On October 31, 2023 the judgment rendered by the Zeeland-West-Brabant District Court (‘the District Court’) was published in an insurance premium tax (‘IPT’) case that essentially concerned the scope of (1) the definition of ‘establishment’ for the purposes of the place of risk and (2) the exemption for transport insurance (‘transport exemption’). Although the case concerns highly specialized satellite insurance policies, the interpretation of the definition of establishment and the transport exemption is of wider importance for the Dutch and European insurance markets. This is because there is not much case law on these matters and Dutch and European legislators have also provided very little in the way of interpretation.
Place of risk and concept of ‘establishment’
Based on case law of the Court of Justice of the European Union (‘CJEU’), the place of risk for IPT purposes is determined in line with what has been written about this in European insurance directives. Under the general rule, the risk of an insurance policy where the policyholder is a legal entity, is situated in the Netherlands if the establishment of the legal entity to which the contract relates is situated in the Netherlands. We deduce from the CJEU Kvaerner judgment from 2001 that the concept of establishment must be broadly interpreted, because, as according to the CJEU, it can also include group companies of the policyholder whose risks are covered. However, what the precise scope of the definition of establishment is for IPT purposes is unclear, as is when the risks of that establishment are covered.
It is clear from the District Court judgment that a ‘machine’ (at least that is how the District Court labels a satellite in space, their wording in Dutch is ‘werktuig’) cannot be regarded as an establishment. It can also be deduced from the judgment that the contractual phrasing is of major importance for the question whether foreign group companies (that in the present case monitor and control the satellites) must be regarded as (part of a (foreign)) establishment for IPT purposes. The District Court ultimately ruled that in the present case there was the insurance of a financial risk of a Dutch establishment of a legal entity (that owns the satellites) and that the place of risk is therefore situated in the Netherlands.
Many countries with IPT have various exemptions. However, those exemptions have not been harmonized at the European level. The Netherlands has, for example, the transport exemption explained by the Deputy Minister of Finance in the policy statement on IPT. In practice, many questions are raised about this exemption and related issues such as allocations, and these are often the subject of dispute. With the exception of the District Court judgment, there is no further case law on the transport exemption.
The District Court mentions that what was not in dispute in this case was that the transport exemption applies during the rocket launch of the satellite (‘phase 1’) and that therefore it was only the later phases that were of concern here. The District Court considers the satellite as a complete whole, of which the ’relocation’ is, according to the District Court, ancillary to the main activity of the commercial operation of the satellite. The District Court goes on to say that not every object that moves or is moved falls under the transport exemption. It deemed the transport exemption as not applying from ‘phase 2’ onward and thus concluded that 21% IPT is payable in the Netherlands (as from phase 2).
Quite a few questions can be raised about the District Court judgment. In general, given its highly casuistic character, it offers only limited insight for the broader practice. In that broader practice, questions frequently arise about the place of risk in general and also specifically about how the concept of establishment should be interpreted for IPT purposes. The scope of the transport exemption and associated allocations are also regularly in dispute in practice. We recommend that you review your IPT position and, in doing so, it is important – given the District Court judgment – that you check exactly which risks are insured and how this has been contractually agreed.
The tax advisors of KPMG Meijburg & Co’s Indirect Tax Financial Services Group would be pleased to help you with this. Please feel free to contact one of them or your regular advisor.