The Court of Justice of the European Union (CJEU) has followed the Opinion of the Advocate General (AGO) and concluded that Aspiro’s comprehensive claims handling service is neither VAT exempt as the provision of insurance nor VAT exempt as the provision of an insurance related service by an insurance broker or agent. The supply was not insurance as there is no assumption of risk by Aspiro in return for a premium, and Aspiro has no direct contract with the insured. The insurance exemption is more tightly drawn than the finance exemptions and does not exempt related services merely because they form a distinct whole and are essential for and specific to the exempt insurance service.
Although claims handling is an insurance related service, insurance related services are only exempt if the supplier is an insurance broker or agent. As Aspiro had no involvement in finding prospects and introducing the insured to the insurer, with a view to an insurance contract being concluded, it was not an insurance broker or agent as that is the core function of an insurance broker or agent. To access the Judgment click here.
The CJEU’s judgment comes as no surprise, given the wording of the Directive and previous decisions about the scope of this exemption such as Arthur Andersen (C-472/03). The decision was released very soon after the AGO, which is often a good indicator that the CJEU has agreed with the Advocate General.
The key question is what does the UK do in response to Aspiro, and when? UK law also requires that the supplier of insurance intermediary services, as defined, should be an insurance broker or agent if exemption is to apply to such services, but in practice, claims handling by a supplier to whom written authority has been delegated by the insurer is exempt under UK law even if the supplier does nothing else.
The review of the finance and insurance exemptions by the Commission was used by HMRC as a reason to do nothing to the UK law in the aftermath of the Andersen decision on the grounds that changes to the EU law were expected as a result of that review, but the Commission has effectively abandoned that strategy. Of course, the question of whether the UK stays in the EU or decides on 23 June to leave may well have a bearing on what action if any HMRC now takes, though any changes that are made to narrow the scope of the UK insurance exemption would be prospective and presumably implemented only after a period of consultation with the sector. However, taxing claims handling services where the supplier has had no involvement in bringing about the original insurance contract will increase the costs of any insurer that outsources claims handling to such a supplier, ultimately this may mean that that the premiums charged by that insurer may also increase. Taken together with the two rises in Insurance Premium Tax (IPT) this could mean some difficult decisions lie ahead. It would therefore be sensible for any businesses potentially affected by this CJEU judgment to consider the financial impact any change to the UK policy on the liability of claims handling supplies would have and what steps could be taken to mitigate this.