Dutch Supreme Court to examine VAT treatment of damage claim settlements
Dutch Supreme Court to examine VAT treatment of damage claim settlements
The district court of Noord-Nederland recently submitted preliminary questions to the Dutch Supreme Court about the VAT treatment of damage settlements. A Supreme Court decision will have implications for the insurance industry, but may also impact other industries. This article takes a look at the case, the questions posed by the district court and the potential consequences of a Supreme Court decision.
It is possible for two supplies performed together to constitute a single supply for VAT purposes where an ancillary supply (in this case, the claim settlement service) is absorbed into the principal supply (in this case, the insurance service). The peculiarity in the case at hand is that the services are supplied by two different VAT entrepreneurs (the insurer and the claim representative) to two different customers (the policyholder and the insurer, respectively). Is it possible in this situation to have a single supply for VAT purposes? In the case of domestic claims, the insurer settles the claims itself so VAT is not an issue and no additional VAT burden arises.
The questions raised by the district court are primarily of interest to the insurance industry. Until the Court of Justice of the European Union (CJEU) issued its decision in the 2016 Aspiro case, the Dutch tax authorities took the position that claims settlement services were also exempt from VAT. However, this changed as from 1 January 2019. The Dutch Supreme Court will now have to rule on the VAT treatment of these claims services. Pending the decision, affected parties may wish to submit an objection to the payment of VAT in respect of VAT due under the reverse charge mechanism for services provided by foreign claim settlers.
Consequences other industries
We deduce from the CJEU’s case law that it is possible for two VAT entrepreneurs to perform a single supply for VAT purposes. The fact that there are two different entrepreneurs however indicates that there are two different services. If the Dutch Supreme Court concludes that two entrepreneurs can perform a single supply together (e.g., cooperation arrangements between entrepreneurs where they jointly offer a product or service to the customer), other sectors may be affected.
Handling of damage settlements abroad
The case before the district court involved an entrepreneur who offered non-life insurance policies for trucks and passenger cars (“the insurer”). Coverage included damage incurred in EU member states other than the Netherlands and in member states of the European Economic Area. If damage occurs in one of these other countries, the insurer may not settle the damages itself. Instead, the insurer must appoint a claims representative in the relevant member state to settle the claim on its behalf. The insurer set up subsidiaries in Belgium, France and Germany to act as a claims representatives, with the representative sending the insurer an invoice for a claim settlement. At issue is whether VAT is due in the process. This VAT is not deductible for the insurer and thus constitutes an expense because insurance transactions are exempt from VAT under the VAT Directive).Preliminary questions submitted by the district court
The district court of Noord-Nederland decided to submit preliminary questions to the Supreme Court regarding the VAT treatment of the claims settlement services provided by the damage claim representatives. Specifically, the court questioned whether the damage claim settlement service and the insurance service should be considered a single supply for VAT purposes that is exempt from VAT.It is possible for two supplies performed together to constitute a single supply for VAT purposes where an ancillary supply (in this case, the claim settlement service) is absorbed into the principal supply (in this case, the insurance service). The peculiarity in the case at hand is that the services are supplied by two different VAT entrepreneurs (the insurer and the claim representative) to two different customers (the policyholder and the insurer, respectively). Is it possible in this situation to have a single supply for VAT purposes? In the case of domestic claims, the insurer settles the claims itself so VAT is not an issue and no additional VAT burden arises.
Possible consequences of a Supreme Court decision
Consequences for the insurance industryThe questions raised by the district court are primarily of interest to the insurance industry. Until the Court of Justice of the European Union (CJEU) issued its decision in the 2016 Aspiro case, the Dutch tax authorities took the position that claims settlement services were also exempt from VAT. However, this changed as from 1 January 2019. The Dutch Supreme Court will now have to rule on the VAT treatment of these claims services. Pending the decision, affected parties may wish to submit an objection to the payment of VAT in respect of VAT due under the reverse charge mechanism for services provided by foreign claim settlers.
Consequences other industries
We deduce from the CJEU’s case law that it is possible for two VAT entrepreneurs to perform a single supply for VAT purposes. The fact that there are two different entrepreneurs however indicates that there are two different services. If the Dutch Supreme Court concludes that two entrepreneurs can perform a single supply together (e.g., cooperation arrangements between entrepreneurs where they jointly offer a product or service to the customer), other sectors may be affected.