The Court of Justice of the European Union (the ‘Court’) has held in RVS Levensverzekeringen NV v Belgische Staat (C – 243/11) that Article 50 of the Consolidated Life Directive (2002/83/EC) permits a Member State to apply indirect taxes on life assurance premiums where the individual is habitually resident in that Member State at the time when the insurance premium is paid. This will apply even where the assurance contracts were taken out when the policyholder was resident in another Member State.
Facts of the case
A Dutch insurer issued a life assurance policy to policyholders who were resident in the Netherlands at the time that the policy was issued. Subsequently, those policyholders moved to Belgium. The Dutch insurer had no establishment in Belgium. A dispute arose between the Dutch insurer and the Belgian tax authorities as to whether those life assurance contracts were subject to a Belgian annual insurance tax for premiums paid after the policyholders moved their “habitual residence” to Belgium.
The Dutch insurer argued that it would be liable to the Belgian insurance tax only if the policyholders were habitually resident in Belgium at the time when the life policy was initially issued (i.e. a ‘static’ interpretation).
The Belgian tax authorities, however, took the view that the determining factor is the policyholders’ habitual residence at the time when the insurance premium is paid (i.e. a ‘dynamic’ interpretation).
The Consolidated Life Directive is silent on whether a policyholder’s habitual residence for the application of tax is determined at the time the policy was taken out or at the time when the premiums under the policy are paid.
The Court noted that when interpreting a provision of European Union law, it is necessary to consider not only that relevant provision’s wording, but also the context in which it occurs and the objectives of the Directive. On that basis, the Court concluded that a ‘dynamic’ interpretation of Article 50(1) enables the objectives of preventing double taxation and distortions of competition to be better achieved. Furthermore, the Court found that the ‘dynamic’ interpretation is compatible with the Consolidated Life Directive’s general objective relating to the completion of the internal market in direct life assurance, in particular from the point of view of the freedom to provide services.
Consequences for life insurers
This ruling is significant for life (and possibly non-life) insurers as it is likely to increase the administrative burden on those insurers as they will have to monitor the changes in the habitual residence within the European Union of a policyholder for the term their policy.
Additionally, insurers will have to keep up-to-date on insurance-premium taxation-arrangements in operation in each of the Member States where its policyholders are habitually resident.