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CJEU Rules on Taxation of Life Assurance Premiums

22 May 2013

The Court of Justice of the European Union (CJEU) has held that Article 50 of the Consolidated Life Directive (2002/83/EC) permits a Member State to apply indirect taxes on life assurance premiums where the individual is habitually resident in that Member State at the time when the insurance premium is paid. Taxand Ireland discusses the case which led to this ruling.

A Dutch insurer issued a life assurance policy to policyholders who were resident in the Netherlands at the time that the policy was issued. Subsequently, those policyholders moved to Belgium. The Dutch insurer had no establishment in Belgium. A dispute arose between the Dutch insurer and the Belgian tax authorities as to whether those life assurance contracts were subject to a Belgian annual insurance tax for premiums paid after the policyholders moved their "habitual residence" to Belgium.

The Dutch insurer argued that it would be liable to the Belgian insurance tax only if the policyholders were habitually resident in Belgium at the time when the life policy was initially issued (ie a 'static' interpretation). The Belgian tax authorities however took the view that the determining factor is the policyholders' habitual residence at the time when the insurance premium is paid (ie a 'dynamic' interpretation).

The Court concluded that a 'dynamic' interpretation of Article 50(1) enables the objectives of preventing double taxation and distortions of competition to be better achieved. Furthermore, the Court found that the 'dynamic' interpretation is compatible with the Consolidated Life Directive's general objective relating to the completion of the internal market in direct life assurance, in particular from the point of view of the freedom to provide services.

Discover more: European Court rules on the tax application of life assurance premiums

Your Taxand contact for further queries is:
Martin Phelan
T. +353 1 639 5139

Taxand's Take

This ruling is significant for life (and possibly non-life) insurers as it is likely to increase the administrative burden as they will have to monitor the changes in the habitual residence within the European Union of a policyholder for the term of their policy. Additionally insurers will have to keep up-to-date on insurance premium taxation arrangements in each of the Member States where its policyholders are habitually resident.

Taxand's Take Author

Martin Phelan
Taxand Board member