Italian VAT decision could have implications for insurers and brokers

Insurers, insurance brokers and outsourcing businesses who operate in Italy are advised to take note of a recent decision of the Italian Supreme Court (Cass No. 11442).

In a case concerning the VAT treatment of services provided in relation to insurance policies, the Court found that the services supplied by an authorised entity to insurers were subject to VAT, overturning the decision of the lower Courts.

Technically, the decision appears unremarkable: the Court held that the services provided did not fall within the insurance exemption essentially because their nature was 'administrative' as opposed to 'introductory'.

However, the decision serves as a reminder that while unusually, the UK allows exemption for a significantly wider range of insurance-type services than those envisaged by the governing EU legislation (Article 135(1)(a) of Directive 2006/112/EC), the majority of other Member States do not. 

Therefore, to reduce the risk of VAT assessments, penalties and interest, the treatment by overseas branches and subsidiaries of activities such as policy administration, claims-handling and premium collection should be continuously reviewed to ensure that it is correct from a VAT perspective.

The case also serves as a reminder that the UK has been under pressure for some time to bring its insurance exemption legislation into line with Article 135(1)(a). If and when it eventually does, the additional VAT which will result is likely to constitute a significant cost for the insurance sector. 

For more information please get in touch with Justine McInnes or John Forth.