ECJ - Recent Developments in Value Added Tax

S. 250I. Introduction

The exemptions for financial and insurance transactions remain largely unchanged since the introduction of the harmonized VAT system in 1977. Articles 13B(a) and (d)(1) to (6) of Council Directive No: 77/388/EEC (‘the Sixth Directive’) were re-enacted as Articles 135(1)(a) to (g) of Council Directive No: 2006/112/EC (‘the Principal VAT Directive’). Clearly, however, there have been enormous developments in commercial and business operations since that time. In particular, these have included the advent of electronic commerce and the increasing tendency of financial services and insurance businesses to outsource some functions to third parties who may not have a direct relationship with the recipient of the supply envisaged by the terms of the exemption. The exemptions are, therefore, now somewhat outdated.

A number of aspects of these exemptions, however, are now well-settled. In particular, the CJEU has enunciated the following principles in a number of cases:

• The exemptions constitute independent concepts of EU law whose purpose is to avoid divergences in the application of the VAT system as between Member States.

• The terms used to specify the exemptions are to be int...