2001 (1) TMI 959 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the payment to Card Protection Plan Ltd (CPP) is wholly liable to Value Added Tax (VAT) or exempt as insurance arrangements.
2. Whether the services provided by CPP constitute a single composite supply or two or more independent supplies.
3. Whether the services provided by CPP include "insurance transactions" within the meaning of Article 13(B)(a) of the Sixth VAT Directive.
4. Whether the restriction of the exemption for "insurance transactions" to supplies made by persons permitted to carry on insurance business under national law is compatible with Article 13(B)(a) of the Sixth VAT Directive.

Summary:

Issue 1: VAT Liability
The main question was whether the payment made to CPP is wholly liable to VAT, exempt as insurance arrangements, or partly liable. The European Court of Justice (ECJ) clarified that the term "insurance transactions" is broad enough to include the provision of insurance cover by a taxable person who is not an insurer but procures such cover for his customers through an insurer. The House of Lords concluded that the dominant purpose of CPP's scheme is to provide insurance cover, making it an exempt supply for VAT purposes.

Issue 2: Single Composite Supply or Independent Supplies
The ECJ provided guidance on determining whether a transaction consists of a single composite supply or multiple independent supplies. The House of Lords, considering the essential features of the transaction, concluded that CPP's services constitute a single supply with ancillary services. The dominant purpose of the scheme is insurance, and other services provided are ancillary to this main objective.

Issue 3: Inclusion of "Insurance Transactions"
The ECJ noted that "insurance transactions" and the concept of insurance are not explicitly defined in the Sixth VAT Directive. However, it stated that the essentials of an insurance transaction include the insurer undertaking to provide the insured with the agreed service in return for a premium. The House of Lords agreed that CPP's activities fall within the scope of "insurance transactions" as defined by the ECJ.

Issue 4: Compatibility with Article 13(B)(a) of the Sixth VAT Directive
The ECJ held that the exemption for "insurance transactions" applies regardless of whether the supplier is authorized under national law to carry on insurance business. The House of Lords concurred, stating that the transaction performed by CPP is an exempt insurance supply, and any ancillary services are also exempt for VAT purposes.

Conclusion:
The House of Lords allowed the appeal, holding that the services provided by CPP constitute a principal exempt insurance supply with ancillary services, making the entire transaction exempt from VAT. CPP was entitled to its costs before the House of Lords and below against the commissioners.