VAT on warranties?

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: (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.

24 hours waranty

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Skandia: A Storm In A Teacup

One of the main character traits of the European Court of Justice (ECJ) is that their rulings are generally rather predictable. This may sound odd – if the rulings are predictable, why would local courts bother to refer questions to the ECJ in the first place?

The main reason is to have national regulations or local practices reconciled against the VAT Directive and codified – written into stone so that every tax inspector and tax payer in the European Union can better comprehend the tax rules. Also, asking for a ruling is helpful in cases where a certain tax practice is common and clear in some EU member states, but still up for discussion in others.

The Skandia ECJ case is a great example. I have briefly highlighted the ruling in my post here:, where I added a pdf file of the actual ruling.

The gist of the ruling is this: Supplies by a head-office to a foreign branch are within the scope of VAT if the branch is part of a VAT group / fiscal unity.

Now the UK authorities confirm that:

“Businesses must treat intra-entity services provided to or by such establishments as supplies made to or by another taxable person and account for VAT accordingly:

  • services provided by the overseas VAT-grouped establishment to the UK establishment will normally be treated as supplies made in the UK under place of supply rules, and subject to the reverse charge if taxable

  • services provided by the UK establishment to the overseas VAT-grouped establishment will normally be treated as supplies made outside the UK under place of supply rules. Therefore they will need to be taken into account in ascertaining input tax credit for the UK establishment. If the supplies are reverse charge services, they should be reported on the trader’s European Sales Listing of such supplies”

and there is more guidance on this shortly:

“HMRC will confirm which other member states will operate Swedish-style ‘establishment only’ VAT grouping following the Skandia decision as soon as possible, and update guidance accordingly.”

For the entire text of the UK guidance see here:

Michel Schrauwen over at Deloitte in the Netherlands confirms that the Dutch position won’t change either:

“We thus feel it is logical that if a Dutch head office that forms part of a Dutch VAT group receives supplies from an overseas fixed establishment, these transactions will also basically continue to be tax-free.”

See here for his analysis:

By the way – all this only applies to cross-border services. The VAT liability on supplies of goods between head-office and a foreign branch follow the shipment of the goods. Therefore, these are zero-rated in the country of the head-office. At the receiving end, import VAT or the intra-EU acquisition rules apply.

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Puerto Rico: 16% VAT from April 1, 2015 reports on Puerto Rico is taking bold steps towards tax reform: lower income tax rates and a real VAT from April 1, 2015.

“In addition, it is proposed that those on incomes below USD35,000 would get a refund of VAT, and those on incomes below USD20,000 would receive a full refund. Prescription medication, groceries, private property leasing, and public schools would be exempt from all taxes, [said Puerto Rico’s Governor, Alejandro García Padilla].

“With this tax system overhaul we can help direct the island’s revenues towards the future, and ensure that we will borrow less, pay our current debts, and pay down the debt previous administrations committed to without the appropriate means for repayment,” he concluded.”

See more at:

Quite a few people that are involved with or affected by this tax reform have been critical of the chances of success – nevertheless it would be great to see how this all works out.

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KPMG’s 2015 Asia-Pac VAT Guide

KPMG published their 2015 Asia-Pacific VAT Guide, with an interesting editorial on the future of indirect taxes in the region.

Download (PDF, 787KB)

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European VAT Handbook on sale!

The European VAT Handbook 2014/2015, edited by Marja van den Oetelaar (see, is now on sale at the VAT Blog!

The book provides a real treasure-trove of VAT-relevant data for over 30 European countries – see the list in the pdf below.

On sale for only $50 plus shipping – send me an email ( please if you are interested.

Download (PDF, 76KB)

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Finally more import simplifications in the EU

VAT is not just due on supplies of goods and services, but also on imports of goods into the EU. Normally, VAT is payable to the Customs authorities at the time of import, and the same VAT amount can be recovered as input tax on the importer’s VAT return. This can be a rather significant cash flow burden (think 20% of the gross value of the imports).

The Netherlands has been a pathfinder in streamlining this process. Many years ago they allowed domestic business to defer the liability of VAT on import to the next VAT return. As a result, and subject to obtaining a license, Dutch import VAT can reported on the VAT return instead of paid to the Customs and the same VAT can be reclaimed on the same VAT return.

Even more, the Dutch authorities allowed the same simplification to non-resident importers (for example U.S. companies doing business in the EU), on the condition that the importer would appoint a local fiscal representative.

This so-called article 23 license has been a key driver for simplifying Dutch import VAT compliance. In addition, it created significant efficiencies on the government’s side for both internal revenue allocations and tax audits.

Recently other EU countries have established similar simplifications for import VAT compliance. Most notably the UK and Belgium apply somewhat similar systems.

From January 1, 2015 Spain, France and Sweden have started to accept applications for a deferment of import VAT liability along the same lines of the Dutch model. France allows non-resident importers to appoint a local rep (exactly the same as the Dutch). Spain and Sweden have yet to issue further guidance on import VAT simplification for non-residents.

The Port of Amsterdam

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China: lower VAT rates are consolidated

Circular 57 has the new rules covering to adjust the simplified VAT rates for goods sales from 6% or 4% to 3%. Grant Thornton reports on page 2 of this bulletin

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