Brussels, 05/02/2015 (Agence Europe) - If a company, for a flat-rate fee, offers a guarantee against mechanical breakdowns that could affect certain parts of used vehicles, this should be considered as an insurance transaction exempt from VAT and not as the provision of a service subject to VAT.
That is the response put to the Court of Justice of the EU by Advocate General Maciej Szpunar in an opinion delivered on Wednesday 4 February in a case (C-584/13) where the French appeal court asked the Court of Justice for interpretation on these points of the VAT directive (77/388/EEC), which exempts insurance transactions from VAT but makes the provision of services subject to VAT.
The French court has to determine whether the Italian company Mapfre Warranty, which, operating under the name NSA Sage, provides cover in France for the repair costs of mechanical breakdowns of second-hand vehicles, should pay the tax on insurance contracts as laid down in French law for insurance transactions, when it has already paid VAT by virtue of the activity it pursues which it considers to be the provision of services.
The Advocate General considers that the guarantee offered by the company is an insurance transaction and is therefore exempt from VAT. The contract between the company and the client contains an insurer (the company) and an insured person (the buyer of the used vehicle) and a risk covered (the cost of repair of a breakdown of the vehicle) in exchange for a premium (a flat-rate fee) whether included in the cost of the purchase price of the vehicle or not and whether or not the contract was concluded through the intermediary of the seller of the used vehicle (a garage) on behalf of the purchaser.
Furthermore, the Advocate General notes that the company applies a form of pooling, as an insurance company would do, in that it spreads the risk so that the premiums paid by all the customers bear the repair costs of those whose vehicle breaks down.
Lastly, the Advocate General says, the guarantee offered by the company should not be seen, as the company claims, as an after-sales service, which would be subject to VAT. Under the terms of an after-sales service, manufacturers and sellers provide a guarantee against the breakdown of the vehicle sold and may potentially offer free repair or exchange. Mapfre Warranty, on the other hand, like an insurance company, provides cover of a risk (repair costs) over which it has no control and on a vehicle the state of which it does not know. The amount of the premium is calculated statistically on a large number of insured persons (probability of the risk materialising, average cost involved). (FG)