On March 8, 2001, the European Court of Justice (ECJ) issued a decision in the case C-240/99 (Skandia) regarding the application of VAT exemptions to insurance transactions. The case revolved around Skandia, an insurance company, and its subsidiary Livförsäkringsaktiebolaget Skandia (Livbolaget). Livbolaget is engaged in the business of life assurance, specifically in the sector of capital insurance and insurance provision for old-age.
Skandia and Livbolaget were considering merging their insurance activities into a single company. One proposed plan involved transferring Livbolaget’s staff and operations to Skandia, effectively allowing Skandia to conduct all of Livbolaget’s business. In return, Skandia would receive remuneration at market rates, but would assume no liability for the insurance activities. The risks would remain solely with Livbolaget, which would retain its status as an insurer under Swedish civil law.
Skandia sought a preliminary opinion from the Skatterättsnämnden (Swedish Tax Board) to determine whether assuming the commitment to run Livbolaget’s business activities would qualify as the supply of insurance services and be exempt from VAT. The Skatterättsnämnden ruled that the commitment would not be considered an insurance service but rather the supply of administrative and management services to Livbolaget. Skandia challenged this ruling before the Regeringsrätten (Supreme Administrative Court), which upheld the decision.
Skandia argued that the Regeringsrätten’s interpretation of the VAT exemption for insurance services contradicted the case-law of the ECJ. Skandia referred to the Court’s judgment in SDC (C-2/95), which interpreted the exemption provisions of the Sixth VAT Directive. Skandia contended that the Court’s interpretation in SDC demonstrated that a service need not be provided directly to an end customer to qualify for exemption under Article 13B of the Sixth Directive.
The national court, in its reference for a preliminary ruling to the ECJ, acknowledged that the Skandia case differed from previous cases considered by the Court. The cooperative arrangement planned by Skandia and Livbolaget involved the supply of services by an entity that is not an insurer to a party that is neither insured nor a policy-holder, and does not involve an insurance broker or agent.
The Advocate General (AG) issued an opinion stating that a commitment assumed by an insurance company to run the business of a wholly-owned subsidiary does not constitute an insurance transaction within the meaning of Article 13B(a) of the Sixth Directive. The AG’s opinion was based on the understanding that the commitment did not involve an insurance service provided directly to an insured party by an insurer.
The ECJ ultimately ruled in line with the AG’s opinion. The Court held that a commitment assumed by an insurance company to carry out the business activities of a wholly-owned subsidiary, in return for remuneration at market rates, does not constitute an insurance transaction within the meaning of Article 13B(a) of the Sixth Directive. The Court emphasized that the commitment did not involve the provision of insurance services directly to an insured party.
In summary, the ECJ’s decision in the Skandia case clarified that a commitment by an insurance company to run the business activities of a wholly-owned subsidiary, in exchange for remuneration, does not qualify as an insurance transaction for VAT exemption purposes. This ruling reaffirmed the requirement that insurance services must be provided directly to an insured party by an insurer to qualify for the VAT exemption.
