Article 135(1)(a) exempts from VAT "insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents".
This case involved an appeal by the Finance Minister of Poland against a national court decision that Aspiro, a claims handling company, was exempt from VAT. The European Court of Justice ("the CJEU") has now held as follows:
- The essentials of an "insurance transaction" are that an "insurer undertakes, in return for prior payment of a premium, to provide the insured, in the event of materialisation of the risk covered, with the service agreed when the contract was concluded". Such transactions necessarily imply the existence of a contractual relationship between the provider of the insurance service and the insured.
- As a result, an insurer, who has a contractual relationship with the insured, will fall within the exemption set out in Article 135(1)(a).
- However, the claims handling service provided by Aspiro did not fall within the meaning of an "insurance transaction", even though its claims settlement service was an essential part of an insurance transaction. That is because it "does not itself undertake to ensure that the insured person is covered in respect of a risk and is not connected in any way to the insured person through a contractual relationship".
- Nor are Aspiro's services "related services performed by insurance brokers and agents". Although the settlement of claims is "related" to insurance transactions, Aspiro could not be said to be a broker or agent. Although it did have a relationship with both the insurer and the insured, it did not meet the pre-condition that its services are "linked to the essential aspects of the work of an insurance broker or agent". Crucially, it did not find prospective customers and introduce them to the insurers, with a view to the conclusion of insurance contracts.
Accordingly, Aspiro's claims settlement service did not fall within the VAT exemption.
COMMENT: It is not yet known whether the UK's HMRC will alter its stance on this issue in light of the CJEU decision. However, it should be noted that, although this decision affects claims handling services carried out by third party claims handling companies, it does not impact on claims handling services provided internally to an insurer. Where external claims handling companies are used, though, this decision may eventually lead to an increase in the cost of their services.