The EC has adopted proposals for a directive and a regulation aimed at modernising and simplifying the VAT rules for financial and insurance services. The proposals contain an updated definition of the exempt financial and insurance services. The main objectives are to:
- increase legal certainty for all concerned and reduce administrative burdens.;
- ensure a more consistent application of VAT and to deliver a level playing field in the internal market; and
- allow businesses to manage the impact of non-deductible VAT on their activities, whilst ensuring equal access to tax relief across the internal market.
The proposals also increase the opportunities for banking and insurance companies to opt to tax their services if they wish. This option already exists in the VAT Directive but its availability is at the discretion of Member States and not widely used. This is likely to be particularly attractive for business-to-business operations and yield significant cost savings, albeit at the expense of tax revenue.
Click here to read a Proposal for a Directive amending Directive 2006/112/EC on the common system of value added tax, as regards the treatment of insurance and financial services.
Click here to read a Proposal for a Council Regulation laying down implementing measures for Directive 2006/112/EC on the common system of value added tax, as regards the treatment of insurance and financial services.
Click here to read Modernising VAT rules applied on financial and insurance services – Frequently Asked Questions, 28 November 2007.