VAT TREATMENT OF INSURANCE AND FINANCIAL SERVICES

Transcription

1 VAT TREATMENT OF INSURANCE AND FINANCIAL SERVICES Centre for Business Taxation, Oxford University December 10 th, 2008 Saїd Business School, Oxford CASE STUDIES 1

2 Case 1 The option to tax B2B- cross-border reverse charge scenario A bank (A) established in France supplies financial services to another bank (B) established in the UK (business-to-business (B2B)). 1. Where is the place of supply? 2. Are there any problems if the service is exempt from VAT? 3. Does that change when the service becomes taxable? 4. To which services shall the option apply? 5. Should the option also include insurance services? 6. Who must opt for taxation? 7. Should the option be allowed for single transactions? 8. What remuneration should be accepted? 9. In which jurisdiction must the option be exercised? 10. Who can opt for taxation? 11. Must the exercising of the option be indicated on the invoice? 12. Are special provisions for the right to deduct required? Case 2 Cost sharing Three insurance companies established in the UK (A, B and C) need special software for complying with new regulatory obligations in registering client data. They found an independent group (D); D buys the software from an independent supplier (E) at a price of 100 plus 20% VAT (120). This software is then further developed by D to suit the specific needs of its members. D then redistributes this software at a price of 150 to its members A, B and C. A, B, and C reimburse each 1/3 of the price of the software (50) to D. 1. Must (D) invoice the software with VAT A, B and C.? 2. Where is the main advantage of cost sharing, in the acquisition of the basic software? 3. Can one of the group members (A), (B) or (C) be established in another Member State (e.g.: Belgium)? 4. Is it admissible that the group (D) also supplies (taxable!) services to independent persons out side the group (e.g.: other banks)? 5. Would it be admissible that the group members (A), (B) and (C) are persons supplying 50% taxable services (e.g.: consulting) und 50% exempt supplies (insurance services)? 2

3 Case 3 Constituent elements In an insurance company (A) book-keeping has always been done in-house by A's own employees; for cost reasons this book-keeping is now outsourced to a tax consultant and invoiced by the consultant to A. Do these book-keeping services come under the tax exemptions for insurance services? Alternative 1: As part of its bank account management, a bank has developed personalised security software; this software co-operates with the bank's computer-software and allows account holders to change the currencies for his account deposits via his own computer in a secured electronic tunnel preventing any third party from intervening. For these account services which include the use of the software, the bank charges a fee to its customers. The services are currently exempt under Articles 135 (1) (c) and 135a (5) of Directive 112/2006/EC. With the technical software standards advancing rapidly, software development becomes more difficult and expensive fort he bank, triggering the bank's decision to have the software further developed by a outside software engineer. This engineer further develops the software and invoices his services to the bank. The bank itself continues to offer this software as in the past to its clients as a part of the account management system. Are both services exempt? Alternative 2: A bank sells shares and securities to its clients and manages also manages them, advising the clients on the composition of the portfolio and adapting the portfolio in accordance with the individual wishes of the client. For each acquisition or sales the bank charges a fee to the client. The price fort he portfolio management, the market analysis and the advice is contained in the fee. Portfolio management becoming very complex and expensive; the bank outsources these services to an independent portfolio manager. This manager constantly monitors markets and advises on every individual client portfolio and also arranges the acquisition and sale of shares and securities in this portfolio. The bank continues to supply its services to its clients as before without the activities of the portfolio manager becoming visible to the clients. Are both services exempt? 3

4 Case 4 Insurance Car Company A offers in combination with the sale of a new car a separate package insuring the risk of a technical break-down of the car after expiry of the legal warranty period for the vehicle. Coverage begins with that expiry and ends 5 years after first registration of the vehicle or with achieving km. Is that an exempt service? Alternative 1: Insurance Company B insures under certain conditions shipbuilding companies against the default risk for the contractually agreed ontime production of a ship. Is that an exempt supply of an insurance service? Alternative 2: Insurance Company C insures under certain conditions the credit user against the risk of becoming unable to pay back the credit because of becoming unemployed. Is that an exempt supply of an insurance service? Alternative 3: Travel Company D sells travels containing an obligatory travel cancelling insurance covering the costs for last-minute travel cancelling in cases of serious illness. If separately set out in the invoice, are these insurance services coming under the exemption? 4

5 Case 5 Granting of Credit Pawnshop A grants a loan against deposit of goods. Is that exempt credit granting? Alternative 1: Company A sells machine saws with a 14 days period allowed for payment after delivery of the machines. Against a monthly payment equal to 2% of the sales price the client can prolong this period for payment up to a maximum of 6 months. During this period the client can already use the machines but he is contractually forbidden to sell them. Is the prolongation of the period for payment credit granting? Alternative 2: Bank A establishes a guaranty following which she becomes liable for a trade credit which the bank's client B has been granted by C fort he supply office machines from C to B. Is the establishing of this guaranty exempt as granting of credit? Case 6 Financial deposits and account operation Bank A procures deposit management for time deposits and current accounts of its clients. Are these deposit transactions and account operation? Alternative 1: The time deposits are complemented by monthly savings which are both transformed into regular pension payments later. Are A's services exempt as deposit transactions and account operation? Alternative 2: The conditions agreed between A and her clients fort he time deposits and saving plans are amended, assigned, reappraised and maturities prolonged. Are A's services in respect of these changes exempt as deposit transactions and account operation? Alternative 3: Clients regularly deposit mintage in cash with bank B. The mintage is deposited in sealed bar-code containers bearing an account reference of the account holder, machine-counted and accredited automatically to the corresponding account without human intervention. For these services B charges fees to its clients. Are B's services exempt as deposit transactions and account operation? 5

6 Case 7 Supply of securities Bank A buys and sells unregulated bonds for her clients against a fee. Is that an exempt supply of securities? Alternative 1: Bank A buys and sells against a fee for her clients publicly traded shares. Is that an exempt supply of securities? Alternative 2: Bank A buys and sells against a fee for her clients dues in investment funds which re-invest themselves into shares and dues in other investment funds. Is that an exempt supply of securities? Alternative 3: Bank A buys and sells against a fee for her clients dues in venture capital funds which re-invest themselves in medium-sized premarket technology companies. Is that an exempt supply of securities? Case 8 Intermediation Agent A brokers on the basis of a contract with an insurance company B insurance contracts to clients; in accordance with the contractual provisions agreed upon between A and B, A can - subject to certain guidelines and conditions legally bind insurance company B with the consequence that legal rights are created between B and the client. Are the services supplied and invoiced by A to B, exempt intermediation? Alternative 1: In accordance with a contract concluded between subagent B and main agent C, B arranges insurance contracts. C himself has a similar contract with insurance company D. When B has found a client E willing to enter into an insurance contract, the contract is concluded between D and the client E. Are the brokering services supplied by B to C exempt intermediation services? Alternative 2: C arranges pension saving products containing insurance components. Bank D which offers these products has reserved itself the right to examine the proposed clients and to enter into an agreement. C sends D an application of potential client E for entering into an agreement between D and E on pension saving. Prior to that application C had briefed E extensively about the composition of the product and adapted some of the components to E's personal situation. Bank D refuses to accept E as a client because the contract is not interesting enough for D but nevertheless pays a commission to C. Is the service supplied by C to D exempt intermediation? 6

7 Case 9 Management of investment funds Against payment of a low basic fee plus a bonus which is based on the investment success of the fund A takes over the entire management of equity fund B. A's main task is to steer the operative investments of the fund including the selection of the shares being acquired and ascertain the administrative functioning of the fund. Are A's services exempt as management of investment funds? Alternative 1: Against payment of a fixed fee B takes over the entire management of closed fund C, exclusively investing into real estate. A's main task is the selection of the real estate objects being acquired or sold, ascertaining at the same time the administrative functioning of the fund. Are B's services exempt as management of investment funds? Alternative 2: Against payment of a low basic fee plus a bonus which is based on the investment success of the fund C takes over the entire management of venture capital fund D investing in medium-sized premarket technology companies. C's main task is to steer the operative investments of the fund including the selection of the companies in which the fund wants to buy parts, the cession of such parts and the administrative functioning of the fund. Are C's services exempt as management of investment funds? 7

8 Case 10 (i) Derivatives 1 A Bank buys at the London Equity Derivatives Exchange 500 FTSE futures (FTSE is an index of the share prices of the UK's 100 largest companies). The futures achieve maturity on 16 February and are based on an FTSE index value of 6050 points. If the relevant closing call for the FTSE on 16 June is above 6050 points, The Bank has the right to claim from its contractual partner a compensation of 25 per point of difference and per contract. If the index is lower than 6050 point at that date, the Bank has to pay an equivalent compensation to its contractual partner determined in the contract. The supply of the London Equity Derivatives Exchange to the Bank concerns a tradable instrument; its underlying does not consist in the supply of goods and the contract is exclusively cash-settled. Is the sale of these futures an exempt financial service? Case 10 (ii) Derivatives 2 On 30 December 2008 an operator buys at the International Petroleum Exchange London 500 options to acquire from the contractual partner named in the contract the equivalent of 1000 barrels of Brent Crude at a strike price of 190 per barrel. The options have a validity of three months. However, according to the contract the operator will not become owner of 500 x 1000 barrels of Brent Crude when exercising the option but he will be paid the difference between the market price when exercising the option and the 190 per barrel. If the market price exceeds the strike price and for example achieves the level of 200 per barrel, the operator will be paid 10 per barrel. The supply of the International Petroleum Exchange London to the operator concerns a tradable instrument; although its underlying is a commodity, the contract cannot lead to the supply of goods but is only cash-settled. Is the sale of these options an exempt financial service? 8