Flashback on ECJ Cases – C-240/99 (Skandia) – An insurance company assuming the business activities a subsidiary does not constitute an insurance transaction

On March 8, 2001, the ECJ issued its decision in the case C-240/99 (Skandia).

Context: Sixth VAT Directive – Exemptions – Insurance and reinsurance transactions

Article in the EU VAT Directive

Article 13B(a) of the Sixth VAT Directive (Article 135(1)(a) of the EU VAT Directive 2006/112/EC).

Article 135
1. Member States shall exempt the following transactions:
(a) insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents;

Facts

Skandia is an insurance company, one of whose subsidiaries is Livförsäkringsaktiebolaget Skandia (publ) (hereinafter ‘Livbolaget). Livbolaget is wholly owned by Skandia.
Livbolaget is engaged in the business of life assurance, in particular, in the sector of capital insurance and insurance provision for old-age. Livbolaget and Skandia have studied the possibility of merging (in the broad sense) their insurance activities within a single company. One plan was to transfer Livbolaget’s staff and operations to Skandia so that, in effect, Skandia would be conducting all Livbolaget’s business, whether this consisted in the sale of insurance, the settlement of claims, the calculation of actuarial forecasts or capital management. In return, Skandia would receive from Livbolaget remuneration at market rates. Skandia would assume no liability in respect of those insurance activities. All risks would devolve wholly upon Livbolaget which would preserve its status of insurer for the purposes of Swedish civil law.
On 28 June 1995 Skandia requested a preliminary opinion from the Skatterättsnämnden on the question whether the assumption of a commitment to run Livbolaget’s business activities could be regarded as the supply of insurance services for the purposes of Article 10 of Chapter 3 of the Mervärdesskattelagen, thus qualifying for exemption from VAT.
By decision of 15 January 1996, the Skatterättsnämnden replied that for there to be an insurance service of the kind contemplated by the above provision of the Mervärdesskattelagen there must be a service provided by an insurer, the object of which constitutes insurance business. On that basis, a commitment such as that to be assumed by Skandia, which is at issue in the main proceedings, would not constitute an insurance service, but would have to be regarded as the supply of administrative andmanagement services to Livbolaget. Accordingly, the commitment at issue would not be covered by the VAT exemption for insurance services.
Skandia challenged that preliminary opinion before the Regeringsrätten.
By judgment of 16 June 1997, the Regeringsrätten dismissed the action, holding in particular that the exemption provided for in Article 10 of Chapter 3 of the Mervärdesskattelagen applied solely to ”the supply of insurance services”. That expression is ordinarily taken to mean services provided directly to an insured party by an insurer. Moreover, the working documents relating to the Mervärdesskattelagen reveal an intention to clarify and limit the scope of the term ”the supply of insurance services”.
In SDC, the Court interpreted points 3 and 5 of Article 13B(d) of the Sixth Directive, which provide primarily for the exemption of transactions concerning, inter alia, transfers and payments, and of transactions in shares, interests in companies or associations, debentures and certain other securities. In paragraph 33 of the judgment, the Court expressed the view that the identity of the end customer had no bearing on the question whether a transaction was exempted by that provision and, in paragraph 57, it rejected as unfounded any interpretation restricting application of the exemption under point 3 of Article 13B(d) to services provided directly to the customer of the bank. In consequence, the Court held, in paragraph 59, that the exemption provided for in points 3 and 5 of Article 13B(d) was not subject to the condition that the service be provided by an institution which has a legal relationship with the end customer of the bank.
Skandia concludes from this that, generally speaking, a service need not be provided directly to an end customer in order to qualify for exemption under Article 13B of the Sixth Directive. On that ground, the judgment of the Regeringsrätten of 16 June 1997 runs counter to the case-law of the Court of Justice on the interpretation of the Sixth Directive.
In the order for reference, the national court explains that the case pending before it is to be distinguished on its facts from the cases previously considered by the Court of Justice. In particular, it points out that the cooperative arrangement planned by Skandia and Livbolaget consists in the supply of services by a person who is not an insurer to a person who is neither insured nor a policy-holder; nor is it a service performed by an insurance broker or insurance agent.

Questions

Does an insurance company’s commitment, of the kind which Skandia plans to assume, to run the business of a wholly-owned subsidiary constitute an insurance transaction or insurance transactions within the meaning of 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?

AG Opinion

A commitment assumed by an insurance company to run the business of a wholly-owned subsidiary does not constitute an insurance transaction within the meaning of Article 13B(a) of the Sixth Directive.

Decision

A commitment assumed by an insurance company to carry out, in return for remuneration at market rates, the business activities of another insurance company, which is its 100% subsidiary and which would continue to conclude insurance contracts in its own name, does not constitute an insurance transaction within the meaning of 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.

Summary

The undertaking of an insurance company, in return for remuneration calculated on the basis of market prices, to carry on the activities of another insurance company, a wholly-owned subsidiary, which would continue to conclude insurance contracts in its own name, is not an act of insurance within the meaning of Article 13B(a) of the Sixth Directive.

Source: