On 8 July, Insurance Europe met with consultants from Oxford Research and Economisti Associati to discuss a study commissioned by the European Commission’s DG TAXUD on VAT rules for financial and insurance services. Insurance Europe’s representative in the EC VAT Expert Group, Mr Patrick Stapleton, also attended the meeting via video link.
The Commission’s study aims to assess the functioning of certain provisions of the VAT Directive and their current impacts on financial and insurance services operators. In particular, the scope of the study includes the rules on the VAT exemption for certain financial and insurance services, the VAT opt-in regime for financial service providers, the cost-sharing arrangements, the rules for proportional deduction, and the VAT groups. The scope thus also includes the question of cost-sharing groups (CSGs).
Insurance Europe made the following comments:
- The VAT Directive was drafted over 40 years ago and hasn’t kept pace with changes in business practices in the insurance industry. Therefore, a plethora of ECJ rulings act almost as “Level 2” regulation on VAT. The problem is that some of these rulings have not been implemented by many Member States. So, this results in a very uncertain VAT environment for cross-border businesses, one that constitutes a significant barrier to the Capital Markets Union. There is considerable divergent treatment with respect to VAT for the same services across the EU
- Insurance Europe would favour quick, targeted fixes in the VAT Directive that would solve the issues that the industry is facing, most importantly relating to CSGs. We cannot support a full review of the VAT Directive (even though, ideally, this would be needed) because we have no confidence that such a time-consuming project may even succeed, due to differences of opinion between Member States.
- VAT Grouping and Cost-Sharing Groups are useful tools for Groups to minimise their VAT exposure on intercompany recharges. The recent ECJ rulings on limiting CSGs to activities in the public interest has created significant uncertainty for businesses in Member States that use this structure.
- The VAT exemption for financial services offers certainty to end user customers and any change to this would result in significant disruption to the industry. If the option to tax was available, it could potentially be beneficial on B2B transactions but not on B2C transactions. In some jurisdictions, IPTs have been rising recently to reach the level of VAT that would be applied if there was no exemption.
- There is a lot of uncertainty on business models and outsourcing. Member States have different interpretations of what services are subject to VAT or exempt and case law on this issue dating back to the Anderson case has meant it is difficult to get clarity on what services are exempt. For companies operating with establishments across Europe this is a very big issue. Our understanding is that input VAT is quite low across the industry so if the exemption for outsourced services was widened this would be beneficial for us.
- Recent cases such as Skandia and Aspiro have created more uncertainty in the industry depending on the interpretation a Member State has on these cases.
- The administration and compliance burden of VAT returns is increasing all the time in particular with queries from tax authorities and some Member States introducing real time VAT reporting.
Next steps
- The consortium of consultants tasked with working on the study will soon issue a VAT questionnaire based on the information they receive in their preliminary outreach to various organisations. They will mostly be seeking responses from businesses rather than from industry organisations.
- The consultants asked Insurance Europe to refer them to national and/or company experts on VAT over the coming weeks. Insurance Europe committed to do so and will refer the consultants to members when this formal request is received.
- The consultants have one year (i.e. by summer 2020) to finish the study and they plan to make recommendations for action to the Commission.