Flashback on ECJ Cases C-242/08 (Swiss Re Germany Holding) – An assignment for consideration of a portfolio of life reinsurance contracts is not exempted from VAT

On October 22, 2009, the ECJ issued its decision in the case C-242/08 (Swiss Re Germany Holding).

Context: Sixth VAT Directive – Articles 9(2)(e), fifth indent, and 13B(a), (c) and (d)(2) and (3) – Insurance and reinsurance transactions – Concept – Transfer of a portfolio of life reinsurance contracts, for consideration, to a person established in a third country – Determination of the place of that transfer – Exemptions

Article in the EU VAT Directive

Articles 9(2)(e), fifth indent, and 13B(a), (c) and (d)(2) and (3) of the Sixth VAT Directive (Articles 44, 135(1)(a), 136(a), 136(b), 135(1)(c), 135(1)(d))

Article 9(2)(e), fifth indent,

(1) The place where a service is supplied shall be deemed to be the place where the supplier has established his business or has a fixed establishment from which the service is supplied or, in the absence of such a place of business or fixed establishment, the place where he has his permanent address or usually resides.

2. However:

(e) the place where the following services are supplied when performed for customers established outside the Community or for taxable persons established in the Community but not in the same country as the supplier, shall be the place where the customer has established his business or has a fixed establishment to which the service is supplied or, in the absence of such a place, the place where he has his permanent address or usually resides:

– banking, financial and insurance transactions, including reinsurance, with the exception of the hire of safes,

Article 13B(a), (c) and (d)(2) and (3) (Article 135(1)(a), 136(a) and (b) and 135(1)(b) to (f) of the EU VAT Directive 2006/112/EU)

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

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

(c) supplies of goods used wholly for an activity exempted under this Article or under Article 28(3)(b) when these goods have not given rise to the right to deduction, or of goods on the acquisition or production of which, by virtue of Article 17(6), value added tax did not become deductible;

(d) the following transactions:

(2) the negotiation of or any dealings in credit guarantees or any other security for money and the management of credit guarantees by the person who is granting the credit;

(3) transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring;

Facts

Swiss is the parent company of a limited company (‘the transferor company’) which, as an insurance company, specialises in life reinsurance work.
By a portfolio sale agreement signed on 10 and 21 January 2002, the transferor company sold to the insurance company S (‘company S’), established in Switzerland, a portfolio consisting of 195 life reinsurance contracts.
Under that agreement, company S was obliged to obtain the consent of the insured parties in order to accede to those contracts and to assume all the rights and obligations arising from them.
Under the same contract, a negative value was fixed for the transfer of 18 of those 195 contracts, thus reducing the total cost of acquiring all of them.
The life reinsurance contracts transferred concerned exclusively undertakings established in Member States other than Germany or in third States.
Taking the view that VAT was chargeable on the transfer in question, on the basis that it was a supply of goods, the Finanzamt München für Körperschaften issued a VAT prepayment notice and rejected the appeal lodged against that notice.
Swiss then appealed to the Finanzgericht München (Finance Court, Munich) (Germany).
That appeal also having been rejected, Swiss appealed on a point of law to the Bundesfinanzhof (Federal Finance Court) (Germany) on the ground that the services based on that transfer were exempt from VAT.
The referring court takes the view that, under the national legislation, the transaction at issue in the main proceedings constitutes a supply of services carried out in Germany which is taxable in that Member State.

Questions

1. Must the fifth indent of Article 9(2)(e) and Article 13B(a) and the second and third subparagraphs of Article 13B(d) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes be interpreted as meaning where in consideration for payment of the sales price by the purchaser a transfer ¹ of a life reinsurance contract is effected, on the basis of which, with the consent of the policyholder, the contract’s purchaser takes over the exempted reinsurance activities of the previous insurer and in place of the previous insurer supplies to the policyholder tax-exempt reinsurance services, that such transfer must be regarded

(a) as an insurance or banking transaction within the meaning of the fifth indent of Article 9(2)(e) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes, or

(b) as a reinsurance transaction in accordance with Article 13B(a) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes, or

(c) as a transaction which in substance consists of the tax-exempt assumption of an obligation and an exempt transaction concerning debts in accordance with Article 13B(d)(2) and (3) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes?

2. Is the answer to Question 1 any different where payment in respect of the transfer is made not by the purchaser but the previous insurer?

3. If alternatives (a), (b) and (c) of Question 1 are all answered in the negative, must Article 13B(c) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes be interpreted as meaning that

– the transfer of life reinsurance contracts in return for consideration constitutes a supply of goods and

– that in the application of Article 13B(c) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes no distinction is to be drawn whether the place in which the exempted activities are effected lies in the Member State in which the goods are supplied or in a different Member State?

AG Opinion

A transfer of reinsurance contracts such as the transfer at issue in the main proceedings does not constitute an insurance transaction for the purposes of either Article 9 or Article 13 of the 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; nor can it be exempted from VAT on the basis of Article 13B(d)(2) and (3) of that directive.

The answer to the first question is no different where some of the contracts which are transferred have a negative value.

A transfer of reinsurance contracts such as the transfer at issue in the main proceedings constitutes a supply of services within the meaning of the Sixth Directive and cannot therefore fall to be exempted under Article 13B(c) of that directive.

Decision

1. A transfer for consideration, by a company established in one Member State, to an insurance company established in a third State, of a portfolio of life reinsurance contracts, with the consequence that the transferee company assumes, with the consent of the insured persons, all the rights and obligations resulting from those contracts, does not constitute either a transaction falling under Article 9(2)(e), fifth indent, and 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, or a transaction falling under a combination of Article 13B(d)(2) and (3) thereof.

2. In the context of a transfer for consideration of a portfolio of 195 life reinsurance contracts, the fact that it is not the transferee but the transferor who pays the consideration, in the present case the fixing of a negative value, for the acquisition of 18 of those contracts, does not affect the answer to the first question.

3. Article 13B(c) of Sixth Directive 77/388/EC must be interpreted as meaning that it does not apply to a transfer for consideration of a portfolio of life reinsurance contracts such as that at issue in the main proceedings.

Summary

Assignment for consideration of the portfolio of life reinsurance contracts to a person resident in a third State

An assignment for consideration of a portfolio of life reinsurance contracts by a company established in a Member State to an insurance company established in a third State, whereby the latter assumes, with the consent of the insured, all the rights and obligations arising from those contracts, does not constitute an act the fifth indent of Article 9(2)(e) and Article 13B(a) of the Sixth Directive or any act falling within Article 13B(d)(2) in conjunction with point 3 of that directive.

In the context of an assignment for consideration of a portfolio of life reinsurance contracts, the fact that not the acquiring company but the ceding company pays a price – i.e. by establishing a negative value – for the acquisition of these contracts does not affect the response to the first question.

Article 13B(c) of the Sixth Directive must be interpreted as not applying to an assignment for consideration of a portfolio of life reinsurance contracts, such as that at issue in the main proceedings.

Source