VAT treatment, of insurance on a vehicle renting


Binding tax ruling V0868-16 issued by the Spanish General Tax Directorate on March 9 2016.

The inquirer is an company established in the Spanish VAT territory aimed to long term leasing of vehicles.

This Company manages the insurance for covering possible losses for damages to the vehicle in two different ways:

–          Option 1:

Under this option, the policyholder would be the final customer (tenant of the renting contract). The insurer would address the invoice for that customer, but the cost would be paid by the consultant (rental contract renting).

–          Option 2:

In this case, the policyholder would be the consultant. The insurance company would address the invoice for that entity, then, the renting company would charge this cost to the customer within their quota of renting, although the amount included could not match with the one charged by the insurance company.

The VAT treatment of option 1 seems to be clear. It would be considered as an insurance service, so it would be a service subject and exempt from VAT. The fact that the premium is satisfied by the consultant rather than by the end customer does not vary this treatment for VAT purposes.

Regarding the treatment of the option 2, in the first place, this ruling mentions the judgment of the ECJ of 25 February 1999, case C-349-96 Card Protection Plan Ltd, in which it is resolved that for the applying of the exemption to insurance operations is not mandatory that the person providing the service is an insurance company, the exemption is also applicable to services provided by other kind of entrepreneurs.

The point that needs to be clarified in option 2 is if you have to treat this provision of services as a single transaction in which the accessory provision (insurance) would continue the treatment, for the purposes of VAT, of the main provision (renting), in which case the entire operation would be taxed by VAT. Or, if on the other hand, both services should be analysed separately, being exempt from VAT the insurance service.

In this sense, the Spanish General Tax Directorate mentions several criteria in different ECJ judgments to determine whether services such as independent if the lessee can ensure the good with any insurance company, in which case the independence of both services would be accredited. The other criteria mentioned, and it is on the basis that solves is this ruling is the accuracy between the amount of the invoice received by the lessor, and the amount charged by the lessor to the end customer, for the insurance.

I.e., in cases that in renting fees the hire company include insurance amounts identical to those received, such operations would be subject but exempt from VAT.

On the contrary, in cases in which renting quotas for insurance fees,  include an amount greater or less than that the one invoiced by the insurer to the renting Company, means that it is a unique provision of services subject and not exempt from VAT.

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CV 0868 16

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