VAT on reinsurance portfolio transfers under the spotlight
The European Court of Justice (ECJ) has been asked to define certain aspects of the VAT system applicable to insurance transactions following a series of questions referred to the Court by the Bundesfinanzhof – Germany’s supreme fiscal court – for a preliminary ruling (Case C-242/08).
In particular, the ECJ was asked to determine whether a transfer of insurance contracts from one insurer to another may be regarded, for tax purposes, as an ‘insurance transaction’ under the VAT rules. Transfers of insurance business are usually regarded in both Germany and the UK as transfers of a going concern and thus outside the scope of VAT.
In May this year Advocate General Mengozzi gave an opinion on this issue which is likely to result in transfers of reinsurance portfolios being subject to VAT in the future.
The Advocate General concluded the following:
- The transfer of reinsurance contracts would not qualify as an exempt insurance or reinsurance transaction under the VAT Directive.
- The transfer of reinsurance contracts was a supply of services and thus subject to VAT.
As the application of VAT is based upon the Sixth VAT Directive (Council Directive 77/388/ EEC ) the ruling by the ECJ, which is due shortly and is expected to follow the opinion by the Advocate General, will have an effect on all transfers of reinsurance portfolios throughout the European Community.
A ruling following the Advocate General’s findings would have the following implications:
- The transfer of reinsurance portfolios will be subject to VAT.
- As long as the purchaser only performs VAT-exempt (re)insurance services, the purchaser should not be entitled to deduct input VAT.
- Accordingly, the purchase price for a reinsurance portfolio could effectively increase by the applicable VAT rate.
The issue was raised with the European Court of Justice by the Munich tax office and a German affiliate of Swiss Re. The proceeding relates to a transfer of 195 reinsurance contracts by the German affiliate of Swiss Re to a Swiss entity in 2002. The cedants were insurance companies located outside Germany (from both Member States and outside the EU ).
From now on, until the ECJ gives judgment, firms are advised to seek rulings from their tax authority to confirm that insurance business transfers will fall within the transfer of a going concern and thus will not attract VAT.
For further information, please contact Andreas Börner in our Munich office.
Italy updates legislation on non-life multi-year policies
The Italian Parliament is currently discussing a bill proposed by the Government which would introduce further amendments to the rules contained in the Italian Civil Code regarding the duration of non-life insurance policies. In particular, the bill proposes that insurers may only sell a multi-year non-life insurance policy where such policy is entered into for consideration of a premium that (on average) is lower than one usually applied by the insurer for a single year policy.
The history of multi-year policies on the Italian market is complex and the rules governing such policies have been subject to several changes in the last few years. Until 2006, the Italian market was characterised by multi-year policies with a duration of up to ten years, which were allowed under the provisions of the Civil Code. Typically, unless provided otherwise, such policies allowed policyholders to withdraw from the contract after the tenth anniversary, with six months notice.
The legislation was changed in 2007 when the Italian Government wished to liberalise the insurance market. The changes provided that policyholders could withdraw from a multi-year policy at the yearly anniversary, with a sixty day notice period without any penalty or charge. For those contracts entered into before the enactment of the new provision, however, such withdrawal rights could only be exercised after the third yearly anniversary.
Two years later, following pressure from the Italian insurers’ association amongst others (who have tried to maintain that the 2007 rules only applied to policies entered into by consumers), the Italian Government now proposes the above described changes to the rules applicable to multi-year policies in order that a compromise may be reached with insurers.
Should the Italian Parliament approve the proposed changes, the rules will again only apply to those contracts entered into after the new legislation comes into force. As a result, policies entered into during the last few years will be subject to one of three different regimes, depending upon the date on which the contracts were entered into. It is therefore likely that disputes will arise in relation to those cases which are not specifically regulated by the law. For example, it is not clear whether a contract expressly renewed by the parties with minor amendments to the original wording, should be considered a new contract and therefore subject to the latest regime, or rather as an existing contract, subject to the 2007 rules.
For further information please contact Nicolò Juvara in our Milan office:
China revises insurance law
In February 2009, the Standing Committee of the National People’s Congress promulgated the revised People’s Republic of China Insurance Law which will become effective on 1 October 2009.
The principal changes introduced in the revised insurance law are as follows:
- Insurance companies’ funds can be invested in securities and immovable property.
- The new rules restrict connected transactions between/among insurance companies’ shareholders, actual controller(s), directors, supervisors and senior managers by establishing management and disclosure systems of connected transactions.
Other changes have been made to the law such as new rules on insurance companies’ liability, reinsurance and the competency of shareholders and senior managers of an insurance company.
For further information please contact Justin Wilson in our Shanghai office.
Creating one of the best resourced legal practices in Asia Pacific
International legal practice Norton Rose Group announced in June that Deacons Australia will join Norton Rose Group in January 2010. The decision follows the completion of successful votes by the respective partnerships on 22 June 2009. The new international legal practice will be called Norton Rose Group and will take effect from 1 January 2010.
In the Asia Pacific region, it will bring together more than 700 fee earners operating from 12 offices in Bangkok, Beijing, Brisbane, Canberra, Hong Kong, Jakarta, Melbourne, Perth, Shanghai, Singapore, Sydney and Tokyo.
From 1 January 2010, Norton Rose Group will be led by Group Chief Executive Peter Martyr, the current Norton Rose LLP Chief Executive, and Deputy Group Chief Executive Don Boyd, the current Deacons Australia Chief Executive Partner. Norton Rose LLP Chairman, Stephen Parish, will be the Chairman of Norton Rose Group.
Norton Rose Group will be a significant global player in legal services bringing together the heritage, strength, scale, and capabilities of two highly successful firms. The Group will have a common global ambition, quality of service to clients, values, systems and procedures.
Takaful Law Firm of the Year
We are delighted to announce that on Wednesday 1 July 2009, Norton Rose LLP won Takaful Law Firm of the Year at the International Takaful Summit Awards Dinner.
The prestigious Takaful Awards have been running for two years and Norton Rose LLP has now won this award on both occasions.
Susan Dingwall (who leads our takaful practice) and Ffion Flockhart picked up the award on behalf of the practice.