to their members that are directly necessary for the VAT exempt activities of these members, regardless of the type of VAT exempt or out of scope activities conducted by the members.

BIPAR is regularly informing its member associations on the new VAT developments both at EU level and at Member-State level.

BIPAR has a Working Party on Taxation and closely monitors the regulatory and case-law developments in VAT rules in relation to financial and insurance intermediation services.


- Published in November 2019 -

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