France: Revised guidelines on VAT exemption for insurance and related services

The French tax authorities modified the guidelines concerning the value added tax (VAT) exemption for insurance and related services. The goal of the revised guidelines is to align the tax authorities’ position with the evolution of case law from the Court of Justice of the European Union (CJEU) and with regard to French case law.

The guidelines (published 27 April 2022) are effective 1 January 2023. The delayed effective date is intended to allow taxpayers sufficient time to adopt and implement the required changes in their information technology (IT) systems.

The revised guidelines reflect the definition of an insurance operation or transaction as defined in 2001 by the CJEU’s Skandia case (C- 240/99). In that case, the CJEU held that the essentials of an insurance transaction generally are that the insurer undertakes, in return for prior payment of a premium, to provide the insured, in the event of materialization of the risk covered, with the service agreed when the contract was concluded. This assumes a risk carried by the insurer and a contractual link between the insurer and the insured person.

Although anticipated by most in the insurance market, this means that a delegation of an insurance portfolio management between two insurers would no longer be covered by the VAT exemption if it does not contain a risk transfer (such as in a co-insurance or reinsurance context) or is not related to a delegation of distribution. 

Considering the nuanced distinction regarding ancillary or separate insurance services, the revised guidance maintains the tax authorities’ former position regarding when insurance transactions or operations must be considered on a standalone basis and must be exempt. The tax authorities confirmed that optional insurance services (or those facilitating such services) must be considered separate and thus VAT-exempt with no possibility to bundle such transactions with a taxable service or goods, and reference was made to the CJEU cases of BGZ Leasing (C-224/11) and Mapfre (C- 584/13) and French court cases. 

For the first time, the French tax authorities are considering that the insurance “cover” can consist of providing a service instead of a cash payment by referring explicitly to assistance services that were analyzed as exempt insurance services by the CJEU in the Card Protection Plan (C-349/96) and Commission v. Greece (C-13/06) cases. This position would likely be discussed by the insurance sector given the potential implications for key players in the industry.

Since the exemption depends on the transactions and operations—and not from a regulated status—the French tax authorities confirmed that the insurance exemption does not rely any longer on the regulated status of the provider. By adopting this standard, the tax authorities formally withdrew their prior position.

Although this interpretation was relaxed over time by several exceptions included in prior guideline revisions due to the evolution of CJEU and French case law (i.e., collective insurance, group insurance when a holding company is insuring its subsidiaries), the regulated status remained until now a key factor in granting an exemption (thereby allowing to exempt the insurance delegation between insurers).

The revised guidelines include a comment regarding the exemption applicable to services relating to insurance.

The definition of broker or insurance intermediary is interpreted by the French tax authorities with a focus on the nature of the services and no longer on a regulated status.

The French tax authorities elaborated on the two cumulative conditions cited in the CJEU case of Aspiro (C-40/15), namely:

• The intermediary must be in relationship with the insurer and the insured person although this connection or link may be indirect. Aside from examples provided by the prior guidelines (co-brokerage, sub-brokerage), the position of the French tax authorities is in favor of the VAT exemption for wholesale brokers (courtiers grossistes) that are designing products for the insurer but outsource the distribution of insurance coverage to agents doing the essential part of the (distribution) tasks.
• Those services must be linked to the essential aspects of the work of an insurance broker or agent which consists of finding of prospective clients and making an introduction to the insurer with a ultimate goal of conclusion of insurance contracts.

The French tax authorities recognized that this condition is to be interpreted broadly and provided a list of examples covering, inter alia, the renegotiation of existing contracts, the distribution of a different insurance policy to an existing insured person, the distribution of an extension of an existing guarantee.

Unlike the definition of insurance transaction or operation, the definition of insurance-related services falling with the scope of eligible insurance-related services would be not interpreted on a strict basis according to the French tax authorities.

The updated guidelines consider that this definition encompasses all transactions or operations that reflect a link with an insurance or reinsurance operation (such as delegation of policy issuance, premiums collected and management of insurance contracts, new subscriptions, claims management).

The revised guidelines describe various situations when the exemption can be gained although the services providers are not regulated as insurance companies (such as associations, credit institutions, mutual companies operating under the social security rules).

Reflecting the position of the CJEU case of Arthur Andersen (C-472/13), the updated guidance from the French tax authorities does not allow the exemption for back-office services if they are not linked to an insurance operation or when they are not provided by an insurance broker or intermediary.

From the examples provided in the revised guidelines by the French tax authorities, it appears that the back-office operations need to be related to the policies placed by an insurance intermediary acting as such, in order to benefit from the exemption. 

The revised guidelines demonstrate a clear effort of the French tax authorities to harmonize the rules in France with certain key concepts provided by CJEU case law. The updated guidelines are viewed as providing what may be described as a new state of play in a number of areas such as delegation of management between insurers and assistance operations. All these changes call for a fresh view of the arrangements between insurance players and brokers, especially for outsourced activities in a domestic or a cross-border context.

For more information, contact a tax professional with KPMG Avocats in France:

Philippe Breton | philippebreton@kpmgavocats.fr

Arnaud Moraine | arnaudmoraine@kpmgavocats.fr

Laurent Chetcuti | laurentchetcuti@kpmgavocats.fr