In the recent case of Insurancewide and Trader Media Group, the Court of Appeal has confirmed that insurance price comparison sites can benefit from the insurance intermediary VAT exemption.
The decision, which examined the VAT treatment of click through sites that provide insurance quotes for those seeking cover, represents another defeat for HMRC in its attempt to narrow the availability of the exemption. In the insurance sector, the exemption has been extended to activities of those who are not "brokers" in the traditional sense, but are involved in the business of bringing together insurers and insured, i.e. finding prospects for insurance business, and introducing them to each other.
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In the recent case of Insurancewide and Trader Media Group, the Court of Appeal has confirmed that insurance price comparison sites can benefit from the insurance intermediary VAT exemption.
The decision, which examined the VAT treatment of click through sites that provide insurance quotes for those seeking cover, represents another defeat for HMRC in its attempt to narrow the availability of the exemption. In the insurance sector, the exemption has been extended to activities of those who are not "brokers" in the traditional sense, but are involved in the business of bringing together insurers and insured, i.e. finding prospects for insurance business, and introducing them to each other.
Background
The case law on VAT and insurance has a controversial history. Whilst the VAT system has always provided an exemption for insurance related services performed by insurance brokers and agents, together with related administrative services they perform, the increasing sophistication of insurance price comparison websites led to uncertainty as to whether these sites were entitled to benefit from the exemption. HMRC argued that they were not, characterising the websites as a mere "conduit" providing a "click through" facility for customers to a broker, agent or insurer.
Price comparison websites: Insurance intermediaries
The sites in question were clearly not brokers in the traditional sense, and some stated explicitly that they were not insurance intermediaries. However, the Court of Appeal decided that the insurance intermediaries exemption was nonetheless available to the website operators for the following reasons:
Strict and purposive interpretation of the insurance exemption
The exemptions should be interpreted strictly, but fairly, in the light of the aims of the VAT system. One of the primary objectives of the VAT system is that, broadly speaking, the same amount of VAT should be incurred at the end of a supply chain irrespective of how many stages there are upstream. There should be no difference between one legal entity doing everything in a vertically integrated manner and another business organised in several stages (vertically non-integrated). This is the "non-bias" or neutrality principle, and the ECJ has confirmed in earlier cases that neutrality applies in the insurance sector.
Being part of the chain bringing parties together is the key to exemption
The term "insurance brokers and insurance agents" has its own meaning in VAT law, encompassing businesses that bring parties (insurers and insured) together. Insurance brokers and agents can be part of a chain of persons engaged in that process: no direct contractual link is required as such between intermediary and insurer or insured. Thus a price comparison website that refers customers to a broker, who in turn refers them to an insurer, is entitled to the same VAT exemption as a single broker performing the same activity.
Which insurance businesses should now be seen as exempt?
In law the line needs to be drawn somewhere, and hopefully this case sheds light on what has always been an area of attack by the tax authorities. In our view, the exemption should now be seen as available to any insurance business that fits within the following formulation:
any operator involved in a supply chain which has the aim and, by its hand, the effect of bringing specific parties together, in relation to the creation of new insurance or reinsurance transactions, as well as variation and termination of existing relationships, by whatever means, physical or electronic.
The above definition solves HMRC's boundary problem. Advertising insurance products is still clearly taxable, as the advertiser completes the supply as soon as they have displayed the offer. If, however, the intermediary makes a contact and passes that contact on to to the offeror, that is intermediation and eligible for the exemption.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 12/05/2010.