On March 17, 2016 the Court of Justice of the European Union (CJEU) ruled in the Polish Aspiro case (case no. C-40/15) that claim handling services are subject to VAT if these are performed by a party (i.e. Aspiro) that (i) does not assume the insured risk, and (ii) is not acting as an intermediary.
Under the EU VAT Directive, activities in respect of insurance and reinsurance and related services, performed by insurance brokers and insurance agents are exempt from VAT. In a number of cases, the CJEU has provided some guidance on the scope of these terms.
There is a VAT exempt insurance activity if: (i) the insurer; (ii) in exchange for the prior payment of a premium; (iii) undertakes to provide the insured, in the event of materialization of the risk covered, with the payment agreed when the contract was concluded.
Insurance-related services are present if the service provider has a relationship with both the insurer and the insured and performs activities essential to the function of an insurance agent, such as finding prospective clients and introducing those new clients to the insurer (i.e. insurance mediation).
Aspiro entirely settles, in the name and on behalf of the insurer, insurance claims. It receives a flat rate fee for this, which is dependent on the type of claim concerned. Aspiro does not have a liability towards the insured. The settlement of claims comprises 18 tasks, such as contact (in writing) with the insured and the preparation of technical reports (i.e. claim handling).
Moreover, Aspiro is not an insurer, an insurance broker, or an insurance agent. It also does not appear to perform other services in this respect, such as acting as an intermediary for (new) insurance contracts.
3. CJEU judgment
According to the CJEU, the separate claim handling services provided by Aspiro are not VAT exempt insurance services. After all, Aspiro does not cover the insured risk and also in no way has a contractual relationship with the insured. This means that there is not an exempt insurance/reinsurance activity.
Nor does this involve an exempt insurance-related service, according to the CJEU. The settlement of claims does not constitute an exempt intermediary service. The settlement of claims, as performed by Aspiro, is not linked with finding prospective clients and introducing them to an insurer with a view to the conclusion of an insurance contract. As such, the VAT exemption does not apply, despite the fact that Aspiro does have a legal relationship with the insurer and a direct relationship with the insured.
The CJEU further emphasized once again that the fact that Aspiro is not an insurer, insurance broker or insurance agent is not decisive. The point is that the activities performed by Aspiro must meet the conditions of the VAT insurance exemption. The CJEU noted that the exemption is limited to insurance activities in the strict sense of the expression. It is not important whether the services constitute a distinct whole that comprises the specific and essential functions of an exempt insurance service. This liberalization only applies to the financial exemption and not to the insurance exemption.
4. Practical consequences
The outcome of the Aspiro case is important for the scope of the expression insurance and related services. It is now clear that the CJEU is of the opinion that separately outsourced claim handling does not fall under the insurance exemption. This is in accordance with current Dutch practice and a judgment by the Court of Appeals in the Hague concerning run off and claims management services, rendered on April 12, 2013 (case no. BK-12/00062).
Within the EU there is no level playing field as far as the application of the insurance exemption to claim handling services is concerned. For example, in Ireland, the United Kingdom and Belgium the exemption is broadly applied. In specific cases, the Dutch Tax Authorities also take the position that claim handling is VAT exempt. It cannot be ruled out that the Aspiro case will give cause to reconsider this position. Also in those cases, (reverse charged) VAT may be payable in the future. Nevertheless, there are situations in which it is conceivable that claim handling is not VAT taxed, for example if this is accompanied by the transfer of the risks insured in respect of an insurance portfolio or the performance of intermediary services.
The tax advisors of Meijburg & Co’s Indirect Tax Financial Services Group would be pleased to help you identify any potential implications of this judgment. Feel free to contact one of them or your regular advisor at Meijburg & Co for more information.