Considerations on COM(2007)747 - Amendment of the VAT Directive, as regards the treatment of insurance and financial services

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dossier COM(2007)747 - Amendment of the VAT Directive, as regards the treatment of insurance and financial services.
document COM(2007)747 EN
date November 28, 2007
 
(1) The financial service industry makes an important contribution to growth, competitiveness and job creation but can fulfil its role only under neutral conditions of competition in an internal market. It is necessary to provide a framework which provides legal certainty as to the value added tax (VAT) treatment of financial products and their marketing and management.

(2) The existing rules governing the exemptions from VAT for financial and insurance services laid down in Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax[4] are out of date and have led to uneven interpretation and application. The complexity of the rules and the variation in administrative practices generates legal uncertainty for economic operators and tax authorities. This uncertainty has led to considerable litigation and has increased the administrative burden. It is therefore necessary to clarify which insurance and financial services are exempt and thereby create greater legal certainty and reduce the administrative burden for operators and authorities.

(3) In order to ensure tax neutrality, the exemptions should be linked to the nature of the services concerned, on the basis of objective economic criteria, and not to the persons supplying them.

(4) Particular uncertainty arises where economic operators outsource activities to independent persons or pool activities between operators. To avoid such uncertainty, it is appropriate to make it clear that activities which form a constituent element of an insurance or financial service, constitute a distinct whole and have the specific and essential character of the exempt service fall within the exemption applying to the service concerned.

(5) Insurance services and financial services require similar forms of intermediation. It is therefore appropriate for intermediation in insurance and intermediation in financial services to be treated in the same way.

(6) The modernisation of the exemptions for insurance and financial services seeks also to ensure consistency with internal market provisions, in particular the Financial Services Action Plan[5] and the rules governing undertakings for collective investments in transferable securities. Nevertheless, in order to observe the requirement for strict interpretation of VAT exemptions, it is in some cases necessary for the definitions of exempt insurance and financial services to be narrower than the definitions provided for in the internal market rules.

(7) Suppliers of insurance and financial services are increasingly able to allocate input VAT on costs incurred by them precisely to the output to be taxed. Where the services they supply are fee-based, they can establish the taxable amount for these services easily. It is therefore appropriate to extend the possibility to opt for taxation for such operators.

(8) By strengthening cross-border co-operation, providers of insurance and financial services may increase their competitiveness and contribute to the realisation of the internal market. Subject to compliance with the principle of tax neutrality, the economic operators concerned should therefore be given the right to opt for taxation and to co-operate on a cost-sharing basis.

(9) Directive 2006/112/EC should therefore be amended accordingly.