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Germany: Insurance premium tax for seagoing vessels (CJEU judgment)

CJEU judgment held that EU Member State where seagoing vessels are registered (in the ownership register) may levy insurance premium tax

A CJEU judgment concerning insurance premium tax for seagoing vessels

The Court of Justice of the European Union (CJEU) in an April 2021 judgment held that the EU Member State where seagoing vessels are registered (in the ownership register) may levy insurance premium tax. According to the CJEU, this conclusion is no different if a vessel (temporarily) sails under the flag of another country. 

The case is: North of England P&I Association Ltd. v. Bundeszentralamt für Steuern, (C-786/19, 15 April 2021).

KPMG observation

Tax professionals in the Netherlands have noted that the CJEU judgment is in accordance with Dutch rules, but deviates from the practice in several other countries.

The judgment is viewed as not only important for the insurance of seagoing vessels, for which an exemption applies in the Netherlands, but also for the insurance of other vessels (such as inland barges and recreational craft), which are subject, as starting point, to 21% insurance premium tax in the Netherlands.

Summary

This case concerns the “place of risk.” The place of risk has been harmonized in the European context for indirect taxes and para-fiscal charges on insurance premiums (insurance premium tax), on the basis of the Solvency II Directive and its predecessors. On that basis, the place of establishment or residence of the policyholder is generally used. However, if this concerns the insurance of vehicles (including seagoing vessels) the “EU Member State of registration” must be used. Exemptions, taxable amounts, rates, tax liability, and such have not been harmonized with regard to insurance premium tax.

The German interpretation of the “EU Member State of registration” was at dispute in this case between an insurance company established in the United Kingdom and the German federal tax authorities. The insurance company had concluded insurance contracts with 14 companies established in Germany to insure their seagoing vessels. The coordinating German shipowner and the Maltese and Liberian bareboat charterers were also policyholders of or co-insured parties to the insurance contracts. The insurance covered civil liability, legal protection, war risks, and various types of damage to ships. The seagoing vessels temporarily flew the flag of another country (Malta and Liberia) with the permission of the German authorities, but all remained registered in the ownership register in Germany.

At issue was whether Germany has the authority to tax in this case and specifically whether the “EU Member State of registration” with the authority to tax was the country where the seagoing vessels were registered in the ownership register (Germany) or the country whose flag is flown by the vessels (Malta and Liberia)?

The CJEU held that the term “Member State of registration” must be interpreted as the EU Member State where the vessel is registered in the ownership register. Germany thus was found to have the authority to tax, despite the fact that the vessels temporarily flew the flag of another country.

KPMG observation

In Dutch legislation, the “Member State of registration” is already interpreted as the EU Member State of registration of ownership. The Dutch ownership register is kept by the Cadastre, Land Registry and Mapping Agency. If the ownership of a vessel is registered in a third country (such as Liberia or Curaçao), the Dutch rules may require that the EU Member State where the policyholder is established/resides is used, so that the insurance can still fall under the scope of Dutch insurance premium tax. However, the Netherlands has an exemption for the insurance of seagoing vessels, which means that in many cases, no insurance premium tax is payable. Both the place of risk and the application of the exemption depend on the cover offered by the insurance. The insurance of inland barges and recreational craft is not exempt. If the place of risk is situated in the Netherlands and no exemption applies, the Dutch insurance premium tax (21%) is payable.

In the Solvency II Directive and its predecessors, the place of risk is harmonized. For (seagoing) vessels, the “Member State of registration” is used, without any explanation of what type of registration (ownership/flag) that must be. In practice, a number of insurers relate to the flag state and apply the same interpretation throughout the entire European Economic Area.

In Germany, among other countries, there is no exemption for the insurance of seagoing vessels. In situations when no exemption applies and a vessel sails under the flag of a country other than the country where the ownership is registered, double (non-)taxation may arise. The starting point is that vessels are registered in the Netherlands and fly the Dutch flag, but, just like in Germany, it is also possible in the Netherlands to have a vessel (temporarily) fly the flag of another country.

Taxpayers need to consider examining the place of risk, certainly if vessels are registered in different countries in respect of ownership and flag or if a vessel is registered in a third country. Insofar as the place of risk is situated in the Netherlands, another consideration is whether the exemption can be applied and to review which risks are exactly insured.

Read an April 2021 report prepared by the KPMG member firm in the Netherlands 

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