No VAT exemption for Aspiro SA claims handling service

The EU Advocate General’s opinion in relation to Polish company Aspiro SA may impact the practice of outsourcing claims handling by insurers.

Claims handling intermediary services within the insurance sector cannot be exempted from VAT under Article 13A(1)(a) of the Directive 2006/12/EC, according to Advocate General at the Court of Justice of the European Union (CJEU) Juliane Kokott.

Advocate General (A-G) Kokott’s opinion on the matter late last year came about after tax authorities challenged Polish company Aspiro SA’s (Aspiro) application for VAT exemption. The company believed it qualified for exemption on the grounds that its’ activities fell under Article 135(1)(a) of the VAT Directive:

“Member States shall exempt the following transactions: (a) insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents…”.

Aspiro has no legal relationship with the insured person, but provides certain claims handling services in the name and on behalf of an insurer, including receiving and processing claims and damages covered by insurance; contacting the insured person to conduct any inspection to determine the causes and circumstances of accident, preparing expert damage reports; conducting recourse proceeding and dealing with appeals and complaints regarding claim handling. Aspiro also carries out other administrative and technical tasks related to these activities.

The following question was asked to the CJEU by the Supreme Administrative Court:

“Must Article 135(1)(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (1) be interpreted as meaning that services such as those in the present case, which are supplied on behalf of an insurance undertaking by a third party — in the name and on behalf of the insurer — which has no legal relationship with the insured person, are covered by the exemption referred to in that provision?"

A-G Kokott ultimately made this conclusion after determining the wording of Article 135(1)(a) must be interpreted strictly:

“Claim handling services which are supplied on the name and on behalf of an insurance undertaking by a third party —which has no legal relationship with the insured person and does not engage actively in finding and introducing customers and insurers to conclude insurance contracts - are not covered by the exemption within the meaning of Article 135(1)(a) of the VAT Directive.”

Consequently, if the CJEU follows the opinion of the Advocate General it may significantly impact the practice of outsourcing claims handling by insurers.

In the UK specifically, the interpretation is very wide. According to HMRC issued guidance, claims handling services provided by insurance brokers or insurance agents are exempt from VAT. This approach by HMRC is now likely to change in the near future to amend the VAT exemption in line with EU law.

Need more information? Get in touch with our VAT experts.

Click here to download the briefing paper, 'VAT reforms in Europe: past, present and future.'

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Gareth  Llewellyn

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