Flashback on ECJ Cases: C-224/11 – BGŻ Leasing sp. z o.o – Leasing services supplied together with insurance for the leased item

Source curia

Topic: Leasing services supplied together with insurance for the leased item, subscribed to by the lessor and invoiced by the latter to the lessee – Classification – Single complex service or two distinct services – Exemption – Insurance transaction)

On Jan 17, 2013, the ECJ decided the case C-224/11 – BGŻ Leasing sp. z o.o related to Leasing services supplied together with insurance for the leased item. This is one of the many ECJ cases on Composite Supplies.

Article in EU VAT Directive 2006/112/EC

Article 135(1)(a) of 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

BGZ is a leasing company. The items leased by BGZ remained its property throughout the duration of the lease. BGZ required that the items it leased were insured by the lessee.
For that purpose, BGZ offered to provide lessees with insurance. If the lessee wished to take up that offer, BGZ obtained the required insurance coverage from an insurer and recharged the exact cost of that insurance to the lessee (no further details on the underlying contractual arrangements for the insurance are provided).
BGZ believed that such insurance recharges were exempt from VAT. However, the tax authorities saw the provision of insurance coverage as ancillary to the leasing service, such that the standard rate of VAT applied.

Questions

whether a leasing service supplied, together with insurance for the leased item, should be treated as separate supplies of services for VAT purposes
whether the service of providing insurance for the leased item qualifies for VAT exemption under Article 135(1)(a) of the VAT Directive

Decision

1) The service consisting of insurance of the leased good and the service consisting of the leasing itself are, in principle, to be regarded as distinct and independent services for the purposes of value added tax. It is for the referring court to determine, taking into account the particular circumstances of the main proceedings, whether the transactions in question are interconnected to such an extent that they must be regarded as a single supply or as independent supplies.

2) When the lessor the leased estate assures itself and the costs of the insurance unchanged to the lessee by calculates, constitutes such a measure, in circumstances such as those of the main action, an operation in respect of insurance for the purposes of Article 135, paragraph 1 (a) of Council Directive 2006/112 / EC of 28 November 2006 on the common system of value added tax.

Summary

The two were likely to be supplied together and must be linked, but any supply of insurance must be linked to the goods which it covers and this was not determinative for VAT purposes

Although the risk to the lessee would be reduced by the insurance, that did not, in the ECJ’s opinion, make the insurance a means of better enjoying the asset.
The ECJ considered the insurance to be an aim in itself even if the Taxpayer required the lessee to insure the asset as a condition of the lease.
The lessee was free to arrange that insurance from another insurer and this showed that the insurance and leasing were not part of a single indivisible supply
The lessee was entitled to make two separate and independent decisions, (i) to lease from the Taxpayer and (ii) to insure the asset through the Taxpayer or by other means. Separate pricing and invoicing, although not definitive, was another indicator that there could be separate supplies.

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