The document summarizes two key developments from the past week: 1) A Court of Justice ruling found that claims handling services provided to an insurer are not exempt from VAT as insurance transactions or related services. UK law will need to change and businesses providing these services should review their VAT position. 2) The UK budget announced new powers for HMRC to make online marketplaces jointly liable for VAT debts of overseas sellers on their platforms. This aims to reduce the estimated £365 million annual VAT loss from non-compliant foreign traders. Online portals will need to strengthen due diligence of sellers.

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ITU
Summary
The main headline this week is
the Court of Justice judgment in
the case of Aspiro SA.
The taxpayer argued that its
services of claims handling
provided to an insurer should
have been exempt from VAT
under the provisions of the VAT
Directive.
The judgment follows the earlier
opinion of the Advocate
General. Claims handling
services are, in the circumstances,
not insurance transactions or
related services.
The Chancellor delivered his
2016 Budget this week. The main
highlight is the announcement
relating to on-line suppliers of
goods and HMRC's adoption of
new powers to combat VAT
fraud and evasion by permitting
them to make on-line portals
(such as Amazon and eBay)
jointly and severally liable for the
VAT debts of overseas sellers.
21 March 2016
Case C-40/15 Aspiro SA
The Court of Justice of the European Union (CJEU) has confirmed that claims
handling services supplied to an insurer under the terms of a contract are neither
'insurance transactions' nor 'related services provided by an insurance broker or
insurance agent.
This was a Polish referral to the CJEU. Aspiro SA (Aspiro) provided various services
to an insurance company under the terms of a contract. The services related to the
handling of claims made by claimants insured by the insurer. In effect, the insurer had
sub-contracted this function to Aspiro which contacted the claimant, assessed damage
and agreed the settlement or otherwise of claims. Aspiro considered that its services
were either insurance transactions or, alternatively, were services related to insurance
transactions provided by an insurance broker or an insurance agent and that, as a
consequence, they were exempt from VAT.
The CJEU has held that the VAT Directive must be interpreted strictly. In the context
of the Directive, the term 'insurance transactions' envisage the contractual agreement
between an insurer and the insured to cover the risk in question in return for payment
of a premium. That was not what was being provided in Aspiro's case and, as such, the
services could not be regarded as insurance transactions. The CJEU also held that, in a
VAT context, to be regarded as a broker or agent, the supplier would generally arrange
for an insurance transaction to take place. In other words, he would put a person
seeking insurance in touch with an insurer who would then conclude a contract of
insurance with the customer directly in return for a premium paid by the customer.
Again, this is not what was happening in the Aspiro case as the taxpayer simply
handled claims and did not have any contractual relationship with the customer.
The CJEU, agreeing with the earlier opinion of the Advocate General, confirmed that,
in the circumstances, the claims handling services provided by Aspiro did not qualify
for the VAT exemption for insurance and related transactions. The services were
therefore liable to VAT.
Comment – It seems clear following this judgment that UK law will need to be
changed. Businesses supplying claims handling services will need to urgently
review their VAT position. Given that HMRC has historically agreed that such
services were, in most cases, exempt from VAT, this judgment should not
create any historic liabilities. Any demand for arrears should be resisted, but
from the date of any law change in the UK, these services look likely to become
taxable at the standard rate.
Issue10/2016
VAT & Claims handling – Court of
Justice
Indirect Tax Update

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Budget 2016 – Indirect Tax issues
On-line sale of goods
The main issue arising from this year's budget is the announcement from HMRC that they are to
increase their existing powers to (a) direct the appointment of a tax representative in situations where
an overseas trader is selling goods online in the UK and (b) make online portals (such as Amazon
and eBay) jointly and severally liable for any VAT debts incurred by online traders using the portal.
HMRC estimates that approximately £365 million pounds of VAT is lost to fraud each year from
overseas traders who sell goods in the UK but who do not register for VAT in the UK nor pay any
VAT in the UK. This is not only a drain on the Exchequer, but is also very damaging for genuine
UK based businesses who pay VAT on their sales. The current situation means that overseas un-
registered businesses have a distinctly unfair competitive advantage.
The changes provide HMRC with new discretionary powers that will enable the targeting of non-
compliant overseas businesses and take the most appropriate action on a case-by-case basis. HMRC
will first identify overseas businesses that are high risk and/or continue to be non-compliant with
UK VAT rules. They have stated that they will approach the trader directly in the first instance, but if
non-compliance continues, then they will consider making the online portal jointly and severally liable
for the VAT debts of traders who use the portal. Clearly, HMRC is hoping that this will force the
likes of Amazon and eBay to ensure that their 'traders' comply with VAT rules in the UK.
Comment
One can understand
HMRC's problem
dealing with traders
established outside the
UK. However, the
internet has been
around for many years
now and one would
have hoped that robust
measures to combat
fraud and evasion
would already have
been in place.
Businesses operating
online portals need to
urgently review their
due diligence and
vetting procedures.Other news
Comment
The Tribunal's decision
in S D Corrigan makes
sense. Mere receipt of a
VAT return is not to be
equated with 'making
enquiries' into it.
HMRC is entitled to
'stop the clock' in order
to make reasonable
enquiries. The Tribunal
confirmed that
stopping the clock
connotes some form of
relevant questioning of
the taxpayer about his
return and not just the
making of an
appointment where
such enquiries would
then begin.
First-tier Tax Tribunal roundup
Cases of interest this week include S D Corrigan. This was a case concerning whether repayment
supplement was due on a delayed repayment of VAT by HMRC. The Tribunal concluded that the
'making enquiries' clock starts ticking when HMRC ask a relevant question of the taxpayer. HMRC
argued that repayment supplement was not due because reasonable enquiries had begun with a phone
call to the taxpayer. However, that was merely to make an appointment and did not make any enquiry
into the taxpayer's return. Accordingly, the Tribunal allowed the taxpayer's appeal and repayment
supplement was payable in the circumstances.
In the case of Colin Thompson t/a CC Tiles, Mr Thompson complained that he was at a distinct
competitive disadvantage as his competitors did not, as he did, provide a supply and fix service. He
complained that his business model meant that he had to charge customers VAT on the 'fixing'
services whereas, his competitors only charge VAT on the sale of the goods (wall and floor tiles) –
the 'fixing services' being provided by unregistered suppliers. The Tribunal had great sympathy with
Mr Thompson but, unfortunately, had to strike out the appeal.
In Walmley Ash Ltd, the taxpayer applied for an adjournment of a hearing in an MTIC fraud case - a
case concerning £1.7 million of input VAT which HMRC had refused on the basis that the
transactions were connected with fraud. The taxpayer's request was refused and the hearing
proceeded. Not surprisingly, the Tribunal agreed that the input VAT was not repayable by HMRC.
Contact
Stuart Brodie Scotland stuart.brodie@uk.gt.com (0)14 1223 0683
Karen Robb London & South East karen.robb@uk.gt.com (0)20 772 82556