Intermediation in sale of extended warranties not to be excluded from coefficient calculation

The Court of Justice of the EU (CJEU) denied the full entitlement to VAT deduction to a company providing extended warranties during sales of goods. The sale of extended warranties may not be treated as a financial activity, ruled the court.

Rádio Popular, a Portuguese company selling household appliances and electronics, offered to its customers an ancillary service involving the sale of extended warranties for purchased goods, and regarded this service a financial activity exempt from VAT. Moreover, they excluded this activity from the calculation of the coefficient used to determine the reduced (proportionate) entitlement to VAT deduction, arguing that this activity was an ancillary financial activity. The company then claimed the full entitlement to the deduction of VAT on all received taxable supplies.

During a tax inspection at the company, the Portuguese tax authority argued that Rádio Popular had been acting as an intermediary of insurance, rather than financial services. Consequently, this type of ancillary services may not be excluded from the calculation of the coefficient to determine the entitlement to VAT deduction in a reduced (proportionate) amount. As a result, the tax authority denied the full entitlement to VAT deduction to the company.

In its judgment (C-695/19), the CJEU first confirmed that Rádio Popular had indeed acted as an intermediary of insurance services. Then the court dealt with the issue whether these services can be excluded from the coefficient calculation as ancillary financial activities, i.e. it examined whether the mediation of insurance services can be regarded as ‘ancillary financial activity’. 

The CJEU emphasised that the term ‘financial activity’ must be interpreted strictly, as the exemption of financial activities from VAT constitutes an exception to the general rule that all services are liable to VAT. Consequently, insurance activity may not be regarded as financial activity. Intermediation in the sale of extended warranties thus cannot be excluded from the calculation of the coefficient to determine the proportionate VAT deduction, since this type of activity does not represent an ancillary financial activity.

Sdílet článek