A preliminary ruling from the European Court of Justice has held that the transfer of insurance policies does not qualify as an insurance transaction and so should not be VAT exempt.
The case concerned the transfer by a German subsidiary of a Swiss reinsurance group of a block of reinsurance policies to a Swiss subsidiary of the same group. Each policy was valued separately and the total the Swiss subsidiary had to pay was the sum of the individual values including some negative items.
The German subsidiary claimed that this transaction was exempt from VAT as reinsurance transactions, including related services performed by insurance brokers and agents, are VAT exempt as outlined in article 13 of the EU sixth VAT directive.
However, the Advocate General (AG), Paulo Mengozzi, disagreed and upheld the decision by the German fiscal court that VAT should be charged.
Mengozzi explained that the transfer is not exempt because the insured person (the policyholder) was not party to the transfer. In these circumstances, each policyholder had to give consent, though this only gave the right of veto without giving a chance to renegotiate the policy. It also could not be exempted as a sale of an obligation or a transfer of a debt on the formal grounds that a transfer of an insurance policy transfers both the obligation and the debt; thus it would be necessary to take two exemption provisions together to free a single transaction.
It was initially held by Germany's fiscal court that the transfer of policies should be VAT eligible as it constituted a sale of goods. However, the AG felt that this issue needed to be addressed as the insurance policies are intangible and so should be taxed, as a service has been provided.
The ECJ usually issues its full ruling between three months and six months after an AG's opinion, which the judges do not have to agree with.
