Flashback on ECJ Cases – C-308/01 (GIL Insurance and Others) – Insurance Premium Tax is not a turnover tax

On April 29, 2004, the ECJ issued its decision in the case C-308/01 (GIL Insurance and Others).

Context: Sixth VAT Directive – Tax on insurance premiums – Higher rate applicable to certain insurance contracts – Insurance connected with the rental or sale of domestic appliances – State aid

Article in the EU VAT Directive

Article 13(B)(a), 33 of the Sixth VAT Directive. Articles 135(1)(a), 401 of the 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;

Article 33(1) of the Sixth Directive:

Without prejudice to other Community provisions, in particular those laid down in the Community provisions in force relating to the general arrangements for the holding, movement and monitoring of products subject to excise duty, this Directive shall not prevent a Member State from maintaining or introducing taxes on insurance contracts, taxes on betting and gambling, excise duties, stamp duties and, more generally, any taxes, duties or charges which cannot be characterised as turnover taxes, provided however that those taxes, duties or charges do not, in trade between Member States, give rise to formalities connected with the crossing of frontiers

Facts

The appellants in the main proceedings (‘GIL Insurance and Others’) carry on business in the United Kingdom and provide insurance or related services for domestic appliances. Some of them are insurance companies. Others are rental and retail companies acting as taxable insurance intermediaries. The respondents in the main proceedings are the Commissioners of Customs and Excise, who are responsible for the administration, collection and repayment of IPT and VAT in the United Kingdom.
GIL Insurance and Others paid the higher rate of IPT for insurance sold in connection with the sale or rental of domestic appliances. Following the previously cited judgment of the Court of Appeal in the Lunn Poly case, they claimed from the respondents repayment of the amounts they had paid. Those claims were rejected. GIL Insurance and Others appealed to the VAT and Duties Tribunal.
Before that tribunal, GIL Insurance and Others submitted that the higher rate could not be applied to them and sought repayment of the amounts paid by way of the higher rate of IPT, arguing that:
- the higher rate was a special measure which derogated from the provisions of the Sixth Directive and therefore required prior authorisation under Article 27, an authorisation which had been neither sought nor granted;
- the higher rate could be characterised as a turnover tax prohibited by Article 33 of the Sixth Directive;
- the difference between the standard rate and the higher rate of IPT constituted State aid within the meaning of Article 87 EC, which the Commission had not been informed of in accordance with Article 88 EC.

Questions

(1) Is Article 27 of the Sixth Council Directive … to be interpreted so that the prior authorisation of the Council was required before the introduction of a higher rate of tax on insurance premiums, which tax was designed to nullify the exemption for insurance services in Article 13 of the Directive; which was at a rate identical to the standard rate of [VAT]; which was administered in the same way as [VAT]; which was intended with [VAT] to form part of an inseparable whole; and where there was no tax evasion or tax avoidance?
(2) Is Article 33 of the Sixth Council Directive … to be interpreted so as to prevent a Member State from introducing a tax on insurance premiums which is calculated by reference to the services supplied; which is proportional to the price of the services supplied; which is charged at the final stage of sale to the consumer; which is passed on to the final consumer in a manner characteristic of [VAT] so that the burden of tax rests on the final consumer; which applies to the whole territory of the United Kingdom; but which does not apply generally to all transactions relating to goods and services?
(3) Is Article 87(1) EC to be interpreted so that an aid is to be held to affect trade between Member States only if it has, or is capable of having, an appreciable effect on trade between Member States? If so, what are the criteria for determining whether or not a measure has such an effect?
(4) Is Article 87(1) EC to be interpreted so that an aid is to be held to affect trade between Member States if as a result of that aid (1) traders in one Member State reduce the volumes of the goods they import from other Member States; or (2) a trader who rents domestic appliances to customers in one Member State has a number of its rental contracts discontinued and disposes of those appliances in another Member State; or (3) insurance companies in one Member State, which provide insurance connected with the sales of domestic appliances, are placed at a competitive disadvantage with companies which sell direct insurance some of which are subsidiaries of companies in other Member States?
(5) If, in the light of the answers to Questions 3 and 4, the higher rate of insurance premium tax constitutes a State aid within the meaning of Article 87(1) EC, is Article 88 EC to be interpreted so that, where the Commission is not informed of any plans to grant such aid, the legislative measures introducing the aid should be disapplied and any tax paid under those measures should be repaid?

AG Opinion

Question 2: Article 33 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, does not preclude the introduction of a tax on insurance premiums which is calculated by reference to the services supplied; which is proportional to the price of the services supplied; which is charged at the final stage of sale to the consumer; which is passed on to the final consumer in a manner characteristic of value added tax so that the burden of tax rests on the final consumer; which applies to the whole territory of the United Kingdom; but which does not apply generally to all transactions relating to goods and services.
Question 1: For the introduction of a higher rate of such a tax on insurance premiums, which is compatible with Article 33 of the Sixth Directive, prior authorisation of the Council under Article 27 of the Sixth Directive is not required.
Questions 3, 4 and 5: There is no need to reply to these questions since a specific tax measure under which a higher rate of tax restricted ratione materiae is introduced cannot be presumed to constitute the grant of aid measure within the meaning of Articles 87 and 88 EC.

Decision

A tax on insurance premiums such as that at issue in the main proceedings is compatible with Article 33 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.
Article 13(B)(a) of the Sixth Directive 77/388, under which insurance transactions are exempt from value added tax, does not preclude, in the case of a tax on insurance premiums such as that at issue in the main proceedings, the introduction of a special rate which is identical to the standard rate of value added tax, since that tax is compatible with Article 33 of the Sixth Directive 77/388, so that the procedure provided for in Article 27 of that directive, which obliges any Member State wishing to introduce special measures for derogation from that directive to seek prior authorisation from the Council of the European Union, does not have to be complied with before the introduction of that rate.

Summary

A tax on insurance premiums is compatible with art 401 VAT Directive.

Article 135(1)(a) of the VAT Directive, which exempts insurance transactions from VAT, does not preclude the introduction of a special rate equivalent to a tax on insurance premiums such as that at issue in the main proceedings. is at the standard rate of VAT, since this tax is compatible with Article 401 VAT Directive, so that before the introduction of this tax it is not necessary to follow the procedure of Article 394 VAT Directive, under which each Member State wish to take measures deviating from the provisions of this Directive, it is obliged to request prior authorization from the Council of the European Union.

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