Warranty commitments are common instruments used in sales promotion that raise interesting issues from both an insurance tax perspective and a VAT perspective, and recent German and EU developments have provided clarification regarding some of these issues. Germany’s Ministry of Finance (MOF) published two circular letters (dated 18 June 2021 and 11 May 2021, respectively) that clarify a number of issues relating to the tax treatment of warranty commitments, including that under German domestic law warranty commitments generally are subject to insurance tax and exempt from VAT. From an EU perspective, the Court of Justice of the European Union (CJEU) ruled in an 8 July 2021 decision (C-695/19, Rádio Popular) that transactions involving intermediation in the sale of extended warranties were insurance transactions and that insurance transactions cannot be treated as financial transactions; therefore, the warranty commitments had to be taken into account when calculating the apportionment of input VAT between taxable and VAT-exempt supplies.
Source: Deloitte
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