Flashback on ECJ Cases – C-8/01 (Taksatorringen) – Damage estimates to motor vehicles made on behalf of its members by an association of insurance companies are not VAT exempted

On November 3, 2003, the ECJ issued its decision in the case C-8/01 (Taksatorringen).

Context: Sixth VAT Directive – Article 13A(1)(f) and 13B(a) – Exemption for services performed by independent groups not likely to give rise to distortions of competition – Exemption for insurance transactions and related services performed by insurance brokers and insurance agents – Assessments of damage caused to motor vehicles carried out by an association on behalf of insurance companies which are members of that association

Article in the EU VAT Directive

Articles 13A(1)(f) and 13B(a) in the Sixth VAT Directive

Link to the EU VAT Directive 2006/112/EC

13A(1)(f) = 132(1) in the VAT Directive 2006/112/EC
13B(a) = art. 135(1)(a) in the VAT Directive 2006/112/EC

Article 13A(1)(f)

Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse: …

(f) services supplied by independent groups of persons whose activities are exempt from or are not subject to value added tax, for the purpose of rendering their members the services directly necessary for the exercise of their activity, where these groups merely claim from their members exact reimbursement of their share of the joint expenses, provided that such exemption is not likely to produce distortion of competition.

Article 13B(a)

Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse:

(a) insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents.

Facts

Taksatorringen is an association whose members are small or medium-sized insurance companies authorised to underwrite motor-vehicle insurance policies in Denmark. The association has approximately 35 members.
The purpose of Taksatorringen is to assess damage to motor vehicles in Denmark on behalf of its members. The latter are required to use the services provided by Taksatorringen in respect of damage to motor vehicles incurred within Denmark.
The expenses involved in Taksatorringen’s activity are apportioned among the members in such a way that the payments made by each member for the services provided by the association correspond exactly to that member’s share of the joint expenses.
Members may withdraw from Taksatorringen by giving six months’ notice.
In the case where a policy holder’s vehicle has been damaged and is to be repaired at the expense of a company affiliated to Taksatorringen, the policy holder draws up a declaration of damage, which he hands over, together with the damaged vehicle, to the car-repair workshop of his choice. The workshop examines the damaged vehicle and, on conclusion of its examination, requests that the vehicle be inspected by an assessor (the expert) from one of Taksatorringen’s local assessment centres.
The expert estimates the damage to the vehicle after consultation with the workshop. He compiles a detailed report containing a description of the work to be carried out and information on the total expenses involved in repairing the damage. The repair work must be carried out under the conditions laid down in the expert’s report. Should the workshop become aware, while carrying out the repair work, of discrepancies between the information contained in the expert’s report and the actual damage, it must contact the expert in order to establish exact agreement on any amendments to be made to the assessment.
If the costs involved in repairing the damage to the vehicle are below DKK 20 000 (approximately EUR 2 700), the insurance company pays the amount calculated in the expert report directly to the workshop immediately after the date of completion of the work. The expert report functions as an invoice for the work in question. Should the repair costs exceed DKK 20 000, the workshop draws up an invoice, which must be approved by the expert before the insurance company makes payment to the workshop.
In the case of a total write-off, that is to say, damage involving repair costs in excess of 75% of the commercial value of the vehicle, the expert agrees with the policy holder on an amount in compensation corresponding to the value of a new purchase. The expert then draws up a compensation report, on the basis of which the insurance company pays compensation to the policy holder. Once the expert has invited tenders for the vehicle wreck, arranged for its disposal and forwarded the proceeds of the sale to the insurance company, the matter is then concluded so far as Taksatorringen is concerned.
The experts employed by Taksatorringen use a computerised system, known as Autotaks, for the purpose of damage assessment. This system has been used in Denmark since 1990 by all insurance companies that underwrite car insurance policies. Although Danish motor vehicle workshops have no right of consultation in respect of the Autotaks system, all of them have, through agreements concluded with the insurance companies, accepted the use of that system.
The Autotaks system is based on an international computerised system owned by a Swiss company which issues licences to users. In the case of Denmark, the rights of user in respect of the system belong to Forsikring & Pension, a sector-based association covering, inter alia, insurance companies, which took over activities relating to the Autotaks system from Automobilforsikringsselskabernes Fællesråd (joint council of motor vehicle insurance companies) when the latter relinquished its activities on 1 January 1999.
The Østre Landsret states that there is nothing to prevent an insurance company which is a member of Forsikring & Pension from engaging an independent subcontractor to carry out assessments and from authorising that subcontractor to use the Autotaks system for that purpose, in return, where appropriate, for payment of a fee to Forsikring & Pension.
The order for reference further states that Taksatorringen originally received, in December 1992, from the Told- og Skattestyrelse (Customs and Tax Authority), provisional authorisation to conduct its activities without being subject to prior registration for VAT purposes. Following complaints by several undertakings, this provisional authorisation was revoked on 30 September 1993. The Østre Landsret does, however, point out that it has transpired that the complainant undertakings did not carry out vehicle assessments and did not specifically plan to offer such a service.
Taksatorringen thereupon reapplied for VAT exemption, but its application was turned down by the Told- og Skatteregion Hvidovre (Hvidovre regional customs and tax authority) (Denmark). That refusal was confirmed by the Told- og Skattestyrelse, following which Taksatorringen brought the matter before the Momsnævn (VAT Tribunal).

Questions

1. Must the provisions of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, and in particular the provision in Article 13B(a) thereof, be interpreted as meaning that assessment services which an undertaking provides for its members are to be regarded as being covered by the term insurance transactions, within the meaning of that provision, or by the term related services performed by insurance brokers and insurance agents?
2. Must Article 13A(1)(f) of the Sixth VAT Directive be interpreted as meaning that exemption from VAT must be granted for services of the type which an undertaking – which otherwise meets the conditions set out in that provision for VAT exemption – provides for its members, in the case where it cannot be demonstrated that the exemption will produce actual or imminent distortion of competition but where there is merely a possibility that this might happen?
3. Does the issue of how remote the possibility of a distortion of competition may be assumed to be, or whether the possibility seems unrealistic, have any bearing on the answer to Question 2?
4. Would it be incompatible with Article 13A(1)(f) of the Sixth VAT Directive to proceed on the basis that under national law it is possible to make a tax exemption that is notified pursuant to that provision limited in time in cases where there is doubt as to whether the exemption might at a later stage distort competition?
5. Does the fact that assessment services are, so far as the largest insurance companies are concerned, provided by assessors employed by those insurance companies themselves and are thus exempt from VAT have any bearing on the answers to Questions 1 and 2?

AG Opinion

The provisions of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, and in particular Article 13B(a) thereof, should be interpreted as meaning that assessments carried out by an undertaking on behalf of its members are not insurance transactions within the meaning of that provision and are also not related services performed by insurance brokers and insurance agents.
Article 13A(1)(f) of Sixth Directive 77/388 should be interpreted as meaning that exemption from value added tax under that provision should not be refused for services provided by independent groups of persons whose activities are exempt from or are not subject to value added tax for the purpose of rendering their members the services directly necessary for the exercise of their activity, where these groups merely claim from their members exact reimbursement of their share of the joint expenses, on the grounds that the exemption might produce distortion of competition, unless it appears with at least a high degree of probability that it would of itself exclude independent operators from carrying on business in the market in which the group is operating. The exemption may be granted on a merely temporary basis.
The fact that the largest insurance companies carry out transactions using their own employees which other smaller undertakings carry out through groups which they have established for that purpose, and are, unlike the latter undertakings, thus exempt from value added tax on these transactions, does not have any bearing on the answers to Questions 1 and 2.

Decision

1. Article 13B(a) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment must be construed as meaning that motor vehicle damage assessments carried out, on behalf of its members, by an association whose members are insurance companies are neither insurance transactions nor services related to insurance transactions that are performed by insurance brokers or insurance agents within the meaning of that provision.

2. Article 13A(1)(f) of Sixth Council Directive 77/388 must be construed as meaning that the grant of exemption from value added tax under that provision to an association such as that in issue in the main proceedings and which satisfies all of the other conditions of that provision must be refused if there is a genuine risk that the exemption may by itself, immediately or in the future, give rise to distortions of competition.

3. National legislation which allows a temporary exemption to be granted where doubt exists as to whether that exemption, such as that in the case in the main proceedings, is liable at a later date to give rise to distortions of competition is compatible with Article 13A(1)(f) of Sixth Directive 77/388, provided that the exemption is renewed only for as long as the person concerned satisfies the conditions of that provision.

4. The fact that large insurance companies have the assessments of damage to motor vehicles carried out by their own experts, thereby avoiding liability for value added tax in respect of the provision of such services, is not such as to have any bearing on the answers to be given to the first three questions.

Summary

Estimates of damage to motor vehicles by association on behalf of insurance companies that are members of this association

Damage estimates to motor vehicles made on behalf of its members by an association of insurance companies are neither insurance transactions nor related services performed by insurance brokers and insurance agents.

The insurance exemption must be refused to an association that meets all other conditions if there is a real risk that the exemption in itself could lead to distortions of competition in the short term or in the future.

National legislation providing for the possibility of granting a temporary exemption where there is doubt as to whether it may lead to distortions of competition in the future is compatible with the umbrella exemption, provided that the exemption is extended as long as the person concerned fulfills the conditions of this provision.

The fact that the large insurance companies have the estimates of damage to motor vehicles carried out by their own experts, thus avoiding the levying of VAT on these services, does not affect the answer to the first to third questions.

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