28 November 2007

Commission proposes modernisation of VAT treatment of insurance and financial services

The Commission proposed a Council Directive to modernise the current VAT rules applied on the supply of insurance and financial services. The proposal will create more certainty and security for Member States and for financial and insurance institutions by setting clear modern definitions of exempt services. It will also allow these institutions to manage the costs of non deductible VAT by allowing them to opt for taxation and by clarifying and extending the tax exemption for cost sharing arrangements.

The proposal includes three measures:

- Redefinition of the scope of the exempt services to ensure that the exemption better reflects the complexity and diversity of the modern industries.

- Possibility for banking and insurance companies to opt to tax their services if they wish.

- Introduction of an industry specific exemption from VAT on cost sharing arrangements, including those which are cross border.

The proposal is based on the results from the public consultation of stakeholders and the independent study that endorse the need for providers of insurance and financial services to strengthen their cooperation across the internal market and increase their competitiveness.

Current VAT legislation has not kept abreast of developments in the wider legal and regulatory environment for industries in the insurance and financial sector. The definitions of VAT exempt financial and insurance services are out of date and have led to an uneven interpretation and application by the Member States. This situation is generating legal uncertainty for economic operators and fiscal authorities. Indeed, VAT exemption is not applied uniformly in the Member States which creates a lot of distortions between economic operators.

Press release

FAQ   

Working documents:

Financial and Insurance Service

Draft proposal as of July

Cross border vehicles

© Graham Bishop