Public consultation on EU VAT on financial and insurance services

The EU Commission has launched a public consultation on the current VAT rules for financial and insurance services. The public consultation follows on from the Commission's roadmap published in October 2020 and is the first stage of the process intended to simplify and modernise the EU VAT rules applicable to financial services and insurance.

Background

The EU Commission recently published a Tax Package of measures which included a proposal to update and simplify the VAT rules for financial services. For more details of the Tax Package, see The EU Commission's new Tax Package.

The Commission has previously attempted to modernise these rules, most notably with a 2006 Public Consultation on the VAT treatment of financial and insurance services. That consultation led to a wide-ranging and long-running review led by the Commission with input from Member States with a view to modernising the VAT finance and insurance exemptions to take account of developments in the market such as outsourcing and the increased use of technology-based solutions. Ultimately, that project faltered as a result of disagreements amongst Member States (but also due to a change of focus following the 2008 financial crisis) and was finally (and quietly) laid to rest in 2016.

Public consultation

This public consultation seeks the views of a large diversity of stakeholders: businesses, consultancies, representative organisations and public authorities of the Member States. Equally, contributions from academics, researchers and non-governmental organisations as well as the general public are welcome. The consultation takes the form of an online questionnaire.

The Commission is concerned that the current rules on VAT treatment of financial and insurance services do not reflect modern methods of business in the sector and are applied inconsistently by Member States. This results in a lack of VAT neutrality, legal uncertainty and high administrative and regulatory costs. This is likely to contribute to distortions in the Internal Market and accordingly national measures alone are insufficient to modernise the rules and make their application more coherent across the EU.

In addition, the Commission considers that since supplies of financial services and insurance are generally exempt from VAT, the inability to recover input VAT puts businesses in this sector at a disadvantage.  

Next steps

The public consultation runs until 3 May 2021 and feedback will be taken into account in the further development of proposals. The roadmap suggests that the Commission will publish an impact assessment in the third quarter of 2021 and aims to put forward a proposal for a Directive based on the feedback and impact assessments in the fourth quarter of 2021.