Insurance Europe has today published a position paper on the EC’s review of the Directive on value-added tax (VAT).
Insurance Europe had previously submitted feedback through a consultation, where it welcomed the EC’s aim to reform VAT rules for financial services in order to provide clarity and legal certainty about the scope of VAT exemptions (that apply to insurers). It also pointed to several aspects of the Directive that should be updated.
Insurance Europe’s latest position paper seeks to clarify some key aspects of the ongoing discussions and focuses specifically on why insurance premiums cannot be categorised as fees. Indeed, the nature of premiums is inherently different from that of fees and, as such, insurance cannot be viewed as a fee-based service. A fee is a fixed amount, normally in direct proportion to the service that a specific customer receives, while a premium is an individual contribution to a collective pool that enables an insurer to be able to cover risks for insureds.
Insurers perform complex calculations to assess premiums in order to be able to cover the likely claims arising from an insurance contract, with a safety margin to ensure the long-term viability of the insurer.
It is therefore crucial that any legislative initiative to review the VAT Directive takes account of the unique features of insurance, its products and its business mode. The interaction of VAT with other existing levies must also be carefully examined, notably to avoid undue increases in the costs of insurance products.