HMRC internal manual

VAT Insurance

VATINS2400 - What is insurance for the purposes of the exemption?: decision of the ECJ in Forsakringsaktiebolaget Skandia (Skandia)

This was a Swedish case concerning two insurance companies who entered into an arrangement whereby the workforce and functions of one (Livbolaget) were transferred to the other (Skandia) for a fee. Effectively Skandia were to carry out the insurance business of Livbolaget, although policyholders remained contracted to Livbolaget. The CJEU considered that Skandia’s supply to Livbolaget did not fall within the exemption for insurance transactions for the following reasons:

  • although Skandia’s activity was insurance business for Swedish regulatory purposes, it did not follow that all transactions carried out by them constituted insurance transactions for the purposes of the insurance exemption; and
  • as they had no legal relationship with the policyholders or bore any of the risk, the transaction could not be exempt as the provision of insurance or reinsurance.

This decision confirms that not everything an insurer does qualifies for exemption as insurance. It draws a distinction between insurance business (everything an insurer is regulated to do) and insurance transactions (the provision of insurance itself).

The decision came post-CPP and, whilst at first sight it appears to contradict the finding of the CJEU that supplies by block policyholders could constitute exempt insurance transactions, the CJEU in Skandia distinguished their decision from CPP on the basis that holders of block insurance policies have a legal relationship with the insured.

The appellant in Skandia did not argue that their supplies were exempt as ‘related services’ so this issue was not considered by the CJEU. It seemed to be accepted that in Sweden, unlike the UK, Skandia as an insurer could not also be an insurance agent.

In the UK, however, this case is less likely to have arisen because we would have accepted that Skandia could be an agent in the supply of the services to Livbolaget and that some of the services would qualify for exemption under Item 4 in a similar way to ‘run off’ services supplied by one insurer to another (see VATINS3400 for more information on ‘run off’ services).