Analysis: “CJEU rules that the VAT exemption for insurance services does not apply to investment fund management services not providing any indemnity for risk” by Jordi Sol

On 8 October 2020, the Court of Justice of the European Union (CJEU) ruled in United Biscuits (Pensions Trustees) and United Biscuits Pension Investments (C-235/19) that investment fund management services supplied for an occupational pension scheme, which do not provide any indemnity from risk, cannot be classified as ‘insurance transactions’ and, thus, are not covered by the VAT exemption provided in Article 135(1)(a) Directive 2006/112.

In the argumentation of the CJEU it is worth highlighting the following:

First, for the VAT exemption to apply it is necessary that the insurer undertakes, in return for prior payment of a premium, to provide the insured (who has previously paid a premium), in the event of materialisation of the risk covered, with the service agreed when the contract was concluded. However, the present case excludes any indemnity from risk.

Second, the CJEU acknowledged that CPP (C-349/96) and Skandia (C-240/99) confirmed, in essence, that there is no reason to justify a different interpretation of the term ‘insurance’ according to whether it appears in insurance directives or in directives relating to VAT. However, those cases were not intended to establish the necessary and intrinsic link between the concept of ‘insurance transactions’ – within the meaning of the VAT system – and possible legal categories which appear in the directives on insurance.

In that regard, the CJEU states that the concept of ‘operations’ included in Article 1(2) and (3) of the First Life Assurance Directive, repeated in essence in the directives that replaced it, includes the ‘management of group pension funds’. However, those ‘operations’ are ancillary to the insurance activities referred in Article 1(1) of that Directive and do not constitute ‘insurance’ activities within the meaning of the directives on insurance matters. Therefore, the supplies at stake in the present case are not to be regarded as insurance activities.

Third, with regard to the different wording used in the different language versions in the annexes of the directives on insurance matters, the CJEU pointed out that, in the light of the general scheme of the directives in the matter of insurance, it is consistent for the classification of activities laid down by those directives in their annexes to include insurance and pension fund management activities, without it being possible to interpret that classification as treating those operations as insurance.

For more detailed information, the AG’s Opinion is accessible here and the judgment is available here.

Jordi Sol is an International VAT consultant and founder of VATinsights.