Flashback on ECJ cases C-349/96 (Card Protection Plan) – Composite supplies whether they constitute or include insurance

On February 25, 1999, the ECJ has issued its decision in the case C-349/96 (Card Protection Plan). This was the first case dealing with the issue of Complosite Supplies.

Article in the EU VAT Directive

Article 2 of the Sixth Directive:

‘The following shall be subject to value added tax:

1. the supply of goods or services effected for consideration within the territoryof the country by a taxable person acting as such;

Article 13 of the Sixth Directive, on exemptions within the territory of the country,states:

‘B. Other exemptions

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

(a) insurance and reinsurance transactions, including related services performedby insurance brokers and insurance agents;

5. The annex to First Council Directive 73/239/EEC of 24 July 1973 on thecoordination of laws, regulations and administrative provisions relating to thetaking-up and pursuit of the business of direct insurance other than life insurance(OJ 1973 L 228, p. 3), as amended by Council Directive 84/641/EEC of 10December 1984 (OJ 1984 L 339, p. 21), provides:

‘A. Classification of risks according to classes of insurance

Facts

Card Protection Plan Ltd. („CPP”),which is headquartered in the United Kingdom, supplies a service covering the indemnification of cardholders against financial loss in the event of loss or theft of their bank cards and other damages arising on their travels (such as damages related to the finding of lost luggage) under a so-called “Card Protection Plan”.
The payment of indemnity for losses suffered by the customers on the occurrence of risks covered by the service has been undertaken by an insurance company, Continental Assurance Company of London. Thus CPP only sells a block insurance policy, while the insurance service is actually supplied by the third party insurer.
CPP argued that the services it supplies are wholly or – as multiple supplies – largely tax exempt as insurance services.
However, the UK authorities took the view that the activity of CPP can be regarded as a taxable activity, since the maintenance of a register of card numbers and the services related to loss of cards constitute a package of services where the dominant part of the services comprises a card registration service, which is a taxable service.

Questions

1. Having regard to the provisions of the Sixth VAT Directive and inparticular to Article 2(1) thereof, what is the proper test to be applied indeciding whether a transaction consists for VAT purposes of a singlecomposite supply or of two or more independent supplies?

2. Does the supply by an undertaking of a service or services of the kindprovided by Card Protection Plan Ltd (CPP) through the card protectionplan operated by them constitute for VAT purposes a single compositesupply or two or more independent supplies? Are there any particularfeatures of the present case, such as the payment of a single price by thecustomer or the involvement of Continental Assurance Company of Londonplc as well as CPP, that affect the answer to that question?

3. Do such supply or supplies constitute or include insurance … transactionsincluding related services performed by insurance … agents within themeaning of Article 13B(a) of the Sixth VAT Directive? In particular, for thepurpose of answering that question

(a) does insurance within the meaning of Article 13B(a) of the SixthVAT Directive include the classes of activity, in particular assistance activity, listed in the Annex to Council Directive 73/239/EEC (theFirst Council Directive on non-life insurance), as amended by Council Directive 84/641/EEC?

(b) do the related services of … insurance agents in Article 13B(a) ofthe Sixth VAT Directive constitute or include the activities referredto in Article 2 of Council Directive 77/92/EEC?

4. Is it compatible with Article 13B(a) of the Sixth VAT Directive for aMember State to restrict the scope of the exemption for insurance …transactions to supplies made by persons permitted to carry on insurancebusiness under the law of that Member State?

AG Opinion

(1) A service or services of the kind provided by Card Protection Plan (‘CPP’)through the card-protection plan (‘Plan’) operated by it is exempt fromVAT pursuant to Article 13B(a) of the Sixth Council Directive 77/388/EECof 17 May 1977 on the harmonisation of the laws of the Member Statesrelating to turnover taxes. Common system of value added tax: uniformbasis of assessment, only if the insurance component of the Plan is suppliedby an insurer who undertakes the risk. Furthermore, the entire Plan isexempt from VAT only if insurance constitutes the predominant element inthe Plan. If the insurance component is not predominant, it is exempt onlyif its price is clearly distinguishable in the price of the whole service;

(2) The services supplied by the provider of a credit-card protection plan, suchas that provided by CPP in the main proceedings, cannot constitute theprovision of insurance within the meaning of Article 13B(a) of the SixthDirective since the exemption in respect of insurance transactions containedin that provision covers only insurance provided by the person whoundertakes the liability of indemnifying the insured in the event ofmaterialisation of an insured risk. Furthermore, the notion of ‘relatedservices performed by insurance brokers and insurance agents does not extend to the activity of providing a credit-card protection plan of the sortat issue in the main proceedings;

(3) In light of the recommendations contained in points (1) and (2) above,there is no need to answer the fourth question referred in the present case.

Decision

1. Article 13B(a) of Sixth Council Directive 77/388/EEC of 17 May 1977 onthe harmonisation of the laws of the Member States relating to turnovertaxes Common system of value added tax: uniform basis of assessmentis to be interpreted as meaning that a taxable person, not being an insurer,who, in the context of a block policy of which he is the holder, procures forhis customers, who are the insured, insurance cover from an insurer whoassumes the risk covered, performs an insurance transaction within themeaning of that provision. The term ‘insurance in that provision extendsto the categories of assistance listed in the annex to First Council Directive73/239/EEC of 24 July 1973 on the coordination of laws, regulations andadministrative provisions relating to the taking-up and pursuit of thebusiness of direct insurance other than life assurance, as amended byCouncil Directive 84/641/EEC of 10 December 1984.

2. It is for the national court to determine, in the light of the above criteria,whether transactions such as those at issue in the main proceedings are tobe regarded for the purposes of value added tax as comprising twoindependent supplies, namely an exempt insurance supply and a taxable

card registration service, or whether one of those two supplies is theprincipal supply to which the other is ancillary, so that it receives the sametax treatment as the principal supply.

3. Article 13B(a) of the Sixth Directive 77/388 is to be interpreted as meaningthat a Member State may not restrict the scope of the exemption forinsurance transactions exclusively to supplies by insurers who areauthorised by national law to pursue the activity of insurer.

Summary

The CPP case was the first judgement made by the ECJ regarding composite supplies. Based on this case, the characteristics of composite supplies can be summarised in the following non-exhaustive, conclusive listing:

There is a composite supply if one of the services within a package of services can be regarded as constituting a principal service, while the rest of the services are only ancillary to the principal service.
A service is regarded as ancillary to a principal service if it does not constitute for the customers an aim in itself but a means of better enjoying the principal service supplied.
If a service consisting of multiple elements is supplied to customers for a single price, the single price may suggest that there is a single composite supply.

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