Day 17 March 2016 Court of Justice of the European Union (hereinafter: TEU, Court) in judgment C 40/15 concluded that: ‘The liquidation of damages from insurance events carried out on behalf of and on behalf of the insurer by the entity third, which does not remain in any contractual relationship with the insured person and whose business does not include the search for customers and contacting them with the insurer for the purpose of concluding insurance contracts, does not fall within the scope of exemption from Article 135(1) point (a) Directive 2006/112, Official Journal of the European Union L (2006), No. 347/1 (hereinafter: VAT Directive).’
The main proceedings in this case started on 1 June 2012, when Spółka A.
with its registered office in Warsaw applied for a written interpretation of the provisions of tax law in order to determine whether on the basis of the Act of 11 March 2004 on tax on goods and services, Journal of Laws of 2004, item 535 (hereafter: VAT laws) its services are exempt under Article 43(13) ori dic Article 43(1)(37) VAT Act.
In this interpretation, the Company took the view that its transactions in insurance services consist of one comprehensive service which should be fully exempted.
Company A. is a VAT taxable person and provides services in the name and on behalf of the insurance undertaking, inter alia, to: receiving damage reports; keeping a record of damage in the IT system, determining the causes and circumstances of the damage, and to liquidating material damage.
In response to the request of the Director of the Tax Chamber in Warsaw in an individual interpretation dated 31 August 2012, IPPP1/443-472/12-2/AS issued on behalf of the Minister of Finance considered A's position to be correct, only in part concerning the liquidation of material damage. According to the Director of the Tax Chamber, this activity involves carrying out an analysis of the relevant documentation and taking substantive decisions in cases for damages, which means that only such transactions constitute an insurance activity.
This interpretation was appealed by the Company to the Provincial Administrative Court in Warsaw, which acknowledged the complaint and judgment of 14 May 2013, reference no. III SA/Wa 3502/12 it repealed the interpretation in question, alleging that it exceeded the scope of the exemptions provided for in the VAT Directive, and at the same time ruled that the Minister of Finance could not apply the more restrictive regulation of the directive to the taxpayer.
The next stage of the procedure was the lodging of a cassation complaint by the Minister of Finance against the above judgment. The Minister of Finance has accused of misinterpretation and misuse of the standard resulting from Article 43(1)(37) and Article 43(13) The VAT Act and, consequently, the acceptance that the services provided by the applicant may benefit from VAT exemption on the basis of those provisions.
The Supreme Administrative Court therefore expressed doubts and stated that the examination of the cassation action required interpretation of Community law and decided to stay the proceedings and to refer the following question to the CJEU for a preliminary ruling:
„Is Article 135(1) point (a) of the VAT Directive must be interpreted as meaning that services such as in the present case provided to the insurance undertaking by the entity third, on behalf of and for the benefit of the insurer, which is not in any legal relationship with the insured person, shall be subject to the exemption referred to in that provision?’
Finally, the TEU in response to the question asked in its judgment of 17 March 2016, C 40/15 explained that the concept of ‘insurance transactions’ does not need to be applied only to services provided by insurers, but also to entities which, using insurer services, provide group insurance protection. The necessary condition to be met by these entities is the taking of risks and entering into a contractual relationship with the insured person.
Referring to the situation of Company A., the TEU concluded in the above judgment that: ‘In the present case, a service provider such as A. did not undertake to provide the insured person with risk protection and is not at all related to the insured contractual relationship.’ In addition, the CJEU stressed that ‘in consequence, although the main proceedings’ compensation service constitutes an important part of the insurance transaction, since in the present case it includes the determination of liability and the amount of damage, as well as the decision to pay or refuse compensation to the insured person, it must be stated that the service (...) does not constitute an insurance transaction within the meaning of Article 135(1) point (a) of the VAT Directive.’
At the same time, in this judgment, the Court referred to the condition that the services in question should be ‘provided by insurance brokers and insurance agents’ and stated at the same time that the services provided by A. are not characteristic of the activities of the broker or insurance agent, as they are in no way related to the search for customers and to contact them with the insurer for the purpose of concluding insurance contracts.
In summary, damage relief services cannot be considered exempt transactions under the VAT Directive. This is due to the fact that, in the present case, Company A.
is not an insurance undertaking, broker or insurance agent, and in particular does not accept liability towards insured persons and does not have a contractual relationship with the insured person.
In addition, the CJEU pointed out that the exemption under the VAT Directive does not apply to services which constitute a separate whole and perform specific and essential insurance functions, only insurance strict services.
To conclude, it is worth noting that the above position of the CJEU could mean an increase in the burden on insurers purchasing damage relief services for unpaid VAT. Therefore, taxpayers will be forced to tax the acquisition of the services in question because they do not have a VAT exemption.