Author: Letizia Grech Seychell, Senior Tax Accountant

Date: 16 February 2021

On 8 February 2021, the European Commission (EC) has launched a public consultation on VAT rules for financial and insurance services, whose contributions will feed into the review of such VAT rules, as announced in the Tax Action Plan.

Background

Currently, under the VAT Directive, most financial and insurance services are “exempt without credit”. As such, these service providers cannot recover input VAT such as on investment goods and IT costs. This results in VAT becoming a cost for them and, eventually, for their customers.

The main reason behind such exemption was originally introduced due to the complexity of applying VAT to these supplies. While acknowledging the legal uncertainty and the high administrative and regulatory costs which have arisen due to the complexity of the VAT rules, in light of recent fintech developments, the EC is considering the modernisation and improvement of the relevant provisions of the VAT Directive.

The public consultation will run until 3 May 2021. The contributions provided by the stakeholders will contribute to a possible future legislative proposal to the VAT Directive.