Recent judgement from the Court of Justice of the European Union is likely to lead to greater focus on insurance related services that have previously been treated as VAT exempt.
The Court of Justice of the European Union confirmed in its recent judgement (Aspiro, C-40/15) that insurance claims handling services should be taxable for VAT purposes. This decision is in line with the current practice and/or rules in a number of member states (e.g. Germany, France), however, it is likely to lead to greater focus on the VAT treatment of insurance related services in countries which, to date, have widely granted VAT exemption to insurance related services (e.g. the UK).
We anticipate that the above decision will trigger a review of the scope of national VAT exemption for insurance related services, especially in countries which apply VAT exemption more broadly. Insurers and their suppliers should carefully review their service arrangements and assess the impact of the potential changes - such as potential for higher VAT costs for insurers as well as opportunities to maximise input VAT recovery for suppliers. It may be possible to consider claims handling services as VAT exempt if they are provided as part of single supply together with insurance intermediation (Aspiro did not deal with this matter explicitly).
The Aspiro case
Aspiro provided claim handling services (i.e. receiving and processing of claims and losses covered by insurance, contacting the insured person to conduct inspections to determine the causes and circumstances of an accident, preparing expert loss reports, dealing with appeals and complaints regarding claim handling and administrative and technical tasks related to these activities). Aspiro had a legal relationship with the insurer who engaged them to provide services in the name and on behalf of the insurer, i.e. Aspiro did not have any contractual relationship with the insured persons, however dealt directly with them. Aspiro considered its activities to be VAT exempt insurance services on the grounds that they are a key element of the business for the insurance company.
VAT exemption - what´s in / what´s out
Using the Aspiro example - the court considered two routes to VAT exemption; 1) services which are part of an insurance service, and 2) insurance related services typically performed by insurance agents and/or brokers. It concluded that the services provided by Aspiro did not represent either of the services leading to VAT exemption as Aspiro did not have a contractual relationship with the insured person (key condition for characterisation as an insurance service) nor undertook the role of finding prospective clients to introduce them to the insured with a view to concluding an insurance contract (key condition for characterisation as an insurance related service).