Indirect Tax News N°102 – September 2015
Mapfre, CJEU, Case C-584/13 (16 July 2015) France – Insurance transactions
The issue in this case was whether the service whereby an independent economic operator (i.e. Mapfre Warranty), in return for payment of a lump sum by a second-hand motor dealer, provides a warranty covering mechanical breakdowns which may affect the second-hand vehicles falls within the category of insurance transactions exempt from VAT or, on the contrary, falls within the category of supplies of repair services subject to VAT.
The CJEU referred to the definition of insurance transactions and confirmed that the typical features of an insurance contract were present in this case (i.e. a contractual link between the purchaser and Mapfre warranty, payment of a lump sum described as a premium, and a risk: the occurrence of a breakdown). However, contrary to the argument presented by Mapfre Warranty, the method of calculation was not taken into consideration.
Subject to evaluation by the national court, the CJEU concluded by explaining that the transaction carried out by Mapfre War-ranty should not be considered as a taxable transaction by virtue of its links with the main contract for the sale of second-hand vehicles. For VAT purposes, these two transactions were independent. Thus, the supply provided by Mapfre Warranty was a supply of insurance.
We await the decision of the Cour de cassation and the response of the tax authorities in order to assess the consequences of this decision.
Larentia + Minerva, Marenave, CJEU, Cases C-108/14, C-109/14 (16 July 2015) Germany – Recovery of VAT paid by holding companies for the acquisition of capital
The CJEU considered that the expenditure connected with the procurement of capital for the purchase of shares in subsidiaries are general costs attributable to an economic activity where the holding company is directly involved in the management of those subsidiaries. Input VAT will be recoverable in full unless some of the subsequent outputs are exempt and reduce the partial exemption recovery ratio. On the other hand, the expenditure connected with the acquisition of shareholdings in subsidiaries incurred by a holding company which involves itself in the management only of some of those subsidiaries and which, with regard to the others, does not, by contrast, carry out an economic activity must be regarded as only partially belonging to its general expenditure, so that the VAT paid on that expenditure may be deducted only in proportion to that which is inherent to the economic activity.
This decision should secure the position of holding companies and serves as a reminder of the importance of being involved in the management of subsidiaries.
FBK, CJEU, Case C-526/13 (3 September 2015) Lithuania – Exemption for supplies of fuel for vessels used for navigation on the high seas made by a supplier via an intermediary
The CJEU held that an exemption is not, in principle, applicable to supplies of goods for fuelling and provisioning to intermediaries acting in their own name, even if, at the date on which the supply is made, the ultimate use of the goods is known and duly established and evidence confirming this is submitted to the tax authority in accordance with the national legislation.
However, that exemption may apply if the transfer to those intermediaries of the ownership in the goods concerned took place at the earliest at the same time when the operators of vessels used for navigation on the high seas were actually entitled to dispose of those goods as if they were the owners, a matter which is for the national court to ascertain.
It must be said that although the outcome is reasonable in practice, the reasoning used to get to that outcome was convoluted.
CAA Versailles (21 July 2015) SAS ACG Holding – VAT partial exemption – Expenses incurred by holding companies relating to the acquisition of control of another company
A holding company sought to acquire 100% control of another company. To this end, the holding company had acquired shares as well as convertible bonds in the other company. The tax authorities had restricted input tax recovery on account of the interest generated by the convertible bonds. The question for the court was therefore to what extent input tax should be recoverable and in particular whether income received from the convertible bonds would have an effect on the VAT partial exemption recovery ratio.
The Administrative Court of Appeal held that the income received from the convertible bonds fell within the scope of VAT and, given that the company had not established that that income was ancillary, its partial exemption position was affected as a result.
The decision has been appealed to the Conseil d’Etat.