On July 16, 2015, the Court of Justice of the European Union (CJEU) rendered its judgment in the French case Mapfre Asistencia and Mapfre Warranty SpA versus Directeur général des finances publiques. In this case, the CJEU broadly interprets the VAT exemption for insurance. The CJEU ruled that the provision of a warranty for a particular period at a predetermined fixed price must be regarded as an exempt insurance for VAT purposes. Under certain circumstances the warranty and sale of a product may be so interconnected that the sale of the product and the warranty must be regarded as a single VAT taxed transaction for VAT purposes.
The European VAT Directive stipulates that “insurance and reinsurance transactions” are VAT exempt. In a number of cases, the CJEU has provided some guidance on the scope of the term “insurance transactions”. This case undoubtedly concerns an autonomous concept of EU law, and a general characteristic of such cases is the assumption that:
- the insurer;
- in exchange for the advance payment of a premium;
- undertakes to pay the policyholder, upon the occurrence of the insured risk, the amount agreed upon at the time the agreement was concluded.
The CJEU had previously already ruled that the status of insurer is not a decisive factor for the provision of VAT-exempt insurance services.
Mapfre Warranty SpA (“Mapfre W”) provided a warranty (for a limited period) for the proper functioning of certain components of used cars. Used car dealers offer this warranty to their customers when buying a used car. If a defect covered by this warranty occurs, it is resolved as follows.
- The buyer of the car can report to a garage, which is not necessarily the garage of the used car dealer.
- The estimate for the repair is then submitted for approval to Mapfre W.
- Following approval, the garage repairs the car and the repair costs are paid by Mapfre W.
Mapfre W receives a fixed fee from the used car dealers for this service. The French tax authorities believe that the service provided by Mapfre W qualifies as a VAT-exempt insurance service and not (as argued by Mapfre W) as a VAT taxed service. The CJEU has ruled on this point.
The CJEU upheld its broad interpretation of the term ‘insurance’ and ruled that this includes the warranty agreement. Since the French court did not present the facts clearly enough, the CJEU explicitly stated that its judgment was conditional on a more detailed determination of the facts by the French courts. The legal relationships are particularly unclear. The CJEU ruled that the warranty provided by Mapfre W is in itself an exempt insurance transaction, irrespective of which of the following legal relationships apply.
- Mapfre W concludes an agreement with the buyer and the dealer acts as an intermediary.
- The dealer concludes an agreement with Mapfre W in its own name but on behalf of the buyer.
- The dealer concludes an agreement with Mapfre W in its own name and on its own behalf, but transfers the relevant rights to the buyer.
The essence of an insurance policy is that the policyholder insures itself against the risk of an uncertain but potentially serious financial loss in the future in exchange for the payment of a specific, but limited, amount (which is not refunded). Given that, according to information available at the CJEU, premiums are not refunded in the absence of damage and no additional payments have to be made in the case of expensive damage, this condition has been met.
The CJEU then examined whether there was one or more services. An important factor in this is that the CJEU suspected – despite the unclear legal relationships – that Mapfre W performed a direct insurance service to the insured buyer. As Mapfre W is independent from the dealer and is not a party to the sale of a car, there are two services. Moreover, the insured buyer can also buy the car without arranging a warranty and can also have the car repaired elsewhere. A final relevant point is that Mapfre W appears to be able to terminate the warranty agreement without this affecting the car sales agreement.
The outcome of the Mapfre case is important for the scope of the term ‘insurance’, especially in cases where it is agreed that repair services are performed on goods for a fixed amount in the case of mechanical defects. An important aspect then appears to be that the party that “guarantees” the repair services for a fixed fee is not the manufacturer/seller of these goods. The CJEU leaves room for the warranty to be regarded as (part of) a VAT taxed service in, for example, the situation where the dealer of the insured good buys and resells the warranty in its own name and for its own account. In 2012 the Supreme Court ruled that the simultaneous sale of a warranty certificate and the supply of a good by the same supplier must be regarded as a single VAT taxed supply (Supreme Court August 10, 2012, case no. 10/03633).
If an insurance policy is involved, then – also in the Netherlands – no VAT is payable, but insurance premium tax is in principle payable. Also in that case, it will have to be examined whether the insurance exemption precludes the right to recover VAT on repair costs, and whether this consequence can be mitigated by assuming insurance in cash rather than insurance in kind.
The tax advisors of Meijburg & Co’s Indirect Tax Financial Services Group would be pleased to help you identify any potential consequences of this judgment. Feel free to contact one of them or your regular advisor within Meijburg & Co for more information.