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Mike Stalley FCA Chief Executive Fiscal Reps Limited

European Court of Justice: Opinion on Location of Risk for Life Insurance

Starting Point • No harmonisation of IPT across EU • Harmonised insurance regulations (Life Dir.) • Increased movement of people = potential for cross-border tax complications Case refers to activities in 2006 & 2007

Background • Dutch insurer sold life insurance to Dutch resident policyholders – Life premiums exempt from Dutch IPT

• Dutch resident policyholder then moved to Belgium – Resident in Belgium in 2006 & 2007 (permanent?) – Life premiums taxed in Belgium

• Are premiums now subject to Belgian IPT?

Opinion of Adv. Gen. • Advocate General Kokott delivered her opinion on this case recently

• ECJ will rule shortly • ECJ not obliged to follow opinion of AG

Commitment per Art 50(1) of Life Assurance Directive “member state of commitment” – Retains the power to tax – Where policyholder has habitual residence – Possibility of two interpretations

Different Interpretations Static Interpretation – Tax based solely on location of policyholder at inception of policy – Supported by insurer and Estonian Govt

Dynamic Interpretation – Tax rate changes as habitual residence changes – Supported by Belgian & Austrian Govts and EC

Problem Legislation simply not clear… – Where policyholder is habitually resident (timing) – Reviewed other language versions – same result – Does “commitment” mean entering into a contract or the existence of a contract – Also refers to collection of tax on both “assurance premiums” and “assurance contracts”

Freedom of Services • Insurer (the taxpayer) argued that; – Dynamic interpretation would restrict FOS – Did not assume dynamic interpretation when incepted – Would have to constantly verify location of policyholders to comply with tax laws

A dynamic interpretation imposes greater restriction on FOS as the insurance contract could be subject to constantly varying rates of tax and may consequently deter insurers from writing such business

Freedom of Movement • If the policyholder moves cross border; – Tax neutrality can’t be guaranteed under EU law – Insurer may try to cancel contract to avoid additional unforeseen tax charges

Therefore under a dynamic interpretation the policyholders freedom of movement may lead to unfair treatment in terms of both additional tax cost and cancellation of coverage

Conclusion AG favours a Static Interpretation “member state of commitmentâ€? to be determined at the time when the life assurance contract is concluded Therefore must consider habitual residence at time policy entered into, ignoring future changes in habitual residence BUT‌ it could all change!!

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