Insurance and reinsurance transactions – including related services performed by insurance brokers and insurance agents – are exempt for VAT purposes.
In principle, transactions exempt from VAT do not give rise to the right to deduct VAT.
If exempt transactions are carried out, the deductible proportion is made up of a fraction, with numerator, the total amount of turnover per year attributable to transactions in respect of which VAT is deductible and, with denominator, the total amount of turnover per year attributable to transactions included in the numerator and to transactions in respect of which VAT is not deductible.
The amount of the turnover attributable to the following transactions is excluded from the calculation of the deductible proportion: (i) supplies of capital goods used by the taxable person for the purposes of his business, (ii) incidental real estate and financial transactions and (iii) some incidental exempt transactions.
The latter do not include insurance and reinsurance transactions.
According to the ECJ interpretation (see, 8 July 2021, case C‑695/19, Rádio Popular – Electrodomésticos SA v. Autoridade Tributária e Aduaneira), transactions involving intermediation in the sale of warranty extensions performed by retailers are exempt for VAT purposes and the amount of turnover relating to those transactions must be included in the denominator of the fraction used to calculate the deductible proportion.
Italian legislation is not compliant with this interpretation and it should be amended.
In fact, for calculating the deductible proportion, it provides that the supply of insurance and reinsurance transactions – including related services performed by insurance brokers and insurance agents – are not taken into account, when they are not a part of the taxable persons’ activities or are ancillary to taxable transactions.
It is worth noting that the ECJ interpretation can not directly affect businesses in Italy at this stage. In fact, a different interpretation would be against the letter of the Italian law and it would result in a violation of the principles of legal certainty and the protection of legitimate expectations.
Fausto Capello
Gianni & Origoni
ECJ Case: C-695/19
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