Presidency progress report: the VAT treatment of insurance and financial services

Source: European Comission¸ 14 December 2011

On 14 December 2011 the Working Party on Tax Questions (Indirect Taxation) discussed the draft Presidency progress report on the Proposals for a Council Directive and a Regulation as regards the VAT treatment of insurance and financial services.



The provisions governing VAT treatment of insurance and financial services have not been changed for more than 30 years. Their interpretation and application by the Member States are however far from uniform. Furthermore¸ in the light of dynamic development of the EU insurance and financial services market and new complex products being offered in the market¸ it is also necessary to adjust the definitions to reflect better the current conditions of the pan-EU market. Therefore¸ the European Commission submitted to the Council in 2007 a proposal for a Council Directive amending Directive 2006/112/EC on the common system of value added tax¸ as regards the VAT treatment of insurance and financial services. The aim of the proposal was:

  • clarification and updating definitions of the exempt insurance and financial services in order to ensure consistent interpretation throughout the European Union¸
  • broadening of the existing option for taxation by transferring the right to opt from the Member States to the financial and insurance institutions¸
  • introduction of a cost sharing group which allows financial and insurance institutions to cooperate without incurring additional non-recoverable VAT.

The abovementioned proposal is accompanied by a proposal for a Regulation¸ in which the Commission enumerated in a non-exhaustive way the examples of insurance and financial services covered by or excluded from the VAT exemption in respect of definitions of insurance and financial services provided for in the Directive.

At its meeting on 17 November 2010 during the Belgian Presidency¸ the ECOFIN Council took note of the situation and endorsed guidelines for future work (docs 15578/10 and 16455/10). According to the guidelines in question further work should be continued both with due consideration being given to ensure a level playing field between operators and between Member States¸ to strengthen the overall competitiveness of the financial and insurance sector of the European Union and to the budgetary implications. Furthermore the Council considered that there is no need for further work on cost sharing arrangements at the Council level. As regards option to tax¸ the Council invited the Commission to explore possible solutions allowing to depart from the existing VAT exemption. Further work on the definitions of exempt financial and insurance services should be pursued as a priority.

During more than 3-years of work in the Council’s Working Party on Tax Questions¸ the proposals have been discussed extensively under the Slovenian¸ French¸ Czech¸ Swedish¸ Spanish¸ Belgian and Hungarian Presidencies¸ and visible progress was made.

According to the Hungarian Presidency’s progress report