Review of the VAT rules for financial and insurance services

This initiative is part of the Commission objective to simplify the life of taxpayers operating in the Single Market.
All elements of the initiative described by this document, including its timing, are subject to change.
The reasons behind the exemption are multiple, but mostly related to the technical difficulty at that time to calculate the tax base as well as to the existence of other taxes. However, these rules have become outdated. Tthey lead to costs for financial and insurance operators and are complex and difficult to apply.
Financial institutions have often attempted to alleviate input VAT costs by means of existing instruments such as VAT groups or – up until recently – cost-sharing arrangements (however, the CJEU found that cost-sharing arrangements are not applicable to the financial and insurance sectors).
The current rules are believed to be complex and difficult to apply in practice, notably given that they have not kept pace with the developments of new services in the financial industry (fintech services including services linked to cryptocurrencies and e-money).
The Commission proposed to review the rules on the VAT treatment of insurance and financial services already in 2007. However, the discussions in the Council ended up in a standstill and the proposals were withdrawn in 2016.

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