News

Swiss Re and the sale of insurance portfolios - 2010-01-21

The European Court of Justice (ECJ) ruled in "Swiss Re" that the sale of 195 life reinsurance policies to a Swiss reinsurer was potentially subject to VAT. Swiss Re in Germany sold the portfolio to a Swiss reinsurer and did not charge VAT. The German authorities assessed Swiss Re for VAT on the basis that it was a sale of goods, not a supply of services. The matter was eventually referred to the ECJ with Swiss Re arguing it was a supply of insurance services and, therefore, as supplied to a company established outside the EU, not subject to VAT.

The ECJ ruled that it was not a supply of goods, nor was it a supply of insurance services, leading to the conclusion that it is a supply of the right to the benefit of the portfolio. Such a supply is subject to VAT when supplied to a person established in the EU, although it would be outside the scope of VAT where supplied to a non-EU business as is the case here, but the ECJ was not asked to consider this aspect.

The implication for the UK insurance market is that the ECJ decision may apply to all transfers of books of business by insurers, reinsurers and brokers alike. The sale of books of business may therefore be subject to VAT unless it can qualify as a transfer of a going concern (TOGC), in which case it would be outside the scope of VAT.

There are a number of criteria to be met in order to be treated as a TOGC. The most critical in this case is the asset transferred must be capable of being operated as a separate business - but not necessarily having all the components of a separate business. HMRC will not give clearance to the treatment as a TOGC, putting the responsibility on the supplier of the portfolio. It is likely that HMRC will seek to assess businesses where transfers fail to meet the TOGC criteria, and may also assess up to 4 years retrospectively as a result of this decision.

Businesses involved in these types of transactions should ensure that the VAT position is carefully considered and charge VAT where applicable. Theoretically, this decision could also apply to similar transactions across the financial services sector, for example, the sale of investment portfolios.

For further information contact Bob Jones on 020 7516 2295, rjones@littlejohnllp.com, or Luigi Lungarella on 020 7516 2228, llungarella@littlejohnllp.com