In the Aspiro judgment (C-40/15), the CJEU ruled that claims settlement services with regard to insurances provided by a third party, cannot share in the VAT exemption for insurance services. Therefore, such services are in principle subject to VAT. As insurance companies will normally have a limited right to recover input VAT, such charged VAT will normally be a cost.
Under the EU VAT Directive, insurance and reinsurance activities are in principle VAT exempt. Although there is case law of the CJEU on this VAT exemption, this referral from a Polish court demonstrates that the scope of this VAT exemption is not yet crystallized. For example, it was not (yet) clear whether claims settlement services provided by a third party could also fall within the scope of this VAT exemption.
Aspiro SA, a Polish company, ("Aspiro") supplies services for the settlement of insurance claims in the name and on behalf of an insurance company. In this regard, Aspiro enters into agreement with an insurance company. The services provided by Aspiro include:
- receiving and processing insurance claims;
- registering claims in an IT system;
- conducting correspondence, as necessary, with the client;
- settling claims;
- producing (required) documentation, for example showing the extent of damage;
- any other activity required in order to settle claims arising under insurance contracts.
Aspiro requested the Polish tax authorities for an explanation whether the supply of the above services could benefit from the VAT exemption for insurance and reinsurance transactions. Aspiro took the position that this indeed was the case. However, the Polish tax authorities took a different positon and the case was brought before court. The Polish judge had doubts and referred the case to the Court of Justice of the European Union ("CJEU").
The CJEU referred to established case law and explained that the VAT exemption for insurance activities can apply in two scenarios:
Firstly, if Aspiro would engage in insurance and reinsurance activities. Such activities are characterized by the fact that the insurer receives a payment of a premium from the insured to cover a risk. Once that risk is materialized, the insurer provides the insured with the service agreed upon in the contract, i.e. in most cases payment of an amount. The CJEU ruled that this was not the case with Aspiro.
Secondly, if Aspiro would actually act an insurance brokers/ agent, engaging in activities "related to" insurance and reinsurance. This would be the case if (1) Aspiro would have a relationship with both the insurer and the insured party and (2) the activities would cover the essential aspects of the work of an insurance agent. Although Aspiro has a relationship with the insurer as well as with the insured party, the CJEU ruled that claims settlement services are not essential aspects of the activities of an insurance agent.
Taking into account the above, the CJEU ruled that the VAT exemption for insurance and reinsurance activities cannot apply to the claims settlement services at issue.
This judgment illustrates that that VAT exemptions should in principle be interpreted strictly. For insurance companies, it is recommended to review whether this judgment could have an impact on the VAT treatment of activities that are outsourced to third parties.