Online Insurance Mediation under EU VAT

European Union/Germany/United Kingdom Hans-Martin Grambeck* Online Insurance Mediation under EU VAT The VAT treatment of insurance mediation over the Internet is caught between the principle that VAT exemptions must be interpreted strictly and the circumstance that the EU legislature has not been able to keep up with the rapid developments in the market for specific services. In this article, the author compares the scope of the exemption for online insurance mediation in Germany and in the United Kingdom and concludes that the EU legislature should act quickly to restore a level playing field for service providers operating through the Internet. 1. Introduction Framework of VAT Exemption for Insurance Agents Under article 135(1)(a) of the VAT Directive (2006/112), insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents are exempt from VAT in the Member States of the European Union. The exemption for related services, which is defined in terms of the services provided by designated service providers, is compulsory and does not allow Member States to define or limit its scope. The German provision that corresponds to article 135(1) (a) of the VAT Directive is laid down by section 4 of the German VAT Act, which was originally aimed at avoiding distortions of competition between employed and self-employed insurance agents: if the services of selfemployed insurance agents were subject to VAT, those agents would have to charge irrecoverable VAT to insurance companies, which would accumulate with the tax on insurance premiums. Even though the rationale of the VAT exemption for the services of insurance agents (and brokers) is clear, the interpretation of the exemption is problematic in practice because the conditions under which persons may act as insurance agents are unclear. Hence, the scope of the exemption has given rise to numerous decisions of national courts, in which the nature of the services, the qualification of the service provider and the contractual relationship between the parties were important elements. In Germany, insurance intermediaries could initially only claim the VAT exemption if they qualified as agents under the Handelsgesetzbuch (Commercial Code). That condition appeared to be incompatible with the position of the Court of Justice of the European Union (ECJ) that the VAT regime must depend on the nature of the services, not on the qualification or status of the service provider. Although providers of intermediary services 1 relating to insurance must still be authorized under the Gewerbeordnung (Trade Organization Law), authorization is no longer a prerequisite for the application of the VAT exemption. As regards the contractual relationship, application of the exemption by financial or insurance intermediaries originally required that a direct link existed between the intermediary and one of the parties to the insurance (or finance) contract. However, as the ECJ has ruled in Volker Ludwig 2 and J.C.M. Beheer, 3 the VAT exemption for the services of intermediaries also covers the services of subagents, which has the effect that insurance agents can outsource part of their work without incurring VAT. Although they do not have a direct contractual relationship with the insurer and the insured, and they do not necessarily negotiate in the traditional sense of the word, subagents can likewise apply the VAT exemption to their contribution to the process of concluding insurance contracts. Currently, most problems are related to the question of which activities are covered by the VAT exemption for the services of financial and insurance agents. Based on the ECJ s judgment in CSC, 4 negotiation is an activity whose purpose is... to do all that is necessary in order for two parties to enter into a contract, without the negotiator having any interest of his own in the terms of the contract. Negotiation may, amongst other things, consist in pointing out suitable opportunities for the conclusion * Dr Hans-Martin Grambeck works as a tax adviser in Hamburg, Germany. 1. In the framework of this article, the expression intermediary services is equivalent to mediation and intermediation. In this respect, the terminology in EU law is not consistent. 2. DE: ECJ, 21 June 2007, Case C-453/05, Volker Ludwig, [2007] ECR I-5083, ECJ Case Law IBFD. Although that decision concerned bank loans, the ECJ s conclusion that the services of a financial adviser, who analysed the financial situation of clients canvassed by him with a view to obtaining credit for them, were not precluded from being recognized as the exempt negotiation of credit also applies in the area of insurance. In this context, the ECJ observed that the circumstance that the agent and its subagent were remunerated by the lenders only on the condition that the clients approached and advised by the financial adviser entered into a credit agreement suggested that the negotiation should be regarded as the principal service and the giving of advice as merely ancillary. Secondly, the negotiation of credit appeared to be the decisive service both for the borrowers and for the lenders, in so far as the activity of giving financial advice occurred only in a preliminary phase and was limited to helping the client choose, from among the various financial products, which were best adapted to his situation and to his needs. 3. NL: ECJ, 3 Apr. 2008, Case C-124/07, J.C.M. Beheer B.V. v Staatssecretaris van Financiën, [2008] ECR I-2101, ECJ Case Law IBFD. 4. E2: ECJ, 13 Dec. 2001, Case C-235/00, Commissioners of Customs and Excise v. CSC Financial Services Ltd (formerly Continuum (Europe Ltd) Ltd), [2001] ECR I-10237, ECJ Case Law IBFD, in which the ECJ declared that negotiations in securities does not cover services limited to providing information about a financial product and, as the case may be, receiving and processing applications for subscription to the relevant securities, without issuing them. IBFD INTERNATIONAL VAT MONITOR MARCH/APRIL 2012 107

Hans-Martin Grambeck of such a contract, making contact with another party, or negotiating, in the name and on behalf of a client, the details of the payments to be made by either side. It is clear that the exemption for intermediary services does not apply where a service provider: only takes over administrative work from an insurer; 5 acquires, supervises and trains agents; 6 sets up and leads a field service; 7 exclusively renders advisory services; 8 or exclusively accepts applications for loans or insurance, or provides information about those financial products. 9 Basically, an insurance agent must be involved in the process of concluding insurance contracts 10 and that involvement can be derived from the circumstance that the agent receives a commission based on insurance contracts that have actually been concluded between insurers and insured. 11 An agent s contribution to the conclusion of an insurance contract can take various forms. Where a service provider covers all the functions necessary for the conclusion of an insurance contract between the insurer and the insured, there is obviously no doubt that his activities are exempt from VAT. However, where the process of mediation is split up between different parties, it becomes more difficult to determine which services can be regarded as exempt insurance mediation and which services must be treated as a different type of service that is subject to VAT. It is settled ECJ case law that, in order to qualify for the exemption for financial mediation, the service provided must, viewed broadly, form a distinct whole, fulfilling in effect the specific and essential functions of the service of negotiation. 12 That phrase obviously lacks clarity because it can hardly be expected that subagents carry out all the services that are specific and essential for insurance agents without being agents themselves. On the other hand, a restrictive interpretation of the concept of mediation would contradict the fact that, according to the ECJ, the process of insurance mediation can be split up between two or more parties without becoming subject to VAT. 5. NL: ECJ, 3 Mar. 2005, Case C-472/03, Staatssecretaris van Financiën v the single taxable entity Arthur Andersen & Co Accountants c.s., [2005] ECR I-1719, ECJ Case Law IBFD in which the ECJ decided that back office activities, consisting in rendering services, for payment, to an insurance company do not constitute the performance of services relating to insurance transactions carried out by an insurance broker or an insurance agent. 6. DE: Bundesfinanzhof, 30 Oct. 2008, V R 44/07 and 23 Oct.2002, V R 68/01. 7. DE: Bundesfinanzhof, 20 Dec. 2007, V R 62/06. 8. ECJ s judgment in Ludwig (C-453/05), supra n. 2. 9. ECJ s judgment in CSC (C-235/00), supra n. 4. 10. In this regard, by its decision of 30 October 2008, V R 44/07, the Bundesfinanzhof decided that an insurance agent must have the authority to conclude insurance contracts on behalf of the insurer and that, where the agent employs subagents, approving template contracts, instead of approving the individual insurance contracts drawn up by the subagents, is not sufficient for qualification of the service as a service of an insurance agent. 11. DE: Bundesfinanzhof, 9 July 1998, V R 62/97. 12. ECJ s judgment in Ludwig (C-453/05), supra n. 2; and Bundesfinanzhof, 6 Sep. 2007, V R 50/05. A broad interpretation of the activities that qualify as insurance mediation is also in line with the Directive on insurance mediation. 13 Under that Directive, insurance mediation means the activities of: introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance; or concluding such contracts; or assisting in the administration and performance of such contracts, in particular in the event of a claim. However, the provision of information on an incidental basis in the context of another professional activity, provided that the purpose of that activity is not to assist the customer in concluding or performing an insurance contract, is, according to the Directive, not covered by the concept of mediation. In this context, the Bundesfinanzhof (German Supreme Court in tax matters) has decided 14 that collecting data and making an inventory of the current insurance situation of a potential customer by a marketing agent cannot be exempt from VAT if the service provider (marketing agent) does not give the customer further information on possible insurance products, even though the information collected by the marketing agent is a necessary element for the conclusion of an insurance contract. Furthermore, there was also some doubt as to the question of whether or not identification of potential customers would be sufficient for the application of the VAT exemption for the services of insurance agents. Identification of potential customers is certainly a necessary and possibly even an essential contribution to the process of concluding insurance contracts. However, the Bundesfinanzhof 15 initially decided that such an activity is not aimed at bringing parties together for the purpose of entering into an insurance contract. On the basis of the Bundesfinanzhof s position, both the Finanzgericht (lower court in tax matters) Münster 16 and the Finanzgericht Hamburg 17 denied the VAT exemption for such mere referral services because they do not include negotiations between the parties. The referral constitutes only one of the necessary elements of the process of concluding an insurance contract but it does not include other necessary and specific elements (in particular preparation, administration and fulfilment of the insurance contracts). 13. Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurance mediation, OJ L9 (2003). Although the Directive on insurance mediation is not binding for the interpretation of VAT exemptions, the ECJ has already referred to it on two occasions (in its judgment in Assurandør-Societet (DK: ECJ, 20 Nov. 2003, Case C-8/01, Assurandør-Societet, acting on behalf of Taksatorring, v. Skatteministeriet, [2003] ECR I-13711, ECJ Case Law IBFD) and in its judgment in Arthur Andersen (C-472/03), supra n. 5). It is not surprising that, for the interpretation of the VAT exemption for the services of insurance agents, the ECJ refers to the Directive on insurance mediation because that Directive is aimed at harmonizing the rules for insurance agents, which is just as important as harmonization of the VAT rules in the common market. 14. DE: Bundesfinanzhof, 6 Sep. 2007, V R 50/05. 15. DE: Bundesfinanzhof, 12 Jan. 1989, V R 43/84. 16. DE: Finanzgericht Münster, 14 Nov. 1996, 5 K 1451/95. 17. DE: Finanzgericht Hamburg, 13 Dec. 2007, 5 K 132/05. 108 INTERNATIONAL VAT MONITOR MARCH/APRIL 2012 IBFD

Online Insurance Mediation under EU VAT Interestingly, in 2009, the Bundesfinanzhof 18 did not uphold the above decision of the Finanzgericht Hamburg. On that occasion, the Bundesfinanzhof changed its position and took the view that referral services have the specific and essential characteristics of mediation. It is essential that insurance agents find potential customers and bring them in contact with their principal (the insurer). In this respect, it is irrelevant that the referrer does not contribute to the conclusion of the contract itself or to the administration and fulfilment of the contract, or that the service provider acts under a subcontract with an insurance agent. Instead, if a person identifies potential customers, who have undoubtedly an interest in entering into an insurance contract, and gives their names to an insurance agent or insurer, that person carries out an activity that is essential for mediation, which is identification of potential customers and bringing them in contact with an insurer or insurance agent. The question is how those referral services must be treated if they are provided through the Internet. 2. Insurance Mediation through the Internet The Internet has become increasingly important as a platform for informing potential customers about products and prices. In addition, the Internet has also become an important retail sales channel for insurance companies and insurance agents. In this context, the question arises of what the circumstances are under which the services provided by the operator of a website can be exempt as a mediation service under article 135(1)(a) of the VAT Directive. 2.1. Operators of websites In Germany, the decision of the Bundesfinanzhof thatreferral services have the specific and essential characteristics of mediation is of great importance because the functionality of websites is nowadays not at all limited to providing information and advertising. On the contrary, websites can be used to identify potential customers, record personal information of the customers and their wishes, and divert the potential customer to the websites of suppliers that offer the desired goods and services. It is even possible to conclude sales agreements through the Internet. With the exception of the element of personal advice, websites can fulfil all the functions of a traditional (insurance) agent. In this context, it is of interest to look at the remuneration models for Internet marketing. So-called affiliate marketing 19 is a practice under which a supplier of goods and services pays an affiliate a commission for each visitor diverted to the supplier s website as a consequence of the affiliate s marketing efforts. Since the diversion is effected through weblinks, suppliers can trace how visitors are routed to their website. In this respect, one of the following three commonly used remuneration models may apply: pay per click: the affiliate is paid for each visitor who clicks on the supplier s advertisement on the affiliate s website; pay per lead: the affiliate is paid for each contact between the supplier and the visitor (a so-called lead ), i.e. where the visitor confirms his interest in the goods or services offered by the supplier by requesting further information from the supplier. Where, in addition, the customer meets the general profile for the supplier s customers, the contact is labelled as a qualified lead ; and pay per sale: the affiliate is paid if the visitor enters into a contract with the supplier and thus generates turnover for the supplier. As regards insurance products, the question arises of whether the exemption for the services of insurance agents applies to services that are remunerated per lead or even per click, or whether the exemption is limited to services that are remunerated per sale. 2.2. Online agents under German civil law The Landgericht (Civil Court) Hamburg 20 had to decide whether a company that presented insurance contracts on its website had to be regarded as an insurance agent. An association in charge of monitoring commercial practices to avoid unfair competition claimed that, under the German trade regulation rules, the operator of the website had to be authorized to act as an insurance agent because anyone who markets, designs and processes insurance coverage for third parties, without being himself a policyholder or an insurer, acts in the capacity of an insurance agent. The operator of the website claimed that he did not act as an insurance agent because his activities were limited to preparatory acts and did not have a specific link to the subsequent conclusion of an insurance contract. The operator of the website merely introduced potential customers to a qualified insurance agent for further information and advice, or to an insurer. Such referral activities do not require specific expertise on the part of the operator of the website and authorization of the operator should not be necessary under the trade regulation rules. Furthermore, under the Directive on insurance mediation, the provision of information on an incidental basis in the context of another professional activity is not an agency service if the purpose of that activity is not to assist the customer in concluding or performing an insurance contract. Although the operator of the website neither collected nor forwarded personal information of the potential customers, which was necessary for the conclusion of an insurance contract, nor negotiated or concluded insurance contracts on behalf of the insurers, and he clearly mentioned on the website that he was not acting as an insurance agent or insurer, the Landgericht Hamburg decided 18. DE: Bundesfinanzhof, 28 May 2009, V R 7/08. 19. See http://en.wikipedia.org/wiki/affiliate_marketing. 20. DE: Landgericht (Civil Court) Hamburg, 30 Apr. 2010, 408 O 95/09, VuR 2010, 319. IBFD INTERNATIONAL VAT MONITOR MARCH/APRIL 2012 109

Hans-Martin Grambeck that the operator of the website had to be authorized to act as an insurance agent. The Landgericht concluded that: anyone who extensively presents and offers insurance products on his website, proposes to potential customers insurance contracts, and offers visitors to his website the possibility to make contact with an insurer expressly supports the decision-making process of the visitor of the website; where due to the optical design of the website the visitor of the website cannot recognize that, once he has decided to complete an application form for an insurance contract, he is diverted to a website of the insurer or an insurance agent, the customer necessarily gets the impression that the operator of the website is to a significant extent involved in the mediation process; and offering potential customers the opportunity to purchase specific insurance products under a specific brand and with conditions that are only mentioned on the website is an indication that the operator of the website acts as an insurance agent. The decision did not indicate whether the operator of the website received a commission per click, per lead or per sale. It confirms that the criteria for the finding that a person acts as an insurance agent under commercial law are not necessarily the same as the criteria for applying the VAT exemption for the services of insurance agents. The Landgericht s decision that the operator of the website acted as an insurance agents was mainly based on the transparency of his website and the circumstance that the website played a part in the visitor s decision-making process as regards insurance. 2.3. VAT exemption for online insurance mediation in the United Kingdom InsuranceWide operated a website 21 where visitors could compare insurance products. In the event of an agreement between the insurer and the visitor, InsuranceWide received a commission from the insurer ( pay per sale ). Initially, InsuranceWide restricted its activities to redirecting visitors to the website of an insurer. The system was further developed in several steps. At the final stage, visitors could enter their personal details only once and they could use that information for several requests for an insurance contract. The request was routed on the basis of an internal selection process to the insurer who offered a product that met the requirements of the applicant. The visitor then received a list of insurers and, by pressing a button, was diverted to the website of the insurer of his choice. InsuranceWide explicitly mentioned on its website that it only provided an indication of the approximate insurance premium that may be payable in relation to insuring the risk that the visitor had described in the application form. InsuranceWide did not guarantee that 21. See http://uk.insurancewide.com with an automatic redirection to www. BeatthatQuote.com. the potential customers could actually purchase insurance at that price or at all. Trader Media Group operated a trading platform for motor vehicles and its website included a link to a different website, 22 where visitors could get an offer for car insurance. The latter website was not operated by Trader Media but by an insurance agent, which was indicated by mentioning this website is powered by.... Due to the optical design of the websites, customers would normally assume that the insurance website was a joint project of both companies. By entering personal data, the visitor received offers from several insurers. Just like InsuranceWide, Trader Media also received a commission from the insurers upon successful conclusion of an insurance contract (pay per sale). In the course of the subsequent proceedings, both companies argued that their services were exempt from VAT. In the joined proceedings before the Court of Appeal, the tax authorities (Her Majesty s Revenue and Customs, HMRC) took the position that the VAT exemption can only be applied if the following conditions are met: the service provider must act as an insurance broker or agent and must provide the services of an intermediary; the service provider must have an influence on the conditions of the contract; and the services provided must have been referable to an insurance transaction and rendered in the context of a mediation activity. The service must not be limited to facilitating the conclusion of the contract, but needs to be aimed at effecting a link between insurer and customer. According to HMRC, it would be inappropriate to describe a person as an insurance agent if his role does not have any of the following features: negotiation of the terms or potential terms of an insurance contract; involvement in the making of an insurance contract; assessment of the insurance required or the risk to be insured; provision (or even knowledge) of information about the policies which are offered by an insurance undertaking; the taking of information (such as contact details and insurance requirements) of the person considering or seeking insurance; knowledge of what takes place once the introduction has been effected; involvement in handling claims, collecting premiums, preparing policies or dealing with the administration of an insurance contract; the power to bind any party; acting on behalf of any party; any legal obligations or duties owed by the introducer to any party; any recommendation or endorsement by the introducer of another entity; 22. See http://www.tradermediagroup.com; http://www.autotrader.co.uk. 110 INTERNATIONAL VAT MONITOR MARCH/APRIL 2012 IBFD

Online Insurance Mediation under EU VAT any warranties or representations by the introducer; or regulation of the introducer by the Financial Services Authority or any other entity. In its judgment of 22 April 2010, 23 the Court of Appeal concluded that the services provided by both companies were exempt from VAT. In this framework, the Court of Appeal observed that: InsuranceWide and Trader Media rendered services which comprised the identification of potential customers, which they forwarded to insurers and intermediaries on the basis of their specific requirements. Hence, their work went beyond the role of a subcontractor; only the content of the service provided is decisive. It is irrelevant whether the service provider presents himself as an intermediary, whether there is legal relationship with the insurer or with potential customers and whether the operator of the website meets regulatory requirements; for the interpretation of the VAT exemption, the Directive on insurance mediation and the term intermediary as a legal term of insurance law are relevant. In this context, it is not necessary that an intermediary carries out all the activities which are mentioned in the Directive on insurance mediation; and the main characteristic of an intermediary is to bring together insurers and potential customers. For the purposes of the VAT exemption, it is sufficient that a company forms part of the mediation process, provided that the contribution of each contributor is vital for the process of introducing the parties. In the framework of resolving the disputes in Insurance- Wide and Trader Media, the Court of Appeal did not refer preliminary questions to the ECJ. Following the Court of Appeal s decision, HMRC published the conditions under which services provided through the Internet are exempt from VAT. 24 Basically, in order to be able to apply the VAT exemption for the services of insurance agents, online service providers must do more than act as a mere conduit through which potential customers are redirected to the website of an insurer or insurance agent. In this respect, HMRC have defined four requirements: (1) the website is operated by a service provider who is engaged in the business of putting insurers in contact with potential customers; (2) the service provider provides the means by which a person seeking insurance is introduced to an insurer or to an insurance intermediary; (3) that introduction takes place at the time the customer is seeking to enter into an insurance contract (irre- 23. UK: Court of Appeal, 22 Apr. 2010, Case A3/2009/1300, Commissioners for Her Majesty s Revenue and Customs v. InsuranceWide.com Services Limited and Trader Media Group Limited, [2010] EWCA Civ 422. See 21 Intl VAT Monitor 4, p. 316 (2010), and http://www.bailii.org/ew/cases/ EWCA/Civ/2010/422.html. 24. Business Brief 31/10 of 3 August 2010; see http://www.hmrc.gov.uk/ briefs/vat/brief3110.htm. spective of whether or not a contract is concluded); and (4) the introducer plays a proactive part in putting in place the arrangements under which the introduction is effected. Compliance with that condition can be demonstrated by an active product endorsement by the introducer, his involvement in the selection of insurance products and insurers, his involvement in the process by which the insurer and insured enter into an insurance contract, negotiation of special rates, and by some form of assessment of the customer s requirements. HMRC accept that performance-related remuneration is an indication, but not a sufficient condition, for the application of the exemption for the services of insurance agents. 2.4. VAT exemption for online insurance mediation in Germany The Finanzgericht Munich had to decide a dispute in which the service provider was in a position comparable to that of Trader Media and InsuranceWide. The service provider operated a comparison website for car insurance. Visitors to the website had to provide relevant personal details, including details of the car to be insured. On the basis of that information, the visitors received a list of seven offers that best fitted their personal needs. The visitor could then file an online application. If he did not untick a particular box, the visitor received an offer in writing from the respective insurers. The operator of the comparison website received a commission not only for each contract concluded, after the insured had paid the first insurance premium (pay per sale), but also for each set of details of interested visitors forwarded to the insurers, irrespective of whether a visitor actually entered into an insurance contract (pay per lead). The operator took the view that the latter commission was similarly consideration for the exempt service of bringing together insurer and potential customers. By contrast, the tax authorities took the view that the exemption could only apply if the website operator was contractually authorized to bind the insurer and conclude insurance contracts on behalf of the insurer, and if the operator of the website recommended visitors of the website to enter into the contract. The Finanzgericht Munich 25 decided that the VAT exemption also applied to the services for which the operator of the website was remunerated per lead. In that respect, the position of the Finanzgericht was straightforward: operators of websites for comparing car insurance are engaged in exempt insurance mediation if the visitors to the website after they have completed a form containing relevant data and after they have received the results of the comparison request an individual written offer from an insurer, and the operator of the website forwards this request to the insurer through an electronic interface. 25. Although the decision of Finanzgericht Munich, 3-K 134/07, was dated 19 May 2010, it was not published until autumn 2011. IBFD INTERNATIONAL VAT MONITOR MARCH/APRIL 2012 111

Hans-Martin Grambeck In this context, it is irrelevant that the operator is paid regardless of whether or not the visitor and the insurer enter into an insurance contract. The Finanzgericht decided that the decisive element of mediation pointing out to one party suitable candidates for the conclusion of a contract and doing everything that is necessary to ensure that the two parties enter into the contract was present under the circumstances mentioned above. The visitors to the comparison website were apparently interested in receiving an offer for an insurance contract and, on the basis of the information provided to the operator of the website, they had the option to receive an offer from the insurer. Mediation does not mean that the service provider must recommend visitors to enter into a contract and it is not necessary that the service provider is contractually authorized to bind the insurer (the activities of agents do not affect the freedom of contract of the contracting parties). 3. Future Developments In its more than four-year old proposal for amendment of the VAT Directive as regards the VAT treatment of insurance and financial services, 26 the European Commission promised to introduce a common harmonized concept of mediation for insurance (and financial services). The Commission apparently recognizes that there are important differences between the Member States as regards the scope of the VAT exemptions for those and other financial services. In its most recent version, the proposal contains an exemption for intermediation in insurance transactions (new article 135(1)(gd)). In this context, intermediation in insurance transactions is defined as a distinct act of mediation rendered by a third party who [brings the parties together and] does what is necessary in order for the parties to enter into, maintain, renew or alter a contract of insurance. According to the Commission, in order to provide legal certainty in respect of such services, the accompanying Implementing Regulation specifies objective criteria to be applied in evaluating whether a service represents a distinct act of intermediation. However, as regards the VAT treatment of insurance intermediation provided through the Internet, article 12(2)(a) of the most recent version of the proposed Implementing Regulation 27 only contains a negative definition: the concept of insurance intermediation does not include, in particular, technical web services or hosting services. 28 That clarification is not particularly helpful. The proposed Implementing Re- 26. Proposal of 28 November 2007 for a Council Directive amending Directive 2006/112/EC on the common system of value added tax, as regards the treatment of insurance and financial services, COM(2007) 747, p. 2. 27. Proposal of 28 November 2007 for a Council Regulation laying down implementing measures for Directive 2006/112/EC on the common system of value added tax, as regards the treatment of insurance and financial services, COM(2007) 746, as most recently amended on 30 September 2011, No. 14965/11, FISC 123. 28. Article 12 of the most recent version of the proposal for the Implementing Regulations reads: gulation does not indicate whether leads and qualified leads generated through the Internet are covered by the exemption for insurance intermediation, or how taxed marketing services must be distinguished in practice from exempt intermediation. 4. Conclusions The Internet has become an important medium in commercial transactions. It supplements or even replaces classical distribution structures in B2C business. Concepts of the VAT Directive, which were drafted in the 1960s, do not always match the features of activities carried out through the Internet more than 50 years later. The discrepancy between VAT law and real life is evident in the area of insurance mediation: what nowadays can be achieved by means of an automated process can hardly be compared with the personal services rendered by skilled insurance agents. However, the results are the same: finding potential customers and bringing them in contact with insurers. From the perspective of consumer protection, replacement of the personal assistance and advice of live insurance agents by technical routines on websites may be controversial. However, such reservations are irrelevant for VAT purposes. Drawing a distinction between, on the one hand, administrative work, advertising and the provision or exchange of information and, on the other hand, insurance mediation remains difficult and, if it depends on decisions of national courts, the 1. The definition of intermediation in insurance... transactions provided for in point (gd) of Article 135(1) of the VAT Directive covers at least the following: (a) intermediation in transactions whose nature corresponds to the services mentioned in Article 135(1)(a) to (gb) but which are outside the scope of VAT; (b) intermediation in insurance... transactions in cases where a contract is not subsequently entered into, maintained, renewed or altered; (c) intermediation in insurance... transactions provided by sub-agents; (d) intermediary services of insurance brokers and insurance agents; (e) negotiation on behalf of a party to a contract of the terms of that contract within the intermediary services; (f)... (g) insurance cover provided by a taxable person who is not himself an insurer but, under a block policy, procures such cover for his customers by making use of the supplies of an insurer who assumes the risk insured; (h) intermediation in termination of a contract concerning purchase of insurance... transactions involving termination of such an existing contract on behalf of a client in connection to a new contract on purchase of such a service on behalf of that client. 2. The definition of intermediation in insurance... transactions provided for in point (gd) of Article 135(1) of the VAT Directive does not, in particular, cover the following: (a) technical web-services or hosting service; (b) advertising, marketing and other information services; (c) maintaining the client relationship during the contract, such as provision of loyalty gifts. 112 INTERNATIONAL VAT MONITOR MARCH/APRIL 2012 IBFD

Online Insurance Mediation under EU VAT scope of the exemption may vary from Member State to Member State. In this respect, there are at least differences between Germany and the United Kingdom: in Germany, the exemption for insurance mediation seems to be interpreted more broadly than in the United Kingdom. Different approaches are likely to exist in the other 25 Member States. Those differences would not disappear if the current version of the clarifying Implementing Regulation on financial services were adopted. However, there are no signs that the new definitions of the exempt financial services and insurance transactions, and the accompanying clarifications, will be adopted in the near future, which means that the EU legislature still has an opportunity to deal with the lack of clarity. Should the legislature fail to do so, national courts should continue to refer further questions to the ECJ because that procedure has always been, and will continue to be, the sole method for ensuring further harmonization of the EU VAT system and for achieving a level playing field for businesses operating in the European Union. EU VAT Compass 2011/2012 Including EU VAT Directives ECJ Case Law on VAT VAT Options Exercised by the Member States BOOK Encompassing the most important features of the European Union s VAT system, the EU VAT Compass 2011/2012 is an essential source of reference for all those actively working or interested in VAT. The book consists of three parts, each comprising a vital element of the European VAT system. Part One presents the consolidated text of the current EU VAT Directive (Directive 2006/112), as most recently amended by Directive 2010/88; it also contains the texts of several other Directives in the field of VAT. All future amendments to be made to the basic VAT Directive under Directives 2008/8 and 2010/45, and the text of the new Implementing Regulation (No. 282/2011) are included. For the interpretation of the EU VAT legislation, the case law of the Court of Justice of the European Union (ECJ) is an indispensable element. Part Two provides an overview of both the operative parts of the more than 400 ECJ judgments in VAT cases and the pending cases that are expected to lead to judgments in the course of 2011 and 2012. The book concludes with an overview of the options laid down by the VAT Directive that have been taken up by the individual Member States. This comprehensive analysis covers all 27 Member States. Editors: Fabiola Annacondia and Walter van der Corput Format: Paperback Published: August 2011 Price: EUR 80 USD 115 Subscription: EUR 65 USD 95 To view detailed contents or to order online, visit www.ibfd.org. Alternatively, contact our Customer Service department via info@ibfd.org or +31-20-554-0176. IBFD, Your Portal to Cross-Border Tax Expertise 030EUVC11/A03/H 030EUVC11_A03_H.indd IBFD 1 INTERNATIONAL VAT MONITOR MARCH/APRIL 2012 07-02-12 17:22 113