A megatrend with built-in incitement to – and liability for – tax evasion
Dr. Johannes Fiala, Attorney at Law (Munich), MBA Financial Services (Univ.), MM (Univ.), Certified Financial and Investment Advisor (A.F.A.), Lecturer for Civil and Insurance Law (BA Heidenheim, Univ. of Cooperative Education), (www.fiala.de) and Dipl.-..Math. Peter A. Schramm, expert for actuarial science (Diethardt), actuary DAV, publicly appointed and sworn by the IHK Frankfurt am Main for actuarial science in private health insurance (www.pkv-gutachter.de) and Hermann Siebenhaar, insurance broker as well as management consultant for risk and pension management (Neutraubling), court-appointed expert, lecturer (Univ. of Cooperative Education), retail salesman (www.hermann-siebenhaar.de) and Karl-Heinz Weber, auditor and tax consultant (Gräfelfing), graduate in business administration (Univ.), (www.wiba-wp.de)
“You are finally entitled to deduct input tax!” announce initiators on the Internet It would be too good to be true – finally insurance brokers, insurance agents and building society representatives could not only deduct the input tax from their costs: No they would be allowed to reclaim that part of the cost from the taxman. A small matter would then be the complication of having to comply with the Value Added Tax Act (UStG) – with considerable extra work in bookkeeping. Such a thing does not pay off at all surely for the insurance mediator ! Tax thesis of the Honorarberatungs-Initiatoren The insurance broker could – so the thesis of some Honorarberatungs “clubs” – by a separate calculation for its consultation legally compute a value added tax. This would make him entitled to deduct input tax. Is this legal? Tax exemption of financial service providers confirmed by ECJ Prof. Zacher has recently commented in a recent epn-News on the decision of the ECJ for credit intermediation, also in distribution structures, referring to the BFH ruling of 09.10.2003 and the ECJ ruling of 21.06.2007. http://www.experten.de/net/docarchivview/e21364ba-82aa-47bc-af9c-9942d677b345.archivdoc His conclusion is striking: “VAT exemption for all intermediaries !” This is confirmed also by Dr.Wagner, lawyer and notary in Wiesbaden, by its very founded elaboration: http://www.raun-wagner.de/news/20070623.pdf There the layman wonders nevertheless and marvels the specialist, how “federations of the fee consultation” or “collection places for insurance and financial advisors” can announce at present the opposite? Exception for insurance mediators: After the Seeling decision of the EuGH (Az. C- 269/00) of 08.05.2003 the proportional input tax, for the portion of the own residential use, can be deducted with establishment of a building also vocationally used: Factually an interest-free loan of the finance, which is redeemed so far over 50, and lately according to the BMF over 10 years, because the own use is to be subject to the value added tax; FG Cologne 28.10.2004, Az. 5 K 351/04. Recommendation for insurance brokers: Calculate value added tax !?. This advice is legally erroneous, because it does not make an insurance broker entitled to deduct input tax, which, by the way, every tax consultant will easily confirm. The wording of the law according to § 4 No. 11 UStG is just as clear as the VAT guidelines (Section 75 UStR). Seducing insurance brokers into illegality? According to appearances, the “initiators” are dilettantes who seem to be trying to “incite insurance brokers en masse to tax evasion”? Possible involved tax consultants or professors can be almost sure of their personal liability “as advisory board, marketing gag, or supervisory board” ! In detail: Whoever provides legal insurance (legal) advice as a broker in connection with a brokerage contract acts in the service relationship with the customer as an insurance broker (but not as an insurance or management consultant), cf. ECJ, Case C-8/01, Judgment of 20.11.2003. Thus § 4 No.11 UStG applies: “Of the turnover … the following are tax-exempt: … 4. the turnover from the activity as … insurance broker”. And unfortunately, this cannot be waived, i.e. “opted out”, as is the case, for example, with real estate tax saving models in accordance with § 9 UStG. The EU wants to change this in the future because of outsourcing in the financial sector, so that no “hidden VAT” has to be calculated into the prices… Cf. on the system as an introduction: http://www.kollosche.de/ust1.htm It is also irrelevant from whom the broker receives his brokerage or his fee – he also receives the remuneration paid by the broker’s customer for brokerage activity. Section 75 of the VAT Code clearly states that it depends on the profession in which an entrepreneur is active: anyone acting “as” a broker, legally licensed, may not charge VAT “in the exercise of this profession”. As decided by the BFH, among others, in its ruling of 9.7.1998 (BStBl. 99 II 253), this also applies to activities in a sales structure, especially training, administration, control and support – the (super) commission is a weighty indication, but not the only decisive factor. Section 74 of the VAT Code stipulates that an intermediary service is only not tax-exempt if it does not (!) involve activities typical of the profession. This can be the case in particular if the intermediary has taken over tasks of the insurer (e.g. collection, handling of its business transactions, service). Of course, this also applies if the insurance broker leaves his profession, i.e. operates an insurance consultancy without a licence: This means that a fine – also for the instigator – is in the offing. And the consequences for the insurance broker: Whoever nevertheless charges value added tax (unjustified) for broker activities (risk investigation, object examination, consulting and persuasion work, risk placement, information) may of course deliver this to the tax office, § 14 c UStG: However, this does not entitle the insurance broker to deduct input tax. On the part of the customer of the insurance broker, support is given to tax evasion, because the customer is in no way entitled to an input tax deduction if the invoice of the insurance broker is illegal with regard to VAT. This will either already be noticed by the customer’s tax advisor or by the customer’s tax office or, in the end, by the tax auditor. Thus the broker loses in doubt the confidence of its customers and made clear that it is not at all competent also in fiscal regard to the consultation. Perhaps a further training would have brought something ? Conclusion for insurance brokers: Initiators of collection and fee consultant models for insurance sales usually do not master the so-called MwStSystRili (Directive 2006/112/EC) as the current summary of EU law of 28.11.2006 (cf. Art. 135). Only by means of international arrangements can one avoid one’s own burden with VAT, insofar as the ECJ ruling of 23.03.2006 (FCE Bank plc, ref. C-210/04) on internal sales and the German concept of the tax group (section 21a UStR) are sufficient for this. Anyone who trusts such dangerous instructions (suspicion according to §§ 369 ff. AO) as an insurance broker also risks having their licence withdrawn due to unreliability. In this respect, it is advisable to call in one’s own trusted advisors in order to expose the possibly “criminal aspects of the concepts” in this area as well, before greater damage is done to the insurance broker’s business. Outlook for insurance brokers: For years, various marketing concepts have been used to try to inflict damage on insurance brokers – and that is an insurance broker. With the brand “fee consultant” this can succeed. The status of insurance intermediary is abolished and with it the acquired rights. The operators of such concepts would have to know very well how and where they meet free agents. Leaf shot at their vanity: It sounds nevertheless much better to work as “fee advisors”, than evenly as simple insurance (tandler) mediators. But hasn’t vanity always been the beginning of the downfall of a culture?
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About the author
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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