14 March 2018

Insurance Europe: VAT rules must be modernised to reflect market realities

Insurance Europe has published a position paper that calls for a thorough review of the Value Added Tax (VAT) Directive to modernise VAT rules in the EU, particularly in the field of financial services.

Insurance Europe pointed out that the VAT liability of financial services transactions continues to be governed by a Directive that was implemented in 1977 and written even earlier. Because this Directive is in many respects outdated and not correctly applicable to current financial services, Insurance Europe believes that the modernisation of VAT rules for financial services is necessary.

Recent rulings of the ECJ have also shown that there is a need to adapt the VAT Directive to current market realities. Therefore, Insurance Europe said that a review should seek to create legal certainty by implementing the jurisprudence of the ECJ, while also attempting to overcome ECJ interpretations that may be too restrictive and lead to significant business reorganisation (eg, with respect to the availability of cost-sharing groups in the financial sector).

The lack of adaptation of existing VAT rules to current market realities has led to a situation where member states endeavour to find a balance for their national market and may implement their own interpretation of the law. This has resulted in an uneven playing field within the EU, causing VAT to become a key factor affecting the competitiveness of the EU and a driver in business decisions for financial services companies. This also leads to inappropriate taxation of financial services providers and lost VAT income for member states. In fact, Insurance Europe is of the view that the lack of harmonisation of VAT law across the EU is a significant barrier to a Capital Markets Union (CMU).

For all these reasons, Insurance Europe calls on the European Commission to launch a review of the VAT Directive that aims to establish a level playing field on VAT for all financial services providers and to ensure that European VAT law is fit and proper for the modern business environment and can respond to current challenges.

Position paper

© InsuranceEurope