The case stemmed from a dispute over tax liabilities in respect of a portfolio of life reinsurance contracts that were transferred in 2002 from Swiss Re Germany (the transferor) to its Switzerland-based parent (the transferee) in return for a single purchase price. Of the transferred policies, 18 contracts were assessed as having a negative value. Upon execution of the transfer, the local tax authority determined the transfer constituted a taxable supply of goods. Having appealed against the decision unsuccessfully to the local tax court, Swiss Re filed an action with the German Federal Tax Court (BFH).
The BFH was of the view that the transaction represented a supply of services and that the place of supply was the transferor’s place of business. Therefore, VAT should be charged in Germany. However, the BFH wanted to clarify whether such an interpretation would violate the Sixth EU Council Directive (the Directive) and accordingly submitted a preliminary reference to the ECJ seeking clarification on whether this transfer would be regarded as a “supply of services”. Further, if it was, whether the supply constituted a “banking, financial or insurance transaction” under Article 13B of the Directive and whether the contracts carrying a negative value could be separated from the other contracts and considered to be an exempt supply.
The ECJ held firstly that portfolio transfers of (re)insurance contracts constituted a taxable supply of services. Secondly, the ECJ declined to classify the transfer as a “banking, financial or insurance transfer” and, therefore, the exemptions under Article 13B could not be applied. Finally, in respect of the reinsurance contracts with a negative value, the ECJ refused to segregate these contracts from the rest of the portfolio. The ECJ recognised that a total purchase price had been agreed between the parties and accordingly VAT was payable upon that agreed price.
As the application of VAT is based upon the Directive, this ruling will have considerable effect on all transfers of (re)insurance portfolios throughout the EU, especially since the insurance industry has been, for the most part, treating such transfers as a tax exempt supply. It now seems that the transfer of such portfolios could become substantially more expensive unless structured efficiently at an early stage of a transaction.
Case C-242/08: Swiss Re Germany Holding GmbH v. Finanzamt München für Körperschaften.
