Taxation: Commission launches public consultation on VAT rules for financial and insurance services

The Commission has launched a public consultation to gather views on the current VAT rules for financial and insurance services, and to seek ideas on possible improvements. This update is one of the actions included in last year’s Tax Action Plan. Currently, under the VAT Directive, most financial and insurance services are exempt from VAT. However, it has become clear that the VAT rules around this important sector have become outdated. Because of the exemption, providers of financial and insurance services cannot deduct the VAT incurred on inputs, notably – but not exclusively – on investment goods such as IT costs. This deprives the tax of its neutrality with VAT becoming a cost for providers of financial and insurance services, and, eventually, for their customers. At the same time, the VAT rules of these services have become overly-complex, difficult to apply and have not kept pace with the developments of new products and services, such as fintech. This leads in turn to legal uncertainty, high administrative and regulatory costs, and a negative effect on competitiveness for business. Therefore, this modernisation will take account of the rise of the digital economy and the increase in the outsourcing of input services by financial and insurance operators as well as the way this sector is structured. The proposal should ensure a level playing field within the Union and take into consideration the international competitiveness of EU companies. The public consultation launched this week will run until 3 May 2021. Contributions will feed into the review of the relevant provisions of the VAT Directive and to a future legislative proposal, as announced in the Tax Action Plan.