1 This request for a preliminary ruling concerns the interpretation of Articles 13 and 157 of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ 2009 L 335, p. 1), as amended by Directive 2013/58/EU of the European Parliament and of the Council of 11 December 2013(OJ 2013 L 341, p. 1) (‘Directive 2009/138’).
2 The request has been made in proceedings brought by the insurance company A Ltd regarding a request for a tax ruling which it had made to the keskusverolautakunta (Central Tax Board, Finland), relating to determining which Member State has power to impose tax on insurance premiums.
3 According to Article 13(13) of Directive 2009/138, ‘Member State in which the risk is situated’ means any of the following: ‘(a) the Member State in which the property is situated, where the insurance relates either to buildings or to buildings and their contents, in so far as the contents are covered by the same insurance policy; (b) the Member State of registration, where the insurance relates to vehicles of any type; (c) the Member State where the policyholder took out the policy in the case of policies of a duration of four months or less covering travel or holiday risks, whatever the class concerned; (d) in all cases not explicitly covered by points (a), (b) or (c), the Member State in which either of the following is situated: (i) the habitual residence of the policyholder; or (ii) if the policyholder is a legal person, that policyholder’s establishment to which the contract relates.’
4 Article 157 of that directive provides: ‘1. Without prejudice to any subsequent harmonisation, every insurance contract shall be subject exclusively to the indirect taxes and parafiscal charges on insurance premiums in the Member State in which the risk is situated or the Member State of the commitment. … 3. Each Member State shall apply its own national provisions to those insurance undertakings which cover risks or commitments situated within its territory for measures to ensure the collection of indirect taxes and parafiscal charges due under paragraph 1.’
5 Under Article 310 of that directive, Second Council Directive 88/357/EEC of 22 June 1988 on the coordination of laws, regulations and administrative provisions relating to direct insurance other than life assurance and laying down provisions to facilitate the effective exercise of freedom to provide services and amending Directive 73/239/EEC (OJ 1988 L 172, p. 1), was repealed with effect from 1 January 2016 and references to that directive are to be construed as references to Directive 2009/138 and are to be read in accordance with the correlation table in Annex VII to Directive 2009/138. In accordance with that table, Article 13(13) of Directive 2009/138 corresponds to Article 2(d) of Directive 88/357.
6 Article 2 of Directive 88/357 provided: ‘For the purposes of this Directive: … (d) “Member State where the risk is situated” means: - the Member State in which the property is situated, where the insurance relates either to buildings or to buildings and their contents, in so far as the contents are covered by the same insurance policy, - the Member State of registration, where the insurance relates to vehicles of any type, - the Member State where the policyholder took out the policy in the case of policies of a duration of four months or less covering travel or holiday risks, whatever the class concerned, - the Member State where the policyholder has his habitual residence or, if the policyholder is a legal person, the Member State where the latter’s establishment, to which the contract relates, is situated, in all cases not explicitly covered by the foregoing indents; …’
7 Pursuant to Paragraph 1(1) of the laki eräistä vakuutusmaksuista suoritettavasta verosta (664/1966) (Law 664/1966 relating to tax on certain insurance premiums), in the version applicable to the dispute in the main proceedings, where a property situated in Finland, an interest connected with an activity carried on in Finland, or another interest in Finland, is insured, a tax on the insurance premium paid under the insurance contract is to be paid to the State in accordance with the provisions of that law.
8 According to Paragraph 6(1) of the laki ulkomaisista vakuutusyhtiöistä (398/1995) (Law 398/1995 relating to foreign insurance companies), ‘a risk situated in Finland’ means: ‘(1) Property situated in Finland, if the insurance relates to land, a building, or a building and furniture in the building if the furniture is insured with the same insurance as the building; (2) A vehicle registered in Finland if the subject of the insurance is a vehicle; or (3) Risks related to travel or a holiday if the relevant insurance agreement is concluded for a maximum period of four months and if the policyholder concluded the contract in Finland.’
9 Under Paragraph 6(2) of that law, in cases other than those mentioned in Paragraph 6(1), the risk is deemed to be situated in Finland if the policyholder is habitually resident in Finland, or if the policyholder is a legal person that has a place of business in Finland to which the insurance relates.
10 A Ltd is a provider of insurance products, established in the United Kingdom, which operates in Finland through a market licence issued by the latter Member State. That company does not have a separate permanent place of business in Finland.
11 A Ltd offers its clients, inter alia, insurance products in connection with company acquisitions. The main insurance products which it offers are ‘warranty and indemnity’ insurance, taken out by either the seller or the buyer, and civil liability insurance relating to the liability connected with the tax situation of the undertaking transferred (‘tax liability insurance’). The purpose of those insurance products is to cover the liability of the policyholder or to compensate him for financial loss.
12 The purpose of the warranty and indemnity insurance taken out by the seller, or by the buyer, is that the insurance company will, in accordance with the terms of the insurance contract, cover loss sustained by the buyer as a result of the breach of the representations given by the seller in the contract for sale. The tax liability insurance operates on a similar principle, but its purpose is to cover the undertaking given by the seller in the contract for sale to the effect that the company which is the subject of the sale (‘the target company’) will not become liable to tax in respect of the period in which it was owned by the seller.
13 All the abovementioned insurance concerns the contractual risk associated with the value of the shares and the fairness of the purchase price paid by the buyer.
14 A Ltd applied to the Central Tax Board for an advance decision, in order to obtain a tax ruling relating to determining which Member State levies taxes on insurance premiums when one of the policyholders and the target company being acquired is a foreign legal person and the other is a Finnish limited liability company.
15 According to the order for reference, A Ltd, in its request for an advance decision, indicated that the warranty and indemnity insurance taken out by the seller covers, inter alia, up to an agreed maximum amount, the costs of legal proceedings and loss arising from the seller’s breach of the representations he made in the contract for sale. In those circumstances, the seller is liable to the buyer and is obliged to compensate the buyer, the insurance in turn compensating the seller for the costs and indemnities which he has paid to the buyer in respect of the liability incurred.
16 As regards the warranty and indemnity insurance taken out by the buyer, A Ltd explained that that insurance is intended to compensate the buyer directly for material damage caused by the seller breaching his representations. The insurance also covers the legal costs which the buyer incurs as a result of third-party claims for compensation which also arise from the breach of the seller’s representations.
17 As regards the tax liability insurance, A Ltd indicated that it is intended to protect either the seller, or the buyer, against liability incurred by the target company before the acquisition transaction. As regards the remainder, the tax liability insurance functions in the same manner as the two types of warranty and indemnity insurance.
18 The insurance which is connected to Finland, offered by A Ltd, provides three options for the policyholder and the target company. In the majority of cases, the policyholder, which can be either the seller or the buyer, is a Finnish limited liability company, and the target company is also a Finnish legal person. However, it is also possible that the policyholder is a Finnish limited liability company and that the target company is a foreign legal person, or that the policyholder is a foreign legal person and the target company is a Finnish limited liability company.
19 By decision of 4 November 2016, the Central Tax Board, in its ruling concerning the period from 4 November 2016 to 31 December 2017, stated that if A Ltd offers insurance to a Finnish limited liability company and the target company is a foreign legal person, the insurance premiums are not subject to tax on insurance premiums in Finland.
20 That authority also stated that if A Ltd offers insurance to a foreign legal person and the target company is a Finnish limited liability company, the insurance premiums are subject to tax on insurance premiums in Finland.
21 In the action which it brought against that tax ruling before the referring court, the Korkein hallinto-oikeus (Supreme Administrative Court, Finland), A Ltd argued that the State in which the risk is situated should be determined on the basis of the Member State in which the policyholder is established.
22 Before that same court, the Veronsaajien oikeudenvalvontayksikkö (Unit for protecting the rights of taxing authorities, Finland), intervened for the purpose of supporting the position adopted by the Central Tax Board in its assessment. Referring to the judgment of 14 June 2001, Kvaerner(C‑191/99, EU:C:2001:332), that unit submits that the group to which the foreign target company belongs bears the risk and that the place where that risk is situated must be determined on the basis of a connection. In its view, the place of establishment of the target company is thus a specific connecting factor enabling the place where the risk is situated to be determined.
23 In those circumstances the Korkein hallinto-oikeus (Supreme Administrative Court) decided to stay the proceedings and to refer the following questions to the Court of Justice for a preliminary ruling: ‘(1) In the interpretation of the first subparagraph of Article 157(1) of Directive [2009/138], read in conjunction with Article 13(13) and (14) thereof, is the Member State entitled to levy tax on insurance premiums to be considered the State in which the company (a legal person) which has taken out the insurance policy is established, or the State in which the company which is the subject of the company acquisition is established, where an insurance company with its registered office in the United Kingdom, which is not established in Finland, offers insurance covering risks relating to a company acquisition - to a company which is not established in Finland, which, in the company acquisition, acts as the buyer, and the target company of that acquisition is established in Finland, - to a company established in Finland which, in the company acquisition, acts as the buyer, where the target company of that acquisition is not established in Finland, - to a company which is not established in Finland which, in the company acquisition, acts as the seller where the target company of that acquisition is established in Finland, - a company established in Finland, which, in the company acquisition, acts as the seller where the target company of that acquisition is not established in Finland? (2) Does the fact that the insurance covers only the tax liabilities of the company which arose before the company acquisition have any impact in the present case? (3) Does the question whether the company acquisition concerns shares or a part of the business of the target company have an impact in the present case? (4) If the company acquisition concerns the shares of the target company, does the question of whether representations made by the seller to the buyer concern only the fact that the seller is the owner of the shares sold and that they are not subject to third-party claims have any effect in the present case?’
24 By its four questions, which it is appropriate to examine together, the referring court asks, in essence, whether, when an insurance company established in a Member State offers insurance covering the contractual risks associated with the value of the shares and the fairness of the purchase price paid by the buyer in the acquisition of an undertaking, the first subparagraph of Article 157(1) of Directive 2009/138, read in conjunction with Article 13(13) of that directive, must be interpreted as meaning that an insurance contract concluded in that context is to be subject exclusively to the indirect taxes and parafiscal charges on insurance premiums in the Member State where the policyholder is established, or in the Member State where the target company is established.
25 In that regard, it is important to note that it is apparent from the very wording of the first subparagraph of Article 157(1) of Directive 2009/138 that, without prejudice to any subsequent harmonisation, every insurance contract is to be subject exclusively to the indirect taxes and parafiscal charges on insurance premiums in the Member State in which the risk is situated.
26 It must also be noted that, under Article 13(13)(d)(ii) of Directive 2009/138, for the purposes of that directive, ‘Member State in which the risk is situated’ means, if the policyholder is a legal person, the Member State where the policyholder’s establishment to which the contract relates is situated.
27 Thus, when the policyholder is, in circumstances such as those at issue in the main proceedings, a legal person, it is necessary to determine, in order to answer the questions referred, the Member State where the policyholder’s establishment to which the insurance contracts relate is situated, as referred to in Article 13(13)(d)(ii) of Directive 2009/138.
28 For that purpose, since Article 13(13) of Directive 2009/138 corresponds, according to the table in Annex VII to that directive, to Article 2(d) of Directive 88/357, it is necessary to refer to the scope of the final indent of Article 2(d) of Directive 88/357, which is identical to the scope of Article 13(13)(d)(ii) of Directive 2009/138, and to the related case-law of the Court.
29 In that regard, the Court has explained, first, that it is clear fromArticle 2(d), first to fourth indents, of Directive 88/357 that the EU legislature intended to propose, for all types of risk insured, a solution enabling the State where the risk is situated to be determined on the basis of concrete and physical, rather than legal criteria. The purpose was that there should be a concrete factor corresponding to each risk which would allow it to be localised in a specific Member State (judgment of 14 June 2001, Kvaerner, C‑191/99, EU:C:2001:332, paragraph 44).
30 Second, the Court has stated that the objective of Article 2(d), final indent, of that directive, was in particular to lay down a residual rule for the determination of the place in which a business risk is situated when that risk is not specifically linked to a building, a vehicle or travel. To that end, emphasis is placed on the place where the activity whose risk is covered by the contract is exercised (see, to that effect, judgment of 14 June 2001, Kvaerner, C‑191/99, EU:C:2001:332, paragraph 46).
31 It follows from that case-law that, in order to identify the Member State in which the risk is situated, as referred to in Article 157(1) of Directive 2009/138, it is necessary to identify, in particular, the precise activity whose risks are covered by the various insurance contracts at issue in the main proceedings.
32 In that regard, it is apparent from the order for reference that the main proceedings relate to various types of contract, covering various types of risks.
33 First, the purpose of the warranty and indemnity insurance, taken out either by the buyer, or by the seller, of the target company, is that the insurance company covers the damage suffered by the buyer due to a breach of the representations made by the seller in the contract for sale.
34 Second, the tax liability insurance is intended to cover the risk associated with the undertaking given by the seller of the target company as to the tax situation of that company at the time of the sale, in respect of the period preceding the transfer of ownership of that company to the buyer, and thus protects either the seller, or the buyer, against any liability incurred by the target company before it was purchased.
35 In the light of the protection objectives set out in the preceding two paragraphs, the insurance contracts are intended, in each of those situations, to protect exclusively the policyholder, whether he is acting as the buyer or as the seller of the target company, against the risk associated with the seller’s breach of the representations and undertakings which he made in the contract for sale.
36 In those circumstances, as is expressly indicated in the order for reference, the three types of insurance contracts at issue in the main proceedings concern the insurance of the contractual risk associated with the value of the shares and the fairness of the purchase price paid by the buyer. The insurance covers only the fall in value of the shares which might be caused by facts about which the seller made different representations when the contract for sale was concluded.
37 Neither the warranty and indemnity insurance contracts nor the tax liability insurance are intended to cover the risks of any damage or financial loss associated with the operating of the target company or its proper functioning.
38 In that regard, if, as the Finnish Government has proposed, the place where the activity is carried out, whose risk is covered by the insurance contract, were automatically determined on the basis of the place where the target company is established, that would conflict with the wording of Article 13(13)(d)(ii) of Directive 2009/138, as that provision clearly states that, in order to determine the Member State in which the risk is situated, only the place where the ‘policyholder’ is established is relevant.
39 If the buyer of an undertaking has, as the policyholder, taken out a contract of insurance, that undertaking can be considered to be the ‘policyholder’s establishment’ only from the time when the transfer of ownership of that undertaking to the buyer took effect.
40 The same is true of the opposite case, in which it is the seller of the undertaking that has taken out an insurance contract. In that event, that undertaking can be considered to be the ‘policyholder’s establishment’ only until that same time.
41 In the light of the foregoing, it should be considered, first, that the place where the activity is carried out whose risk is covered by the insurance contracts at issue in the main proceedings, is the place of establishment of the policyholder acting, depending on the scope of the insurance contract at issue, either as the seller, or as the buyer, and not the place of establishment of the target company.
42 Second, it follows from the foregoing considerations that the circumstances referred to in the second to fourth questions have no bearing on the present case.
43 Therefore, the answer to the questions referred is that the first subparagraph of Article 157(1) of Directive 2009/138, read in conjunction with Article 13(13) of that directive, must be interpreted as meaning that, when an insurance company established in a Member State offers insurance covering the contractual risks associated with the value of the shares and the fairness of the purchase price paid by the buyer in the acquisition of an undertaking, an insurance contract concluded in that context is subject exclusively to the indirect taxes and parafiscal charges on insurance premiums in the Member State where the policyholder is established.
44 Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.