INSURANCE BROKERS AND INTERMEDIARIES: THE TAX AUTHORITIES UPDATE THEIR COMMENTS AND CLARIFY THE CRITERIA FOR THE APPLICATION OF THE VAT EXEMPTION
After many months of waiting, the tax authorities have just updated their administrative comments on VAT exemptions relating to insurance transactions (article 261 C 2° of the General Tax Code - CGI). These changes include administrative clarifications on the concepts of broker and insurance intermediary, on the operations carried out by mutual insurance companies, but also more generally on the concept of insurance operations and that of support and back office services. These amendments, which take up and develop the criteria defined in particular by European case law (ECJ, Judgment of the Court of March 17, 2016, Case C-40/15, Aspiro SA,), will make it possible to secure the practice of the market, in particular that of operators applying the exemption from VAT in respect of the exercise of an activity relating to both the distribution of insurance products and the management of contracts and claims.
The "Aspiro" decision had set criteria for the application of the exemption to insurance intermediaries and brokers, significantly limiting the application of the VAT exemption to insurance and reinsurance operations and services related to these operations performed by insurance brokers and intermediaries. As a reminder, according to this case law, "claims settlement services [...] provided by a third party in the name and on behalf of an insurance company, do not fall under the exemption".
In the previous version of its comments, the tax authorities had allowed insecurity to arise as to the application of the exemption to operators with a "mixed" activity of distributing insurance products and managing claims. Indeed, in our view, the ECJ case law did not expressly exclude from the exemption management activities when insurance intermediaries also carried out operations relating to insurance transactions and in particular the distribution of insurance contracts.
The decision of the French Council of State (CE 9-10-2019 n° 416107, MOTHERON c/ MINISTERE DE L'ACTION ET DES COMPTES PUBLICS), included in the BOFIP and refusing the application of the VAT exemption, was thus aimed at an operator who was content to provide "back office" services and did not carry out any operations relating to the insurance business. This decision did not contradict the above analysis but had the effect of casting doubt on the contours of the VAT exemption for operations relating to insurance transactions.
UPDATED COMMENTS FROM THE ADMINISTRATION
Since April 27, 2022, it is possible to rely on the new comments for the application of the criteria derived from the Aspiro case law. These comments are in line with the practice of the market and will allow to secure the application of the exemption for a certain number of operators.
As regards support or back office services, the administration confirms the restrictive nature of this exception to the application of the exemption. Indeed, this exemption can only apply "when a service provider who is not acting as a broker or intermediary [...] merely settles claims in the name and on behalf of an insurer, provides it with a computer system or delivers accounting and financial expertise".
This clarification seems to us to be welcome, since it will make it possible to secure the application of the exemption in the interest of a certain number of players acting as brokers or intermediaries, while also carrying out management and claims management operations in particular.
More generally, these new comments also settle the fate of the definition of insurance broker and intermediary. Among the clarifications made with respect to the characterization of the relationship between the broker or intermediary, the insurer and the insured, are developments on the activities of wholesale brokers, the case of the sharing of remuneration following the intervention of several brokers, but also the case of a broker managing a brokerage portfolio belonging to a broker meeting the specifications of the insurance broker himself.
As regards the clarifications made concerning the characteristic services of an insurance intermediary, performed by the broker or the insurance intermediary, they are aimed in particular at the definition of insurance prospecting, but also at examples of activities that characterize this notion of prospecting (renegotiation or renewal of a pre-existing insurance contract, underwriting of extensions of coverage of a contract already in the intermediary's portfolio, or in the broader sense underwriting of a new insurance contract by a client already in the intermediary's portfolio).
To conclude, these comments finally clarify the position of the French tax authorities with respect to European case law on the subject of the VAT exemption applicable to insurance activities. However, these developments remain under public consultation until December 31, 2022 and may still be subject to changes.
It should also be noted that the former doctrine, in force for operations carried out until April 26, 2022, remains applicable by way of temperance until December 31, 2022, as the administration has expressly indicated.
All the comments can be found at the following reference:
- BOI-TVA-CHAMP-30-10-60-10 §270 to §320