Judgment of the CJEU. Possibility of reducing the VAT tax base, by an insurer, in relation to uncollected credits. Case C-482/21 Euler Hermes SA

The litigation corresponds to a company that carries out an insurance activity, committed to indemnify its policyholders in the event of non-payment by their clients, raising the amount of compensation to 90% of the value of the uncollected credit, including VAT. Likewise, within the framework of the contract with their insureds, they assign to the insurer the part of the value of the credit and all related rights that initially corresponded to the insured.

Taking place the unpayment by the clients with respect to the credits assigned to the insurer, the latter requested to the Tax Administration the refund of the VAT corresponding to said bad credits, on the basis that the amount of the compensation that it paid to its clients included VAT. However, the Tax Administration denied said request because the insurance company, which requested the VAT refund, had not carried out the operations under which the bad debts raised. Likewise, the company’s allegation was dismissed, by considering that a change of VAT taxpayer resulting from an insurance contract did not constitute succession from the point of view of tax law, so the refund was not appropriate since the entity was not a taxable person in the case of operations for which it was intended to exercise the right to reduce the tax base. The insurer filed a new appeal alleging that by virtue of the insurance contract it is entitled, as the legal successor of the insured, to the refund, invoking the principle of neutrality of the VAT.

Given the facts, the referring Body refers the question for a preliminary ruling to the ECJ, asking whether article 90, paragraph 1, of the Directive and the principles of fiscal neutrality, proportionality and effectiveness are opposed to a rule set by a Member State whereby the reduction of the tax base in the event of bad credit does not apply to an insurer that pays its clients, as compensation for the unpaid credit, a part of the amount of the operation, including VAT, while said credit and all the rights have been assigned to the insurer in accordance with the contract.

In this sense, the ECJ recalls that article 90, section 1, of the Directive obliges Member States to allow the reduction of the tax base when, after the operation, the taxpayer does not receive part or all of the consideration, which is the expression of the principle of fiscal neutrality, in such a way that the Tax Administration cannot receive an amount of VAT higher than that received by the taxpayer, and the formalities that must be fulfilled must be limited to those that allow to prove that the counterpart will not be received such payment.

However, it also recalls that the classification of “operation for valuable consideration” only requires that there is a direct relationship between the operation and a consideration received by the taxpayer, but it is not required the consideration to be paid directly from the recipient of the operation, but it can come from a third party. In this way, the insurance company paid its clients a compensation for 90% of the credits trespassed, VAT included, so that the part of the consideration corresponding to said credits has actually been received by the taxpayer. Accordingly, it cannot be considered that these are the subject of a default within the meaning of article 90, paragraph 1, and, therefore, said part of the credits that have been collected, even through compensation, cannot give rise to a right of reducing the VAT taxable base.

In addition, it cannot be recognized that an insurer, like in the present litigation, occupies the position of the taxable person who is entitled to the reduction of the tax base, since it would be contrary to the principle of neutrality as far as the VAT paid to the Tax Administration would not be exactly proportional to the price actually received by the taxpayers, who carried out the taxable operations.

The Judgment has case number C-482/21, dated February 9, 2023.

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