Hogan Lovells Publications | Tax Newsletter | 20 July 2017
Liquidation of the VAT exemption with respect to services auxiliary to insurance and financial services
Statutory limitation of the scope of tax exemption.
As from 1 July 2017, Article 43 par. 13 and 14 providing for VAT exemption for services constituting the element of any insurance or financial services exempted from tax on goods and services listed in Article 43 par. 1 point 7 and 37–41 of the VAT Act, constituting a distinct whole and being relevant and necessary for providing the exempted service, was deleted from the VAT Act. According to the justification presented by legislator, the purpose of this amendment was to reflect, more accurately, in the Polish, the provisions of VAT Directive concerning the scope of this type of exemption and include the existing judicial decisions of the ECJ made in this respect into in Polish regulations.
As a result of amending law, services recognised as the element of insurance service and rendered by third parties in favour of insurers have been excluded from the exemption. The example of such services was loss adjustment services which as being rendered separately (by entities other than an insurance company) are not considered either as insurance service or insurance intermediation service referred to in Article 43 par. 1 point 37 of the VAT Act. The loss adjustment service covers, among other things, such elements as call center services, servicing loss adjustments, determining reasons and circumstances of a given damage, estimated amounts of damage (assessing the value, preparing photographic documentation), preparing the complete documentation necessary for the raised claim to be examined, making substance-related decisions concerning damage, organising assistance in the place of an accident, repair of damaged property, lease of a substitute vehicle, towing a damaged vehicle, booking room in a hotel, inspecting the place of accident, providing injured parties with information about insurance terms and conditions as well as all other activities of a technical nature.
Like in the case of insurance services, in result of the amending of law, the VAT exemption will not apply to services being rendered separately and supporting financial services either even if they are necessary for such services to be rendered and their character is purely technical or administrative, e.g. call center or the “swift” services (the service of electronic transmission of messages to financial institutions).
One should, however stress that not every insurance-related activity entrusted to any third party to be carried out should be automatically subject to VAT taxation. On the contrary – such activities can still be subject to exemption under Article 43 par. 1 points 7 and 37–41 of the VAT Act, provided however that with respect to the interpretation of the scope of the exemption in question, the ECJ’s judicial decisions will be of key importance. However, considering the narrow and casuistic character of the ECJ’s judicial decisions in this respect, one should expect that in practice, as of the date of the amending of law became effective (i.e. the day of 1st July 2017) only some services auxiliary to insurance or financial services will be subject to VAT exemption and tax authorities will construe the scope of exemption in a restrictive manner.
As a consequence, considering the fact that many services acquired by entities operating in insurance and financial sector were subject to VAT exemption, we should expect the increase in costs of operation of such entities. Taking into account the complexity of this issue and the variety of types of services being rendered, serious doubts as to the interpretation of the scope of tax exemption may be caused to be raised. Therefore, in this respect it will be necessary to observe judicial decisions being made by the ECJ and also by domestic administrative courts and tax authorities.
The interpretation of the scope of exemption with respect to service auxiliary in the financial sector
Already the day before the amending of law in question had become effective, to disperse potential doubts of taxpayers concerning VAT taxation of services related to implementing payment transactions with the use of payment cards, the Minister of Development and Finance issued the general ruling No. PT6.8101.5.2017. The Minister explained that after amending of the VAT Act, services composed of complex activities for which various fees will be charged in various stages of implementing such payment transaction, carried out payment organisations in favour of clearing agents and payment cards issuers as well as clearing agents carried out in favour of merchants, will be still subject to exemption in the scope necessary for implementing payment transactions made with the use of payment cards. Such exempted services include such groups of activities as authorisation of transaction, transfer of financial resources or settlement of transaction because the effect of all such activities being carried out jointly (implemented by a clearing agent and payment organisation) is the implementation of the payment transaction with respect to the disbursement or transfer of financial resources (which otherwise would not be possible).
At the same time, the Minister has determined that the activities which will be recognised as the activities of administrative and technical character, being no element meeting specific and immaterial functions of money transfer and as such causing no change in the financial and legal situation of the parties to such transaction, will not be entitled to apply tax exemption. The provided example of such activities was the services related to preparing any type of reports which are neither strictly connected with the transfer of financial resources nor making such transfer conditions upon them (e.g. preparing information for marketing purposes or information for the purpose of preparing any analyses and new business strategies), training services provided by payment organisations, which are not strictly related to transfers of monetary resources being implemented (e.g. with respect to promoting any brand name, offering and selling banking products related to payment cards).
The above article was first sent out as a newsletter on 20 July 2017. You can read the newsletter here.
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