Q-GmbH (C-907/19) – Single supply of licencing an insurance product is not VAT exempt

Background

Q-GmbH is an underwriting agent and offered services in relation to kidnap/piracy insurance. Its services comprised of three elements: a) a ‘licence fee’ component to grant its customer (the insurer) a right to issue insurance policies designed by Q-GmbH; b) intermediary functions; and c) administrative services including claims handling. It charges a brokerage fee to insurers for these functions.

In 2009, Q-GmbH wrote to the German tax authorities to seek a ruling that its services supplied under a single contract were exempt. The German tax authorities were of the view that the services were each a separate supply, with only the intermediary functions being exempt.

After a period of litigation in the German Courts, which ended in 2017, the ultimate conclusion was that Q-GmbH’s services were actually a single taxable supply. However, upon further appeal, the German Federal Finance Court decided that the CJEU judgment in Aspiro (C-40/15) meant that further clarification of Q-GmbH’s position was required at the CJEU. The referring Court saw differences between Q-GmbH’s services, which did aim to result in new insurance policies coming into existence, and Aspiro’s where insurance claims were only settled. 

Reference to the CJEU

Does a service related to insurance and reinsurance transactions that is performed with exemption from tax by insurance brokers and insurance agents within the meaning of Article 135(1)(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax exist if a taxable person who carries out intermediary work for an insurance company also provides that insurance company with the mediated insurance product?

CJEU judgment

Firstly, the CJEU commented on the conclusion of the referring German Court, that the package of services is a single supply. Although the detail in the case regarding the arrangement was limited, the CJEU felt that because some elements were optional, this meant it might be a separate independent supply. On this point, the CJEU suggested the fact that the intermediary functions were optional and that the insurer was free to use other agents to sell the same product (once licensed) implied that this could be a separate supply of services.

Notwithstanding that point, the CJEU proceeded to issue its judgment assuming a single supply was the correct analysis, with the licensed insurance product as the principal element, with the intermediary functions and administrative services being ancillary.

Secondly, the CJEU confirmed that the VAT liability of that single supply was based only on the VAT treatment of the principal element, not the ancillary elements, in line with existing case law.

Considering the licensed insurance product, therefore, the CJEU assessed whether or not it fell within the insurance exemption under Art 135(1)(a) of Directive 2006/112/EC.

• It could not be insurance in its own right, because Q-GmbH did not take on the risk of the insurance policies written.
• It could not be exempt as the service of an insurance agent/broker because at the time the licence is granted, the insurer then needs to be introduced to someone needing insurance for an insurance contract to come into existence. The licence itself did not introduce persons seeking to enter into and receive an insurance contract.

The fact that the same supplier may be performing insurance intermediary services (i.e. introductions) in respect of that product under the same contract did not alter that analysis.

On that basis therefore, the exemption did not apply and the package of services as a whole should be subject to VAT.

The case will return to the German Courts to consider further and issue a final judgment.

Next steps

Insurance intermediaries that offer a package of services in the EU should closely consider this judgment.

Firstly, it demonstrates the importance of the single/multiple supply analysis to obtain the correct outcome. In line with longstanding case law precedent, it is not the case that simply because one fee/commission is charged, that there is a single supply. Suppliers should be considering all of the facts of their activities, such as whether the package of services is actually indivisible or whether elements are optional (or serve an independent purpose) to assess whether there are one or more supplies. For each supply, it is also important to identify the correct principal activity to which other functions are ancillary. This again is not new, but this case demonstrates how important it is to get to the correct VAT outcome.

Secondly, the CJEU confirmed that, to be exempt, a service must bring together persons seeking to provide and receive insurance. It is not enough for a service to be merely related to a contract of insurance for the exemption to apply, so any EU intermediaries who predominantly sell template insurance products to insurers, and apply the exemption, should be reviewing their position in light of this judgment.

Finally, the fact that businesses may act in an intermediary capacity and may be supplying insurance intermediary services under parts of a contract does not mean that all potentially insurance related services under the same contract will benefit from the VAT exemption. This is particularly the case if the predominant element will not benefit on a standalone basis from the exemption.

From a UK perspective, although it is unlikely that HMRC would seek to issue any new guidance in respect of this judgment, it may be considered in respect of existing UK legislation where there are matters of uncertainty.