05 May 2021

CRE: Europe’s insurers call for EU’s VAT directive to be reformed

“Current VAT rules for financial and insurance services are criticised for being complex, difficult to apply and not having kept pace with the development of new services in the sector...."

Insurance Europe is asking for the EU’s VAT directive to be reformed, calling it outdated and not correctly applicable to modern financial services. This puts the sector at a disadvantage compared to other sectors and it should be reformed to reduce hidden VAT and to increase the possibilities for VAT to be reclaimed by financial companies in general, and insurers in particular, said Insurance Europe.

The European Commission is undertaking a review of VAT rules for financial and insurance services. It noted: “Current VAT rules for financial and insurance services are criticised for being complex, difficult to apply and not having kept pace with the development of new services in the sector. This seems to have led to a lack of VAT neutrality (businesses being unable to reclaim VAT associated with financial and insurance services), legal uncertainty for businesses, and high administrative and regulatory costs.”

The Commission said the review addresses these issues by modernising how VAT is applied in the sector. Insurance Europe reiterated its support for cost-sharing groups and asked for more clarity and legal certainty about the scope of VAT exemptions to provide a more refined criteria and extensive list of exempt services. It added that the introduction of an option for member states to tax should not come in addition to any insurance premium taxes, which would lead to double taxation and an increase in costs for customers.

In its response to the consultation, Insurance Europe states:

“Insurance Europe:

Suggests that policymakers investigate how the impact of non-deductible VAT on the cost of doing business of insurers can be limited. Besides the non-deductible VAT, IPT is charged on several insurance services in member states and rates tended to increase over the past few years.

Believes that the introduction of the option to tax should not be in addition to any IPTs, to avoid double taxation and an increase of costs for insurance coverage for customers.

Suggests reconsidering an option to tax property and casualty insurance and continuing the (partially) existing IPT exemption for life insurances, health insurance coverage and pension schemes.

Supports the amendment of the VAT Directive to make the option for VAT group treatment mandatory in every member state to avoid any distortion between financial operators in different countries.”

It adds: “Many insurers, like other financial institutions, and multinationals in general, operate cross-border. They can serve clients in other member states through the free provision of services or via local establishments, and they can have affiliates in other countries with whom they share resources, exchange services, etc. These various types of transactions, including a multitude of payment flows, must all be analysed from a VAT perspective. Because of the complexity of the VAT rules due to territoriality and the absence of detailed guidance, the VAT treatment of the same service will sometimes be different in the two countries involved. Beyond possible double taxation, this leaves insurers exposed to fines and penalties when they choose to apply one country’s position.”

CRE

© Commercial Risk Europe