Here is a great example of a very practical, day-to-day VAT question that is going to be decided by the European Court of Justice (ECJ).
In my previous post I noted that rulings of the ECJ are often predictable. The discussion here is not yet about a ruling, but rather an opinion (a draft ruling) by the Advocate-General. The case is Mapfre C-584/13. See here for the source: http://tinyurl.com/k9rwfjs (I had to shorten the link or it wouldn’t fit on the page). It is not yet available in English.
The case is that a company sells warranties independent of the underlying supply (in this case the sale of a second-hand car). The question is if this is an exempt insurance transaction or a taxable “general service”. Reference is made to Article 2 and Article 13(B)(a) of the Sixth VAT Directive.
The Advocate-General follows the well-trodden path of separating independent supplies where possible. He concludes that if the warranty is provided by a third party, the service is VAT exempt. In practice, this means no VAT on the warranty fees, but there may be an impact on any repair expense further down the road. If the repair is directly related to the exempt insurance, then the VAT on the repair is not recoverable.
On the other hand, if the sale of the warranty is directly related with the underlying supply (in this case the sale of the second-hand car), then the warranty is taxable as a part of the payment for the car. That means that if the warranty is sold at the same time, on the same agreement and on the same invoice, it is part of the sale and thus taxable.
But what if the car salesman sells the warranty not in his own name but “on behalf of” the insurer, at the same time of the sale, but with a separate agreement and separate invoice? The Advocate General doesn’t address this question, but I would say that the supplies (used car and warranty) are then sufficiently separated.
Like in the Skandia case, the Mapfre draft ruling is very predictable. At least in Dutch case law there are a couple of Supreme Court precedents that I know of, and I’m sure that other EU countries have similar case law. The Advocate General could also simply have ruled that this is a so-called “acte clair” and that the ECJ should not waste their time on this question.
Much more interesting is the question of whether the VAT on the future repair expense, paid for by the insurer, is recoverable, and by whom. Surely some EU country has case law about that question.