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Review of the VAT Rules for Financial and Insurance Services

The rules on the VAT treatment of insurance and financial services are set out in the VAT Directive (2006/112/EC), which provides that such services are generally exempt from VAT. This means that suppliers of such services cannot deduct the VAT paid on purchases needed in order to provide their services. As a result, VAT often constitutes a cost for these operators and, in turn, their customers. The VAT rules for financial and insurance services result in suppliers of such services facing a competitive disadvantage. It is for these reasons that the Commission propose to review these rules and take legislative action to improve the situation.


The primary objective of the initiative is to address the competitive disadvantage faced by financial and insurance operators. This is caused by irrecoverable VAT faced by such operators because their services are exempt from VAT. 

The second objective is to clarify the VAT rules for financial and insurance services and further harmonisation of these rules in order to diminish existing discrepancies in the VAT treatment of these services across the EU.

Other objectives are to provide a level playing field for EU businesses which would contribute to the smooth functioning of the internal market of the EU and, in general, to contribute to the wider review of the VAT system with the aim of making it more robust and efficient.

In order to achieve the above objectives, the following possible policy options, detailed in the Commission’s combined evaluation roadmap/inception impact assessment, will be considered. These options are without prejudice to alternative approaches which may emerge through further public and stakeholder consultations:

  1. To remove the existing exemption in order to tax financial and insurance services; or
  2. To keep the exemption, but to modify its scope through taxing only some types of services, e.g. fee-based as opposed to interest-based.


The Commission has already commenced evaluation and impact assessment work through data collection and analysis of options. It expects to complete this work in the 3rd quarter of 2021. 

Alongside this work, a public consultation is due to take place in the 1st quarter of 2021. The purpose of which is to gather the views of stakeholders on the current VAT provisions for the financial and insurance sectors, their application and on possible changes to these provisions. 

In advance of the public consultation, the public have until midnight (Brussels time) on 19 November 2020 to provide feedback on the initiative and the current VAT treatment of financial and insurance services to the Commission via their website.

Please contact Ted McGrath, Anne Tobin, Ian Murray or your usual William Fry contact if you have any questions on this proposal.


Contributed by Stephanie Kinsella