International Tax Review: insurance sites escape VAT |
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The Court of Appeal in London has ruled that businesses earning commission through the introduction of customers to insurers are exempt from VAT. Sophie Ashley 4 May 2010 The appeal was brought by HM Revenue & Customs (HMRC) against Trader Media Group and InsuranceWide.com, both of whom use websites to introduce potential customers to insurers and receive commission when a policy is taken out. The Association of British Insurers said: "This is a welcome decision for ABI members that sell their products via Internet insurance services, as the Court of Appeal recognised that InsuranceWide and Trader Media Group were providing exempt services, and that their activities went beyond those of a mere click-through." Insurance and reinsurance are exempt from VAT, under the EU Directive 2006/112 (common EU system of value added tax), as are the services of an insurance intermediary when performed by an insurance broker or agent. However, the directive does not give a definition of broker, agent or related services. InsuranceWide lost its appeal at the First-tier Tax Tribunal, where tax litigation is initiated in the UK, against HMRC's decision to impose VAT. The tribunal decided the company was not acting as an insurance agent, so it appealed to the High Court. Trader Media, however, won its appeal at the tribunal, which held that its service did constitute an intermediary service and HMRC appealed this decision to the High Court. Considering the similarities between the two cases the High Court decided to hear both appeals together. HMRC determined that both websites were only obliged to provide a hyperlink and branding and added this was merely advertising. Therefore they were an introductory service and liable for VAT as they played no part in negotiating a contract. Trader Media Group said it was an insurance agent because it provided the services of an intermediary by introducing customers to the insurer who then sold a policy to them.] The Court of Appeal found the definitions of broker and intermediary to be interchangeable and rejected HMRC's claim that Trader Media's role finished with the provision of an electronic link. The court said that it is not necessary to perform all the roles of a traditional broker and that playing a part in the chain is sufficient. "The UK tax authorities have been keen to treat intermediary services as liable to VAT despite this being in contradiction to the EU directives on VAT. This ruling brings the UK back into line with Europe," Richard Asquith, managing director of TMF VAT & IPT Services, said. There may, however, be some negative consequences for insurers. Asquith said the service level agreements with introductory services may have clauses to meet VAT charges. Now VAT is exempt, website owners will not be able to claim back the VAT on their running costs and the disallowed VAT losses may be passed on to the insurer. "HMRC acknowledge the Court of Appeal finding that services such as those provided by InsuranceWide and Trader Media Group fall outside the VAT exemption for insurance related services," a spokeswoman for the tax authorities said. "They are now considering their position in light of the judgement." A statement from Deloitte, who advised Trader Media, said: "HMRC should now refund any overpaid VAT, if intermediaries have charged it in the past on these types of service." |
