Indirect Tax News - December 2019

VAT treatment of some insurance claim payments

The Spanish General Directorate of Taxation (GDT) recently issued a binding ruling (V2139-19) regarding the VAT treatment of insurance claim payments.

In the matter that was the subject of the ruling, the insurance policyholder was a car repair shop that owned an insured car that’s linked to its economic activity. When the car was involved in an accident, the policyholder repaired the car. The policyholder made a claim under its insurance to cover the cost of the repairs and the insurance company paid the claim. In the ruling, the GDT addressed two key questions: who was the recipient of the service and whether the repair was a VAT taxable transaction.

First the GDT analysed who the recipient of the service was: the policyholder or the insurance company. The GDT differentiated two situations: if the insurance company takes the insured good and has it repaired, the insurance company will be the recipient of the service. But, if the insurance company pays the claim to the policyholder and the policyholder then contracts out the repair, the policyholder is the service’s recipient. Based on this, in the case at hand, the recipient of the services was the policyholder.

The GDT then examined whether said services (the repairs) are a VAT taxable transaction subject to the self-supply rules, given that the car was repaired by the policyholder. The GDT concluded that here the repair services cannot be seen as a self-supply since the car repair was linked to the repair shop’s economic activity and so the repair shop was not using its business assets for private purposes. So, the GDT determined that the service should not be deemed a VAT taxable event.

Finally, the GDT noted that the payment received from the insurance company does not trigger a VAT chargeable event. The Spanish VAT law establishes that these payments are not subject to Spanish VAT.

Rosario Estella

Álvaro Gómez-Elvira