8 February 2013
In Case C-224/11 BG Leasing sp. z o.o., the Court of Justice of the European Union Assessed the VAT Treatment of the Insurance Services that the Leasing Company Invoiced to Lessees in Addition to the Rent.
BG Leasing sp. z o.o. (hereinafter “BG Leasing”) leased items to lessees with the said items remaining BG Leasing’s property throughout the duration of the lease. BG Leasing required that the leased items be insured. For that purpose, BG Leasing offered to provide its clients with insurance. If they wished to take up that offer, BG Leasing subscribed to the corresponding insurance with an insurer and re-invoiced the cost of that insurance to the client.
BG Leasing considered the re-invoicing of the costs of insurance related to the leasing service as transactions exempt from VAT. The local tax authorities questioned such approach.
Single Supply or Several Independent Supplies
As part of the first question, the Court of Justice of the European Union assessed whether the supply of leasing services and of insurance for the leased item were, for VAT purposes, a single supply or whether they were independent transactions that must be assessed separately in terms of VAT.
In its ruling, the Court of Justice of the European Union held that there is no absolute rule for assessing the above matter, and to determine the extent of a supply, all circumstances of the transaction must be taken into account. The Court of Justice of the European Union admitted that both elements are likely to be supplied together. However, it argued that, in the reviewed case, the lessee has the option of insuring the leased items with another insurance company of his choice. Therefore, in its opinion, it cannot be stated that the requirement for insurance cover causes that the insurance provided through the lessor is indivisible or ancillary to the supply of the leasing service.
In this respect, the Court of Justice of the European Union indicated that if the lessee decides to obtain insurance services through the lessor, such decision is made independently of his decision to conclude a leasing agreement. Based on the above arguments, the Court of Justice of the European Union stated that the supply of insurance services for a leased item and the supply of the leasing services themselves must, in principle, be regarded as distinct and independent supplies of services for VAT purposes.
Possibility of Exempting the Re-invoicing of Insurance Costs from VAT
As part of the second question, the Court of Justice of the European Union assessed whether the re-invoicing of the insurance costs is exempt from VAT.
European VAT legislation does not define the concept of an insurance transaction. According to the Court of Justice of the European Union, the insurance that is the subject matter of the reviewed question should not be treated differently according to whether it is supplied directly to the lessee by an insurance company or whether the latter obtains such insurance cover through the lessor that procures it from an insurer and re-invoices its cost to the lessee for the same amount.
However, such reasoning should not be applied if the amount re-invoiced to the lessee exceeds the amount invoiced to the lessor by the insurer.
The Court of Justice of the European Union ruled that where the lessor insures the assets itself and re-invoices the exact cost of the insurance, such transaction may be considered exempt from VAT.
In the light of the above conclusions of the Court of Justice of the European Union, it may be stated that if a leasing company applies a margin to the re-invoiced insurance premium or fails to transfer a discount provided by an insurer to a lessee, there is a risk that the tax administrator will not consider the said re-invoicing of the cost of the insurance a transaction exempt from VAT.
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