In a case involving Swiss Re, The European Court of Justice (‘ECJ’) yesterday ruled that VAT is now liable on the sale of reinsurance contracts. This is a reversal on usual industry practise, and may have a big negative cash flow impact on those selling reinsurance and insurance contracts.
The case was based on the sale of reinsurance contracts between Swiss Re entities in Germany. At the time, the local tax authorities considered that such a transaction represented a supply of service, liable to 19% German VAT.
This judgement was escalated to the ECJ, which is the final court of appeal on European VAT issues. It ruled in favour of the German tax authorities that VAT was payable, and that the sale of reinsurance contracts was not an exempt supply. Since this is an ECJ judgement, this means that this new interpretation applies to all European Union member states.
Richard Asquith, of TMF VAT & IPT Services, commented: “This is hugely important as the insurance industry had been for the most part treating this as tax exempt supply. Also, the decision may not be limited to reinsurance, and could be interpreted as applying to insurance and other contracts.”.
The insurance industry now needs to urgently review structuring on any relevant sales, including reviewing past transactions which may be caught in this new ruling.
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