VAT insurance exemption for car repairs

The Advocate General (the “AG”) of the European Court of Justice (the “ECJ”) has recently published his opinion in the Mapfre Warranty SpA case (C-584/13). An Italian company, Mapfre Warranty SpA (“Mapfre”) offered warranty services for second hand cars, sold by car dealers in France: for a supplementary premium, charged separately by the car dealer or included in the car price, the customers had the possibility to acquire a warranty covering them for eventual future car repairs. The dealers collected the premium and forwarded it to Mapfre. In case of a car breakdown, Mapfre was responsible for paying the costs of the repairs. The French Supreme Court asked the ECJ for a preliminary ruling on the question whether such services carried out by Mapfre, independently from the second hand car dealer, against the payment of a lump sum premium, were to be considered as VAT exempt insurance services.

The AG finds that the concept of “insurance operations” has to be given an autonomous definition for the purpose of EU law. He further recalls that, according to EU case law, a certain transaction should qualify as an insurance service, if there is an insurer committing himself to provide to the insured person a previously agreed service in the case of materialisation of the insured risk, against the payment of a premium. The AG notes that the ECJ has already ruled that a contractual relationship between the insurer and the insured person may be established by a third party acting in its own name but on behalf of the insured. Applying the ECJ criteria to the case at hand, the AG came to the conclusion that the services provided by Mapfre should fall within the scope of VAT exempt insurance transactions.

In particular, the AG rejected the argument presented by Mapfre according to which the supplementary premium paid was to be considered as “pre-payment” for possible future repair costs, as Mapfre would not ask for an additional payment or proceed to a refund in situations where the repair costs would be higher or lower than the premium. On the contrary, the insured person is fully covered against the insured risk.

Finally, the AG also distinguished between the supplies of warranties by a car manufacturer, which should be considered as a VAT taxable after sales services, and the supplies of warranties by an insurer.

"It should be noted that the ECJ will not necessarily follow the AG’s opinion, although, in practice, it usually does."