On 22 October 2009 the European Court of Justice (ECJ) delivered judgment concerning the VAT treatment of portfolio transfers of both primary and reinsurance business1, a case that came before the ECJ upon referral from the German Federal Tax Court (BFH).
The background to the case was this: in 2002, the former Swiss Re Germany Holding GmbH transferred 195 reinsurance contracts to an affiliated company within the Swiss Re group situated in Zurich, Switzerland, and received in return the payment of a single purchase price. Of the transferred reinsurance contracts, some 18 were assessed as having a negative value, thereby reducing the net agreed price.
This being reinsurance business, the policy holders of the transferred contracts were themselves insurance companies, all of them located outside Germany, both in other EU member states and in non-member countries. They each gave their consent to the transfer. Upon execution of the transfer, however, the local Munich tax authorities determined the transfer to constitute a taxable supply of goods, applying a former decision of the BFH. Having appealed against the decision unsuccessfully to the Munich local tax court, Swiss Re filed an action with the BFH.
For its part, the BFH also took the view that a reinsurance portfolio transfer was a taxable supply, albeit a supply of services (not goods), and in the present case it held that the place of supply was Germany, the place of business of the transferor. Since no VAT exemption applied, it considered that, as a matter of German law, VAT should be charged in Germany. However, the BFH also wished to clarify whether this interpretation would violate the Sixth EU Council Directive 77/388/EEC (Sixth Council Directive), and accordingly it submitted a preliminary reference to the ECJ seeking its ruling on the following main points:
Are such portfolio transfers to be regarded as a "supply of services" or a "supply of goods", (since a different VAT regime applies to each)? If a portfolio transfer is to be regarded as a supply of services, does it constitute a "banking, financial or insurance transaction" (if so, the service would be exempt from VAT under Art 13B of the Directive)? Is the transferee to be regarded as a service supplier in relation to the acquisition of those reinsurance contracts carrying a negative value and if so what difference (if any) does this make in respect of VAT obligations? In considering the above matters, the ECJ held...