Insurance Europe: insurance premiums cannot be categorized as fees when designing the VAT regulations

6 October 2021 — Daniela GHETU
Any legislative initiative to review the VAT Directive has to take account of the unique features of insurance, its products and business mode, Insurance Europe notes in its position paper on the EC's review of the Directive on value-added tax (VAT) released today.

The interaction of VAT with other existing levies must also be carefully examined, notably to avoid undue increases in the costs of insurance products, the insurers' federation has underlined.

Insurance Europe had previously submitted feedback through a consultation, where it welcomed the EC's aim to reform VAT rules for financial services in order to provide clarity and legal certainty about the scope of VAT exemptions that apply to insurers. It also pointed to several aspects of the Directive that should be updated.

Insurance Europe's latest position paper seeks to clarify some key aspects of the ongoing discussions and focuses specifically on why insurance premiums cannot be categorized as fees. The nature of premiums is inherently different from that of fees and, as such, insurance cannot be viewed as a fee-based service. A fee is a fixed amount, normally in direct proportion to the service that a specific customer receives, while a premium is an individual contribution to a collective pool that enables an insurer to be able to cover risks for insureds.

Insurers perform complex calculations to assess premiums in order to be able to cover the likely claims arising from an insurance contract, with a safety margin to ensure the long-term viability of the insurer.

The full text of the position paper is available on Insurance Europe website.


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