Brussels, 12/12/2006 (Agence Europe) - On Monday 11 December, the Commission published a study by the consultancy firm, PriceWaterhouse Coopers, in order to better understand the economic impact engendered by the Value Added Tax (VAT) exemption enjoyed by financial and insurance services. The study is part of a broader consultancy exercise conducted during 2006 (see EUROPE 9190). It backs up the Commission's resolve to launch a legislative proposal amending the VAT directive towards mid-2007.
The study reveals “differences between Member States in terms of the definition of financial services” and the taxation of certain “outsourced” services or services “shared” between companies. In consequence, VAT exemption for financial and insurance services differs from one Member State to the next. The study also notes “uncertainty and unevenness in the interpretation of the decisions of the Court of Justice” (e.g. Sparkassernes Datacenter v. Skatteministeriet, Case C-2/95), as well as “differences in VAT Group regulations between EU25 Member States”. It considers that such differences are of a kind that will entail situations of “unfair competition” likely to become accentuated with the gradual opening up of financial markets.
In order to address these difficulties, the study recommends as a priority that Member States authorise the grouping of companies for VAT purposes at national level and/or on a crossborder basis. This possibility, which exists in several Member States (Belgium, Spain, Ireland, Netherlands, United Kingdom) would have greater importance than any other factor relating to VAT when a company decides to establish its financial services and insurance activities in another Member State.
In a press release, Aviva, a British insurance company, welcomes the results of the study. Insisting on the establishment of harmonised rules to allow European insurers to remain competitive against their international rivals, Andrew Moss, the Group's Financial Director, warns: “Some European insurers have already relocated in territories that are more favourable as far as taxation is concerned”. If the decisions of the Court were fully implemented across the EU, this would mean that the taxation of many services currently outsourced, “such as policy records maintenance and claims handling” would no longer be possible, he deplores. (mb)