»Ê¹ÚÌåÓýapp

Insurance Premium Tax was introduced in 1994 to raise revenue from a sector that was viewed as under-taxed and is not subject to VAT. »Ê¹ÚÌåÓýapp law relating to indirect taxation on insurance in the European Union, is contained in Article 135 and Article 401 of the Principal VAT Directive 2006/112 (formerly Articles 13B(a) and 33(1) of the Sixth VAT Directive). Article 135(1)(a) provides an exemption from VAT for:

‘insurance and reinsurance transactions, including related services performed by insurance brokers and insurance agents.�

Because of this exemption, it was not possible to extend the scope of VAT to include insurance while the UK was a member of the European Union. However, Article 401 of the Principal VAT Directive states:

‘Without prejudice to other Community provisions � this Directive shall not prevent a member state from maintaining or introducing taxes on insurance contracts, which cannot be characterised as turnover taxes…�

As IPT is a tax on insurance premiums, and not a turnover tax, it met these conditions. This was confirmed by the Court of Justice of the European Union (CJEU) in the case of Gil Insurance and others [C-308/01].

Gil Insurance and a number of other companies were involved in supplies of insurance relating to domestic appliances. Amongst other issues, Gil contended that the higher rate of IPT could be characterised as a turnover tax - prohibited by Article 33 of the Sixth Directive (now Article 401 of Council Directive 2006/112). »Ê¹ÚÌåÓýapp CJEU considered the characteristics of a turnover tax, such as VAT compared to IPT in the UK and concluded at paragraph 37 of their judgement,

‘Consequently, the answer to the second question must be that a tax on insurance premiums such as that at issue in the main proceedings is compatible with Article 33 of the Sixth Directive. �

This is confirmed at paragraph 44 of the judgement:

‘It follows from the answer to Question 2 that a tax such as IPT does not constitute a turnover tax prohibited by Article 33 of the Sixth Directive.�