CJEU ruled warranties provided by third parties to be VAT exempt

On 16 July 2015 the Court of Justice of the European Union (CJEU) delivered a judgment in the Mapfre case (C-584/13) regarding the VAT characterization of warranties covering mechanical breakdowns provided by the parties not involved in the sale of the cars.


Mapfre Warranty SpA (Mapfre) offered warranties covering a mechanical breakdown of second-hand cars. These warranties were offered to the purchasers by independent car dealers selling the second-hand cars. The dealers collected the premium and passed it on to Mapfre.

Specifically, once the purchaser decided to take out the additional warranty, he was supplied – in return for an additional payment – with a warranty booklet in the name of Mapfre. In the event of a mechanical failure, the purchaser was able to take the car to a garage of his choice, which provided an estimate of the costs to Mapfre. Once the estimate had been accepted by Mapfre, the garage repaired the car and charged Mapfre for its work.

In order to hedge the risk against a financial loss arising from Mapfre warranty’s obligation to cover the repair costs of the vehicles for which the warranty booklet was issued, Mapfre re-insured its risk with an associated company. On the basis that it did not have a contractual relationship with the purchaser of the second-hand vehicle (i.e. the warranty was offered by the car dealers), Mapfre took the view that the car dealers simply commissioned it to perform the above obligations. As a result of this, Mapfre warranty treated its services as normal supplies of services subject to VAT.

However, the French tax authorities considered the warranties to be insurance transactions for VAT purposes which should have been treated as exempt from VAT and subject to French insurance tax. 


The Court of Justice of the European Union (“CJEU”) ruled that Mapfre’s services should be regarded as VAT exempt insurance transactions. This conclusion was made on the basis that:

(a)    the insurer was an economic operator independent of the car dealer;

(b)   the insured person was the purchaser of the second-hand car;

(c)    the insured risk constituted the cost of the repairs that the purchaser would need to pay in the event of a mechanical failure of its car which Mapfre committed to cover;

(d)   the payments made by the purchasers constituted a lump-sum;

(e)    the insured person was not allowed to receive a refund if the cost of repairs during the warranty period was lower than the price of the warranty;

(f)     the insured person was not obliged to make any further payment if the cost of repairs exceeded the price paid for the warranty.

Specifically, relying upon the principle of the fiscal neutrality, Mapfre claimed that its services should be treated identically to additional warranties offered by car dealers as those traders are regarded as offering after-sales services that are subject to VAT. However, the court denied to address this point as it was not included in the request for a preliminary ruling.

Additionally, the court did not agree with Mapfre’s further argument that the warranty is so closely linked to the sale of the car that is should follow the VAT treatment of the sale of the car.

Impact on businesses

The above judgment appears to impact retailers’ extended warranties that are issued by third parties which are not currently treated as insurance transactions. Retailers offering warranties that are provided by the parties independent to them should review their position in order to confirm whether they fall within the scope of the above judgment.

For further information, please contact your usual PwC advisor.


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Larentia + Minerva: CJEU issues its decision on the VAT deduction right of active holding companies & VAT grouping rules


Larentia + Minerva: CJEU issues its decision on the VAT deduction right of active holding companies & VAT grouping rules

July 16, 2015

The Court of Justice of the European Union (CJEU) released yesterday its decision on the joint cases, Beteiligungsgesellschaft Larentia+Minerva GmbH & Co. KG (C-108/14) (Larentia+Minerva) and Marenave Schiffahrts AG (C-109/14) (Marenave).

The questions referred to the CJEU concern two significant issues:

  • The input VAT recovery of holding companies involved in the management of their subsidiaries.
  • The VAT grouping rules and the restrictions imposed by national law.

We recall that the Swiss VAT legislation considers the acquisition, holding and disposal of shares an economic activity and admits the VAT deduction right of holding companies irrespective of their involvement (passive or active) in the management of their subsidiaries.

On the contrary, based on the EU VAT principles, passive holding companies limiting their activities to the acquisition, holding and disposal of shares neither have the status of a taxable person nor the right to deduct any input VAT. A holding company can qualify as a taxable person only if it is involved in the management of its subsidiaries by providing taxable services to the latter (active holding company). In this case, the VAT deduction right may be admitted, however, is under scrutiny in many EU Member States.

Larentia+Minerva was the owner of 98% of the shares in two limited partnerships each one operating a vessel. Acting as a “management” holding company, Larentia+Minerva provided taxable supplies (i.e. administrative and consultancy services) for consideration to these subsidiaries. The holding company sought to recover the input VAT incurred in the frame of raising capital from a third party to fund the acquisition of the shares in its subsidiaries and the services provided to the latter.

Following a similar factual pattern, Marenave incurred input VAT on costs relating to raising capital through the issue of new shares. The capital raised was used to fund the acquisition of shares in four limited shipping partnerships to which Marenave provided management services for remuneration.

In the case of Larentia+Minerva, the German tax authorities only permitted the partial deduction of the input VAT considering that the majority of the costs connected with the acquisition of shares in the subsidiaries should be attributed to a non-economic activity, namely the holding of shares in subsidiaries for which the input VAT deduction is not allowed. In respect of Marenave, the German tax authorities denied the right to deduct the input VAT incurred for the issue of shares on grounds of lack of involvement of the holding company in the management of its subsidiaries.

Questions referred to the CJEU

  1. In its first question, the referring court asked which calculation method is to be used to calculate a holding company’s (pro rata) input VAT deduction in respect of costs related to the procurement of capital for the acquisition of shares in subsidiaries, considering that this holding company provides taxable supplies to those subsidiaries.
  2. By its second question, the referring court asked whether the restriction of VAT grouping to corporate entities and the condition of a relationship of control and subordination between the members of the group imposed by German law are compatible with the concept of VAT grouping developed by the EU VAT Directive.
  3. Finally, the referring court asked whether the VAT grouping provision in the EU VAT Directive can have direct effect for taxable persons.

Decision of the CJEU
In respect of the first question on the VAT deduction right of holding companies, the CJEU drew a distinction based on whether the holding is involved in the management of all (active holding) or only some (mixed holding) of its subsidiaries through the provision of taxable services to them:

  • In the first case, the CJEU has ruled that the input VAT costs incurred by a holding company in connection with acquisition of shares in subsidiaries form part of the general costs and are fully deductible. In this regard, the input VAT should not be apportioned between the economic and non-economic activities of the holding company.
  • By contrast, the CJEU concluded that if the holding company incurs costs in relation to the acquisition of shares in subsidiaries but has involved itself in the management of only some of those subsidiaries can only partially deduct the input VAT actually to be attributed to its economic activity. The EU Member States must provide for a method of apportionment to calculate the part of input VAT actually to be attributed to the economic and to non-economic activity of the holding company.

In addition, the CJEU found that the VAT grouping conditions implemented in Germany limiting the participation to a VAT group to corporate entities and requiring a relationship of control and subordination between the members of the group are too restrictive and go beyond the requirements set by the EU VAT directive. However, answering the third question, the CJEU pointed out that the provision of the EU VAT Directive on VAT grouping cannot have direct effect allowing taxable persons to claim a benefit thereof.

What does this mean for you?
With this judgment CJEU has shed new light on the VAT deduction right of holding companies, since:

  • The CJEU confirmed that active holding companies should have the right to fully reclaim the input costs incurred in relation to the acquisition of shares in those subsidiaries. An apportionment of the input VAT is only required if the holding company renders VAT exempt supplies to its subsidiaries.
  • On the other hand, mixed holding companies may now face important risks regarding the determination of the calculation method for the deduction of their input VAT costs as the apportionment between economic and non-economic activities will be required. In addition, it cannot be excluded that tax authorities may consider re-assessing the input VAT previously deducted by these entities (up to the time limits applicable).

In light of this decision, various EU Member States are likely to revise their current practice on the VAT recovery of holding companies and the VAT grouping requirements imposed in their national legislation.


  • Businesses with holding companies based in the EU should carefully review their corporate organization and monitor closely the changes that may be adopted in the various EU Member States.
  • Active holding companies having been prevented by tax authorities in the EU to deduct in full their input VAT costs in the past should assess the possibility of launching proceedings to reclaim this input VAT in accordance with the conditions for such proceeding imposed by national law.
  • Mixed holding companies should carefully analyze the impact of this decision, especially in respect of their past entitlement to deduct input VAT. In this case, it is crucial to evaluate the possible solutions to mitigate any risks especially for the past and to determine the method for the apportionment of the input VAT deduction of the holding company for the future.

For more information about the specific consequences for your situation, please contact with your PwC ITX advisor.

Join our live webinar to find out more

How may the CJEU’s judgment impact your business? Will you be in a position to benefit and need to protect your position on time limits? How might your tax authority respond to the decision?

Please join us on our live webinar when a panel of indirect tax experts will provide their insights into the judgement and you will have the opportunity to ask the panel questions during the live webinar. A more detailed analysis with our comments and recommended actions will follow after the webcast session.

Date: 20 July 2015
Time:15:00 BST, 10:00 Eastern (New York)

To Access the Webcast:
Click on the following link to open the webcast registration page:

You may log in starting 15 minutes before the webcast begins, but it will be also recorded for later viewing. Recording can be accessed under the same link or you can find it on pwc.com.

After filling out the registration page, the webcast will open in Internet Explorer to enable you to view the presentation on your desktop and hear audio through your PC speakers. If you are watching the webcast in a group setting, please note that you will need to connect external speakers to the PC that is projecting the webcast to the group. You should *not* view the webcast via computer AND then listen via phone as there will be a delay in the sound.

We look forward to exchanging with you.

Kind regards,

The FTA can forget its percentage calculations – Federal Court judgement on the 25/75% practice

With unusual clarity the Federal Court has found against the Federal Tax Administration (FTA). At issue was the tax liability of a foundation, which operates a museum. The FTA struck the foundation off the VAT Register as of 1.1.2010, because „the costs of an activity are not covered in the long-term as to at least 25% by revenues from supplies and services (excluding investment and interest income), but more than 75% by non-considerations, such as subsidies, donations, cross-financing, contributions of capital, etc.“.

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The Federal Court rules against the FTA’s 25/75% practice

PwC_PC_France_Paris_MB_081Impact on non-profit organisations

In an explicit manner, the Swiss Federal Court has ruled against the Federal Tax Administration’s (FTA) so-called 25/75% practice regarding VAT liability and the right to register for VAT purposes in Switzerland.

The case related to a foundation operating a museum which covered less than 25% of its costs by revenues generated from supplies of goods and services, respectively more than 75% of its costs were financed by non-considerations, such as donations, subsidies, capital contributions, etc. In accordance with the 25/75% practice, the FTA claimed that the foundation cannot be considered taxable person and cancelled the VAT registration of the foundation retroactively from 1 January 2010.

In its judgement 2C_781/2014, dated 19 April 2015, the Swiss Federal Court has decided that this practice is inconsistent with the VAT Law. Even if, as in the case at hand, the foundation’s costs are covered far below 25% by considerations for supplies of goods or services, the VAT registration cannot be denied.

The Federal Court dismissed the argument of the FTA in relation to the 25% threshold stating in its judgement that: “within a business activity there cannot be a non-business area. A nonbusiness activity, which is not entitled to input VAT deduction, cannot be simply presumed, but must be clearly and unequivocally independent to the business activity”. As a result, the foundation will be reinstated in the VAT Register with retroactive effect as of 1 January 2010 and will likely be reimbursed a significant (six figure) VAT amount from the FTA.

For non-profit organisations this judgement has significant consequences:

  1.  If a non-profit organisation performs business activities, it is liable for the VAT and must register, when its turnover from such business activities exceeds the threshold of CHF 150,000 (for cultural, sport or other organizations pursuing goals in the public interest) or CHF 100,000 (for organisations not falling under the previous category). In case the organisation’s turnover is below the threshold, the possibility for opting for voluntary VAT registration should be investigated.
  2. Where the organisation does not perform non-business activities which are clearly and unequivocally independent from its business activities, it should be entitled to full input VAT deduction, unless the organisation carries out supplies of goods and services exempt from tax without credit or receives subsidies.
  3. If an organisation has been de-registered for VAT purposes due to the discussed practice of the FTA as of 1 January 2010, it is worth analysing the possibility of the organisation to claim retroactive VAT registration and the related input tax.
  4. If the organisation has, besides its business activity, a clearly independent non-business area of activity, the allocation and therefore the input VAT deduction right should be examined.

In any event the FTA will have to revise its current practice and take a decision which is already overdue. Taking into account the Swiss Federal Court’s clear judgement it is worthwhile to act proactively and take the opportunity to analyse the VAT position of your organisation and submit your proposed solution to the FTA.

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Olivier Comment

Gergana Chalakova

Senior Manager
PwC Switzerland
Tel. +41 58 792 81 74
Assistant Manager
PwC Switzerland
Tel. +41 58 792 92 02

New European Union Implementing Regulation for company vehicles registered in Switzerland

Do you provide company vehicles for the use of your crossborder employees? These new rules could affect you!

New regulation for company vehicules

The entry into force of the new European Union Implementing Regulation (EU) 2015/234 as of 1 May 2015 means that company vehicles registered in Switzerland and placed at the disposal of employees resident in the EU will be subject to customs duties if they are used for private purposes.

In cases of non-compliance with European customs regulations, the user, i.e. the employee, becomes liable for the corresponding import duties and taxes as well as any fines for not clearing the vehicle through customs.

Company vehicles registered in Switzerland and used by employees residing in Switzerland are not affected by this change. However, for cross-border commuters, companies have to distinguish between those who use such vehicles purely for professional purposes and those who use them for professional and personal ends.

(i) In the first case, a cross-border commuter using a vehicle only for the journey to and from home to the place of work and to carry out professional activities specified in the employment contract may continue as before under the current rules (temporary admission procedure, which suspends customs duties and import tax). It is essential for companies to amend employment contracts and other internal regulations, where necessary, to reflect the intended use of vehicles. Moreover, a copy of the employment contract should be kept in the vehicle at all times.

(ii) The second case is more challenging because the employers must decide whether to continue to allow personal use of the vehicle.

If the employer were to prohibit the personal use of the vehicle, the employment contract would have to be modified, This has consequences, especially in terms of compensation, social security contributions and the tax regime of both the employee and the company.

If personal use is allowed to continue, the vehicle must be cleared through customs (10% customs duty, 20% non-refundable VAT) and several issues have to be resolved:

  • What is the value of the vehicles to be declared as there is no sale? The customs recommend Argus value but based on the French regulations in force and our experience it could be reduced.
  • What measures can be taken to reduce the customs duties? Is there an alternative to the temporary admission procedure to reduce the customs duties owed?
  • What formalities have to be respected?

Urgent action is needed, therefore, to ensure the use of company vehicles complies with European Union law. Our teams in France and Switzerland are at your disposal to assist you through the steps of the two approaches:

1. Clearing the vehicle through customs with the aim of maintaining stable employment contracts for cross-border commuters

Our teams can support you to:

(i) Minimise the impact of customs clearance of vehicles currently placed at the disposal of employees (clearance for personal use vs. other regime, determining the customs valuation);

(ii) Accelerate customs clearance (i.e. EORI registration, support in instructing customs agents as well as training HR teams to deal with the customs expenses now inherent when providing a company vehicle and with ‘crisis situations’ (e.g. if an employee’s vehicle is confiscated by French customs officers, negotiations over fines levied by customs, etc.).

2. Adapt current practices: prohibiting any purely personal use of the vehicle.

Our Swiss team supports you in making the required changes to employment contracts, internal regulations and other relevant documents while ensuring they comply with the other fiscal and social obligations of the company (the valuation of fringe benefits, social security contributions as well as personal and corporate tax).
Whatever the situation, we study the specific needs of your organisation and help you implement solutions tailored to your company’s fleet management.

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