Value added tax assessment of services vis-à-vis co-insurers. Taxable benefits of the leading insurer: case law and open options
The Federal Administrative Court (BVGer) had to assess the assumption of the contract handling of an insurance company against its co-insurers for VAT purposes.
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The Federal Administrative Court (BVGer) had to assess the assumption of the contract handling of an insurance company against its co-insurers for VAT purposes. By decision of 9 August 201602 the BVG concludes that, in accordance with the practice published by the FTA, it03 were taxable services. The decision contains clarifying statements of a fundamental nature on the performance relationship, but leaves questions open in the concrete application of the law. The BVGer's ruling will be referred to the Federal Supreme Court.
The Leading Insurer shall conclude an insurance policy with a policyholder in accordance with the Swiss Insurance Association model. The policy is designed as co-insurance. The insured risk is divided among various companies at the policyholder's request. Each of these companies is only liable for a predetermined share of the total insured risk. The policyholder has appointed the leading insurer for the execution of the contract in accordance with the contract. The policyholder will only deal with the latter. The Leading Insurer may act with binding effect for the other Co-insurers with regard to the assumption of liability, recognition of the obligation to pay for benefits due and the payment of bonuses, etc. The Insured authorises the Leading Insurer to claim the cost premium for processing the contract included in the total premium. The Leading Insurer shall transfer to the Co-insurers the (risk) premiums corresponding to their quota, after deduction of the aforementioned cost premium. The Insured instructs the Leading Insurer to forward all necessary information to the Co-insurers.
Prior to the conclusion of the policy, the Co-insurers shall give the Leading Insurer written assurances that they agree with the contractual elements and authorise the Leading Insurer to sign the contract on behalf of the Insurers.
The question to be assessed was whether the leading insurer, by taking over the handling of the entire co-insurance relationship with the respective co-insurers, is providing a service in the sense of value added tax and how this service is to be qualified, if at all.
Performance ratio compared to co-insurers
The following characteristics are necessary for the existence of a service relationship: a service between two parties against payment, whereby service and payment are economically linked.04
The concept of service is defined in Art. 3 lit. c MWSTG and includes the granting of a consumable economic value to a third party in anticipation of a payment. In contrast to the case law on the old VAT Act in force before 2010, the existence of a service according to the BVGer is basically to be assessed from the perspective of the service provider.05 This results in particular from the legal wording of the expectation of remuneration, which, together with the term "concession", also presupposes that the service provider must provide the service intentionally.06 For the other prerequisites of the service relationship (i.e. remuneration and its economic link to the service) the perspective of the service recipient remains decisive.
The BVG considers the execution of all administrative tasks in connection with the contract processing in the co-insurance relationship to be of consumable economic value. The leading insurer also handles the contract with regard to the participation of the co-insurers, who are relieved of this activity. He assumes tasks which would be attributable to the duties of the co-insurers, which is why, from the point of view of the leading insurer, they are to be regarded as beneficiaries of the management services. This does not alter the fact that it is also in the interest of the policyholder if the entire contract is handled by a single company. It is true that it is in line with the wording used in the policy that only the policyholder commissions and obliges the leading insurer to assume leadership. However, this requires the consent of the co-insurers, who outsource part of their tasks. The form of the co-insurers' consent or a corresponding declaration of intent is not decisive in this respect. The absence of written contracts between the leading insurer and the co-insurers for their consent does not mean that there is no contractual relationship between the leading insurer and the co-insurers. Finally, the BVGer sees the expected remuneration in the unallocated cost premium share, which exceeds the proportional risk share of the leading insurer. The BVG therefore concludes that the leading insurer provides the co-insurers with a benefit in the sense of value added tax.07
As far as the premium is concerned, an actual payment flow from the co-insurers to the leading insurer is not decisive. The fee does not have to be a monetary payment, but can also be justified by a set-off of claims. Since the execution of the contract is a necessary component of an insurance relationship, participation in an insurance company is in principle also entitled to charge a cost premium. The co-insurers would now be entitled to have the share of the cost premium corresponding to their participation quota "passed on" to them by the leading insurer. The co-insurers have a corresponding claim against the policyholder or the leading insurer "acting as paying agent". This claim would now be offset as compensation for the services rendered by the leading insurer to the respective co-insurer. A causal economic connection between the performance of the leading insurer and the fee is also given.08
While the basic explanations of the BVGer on the concept of performance can be based on the wording of the law and literature and can be understood, the classification in the concrete case leaves questions open. For example, the BVG establishes the contractual relationship between the leading insurer and the co-insurers and assumes that claims will be offset against remuneration. However, it does not examine what the co-insurer's claim to be set off should be based on, but merely mentions that it should be a claim of the co-insurer against the policyholder or the leading insurer acting as paying agent. In order for such a claim of the co-insurer against the policyholder to arise as a correlation to his obligation to pay as a debtor, a contractual basis is required (non-contractual reasons for the origin of such a claim are not apparent in the specific case).09 In other words, there must be a mutual agreement between the policyholder and each individual co-insurer. These must oblige the co-insurer to execute the contract within the scope of his participation quota. Only then is the claim to payment of his share of the cost premium to be subsequently offset justified. Only in a second step can the obligation of each co-insurer regarding contract execution be delegated to the leading insurer for execution - again against payment. Whether the treaty foundations allow such an interpretation seems questionable, or at least in need of explanation. It is to be hoped that the Federal Supreme Court will be able to clarify this.
Controllability of the benefit vis-à-vis the co-insurers
After establishing the performance relationship between the leading insurer and co-insurers, the SNB had to examine whether the transactions in question were, at most, tax-exempt transactions of the leading insurer pursuant to Art. 21, para. 2, item 18 of the VAT Act. Since the management services only include administrative and organisational activities and do not cover any risks, there are no insurance benefits in the narrower sense (not even as part of an overall service). Therefore, there are still possible revenues from the activity as an insurance agent or insurance broker. Turnover from the activity of insurance agents who act on behalf of insurers to broker insurance contracts for a commission and perform tasks typical of the profession, whereby there must be a direct connection between the services typical of the profession and the contracts brokered (the insurance broker acts on behalf and in the interests of the policyholder).10
According to the BVG, the mediation of co-insurance contracts or the corresponding participation quotas against commission cannot be inferred from the contractual basis. Nor was it apparent that the cost premium not passed on to the co-insurers included a commission. This would eliminate the application of the tax exemption.11
This assessment naturally leaves room for future design options, for example by stating a commission for the mediation of co-insurance in the contract. Although the SNB did not have to decide on the effect of such a contract design, it nevertheless makes some interesting comments on this. Thus, even with such a contract design, it was questionable whether the leading insurer could be assigned to the professional group of insurance agents in such sporadic mediation. The brokerage business is not the core of the leading insurer's business. It is therefore impossible to deny that the services provided in the context of the management of coinsurance correspond at least in part to the typical professional tasks of an insurance agent. It is not possible to establish a direct link between those services and an intermediary activity. As regards the effectiveness of such a contractual arrangement, there is therefore considerable legal uncertainty, even after the decision of the Federal Administrative Court, and the activity of intermediaries remains difficult to assess even in the insurance sector.12
01 To the title of the article: First publication: Roger Rohner, VAT assessment of services provided to co-insurers, EXPERT FOCUS 2016, p. 979 ff.
02 BVGer, 9.8.2016, A-6671/2015 and A-6674/2015 The following quotations refer to this decision, unless otherwise stated.
03 VAT industry information no. 16 of the FTA, insurance industry, point 4.4.
04 E. 2.2; Sonja Bossart/Diego Clavadetscher, in: Martin Zweifel/Michael Beusch/Pierre-Marie Glauser/Philip Robinson (eds.),
Commentary on Swiss Tax Law, Federal Law on Value Added Tax, Basel 2015, Art. 18 N 24 f.; Alois Camenzind/Niklaus Honauer/Klaus A. Vallender, Marcel R. Jung/Simon L. Probst, Handbuch zum Mehrwertsteuergesetz (MWSTG), 3 A. Bern/Stuttgart/Vienna 2012, N 594 et seq.; Claudio Fischer/Claude Grosjean, Der Leistungsbegriff, ASA 78 (2009/2010), p. 704 et seq. with reference to the fact that the remuneration itself cannot be a service, while the BVG still writes of the remuneration as "consideration".
05 E. 184.108.40.206 ; Bossart/Clavadetscher, Art. 18 N 45; on the previous case law see BVGE 2009/34, E. 2.2.1
06 E. 2.2.1.; Camenzind/Honauer/Vallender/Jung/Probst, N 603; Fischer/Grosjean, p. 707; Felix Geiger in: Felix Geiger/Regine Schluckebier (eds.), MWSTG Commentary, Zurich 2012, Art. 3 N 14 ff.
07 E. 3.3.1 ff.
08 E. 3.3.4 f.
09 Ingeborg Schwenzer, Swiss Code of Obligations General Part, 7 A. Bern 2016, N 4.29 on the creditor's right to claim as a correlate of the debtor's obligation to perform.
10 BGer, 17.6.2010, 2C_434/2009, E. 2.3 f.; BGer, 7.4.2008, 2C_612/2007, E. 6.
11 E. 4.2. also to the following.
12 Cf. also for the financial area Fabienne Boinnard/Gilles Widder, TVA - Intermédiation financière/négociation, EXPERT FOCUS 2016, p. 580 ff.