taxud/2414/08 - European Commission - Europa

- reduce the burden for economic operators and tax administrations.
For achieving these objectives, the following priorities were identified:
- Modernising the definitions of financial and insurance services exempted from
VAT, adapting them to modern business practices;
- reducing the impact of non-deductible VAT on the costs of economic operators.
a) Modernising definitions of financial and insurance services exempted from VAT
In modernising the definitions it became quickly clear that there were certain parameters
which had to be considered and which lead to the work focusing on certain solutions and
to abandoning others:
(aa) Exemptions from Value Added Tax (VAT) must be interpreted strictly 4 , requiring
modernised definitions allowing that strict interpretation. On the other hand the objective
of modernisation requires definitions which are broad enough to cope with future
developments of insurance and financial products. Both requirements are to some extent
conflicting and needed a careful balance. The only way to achieve that balance was to
base the definitions of exempt insurance and financial services in the Directive on
objective economic criteria determining the nature and functioning of these services.
Only objective economic criteria allowed for a more harmonised Community-wide
application of definitions. Such economic criteria also allowed the definitions to cope
with the development of new services in the area of insurances and financial services
because new products can be covered by the exemptions if they fulfil the specified
economic criteria.
(bb) However, that alone would not have been sufficient. In fact, one of the main
problems of economic operators was that they had to consult with the Ministries of
Finance in several Member States whether the services which they supplied, came under
the exemption or were excluded. This resulted in time-consuming and costly procedures
which often did not generate the necessary clarity and the legal certainty required by the
economic operator concerned. Consulting costs were also considerable. Also local tax
offices had to consult increasingly with their Ministries of Finance how they should
proceed in certain cases, which caused considerable administrative charges and bound
resources. In that situation the best option was to draft a Regulation based on Article
397 of Directive 112/2006/EC listing economic scenarios covered by the exemptions
and those excluded from it.
It became also clear that it would be impossible to establish a catalogue of all economic
scenarios because the economic operators estimated that the number of insurance and
financial products available on the market would definitely exceed 5000; the description
of economic scenarios in the Regulation thus had to be non-exhaustive.
4 Case C-359/97 Commission v United Kingdom, judgement of 12 September 2000, point 63
3