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VAT on financial and insurance services

The Value Added Tax (VAT) on financial services has been debated for many years, since applying VAT to these services is technically difficult. At EU level, most financial and insurance services are exempted from VAT as currently set in article 135(1) of Council Directive 2006/112/EC on the common system of VAT. But Member States may allow taxable persons to opt for taxation as far as most of the exempted financial transactions are concerned (article 137 of Directive 2006/112/EC). Many analysts consider that the current system creates significant distortions.

VAT on financial and insurance services

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In 2007, the European Commission submitted two legislative proposals (one for a Directive – COM(2007)747 and one for a Regulation – COM(2007)746) with a view to modernising and simplifying relevant provisions. However, these procedures have not much advanced, with the outbreak of the financial crisis igniting a broader debate on reforms of the financial sector and of the rules governing it.

In a 2010 Communication on the taxation of the financial sector (COM(2010)549 – accompanied by a staff working document), the Commission argued for a revision of financial sector taxation in order for the sector to make a fair and substantial contribution to public budgets. Among possible new taxes for the financial sector, the document focused on two options: a Financial Transaction Tax (FTT) and a Financial Activities Tax (FAT). Since a 2011 proposal to establish an FTT at EU level did not find the necessary consensus, 11 Member States are currently working on the introduction of an FTT through enhanced cooperation.

The question of VAT exemption (and of the related tax advantage that the financial sector is deemed to enjoy in comparison with other sectors of the economy) remains open and is prominently present in these complex discussions which touch on various other subject matters, including the own resources of the EU (the Commission having suggested that part of the proceeds of an FTT be used to finance the EU budget). The 2007 proposals to reform VAT rules for insurance and financial services are still with the Council for discussion.

In the meantime, a broader reflection on the future of the entire VAT system has been launched as well.


Legislation in force

Council Directive 2006/112/EC on the common system of value added tax, 28/11/2006 – 2004/0079/CNS

Proposed legislation

Proposal for a Council Directive amending directive 2006/112/EC on the common system of value added tax, as regards, the treatment of insurance and financial services COM/2007/0747 – CNS 2007/0267, 28/11/2007

Proposal for a Council Regulation laying down implementing measures for Directive 2006/112/EC on the common system of value added tax, as regards the treatment of insurance and financial services COM/2007/0746, 28/11/2007.

Procedure files

Procedure file 2007/0267(CNS)

European Institutions

European Commission

VAT on insurance and financial services / website EC, Taxation and Customs.

This website refers to a number of basic documents of which:

VAT: Call for input on the forthcoming review of Community Legislation on the VAT treatment of financial services / website EC, Taxation and Customs Union. This page contains links to further EC working papers.

Information on the VAT on financial services can also be found in the following documents dealing more in general with the taxation of the financial sector:

The following information source may also be of interest:

Financial Services Policy / section of the European Commission’s website on “The EU Single Market”. This section provides more information on the EU’s initiatives to create a single pan-european market for financial services.

European Parliament

Documents of the EP related to the legislative proposals mentioned above can be found in the legislative procedure file. See in particular:


Documents of the Council related to the legislative proposals mentioned above can be found in the legislative procedure file. See in particular:

Further reading

FAT or VAT? The Financial Activities Tax as a Substitute to Imposing Value Added Tax on Financial Services / Katharina Erbe; Thiess Büttner, Econstor, Beiträge zur Jahrestagung des Vereins für Socialpolitik 2013: Wettbewerbspolitik und Regulierung in einer globalen Wirtschaftsordnung – Session: Taxation II, No. B06-V3.

Ending VAT exemptions: toward a post-modern VAT / Rita de la Feria and Richard Krever, Oxford University Centre for Business Taxation, Working Paper WP 12/28, 2012.

The 2011 Communication on the future of VAT: harnessing the economic crisis for EU  VAT reform / Rita de la Feria in British Tax Review 2012, B.T.R. 119

How the EU VAT exemptions impact the banking sector: study to assess whether banks enjoy a tax advantage as a result of the EU VAT exemption system / PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, 2011

Seminar on VAT on financial services at the University of Lisbon in: Intertax, Vol. 39 (2011), no. 2 ; p. 98-108

VAT treatment of the financial sector / Peter R. Merrill, in Tax Analysts, 2011, p. 163-185.

The elusiveness of neutrality – why is it so difficult to apply VAT to financial services? / Arthur Kerrigan, European Commission, Taxation and Customs Union Directorate General, Munich Personal RePEc Archive (MPRA), 2010.

Opting for opting in? An evaluation of the Commission’s proposals for reforming VAT for financial services / Rita de la Feria, Ben Lockwood ; Warwick economic research papers No 927, 2010, 41 p.

A sensible reform of the EU VAT regime for financial services / Fabrizio Borselli, International VAT Monitor 2009, 20(5), 375-383.

Options for taxing financial supplies in value added tax: EU VAT and Australian GST models compared / Rita de la Feria and Michael Walpole, International and Comparative Law Quarterly, vol. 58, issue 4, 2009, p. 897-932.

Financial activities in European VAT : a theoretical and legal research of the European VAT system and the actual and preferred treatment of financial activities / Henkow, Oskar Eucotax , Kluwer Law International, 2008.

Opinion statement on proposals for a VAT Directive and Regulations regarding financial services / Confederation Fiscale Europeenne, 2008.

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2 thoughts on “VAT on financial and insurance services

  1. Glad too see that a a broader reflection on the future of the entire VAT system has been launched!

    Posted by Mike W | June 23, 2016, 11:11
  2. The European Parliamentary Research Service is the European Parliament’s in-house research department and think tank.Its mission is to assist Members in their parliamentary work by providing them with independent,

    Posted by larsjaegerseo | December 1, 2014, 12:29

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