The role of the CJEU in the interpretation of the VAT exemptions relating to financial services and insurance transactions

Abstract

The VAT exemptions for financial services and insurance transactions are contained in article 135(1)(a)-(g) of Directive 2006/112/EC (VAT Directive). According to the VAT Directive, such activities are deemed exempt by the Member States and when supplying such services, businesses are not required to charge tax on such supplies but are also generally unable to recover the VAT they pay on the goods and services required for their businesses. It has been illustrated that there have been and still are problems in ensuring clear and consistent application of these VAT exemptions across the Community. The existing legislation which dates back to 1977 and which has not kept abreast of developments since then is currently out dated and deals poorly with the complexity of modern business, leading to excessive costs which is inefficient. In view of this, there has been a Proposal to amend the VAT Directive aimed at modernizing and simplifying the complex VAT rules for such services and securing a level playing field in the EU market as far as VAT is concerned. Due to a number of reasons, the Proposal which has been in discussion since 2007 was never ratified and is now shelved. Consequently, the CJEU has often been asked to fill in the lacuna and clarify the correct interpretation of such exemptions. Therefore, the importance of the CJEU decisions with regards to financial services is key. The main purpose of this dissertation is to delve into two particular VAT exemptions (fund management and insurance transactions) and look into how the CJEU interpreted the particular exemptions, and if it was consistent in its interpretation. Our legislation will also be analyzed as well as shortcomings in our present legislation (if any) by means of a comparative analysis with strong finance jurisdictions such as Ireland, the UK and Luxembourg.