On 1 April, at a meeting of the European Commission’s VAT Expert Group that Insurance Europe attended, the EC provided an update on the state of play of financial and insurance services and their VAT treatment, based on a background document (https://extranet.insuranceeurope.eu/Taxation%20Working%20Group/PublishedDocuments/ECO-TAX-19-018.pdf)
The following was discussed at the meeting (notes kindly provided by Mr Patrick Stapleton, Insurance Europe’s observer in the Expert Group):
- The Commission indicated that a change to the VAT Directive to open up the cost sharing exemption (“CSE”) to financial services and insurance had been proposed as a quick fix measure last year but this did not gain unanimous support at European Council level. Rather, the Council issued a statement that the European Commission will launch a study on the issue.
- The Commission indicated to the VAT EG that study will consider the overall VAT treatment of financial services and insurance services (not just the CSE). This study is not launched yet, but that will happen shortly. It is intended that the study would be completed (by an external provider) by summer 2020. The study will include an evaluation of current rules taking into account all relevant developments, including the possibility to tax (certain) financial services. The Commission will not comment further on the future direction of the financial services/insurance exemptions until the study is completed.
- The VAT EG members stated the importance of learning from prior studies/initiatives, and also to consider examples from non-EU countries, such as, for example, Australia, New Zealand, Singapore, South Africa and Chile. Questions were also asked on the parameters of the study e.g. will it take into account the economic competitiveness of the EU’s financial services/insurance sector and also the position of, for example, Fintech? The Commission indicated that they cannot be more precise at this stage given the discussions on the study. However, they will try to involve the VAT EG to the extent possible. Competitiveness will be part of the study and follow-up. Regulatory rules may be helpful in the context of the “difficult to tax argument” in view of potentially taxing financial services. Once the study will be launched, stakeholders will have the opportunity play a role within the study.
In conclusion, it is now clear that a quick solution that would allow the VAT cost-sharing exemption for financial services is off the table and that no further action will be considered by the EC before mid-2020, when the study is expected to be finalised. Therefore, the only remaining course of action for the insurance industry is to try to be involved in the study to the extent that this is possible and to prepare for a potential EC proposal after the study is finalised.