3 August 2015
The Court of Justice of the European Union (CJEU) has given its judgment in the case of Mapfre Warranty SpA Case C-584/13 and has followed the Advocate General. This means that an extended warranty sold with a motor vehicle (or potentially with any other goods) is actually a VAT exempt insurance transaction, in cases where it can be characterised as a separate supply.
In some Member States, VAT has been applied to such warranties. In the UK, there is no 20% IPT charge and the current treatment of “premium” as VATable allows the service provider to recover VAT on repair costs. It is possible that 20% IPT may be imposed by HMRC instead of VAT on such contracts from a future date.
In other EU Member States IPT may have a lower rate than VAT, and although input VAT will no longer be recoverable any change to treat “premium” as subject to IPT and not VAT may represent a benefit overall.
Apart from the possible IPT charge arising from this judgment, there is a regulatory issue to be considered. Many warranty companies will not be regulated as insurers, and it appears possible that they may need to be in the future.
In some cases, the arrangement may be that there is a single supply of goods and warranty, with both being subject to VAT. This was found not to be the case with Mapfre Warranty, but where the supplier of the goods and the warranty is one and the same it is more likely to be the case. Whether this would prevent the supplier from being seen as an insurer for regulatory and premium tax purposes is questionable, however.