WRITTEN QUESTION E-2832/00

by Richard Howitt (PSE) to the Commission

(6 September 2000)

Subject: Consistency of VAT charges for car repairs and European law

Can the Commission comment on the apparent anomaly between car repair undertaken by an independent garage, on which the full rate of VAT is applicable, and the same repair undertaken by

an insurance company's wholly-owned garage, on which VAT on labour is not paid? Is it the Commission's view that this could be contrary to single market rules or any other aspect of EU law?

Joint answer to Written Questions E-2752/00 and E-2832/00 given by Mr Bolkestein on behalf of the Commission

(20 October 2000)

When an insurance company sets up its own garage in order to repair its customers' cars and these repairs are carried out by employees of this insurance company, these supplies by the employees to the insurance company are outside the scope of VAT.

Under Article 8(1)(b) of the First Council Directive of 24 July 1973 on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance(1), services in kind performed by an insurance company using its own technical means must be restricted to providing the insurance service contracted for. Where such activities do not arise from obligations under the insurance contract or are performed for a third party other than the insured, they cannot be carried out by the same legal entity as the insurance activities without breaching the rule in Article 8(1)(b) which makes insurance a specialised activity.

On the other hand, it is correct that if a garage carries out a similar service for an insurance company, it will have to invoice VAT on the supply. The garage does, however, have a right to deduct the input VAT it incurs on all its investments for equipment and spare parts. which the insurance company, being an exempt taxable person, is unable to do. For the latter, this inability to deduct the input VAT amounts to an additional cost element that compensates for the fact that the insurance company does not have to pay VAT on its labour costs when it has cars repaired by its own employees.

The Commission is aware of this situation, which arises from the fact that insurance transactions are exempted from VAT under Article 13.B.(a) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes Common system of value added tax: uniform basis of assessment(2). The Commission is examining the possibility of moving from exemption to taxation in the assurance sector but has no immediate plans for action in this area.

However, Article 6(3) of the Sixth VAT Directive already allows Member States, in order to prevent distortion of competition, to treat as a supply of services for consideration the supply by a taxable person of a service for the purposes of his undertaking where the value added tax on such a service, had it been supplied by another taxable person, would not be wholly deductible. It is, of course, up to the United Kingdom authorities to judge whether such a scheme is necessary. In order to avoid excessive deviations among Member States, there must in such cases be prior consultation of the VAT committee.

(1) OJ L 228, 16.8.1973.

(2) OJ L 145, 13.6.1977.