London, 4 November 2009

In a case involving Swiss Re, the European Court of Justice (‘ECJ’) yesterday ruled that VAT is now liable on the sale / transfer of reinsurance contracts.  This is a reversal on usual industry practise, and may have a big negative cash flow impact on those selling reinsurance and insurance contracts.

The case was based on the sale of reinsurance contracts between Swiss Re entities in Germany.  At the time, the local tax authorities considered that such a transaction represented a supply of service, liable to 19% German VAT.  In this case, this amounted to around Euro 2 million of VAT which Swiss Re had to pay over to the German authorities.

This judgement was escalated to the ECJ, which is the final court of appeal on European VAT issues.  It ruled in favour of the German tax authorities that VAT was payable, and that the sale of reinsurance contracts was not an exempt supply.  Since this is an ECJ judgement, this means that this new interpretation applies to all European Union member states.

Richard Asquith, of TMF VAT & IPT Services, commented: “This is hugely important as the insurance industry had been for the most part treating this as tax exempt supply.  Also, the decision may not be limited to reinsurance, and could be interpreted as applying to insurance and other contracts.  The first group to be hit by this will be those relocating their headquarters in Europe (for example from Bermuda) for business tax savings”.

The insurance industry now needs to urgently review structuring on any relevant sales, including reviewing past transactions which may be caught in this new ruling.

About TMF VAT & IPT Services

TMF VAT & IPT Services provides global VAT & insurance premium tax services.  It is part of the TMF Group, which offers accounting and corporate secretarial services through 86 offices in 65 countries.

www.tmf-vat.com/european-vat
Richard Asquith
richard.asquith@tmf-group.com
+44 (0)870 067 8881