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EU Kick-starts Review Of Financial Services VAT Rules

Monday, February 15, 2021

On February 8, 2021, the European Commission launched a consultation on a review of the VAT rules for financial and insurance services.

The Commission is seeking comments from the industry and other stakeholders, until May 3, 2021, on the current VAT rules on financial and insurance services and their functioning, as well as on possible changes to the rules.

The Commission said input will help inform possible future amendments to the VAT Directive.

Background

Financial and insurance services are not subject to VAT in the EU. Under Article 135(1)(a-g) of the EU's VAT law, they are instead "exempt without credit." As such, these firms are unable to recover the VAT they incur on purchases attributable to the making of exempt supplies, with this cost then passed on to consumers.

When the rules were first drafted in 1996, these services were made exempt due to the complexity of applying VAT to these supplies. In light of recent digital advances, the EU is now considering whether it is time to improve and modernize the rules.