VAT on insurance policy administration services

Analysis

VAT on insurance policy administration services

Supreme Administrative Court’s ruling on VAT important to insurance agents

Tax Alert 14/2016 | 24 June 2016

An insurance agent should charge VAT on services related to valid insurance policies

This is a conclusion that can be drawn from the ruling of the Supreme Administrative Court (file I FSK 179/15) of 16 June 2016. In the ruling the Court has addressed the question whether insurance policy administration services provided by an insurance agent should be exempted from VAT.

According to the oral justification of the ruling, services related to the administration of valid insurance policies do not meet the criteria of agency services related to conclusion of insurance agreements, therefore they are not exempted from VAT under Art. 43.1.37 of the VAT Act.

Past court rulings favoured tax payers

The Supreme Administrative Court has revoked the ruling of a first instance court which is favourable for the tax payer, and supported the Finance Minister’s position in this respect. Emphasis should be laid upon the fact that verdicts are pending in a few similar cases where local administrative courts have ruled in favour of tax payers (e.g. ruling of Provincial Administrative Court in Warsaw of 22 May 2014, file No. III SA/Wa 3187/13, or ruling of Provincial Administrative Court in Poznań of 10 September 2015, file no. I SA/Po 614/15). Should the Supreme Court revoke the aforesaid rulings which favour the tax payer, the existing jurisprudence in this respect would be undermined.

The Supreme Administrative Court ruling affects insurance agents as well as collaborating parties

A change in the jurisprudence can increase the risk whereby tax authorities can effectively question application of the basic VAT rate on some transactions related to insurance policy administration services.

VAT exemption of insurance policy administration services or a lack thereof can be very important not only to entities directly providing these services, but also to their collaborating parties, such as insurance companies, banks and leasing companies, as they turn more and more often to specialised insurance agents for help, mainly to ensure compliance with regulations on acceptable insurance sales models. Imposition of VAT on some of the services provided by insurance agents would result in an increase in their operating costs of the aforementioned parties.

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