The European Court of Justice has ruled in a case arising in Poland that where Insurance companies outsource some of their back office functions and claims handling these costs are not exempt from VAT. That leaves insurance companies – themselves exempt – facing up to 23% higher costs for the work they outsource.
The full financial cost of the latest ruling is unclear but it could potentially run into millions. There are dozens of insurers operating in the Irish car and home insurance market and the majority of these are known to use outside firms to process their claim handling. The eventual cost to companies, and ultimately their customers, will depend on the cost of that part of their business and the VAT burden. It is expected that there will not be any immediate change to the current position where such “delegated” business is deemed exempt under Irish law.
Any change will depend on how Revenue interpret and implement this judgment and it is understood that they are currently studying what possible implications it could have for Irish VAT regulations.
Inevitably, if the VAT becomes payable here, it will be the long-suffering customers who will have to pick up the tab. This will come on top of a recent decision in the Court of Appeal that the Irish Insurance industry will have to stump up as much as €90M to settle claims arising from the collapse of Setanta Insurance. This will probably add €50 to the average motor insurance premium.