Court of Justice of the European Communities (including Court of First Instance Decisions)

JUDGMENT OF THE COURT (Sixth Chamber)

25 February 1999 (1)

(Sixth VAT Directive — Package of services — Single service — Concept —Exemptions — Insurance transactions — 'Assistance activities‘ — Supplies ofservices by insurance intermediaries — Restriction of the insurance exemption totransactions of authorised insurers)

In Case C-349/96,

REFERENCE to the Court under Article 177 of the EC Treaty by the House ofLords for a preliminary ruling in the proceedings pending before that courtbetween

Card Protection Plan Ltd

and

Commissioners of Customs and Excise

on the interpretation of Articles 2(1) and 13B(a) of Sixth Council Directive77/388/EEC of 17 May 1977 on the harmonisation of the laws of the MemberStates relating to turnover taxes — Common system of value added tax: uniformbasis of assessment (OJ 1977 L 145, p. 1),

THE COURT (Sixth Chamber),

composed of: P.J.G. Kapteyn, President of the Chamber, G. Hirsch (Rapporteur),G.F. Mancini, H. Ragnemalm and R. Schintgen, Judges,

Advocate General: N. Fennelly,

Registrar: H.A. Rühl, Principal Administrator,

after considering the written observations submitted on behalf of:

—    Card Protection Plan Ltd, by Roderick Cordara QC and Perdita Cargill-Thompson, Barrister, instructed by Clare Mainprice, Solicitor,

—    the United Kingdom Government, by John E. Collins, Assistant TreasurySolicitor, acting as Agent, and Stephen Richards and Christopher Vajda,Barristers,

—    the German Government, by Ernst Röder, Ministerialrat in the FederalMinistry of Economic Affairs, acting as Agent,

—    the Commission of the European Communities, by Richard Lyal and EnricoTraversa, of its Legal Service, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of Card Protection Plan Ltd, represented byClare Mainprice and Roderick Cordara, the United Kingdom Government,represented by John E. Collins and Nicholas Paines QC, and the Commission,represented by Richard Lyal, at the hearing on 24 March 1998,

after hearing the Opinion of the Advocate General at the sitting on 11 June 1998,

gives the following

Judgment

1.

    By order of 15 October 1996, received at the Court Registry on 21 October 1996,the House of Lords referred to the Court for a preliminary ruling under Article 177of the EC Treaty four questions on the interpretation of Articles 2(1) and 13B(a)of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of thelaws of the Member States relating to turnover taxes — Common system of valueadded tax: uniform basis of assessment (OJ 1977 L 145, p. 1, hereinafter 'the SixthDirective‘).

2.

    Those questions were raised in proceedings between Card Protection Plan Ltd('CPP‘) and the Commissioners of Customs and Excise, who are responsible for

the collection of value added tax (VAT) in the United Kingdom, concerning theapplication of an exemption from VAT under section 17 and Schedule 6, Group2, of the Value Added Tax Act 1983.

National legislation

3.

    At the material time, section 17 and Schedule 6, Group 2, of the Value Added TaxAct 1983 exempted from VAT inter alia:

'1.    The provision of insurance and reinsurance by persons permitted, inaccordance with section 2 of the Insurance Companies Act 1982, to carryon insurance business.

2.    ...

3.    The making of arrangements for the provision of any insurance orreinsurance in Items 1 and 2.

4.    The handling of insurance claims by insurance brokers, insurance agents andpersons permitted to carry on insurance business as described in Item 1.‘

Community legislation

4.

    Under Article 2 of the Sixth Directive:

'The following shall be subject to value added tax:

1.    the supply of goods or services effected for consideration within the territoryof the country by a taxable person acting as such;

...‘.

Article 13 of the Sixth Directive, on exemptions within the territory of the country,states:

'B. Other exemptions

Without prejudice to other Community provisions, Member States shall exempt thefollowing under conditions which they shall lay down for the purpose of ensuringthe correct and straightforward application of the exemptions and of preventing anypossible evasion, avoidance or abuse:

(a)    insurance and reinsurance transactions, including related services performedby insurance brokers and insurance agents;

...‘.

5.

    The annex to First Council Directive 73/239/EEC of 24 July 1973 on thecoordination of laws, regulations and administrative provisions relating to thetaking-up and pursuit of the business of direct insurance other than life insurance(OJ 1973 L 228, p. 3), as amended by Council Directive 84/641/EEC of 10December 1984 (OJ 1984 L 339, p. 21), provides:

'A. Classification of risks according to classes of insurance

...

18.    Assistance

    Assistance for persons who get into difficulties while travelling, while awayfrom home or while away from their permanent residence.‘

6.

    Council Directive 77/92/EEC of 13 December 1976 on measures to facilitate theeffective exercise of freedom of establishment and freedom to provide services inrespect of the activities of insurance agents and brokers (ex ISIC Group 630) and,in particular, transitional measures in respect of those activities (OJ 1977 L 26,p. 14) specifies, in Article 2, the activities of insurance agents and brokers to whichthat directive applies.

The main proceedings

7.

    CPP offers holders of credit cards, on payment of a certain sum, a plan intendedto protect them against financial loss and inconvenience resulting from the loss ortheft of their cards or of certain other items such as car keys, passports andinsurance documents.

8.

    In so far as this card protection plan (hereinafter 'the Plan‘) provides forindemnification of the cardholder against financial loss in the event of loss or theft,CPP obtains block cover from an insurance company. The block policy wasarranged by an insurance broker instructed by CPP. At the material time theinsurer was Continental Assurance Company of London ('Continental‘). It is CPP'scustomers who are mentioned in the policy as the assured. When a cardholderbecomes a customer of CPP, his name is added to the schedule of the assuredcovered by that policy. CPP pays premiums to the insurance company in advanceat the beginning of the policy year; any necessary adjustments are made at the endof the year, according to the number of customers who have joined or left the Plan.

9.

    The services offered by CPP, which correspond to the insurance cover describedin the schedule to the Continental policy, may be summarised as follows:

—    payment of an indemnity in the event of fraudulent use of cards (the suminsured is £750 per claim during the first 24 hours from discovery of theloss; it is unlimited after the loss has been reported to CPP);

—    payment of an indemnity in respect of costs incurred by the cardholder infinding lost luggage, bags or items, when labelled with labels issued by CPP(the sum insured is £25 per claim);

—    payment of an indemnity for costs incurred in carrying out the formalitiesof making claims and assisting the police with respect to valuable articlesand/or important documents whose serial numbers have been registeredwith CPP (the sum insured is again £25 per claim);

—    provision of representatives of the insurers to provide 24-hour telephoneadvice on access to medical services, including the arrangement ofappointments for medical care abroad;

—    payment of an indemnity in respect of an emergency cash advance followingloss of cards, to a maximum of £500 per claim, repayable within 14 days;

—    payment of an indemnity for the purchase of an air ticket for the return ofthe cardholder from anywhere in the world to his home following loss ofcards (the indemnity is a maximum of £1 500 per claim, repayable within 14days).

10.

    The Plan also includes other services, essentially as follows:

—    maintenance by CPP of a computerised record of customers' credit cards;

—    provision of a 24-hour telephone line for receiving notifications of loss, soas to allow the necessary measures to be taken for passing on theinformation to credit card issuers, and the supply of adhesive labels bearingthat telephone number;

—    provision of assistance in the event of loss to obtain replacement creditcards;

—    provision of assistance in the event of change of address for notifying card-issuing companies;

—    supply of pre-printed key tabs so that they may be found in the event ofloss;

—    supply to the customer of an annual print-out to check;

—    supply of a medical card for the entry of personal medical details;

—    discounts on car hire.

11.

    Although the Commissioners of Customs and Excise had since 1983 regarded CPP'ssupplies as exempt, they subjected to the standard rate of VAT for the first timein 1990 a 'specimen‘ contract for the supply of services concluded between CPPand one of its customers for three years in return for payment of an annual fee of£16. That decision was based on two principal grounds: first, that the Plancomprised a 'package of services‘, all taxable, turning on the maintenance by CPPof a register of card numbers and the provision of a loss notification service inorder to avoid any further liability for fraudulent use in the event of loss; and,second, that there was no direct contractual relationship between the insurancecompany and CPP's customers capable of creating specific legal relations inconnection with the insurance policy, and hence no supply of insurance to thecustomer.

12.

    CPP contested that decision on the ground that there was a direct contractualrelationship and that the supply should be wholly or largely exempt. It thereforeappealed to the VAT and Duties Tribunal, London, which dismissed its appeal.After the High Court had allowed CPP's appeal in part, the Court of Appeal byjudgment of 23 November 1993 dismissed CPP's appeal altogether, holding that thePlan constituted a contract for the supply of a 'card registration service‘ and thatthe insurance elements were merely incidental to that service. CPP thereforeappealed to the House of Lords, which stayed the proceedings and referred thefollowing four questions to the Court of Justice for a preliminary ruling:

'1.    Having regard to the provisions of the Sixth VAT Directive and inparticular to Article 2(1) thereof, what is the proper test to be applied indeciding whether a transaction consists for VAT purposes of a singlecomposite supply or of two or more independent supplies?

2.    Does the supply by an undertaking of a service or services of the kindprovided by Card Protection Plan Ltd (CPP) through the card protectionplan operated by them constitute for VAT purposes a single compositesupply or two or more independent supplies? Are there any particularfeatures of the present case, such as the payment of a single price by thecustomer or the involvement of Continental Assurance Company of Londonplc as well as CPP, that affect the answer to that question?

3.    Do such supply or supplies constitute or include ”insurance ... transactionsincluding related services performed by insurance ... agents” within themeaning of Article 13B(a) of the Sixth VAT Directive? In particular, for thepurpose of answering that question —

    (a)    does ”insurance” within the meaning of Article 13B(a) of the SixthVAT Directive include the classes of activity, in particular ”assistance”activity, listed in the Annex to Council Directive 73/239/EEC (theFirst Council Directive on non-life insurance), as amended by CouncilDirective 84/641/EEC?

    (b)    do the ”related services of ... insurance agents” in Article 13B(a) ofthe Sixth VAT Directive constitute or include the activities referredto in Article 2 of Council Directive 77/92/EEC?

4.    Is it compatible with Article 13B(a) of the Sixth VAT Directive for aMember State to restrict the scope of the exemption for ”insurance ...transactions” to supplies made by persons permitted to carry on insurancebusiness under the law of that Member State?‘

Question 3

13.

    By Question 3, which should be considered first, the House of Lords essentiallyasks whether Article 13B(a) of the Sixth Directive is to be interpreted as meaningthat supplies of services such as those described in the Plan which CPP providesto its customers constitute insurance transactions or related services of insuranceagents.

14.

    CPP submits that all aspects of what the customer receives under the Plan form adirect part of an 'insurance transaction‘ within the meaning of Article 13B(a) ofthe Sixth Directive. The German and United Kingdom Governments and theCommission accept that, in any event, the Plan includes elements of supplies ofinsurance. The United Kingdom Government states that it will be for the nationalcourt to determine whether CPP is acting as an insurance agent. In theCommission's view, it seems clear, however, that its usual activities are not thoseof an insurance agent in the strict or technical sense of the term.

15.

    It must be noted to begin with that it is settled case-law that the exemptionsprovided for by Article 13 of the Sixth Directive constitute independent conceptsof Community law whose purpose is to avoid divergences in the application of theVAT system from one Member State to another (see Case 348/87 StichtingUitvoering Financiële Acties v Staatssecretaris van Financiën [1989] ECR 1737,paragraph 11).

16.

    The Sixth Directive does not define the expressions 'insurance transactions‘ and'insurance agents‘ used in Article 13B(a).

17.

    With respect, first, to the interpretation of the expression 'insurance transactions‘,it must be observed that Directive 73/329 does not define the concept of insurance

either. However, as the Advocate General states in point 34 of his Opinion, theessentials of an insurance transaction are, as generally understood, that the insurerundertakes, in return for prior payment of a premium, to provide the insured, inthe event of materialisation of the risk covered, with the service agreed when thecontract was concluded.

18.

    It is not essential that the service the insurer has undertaken to provide in theevent of loss consists in the payment of a sum of money, as that service may alsotake the form of the provision of assistance in cash or in kind of the types listed inthe annex to Directive 73/239 as amended by Directive 84/641. There is no reasonfor the interpretation of the term 'insurance‘ to differ according to whether itappears in the directive on insurance or in the Sixth Directive.

19.

    Moreover, it is common ground that the expression 'insurance transactions‘ inArticle 13B(a) covers in any event cases where the transaction is carried out by theactual insurer who has undertaken to cover the risk insured against. As the UnitedKingdom Government has correctly pointed out, it is for the national court todetermine whether CPP itself has accepted insurance obligations.

20.

    However, CPP acknowledges that it merely promised its customers to do what wasnecessary for insurance to be provided to them by a third party, and that it did notitself undertake to provide insurance cover. In this respect, the Commission haspointed out that CPP is the holder of a group policy for its customers.

21.

    In those circumstances, it must be noted that CPP is the holder of a blockinsurance policy under which its customers are the insured. It procures for thosecustomers, for payment, in its own name and on its own account, to the extent ofthe services mentioned in the Continental policy, insurance cover by havingrecourse to an insurer. Consequently, for the purposes of VAT, there is a supplyof services between Continental and CPP on the one hand, and between CPP andits customers on the other, and the fact that Continental under the terms of itscontract with CPP provides insurance cover directly to CPP's customers is notmaterial in this respect.

22.

    Such a supply of services by CPP constitutes an insurance transaction within themeaning of Article 13B(a). It is true that the exemptions provided for by Article13 of the Sixth Directive are to be construed strictly (see Stichting UitvoeringFinanciële Acties, paragraph 13). However, the expression 'insurance transactions‘is broad enough in principle to include the provision of insurance cover by ataxable person who is not himself an insurer but, in the context of a block policy,procures such cover for his customers by making use of the supplies of an insurerwho assumes the risk insured.

23.

    That interpretation is supported by the purpose of the Sixth Directive, whichexempts insurance transactions but gives Member States, in Article 33, thepossibility of maintaining or introducing a tax on insurance contracts. Consequently,

if 'insurance transactions‘ refers solely to transactions performed by insurersthemselves, the final consumer might have to pay not only that tax but also VAT,in the case of block policies. Such a result would be contrary to the purpose of theexemption provided for by Article 13B(a).

24.

    Having regard to the foregoing, there is no further need to consider whether CPPcarried on the activity of an insurance agent referred to in Article 13B(a) of theSixth Directive.

25.

    The answer to Question 3 must therefore be that Article 13B(a) of the SixthDirective is to be interpreted as meaning that a taxable person, not being aninsurer, who, in the context of a block policy of which he is the holder, procures forhis customers, who are the insured, insurance cover from an insurer who assumesthe risk covered performs an insurance transaction within the meaning of thatprovision. The term 'insurance‘ in that provision extends to the categories ofassistance listed in the annex to Directive 73/239, as amended by Directive 84/641.

Questions 1 and 2

26.

    By its first two questions, which should be taken together, the national courtessentially asks, with reference to a plan such as that offered by CPP to itscustomers, what the appropriate criteria are for deciding, for VAT purposes,whether a transaction which comprises several elements is to be regarded as asingle supply or as two or more distinct supplies to be assessed separately.

27.

    It must be borne in mind that the question of the extent of a transaction is ofparticular importance, for VAT purposes, both for identifying the place where theservices are provided and for applying the rate of tax or, as in the present case, theexemption provisions in the Sixth Directive. In addition, having regard to thediversity of commercial operations, it is not possible to give exhaustive guidance onhow to approach the problem correctly in all cases.

28.

    However, as the Court held in Case C-231/94 Faaborg-Gelting Linien v FinanzamtFlensburg [1996] ECR I-2395, paragraphs 12 to 14, concerning the classification ofrestaurant transactions, where the transaction in question comprises a bundle offeatures and acts, regard must first be had to all the circumstances in which thattransaction takes place.

29.

    In this respect, taking into account, first, that it follows from Article 2(1) of theSixth Directive that every supply of a service must normally be regarded as distinctand independent and, second, that a supply which comprises a single service froman economic point of view should not be artificially split, so as not to distort thefunctioning of the VAT system, the essential features of the transaction must beascertained in order to determine whether the taxable person is supplying the

customer, being a typical consumer, with several distinct principal services or witha single service.

30.

    There is a single supply in particular in cases where one or more elements are tobe regarded as constituting the principal service, whilst one or more elements areto be regarded, by contrast, as ancillary services which share the tax treatment ofthe principal service. A service must be regarded as ancillary to a principal serviceif it does not constitute for customers an aim in itself, but a means of betterenjoying the principal service supplied (Joined Cases C-308/96 and C-94/97Commissioners of Customs and Excise v Madgett and Baldwin [1998] ECR I-0000,paragraph 24).

31.

    In those circumstances, the fact that a single price is charged is not decisive.Admittedly, if the service provided to customers consists of several elements for asingle price, the single price may suggest that there is a single service. However,notwithstanding the single price, if circumstances such as those described inparagraphs 7 to 10 above indicated that the customers intended to purchase twodistinct services, namely an insurance supply and a card registration service, thenit would be necessary to identify the part of the single price which related to theinsurance supply, which would remain exempt in any event. The simplest possiblemethod of calculation or assessment should be used for this (see, to that effect,Madgett and Baldwin, paragraphs 45 and 46).

32.

    The answer to the first two questions must therefore be that it is for the nationalcourt to determine, in the light of the above criteria, whether transactions such asthose performed by CPP are to be regarded for VAT purposes as comprising twoindependent supplies, namely an exempt insurance supply and a taxable cardregistration service, or whether one of those two supplies is the principal supply towhich the other is ancillary, so that it receives the same tax treatment as theprincipal supply.

Question 4

33.

    If the national court holds that CPP is to be regarded as acting as an insurer whoassumed the risk insured and thus performed transactions regarded by national lawas unlawful, it must be borne in mind that the Sixth Directive is based on theprinciple of fiscal neutrality. As regards VAT, that principle, as the Court hasalready held, precludes, other than in cases not relevant here, lawful and unlawfultransactions being treated differently (see Case C-283/95 Fischer v FinanzamtDonaueschingen [1998] ECR I-3369, paragraph 22).

34.

    The United Kingdom Government submits, however, that restricting the exemptionto transactions of authorised insurers was justified in view of the introductorysentence of Article 13B of the Sixth Directive.

35.

    It must be observed that that provision, in accordance with the principle of fiscalneutrality, makes no distinction, as regards the exemption for insurance transactionsit provides for, between lawful and unlawful transactions in national law. It followsthat those two categories of transaction must be treated in the same fashion.

36.

    The answer to Question 4 must therefore be that Article 13B(a) of the SixthDirective is to be interpreted as meaning that a Member State may not restrict thescope of the exemption for insurance transactions exclusively to supplies by insurerswho are authorised by national law to pursue the activity of insurer.

Costs

37.

    The costs incurred by the United Kingdom and German Governments and by theCommission, which have submitted observations to the Court, are not recoverable.Since these proceedings are, for the parties to the main action, a step in theproceedings pending before the national court, the decision on costs is a matter forthat court.

On those grounds,

THE COURT (Sixth Chamber),

in answer to the questions referred to it by the House of Lords by order of 15October 1996, hereby rules:

1.    Article 13B(a) of Sixth Council Directive 77/388/EEC of 17 May 1977 onthe harmonisation of the laws of the Member States relating to turnovertaxes — Common system of value added tax: uniform basis of assessmentis to be interpreted as meaning that a taxable person, not being an insurer,who, in the context of a block policy of which he is the holder, procures forhis customers, who are the insured, insurance cover from an insurer whoassumes the risk covered, performs an insurance transaction within themeaning of that provision. The term 'insurance‘ in that provision extendsto the categories of assistance listed in the annex to First Council Directive73/239/EEC of 24 July 1973 on the coordination of laws, regulations andadministrative provisions relating to the taking-up and pursuit of thebusiness of direct insurance other than life assurance, as amended byCouncil Directive 84/641/EEC of 10 December 1984.

2.    It is for the national court to determine, in the light of the above criteria,whether transactions such as those at issue in the main proceedings are tobe regarded for the purposes of value added tax as comprising twoindependent supplies, namely an exempt insurance supply and a taxable

card registration service, or whether one of those two supplies is theprincipal supply to which the other is ancillary, so that it receives the sametax treatment as the principal supply.

3.    Article 13B(a) of the Sixth Directive 77/388 is to be interpreted as meaningthat a Member State may not restrict the scope of the exemption forinsurance transactions exclusively to supplies by insurers who areauthorised by national law to pursue the activity of insurer.

KapteynHirsch Mancini Ragnemalm Schintgen

Delivered in open court in Luxembourg on 25 February 1999.

R. Grass

P.J.G. Kapteyn

Registrar

President of the Sixth Chamber

1: Language of the case: English.