In its judgment of 5 September 2019 (VR 57/17) published on 5 December 2019, the Supreme Tax Court held that the transfer for consideration of endowment policies on the secondary endowment policy market is exempt from VAT.Background
The appellant was a public limited company which acquired endowment policies taken out by private individuals. The purchase price was above the so-called surrender value, but below the paid-in insurance premiums. Subsequently, the appellant amended the insurance contracts by terminating the supplementary insurances – which were irrelevant for the maturity value – and converting the premium payment plan to an annual payment basis. It then sold its rights to these now modified endowment policies to various funds. In the year in dispute (2007), the appellant treated its turnover on the transfer of the endowment policies as VAT-exempt. The tax office took the view that the sale of endowment policies on the secondary market constituted a single taxable supply. The VAT base of the supply of the service was the purchase price paid by the fund. The court at first instance dismissed the appeal.
In contrast, the Supreme Tax Court set aside the judgment of the tax court and upheld the appeal. In its view the supplies constituted VAT exempt supplies with receivables under Section 4 No. 8 letter. c of the VAT Act.
By the sale of its rights to and obligations from the modified endowment policies, the appellant was supplying a single service. The transfer of the (future) claim (i.e. the maturity benefit) was to be regarded as the main service because buyers on the secondary endowment policy market (the funds) were only interested in the savings component of the policy.
The decision of the Supreme Tax Court has a considerable effect on the business model purchase/sale of “second-hand” endowment policies. The charge to VAT proposed by the tax authorities and the tax court would have nullified the whole business model.
Supreme Tax Court judgment of 5 September 2019 – V R 57/17 – published on 5 December 2019.