6 March 2015

In a VAT case involving Mapfre Warranty SpA, the Advocate General has suggested that the Court of Justice of the European Union (CJEU) should find that an extended warranty provided by Mapfre and sold through the supplier of second-hand vehicles is a VAT exempt insurance contract. Currently such warranty contracts are often treated as taxable for VAT but exempt from IPT, if they are not provided by a regulated insurer.
The judgement of the CJEU is awaited, but suppliers of such warranties should carefully consider their VAT and IPT position as soon as possible. Treatment of the product as VATable has the advantage that the VAT on repair costs may be recovered, and this is a common structure in the UK where the IPT rate is likely to be the same as the VAT rate (20%). In the UK, therefore, a CJEU judgement along these lines will have serious implications for motor vehicle hire businesses and suppliers of domestic appliances in particular. In other countries the applicable rate of IPT may be lower than the VAT rate so the advantage may be the other way round.