CARD PROTECTION PLAN v COMMISSIONERS OF CUSTOMS AND EXCISE

JUDGMENT OF THE COURT (Sixth Chamber)

25 February 1999 *

In Case C-349/96,

REFERENCE to the Court under Article 177 of the EC Treaty by the House of
Lords for a preliminary ruling in the proceedings pending before that court between

Card Protection Plan Ltd

and

Commissioners of Customs and Excise

on the interpretation of Articles 2(1) and 13B(a) of Sixth Council Directive

77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member
States relating to turnover taxes — Common system of value added tax: uniform
basis of assessment (OJ 1977 L 145, p. 1),

THE COURT (Sixth Chamber),

composed of: P. J. G. Kapteyn, President of the Chamber, G. Hirsch (Rapporteur),

G. F. Mancini, H . Ragnemalm and R. Schintgen, Judges,

* Language of the case: English.

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Advocate General: N . Fennelly,

Registrar: H . A. Rühl, Principal Administrator,

after considering the written observations submitted on behalf of:

— Card Protection Plan Ltd, by Roderick Cordara QC and Perdita Cargill-

Thompson, Barrister, instructed by Clare Mainprice, Solicitor,

— the United Kingdom Government, by John E. Collins, Assistant Treasury

Solicitor, acting as Agent, and Stephen Richards and Christopher Vajda, Bar­
risters,

— the German Government, by Ernst Röder, Ministerialrat in the Federal Min­

istry of Economic Affairs, acting as Agent,

— the Commission of the European Communities, by Richard Lyal and Enrico

Traversa, of its Legal Service, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of Card Protection Plan Ltd, represented by
Clare Mainprice and Roderick Cordara, the United Kingdom Government, repre­
sented by John E. Collins and Nicholas Paines QC , and the Commission, repre­
sented by Richard Lyal, at the hearing on 24 March 1998,

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 CARD PROTECTION PLAN v COMMISSIONERS OF CUSTOMS AND EXCISE

after hearing the Opinion of the Advocate General at the sitting on 11 June 1998,

gives the following

Judgment

1 By order of 15 October 1996, received at the Court Registry on 21 October 1996,

the House of Lords referred to the Court for a preliminary ruling under Article
177 of the EC Treaty four questions on the interpretation of Articles 2(1) and
13B(a) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisa­
tion of the laws of the Member States relating to turnover taxes — Common system
of value added tax: uniform basis of assessment (OJ 1977 L 145, p . 1, hereinafter
'the Sixth Directive').

2 Those questions were raised in proceedings between Card Protection Plan Ltd
('CPP') and the Commissioners of Customs and Excise, who are responsible for
the collection of value added tax (VAT) in the United Kingdom, concerning the
application of an exemption from VAT under section 17 and Schedule 6, Group 2,
of the Value Added Tax Act 1983.

National legislation

3 At the material time, section 17 and Schedule 6, Group 2, of the Value Added Tax
Act 1983 exempted from VAT inter alia:

'1 . The provision of insurance and reinsurance by persons permitted, in accordance

with section 2 of the Insurance Companies Act 1982, to carry on insurance busi­
ness.

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 JUDGMENT OF 25.2.1999 — CASE C-349/96

2. ...

3. The making of arrangements for the provision of any insurance or reinsurance

in Items 1 and 2.

4. The handling of insurance claims by insurance brokers, insurance agents and

persons permitted to carry on insurance business as described in Item 1.'

Community legislation

4 Under Article 2 of the Sixth Directive:

'The following shall be subject to value added tax:

1. the supply of goods or services effected for consideration within the territory of
the country by a taxable person acting as such;

...'

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Article 13 of the Sixth Directive, on exemptions within the territory of the country,
states:

'B. Other exemptions

Without prejudice to other Community provisions, Member States shall exempt the
following under conditions which they shall lay down for the purpose of ensuring
the correct and straightforward application of the exemptions and of preventing any
possible evasion, avoidance or abuse:

(a) insurance and reinsurance transactions, including related services performed by

insurance brokers and insurance agents;

5 The annex to First Council Directive 73/239/EEC of 24 July 1973 on the coordina­
tion of laws, regulations and administrative provisions relating to the taking-up and
pursuit of the business of direct insurance other than life insurance (OJ 1973
L 228, p . 3), as amended by Council Directive 84/641/EEC of 10 December 1984
(OJ 1984 L 339, p . 21), provides:

'A. Classification of risks according to classes of insurance

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 JUDGMENT OF 25. 2.1999— CASE C-349/96

18. Assistance

Assistance for persons who get into difficulties while travelling, while away from
home or while away from their permanent residence.'

6 Council Directive 77/92/EEC of 13 December 1976 on measures to facilitate the

effective exercise of freedom of establishment and freedom to provide services in
respect of the activities of insurance agents and brokers (ex ISIC Group 630) and,
in particular, transitional measures in respect of those activities (OJ 1977 L 26, p. 14)
specifies, in Article 2, the activities of insurance agents and brokers to which that
directive applies.

The main proceedings

7 CPP offers holders of credit cards, on payment of a certain sum, a plan intended to
protect them against financial loss and inconvenience resulting from the loss or theft
of their cards or of certain other items such as car keys, passports and insurance
documents.

8 In so far as this card protection plan (hereinafter 'the Plan') provides for indemni­
fication of the cardholder against financial loss in the event of loss or theft, CPP
obtains block cover from an insurance company. The block policy was arranged by
an insurance broker instructed by CPP. At the material time the insurer was Con­
tinental Assurance Company of London ('Continental'). It is CPP's customers who
are mentioned in the policy as the assured. When a cardholder becomes a customer
of CPP, his name is added to the schedule of the assured covered by that policy.
CPP pays premiums to the insurance company in advance at the beginning of the

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policy year; any necessary adjustments are made at the end of the year, according
to the number of customers who have joined or left the Plan.

9 The services offered by CPP, which correspond to the insurance cover described in
the schedule to the Continental policy, may be summarised as follows:

— payment of an indemnity in the event of fraudulent use of cards (the sum

insured is UKL 750 per claim during the first 24 hours from discovery of the
loss; it is unlimited after the loss has been reported to CPP);

— payment of an indemnity in respect of costs incurred by the cardholder in

finding lost luggage, bags or items, when labelled with labels issued by CPP
(the sum insured is UKL 25 per claim);

— payment of an indemnity for costs incurred in carrying out the formalities of

making claims and assisting the police with respect to valuable articles and/or
important documents whose serial numbers have been registered with CPP (the
sum insured is again UKL 25 per claim);

— provision of representatives of the insurers to provide 24-hour telephone advice

on access to medical services, including the arrangement of appointments for
medical care abroad;

— payment of an indemnity in respect of an emergency cash advance following

loss of cards, to a maximum of UKL 500 per claim, repayable within 14 days;

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— payment of an indemnity for the purchase of an air ticket for the return of the
cardholder from anywhere in the world to his home following loss of cards
(the indemnity is a maximum of UKL 1 500 per claim, repayable within
14 days).

10 The Plan also includes other services, essentially as follows:

— maintenance by CPP of a computerised record of customers' credit cards;

— provision of a 24-hour telephone line for receiving notifications of loss, so as

to allow the necessary measures to be taken for passing on the information to
credit card issuers, and the supply of adhesive labels bearing that telephone
number;

— provision of assistance in the event of loss to obtain replacement credit cards;

— provision of assistance in the event of change of address for notifying card-

issuing companies;

— supply of pre-printed key tabs so that they may be found in the event of loss;

— supply to the customer of an annual print-out to check;

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 CARD PROTECTION PLAN v COMMISSIONERS OF CUSTOMS AND EXCISE

— supply of a medical card for the entry of personal medical details;

— discounts on car hire.

1 1 Although the Commissioners of Customs and Excise had since 1983 regarded
CPP's supplies as exempt, they subjected to the standard rate of VAT for the first
time in 1990 a 'specimen' contract for the supply of services concluded between
CPP and one of its customers for three years in return for payment of an annual
fee of UKL 16. That decision was based on two principal grounds: first, that the
Plan comprised a 'package of services', all taxable, turning on the maintenance by
CPP of a register of card numbers and the provision of a loss notification service
in order to avoid any further liability for fraudulent use in the event of loss; and,
second, that there was no direct contractual relationship between the insurance
company and CPP's customers capable of creating specific legal relations in
connection with the insurance policy, and hence no supply of insurance to the
customer.

12 CPP contested that decision on the ground that there was a direct contractual rela­
tionship and that the supply should be wholly or largely exempt. It therefore
appealed to the VAT and Duties Tribunal, London, which dismissed its appeal.
After the High Court had allowed CPP's appeal in part, the Court of Appeal by
judgment of 23 November 1993 dismissed CPP's appeal altogether, holding that the
Plan constituted a contract for the supply of a 'card registration service' and that
the insurance elements were merely incidental to that service. CPP therefore

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appealed to the House of Lords, which stayed the proceedings and referred the fol­
lowing four questions to the Court of Justice for a preliminary ruling:

'1 . Having regard to the provisions of the Sixth VAT Directive and in particular
to Article 2(1) thereof, what is the proper test to be applied in deciding whether
a transaction consists for VAT purposes of a single composite supply or of two
or more independent supplies?

2. Does the supply by an undertaking of a service or services of the kind provided

by Card Protection Plan Ltd (CPP) through the card protection plan operated
by them constitute for VAT purposes a single composite supply or two or more
independent supplies? Are there any particular features of the present case, such
as the payment of a single price by the customer or the involvement of Con­
tinental Assurance Company of London pic as well as CPP, that affect the
answer to that question?

3. Do such supply or supplies constitute or include "insurance ... transactions

including related services performed by insurance ... agents" within the meaning
of Article 13B(a) of the Sixth VAT Directive? In particular, for the purpose of
answering that question —

(a) does "insurance" within the .meaning of Article 13B(a) of the Sixth VAT
Directive include the classes of activity, in particular "assistance" activity,
listed in the Annex to Council Directive 73/239/EEC (the First Council
Directive on non-life insurance), as amended by Council Directive
84/641/EEC?

(b) do the "related services of ... insurance agents" in Article 13B(a) of the Sixth
VAT Directive constitute or include the activities referred to in Article 2 of
Council Directive 77/92/EEC?

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 CARD PROTECTION PLAN v COMMISSIONERS OF CUSTOMS AND EXCISE

4. Is it compatible with Article 13B(a) of the Sixth VAT Directive for a Member
State to restrict the scope of the exemption for "insurance ... transactions" to
supplies made by persons permitted to carry on insurance business under the
law of that Member State?'

Question 3

13 By Question 3, which should be considered first, the House of Lords essentially

asks whether Article 13B(a) of the Sixth Directive is to be interpreted as meaning
that supplies of services such as those described in the Plan which CPP provides to
its customers constitute insurance transactions or related services of insurance
agents.

14 CPP submits that all aspects of what the customer receives under the Plan form a
direct part of an 'insurance transaction' within the meaning of Article 13B(a) of the
Sixth Directive. The German and United Kingdom Governments and the Com­
mission accept that, in any event, the Plan includes elements of supplies of insur­
ance. The United Kingdom Government states that it will be for the national court
to determine whether CPP is acting as an insurance agent. In the Commission's
view, it seems clear, however, that its usual activities are not those of an insurance
agent in the strict or technical sense of the term.

15 It must be noted to begin with that it is settled case-law that the exemptions pro­
vided for by Article 13 of the Sixth Directive constitute independent concepts of
Community law whose purpose is to avoid divergences in the application of the
VAT system from one Member State to another (see Case 348/87 Stichting
Uitvoering Financiële Acties v Staatssecretaris van Financiën [1989] ECR 1737,
paragraph 11).

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 JUDGMENT OF 25.2.1999 — CASE C-349/96

16 The Sixth Directive does not define the expressions 'insurance transactions' and
'insurance agents' used in Article 13B(a).

17 With respect, first, to the interpretation of the expression 'insurance transactions',

it must be observed that Directive 73/329 does not define the concept of insurance
either. However, as the Advocate General states in point 34 of his Opinion, the
essentials of an insurance transaction are, as generally understood, that the insurer
undertakes, in return for prior payment of a premium, to provide the insured, in
the event of materialisation of the risk covered, with the service agreed when the
contract was concluded.

18 It is not essential that the service the insurer has undertaken to provide in the event
of loss consists in the payment of a sum of money, as that service may also take the
form of the provision of assistance in cash or in kind of the types Usted in the annex
to Directive 73/239 as amended by Directive 84/641. There is no reason for the
interpretation of the term 'insurance' to differ according to whether it appears in
the directive on insurance or in the Sixth Directive.

19 Moreover, it is common ground that the expression 'insurance transactions' in

Article 13B(a) covers in any event cases where the transaction is carried out by the
actual insurer who has undertaken to cover the risk insured against. As the United
Kingdom Government has correctly pointed out, it is for the national court to
determine whether CPP itself has accepted insurance obligations.

20 However, CPP acknowledges that it merely promised its customers to do what was
necessary for insurance to be provided to them by a third party, and that it did not
itself undertake to provide insurance cover. In this respect, the Commission has
pointed out that CPP is the holder of a group policy for its customers.

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 CARD PROTECTION PLAN v COMMISSIONERS OF CUSTOMS AND EXCISE

21 In those circumstances, it must be noted that CPP is the holder of a block insur­
ance policy under which its customers are the insured. It procures for those cus­
tomers, for payment, in its own name and on its own account, to the extent of the
services mentioned in the Continental policy, insurance cover by having recourse
to an insurer. Consequently, for the purposes of VAT, there is a supply of services
between Continental and CPP on the one hand, and between CPP and its cus­
tomers on the other, and the fact that Continental under the terms of its contract
with CPP provides insurance cover directly to CPP's customers is not material in
this respect.

22 Such a supply of services by CPP constitutes an insurance transaction within the

meaning of Article 13B(a). It is true that the exemptions provided for by Article 13
of the Sixth Directive are to be construed strictly (see Stichting Uitvoering Finan-
ciële Acties, paragraph 13). However, the expression 'insurance transactions' is broad
enough in principle to include the provision of insurance cover by a taxable person
who is not himself an insurer but, in the context of a block policy, procures such
cover for his customers by making use of the supplies of an insurer who assumes
the risk insured.

23 That interpretation is supported by the purpose of the Sixth Directive, which

exempts insurance transactions but gives Member States, in Article 33, the pos­
sibility of maintaining or introducing a tax on insurance contracts. Consequently,
if 'insurance transactions' refers solely to transactions performed by insurers them­
selves, the final consumer might have to pay not only that tax but also VAT, in the
case of block policies. Such a result would be contrary to the purpose of the exemp­
tion provided for by Article 13B(a).

24 Having regard to the foregoing, there is no further need to consider whether CPP
carried on the activity of an insurance agent referred to in Article 13B(a) of the
Sixth Directive.

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25 The answer to Question 3 must therefore be that Article 13B(a) of the Sixth Direc­
tive is to be interpreted as meaning that a taxable person, not being an insurer, who,
in the context of a block policy of which he is the holder, procures for his cus­
tomers, who are the insured, insurance cover from an insurer who assumes the risk
covered performs an insurance transaction within the meaning of that provision.
The term 'insurance' in that provision extends to the categories of assistance listed
in the annex to Directive 73/239, as amended by Directive 84/641.

Questions 1 and 2

26 By its first two questions, which should be taken together, the national court essen­
tially asks, with reference to a plan such as that offered by CPP to its customers,
what the appropriate criteria are for deciding, for VAT purposes, whether a transac­
tion which comprises several elements is to be regarded as a single supply or as two
or more distinct supplies to be assessed separately.

27 It must be borne in mind that the question of the extent of a transaction is of

particular importance, for VAT purposes, both for identifying the place where the
services are provided and for applying the rate of tax or, as in the present case, the
exemption provisions in the Sixth Directive. In addition, having regard to the diver­
sity of commercial operations, it is not possible to give exhaustive guidance on how
to approach the problem correctly in all cases.

28 However, as the Court held in Case C-231/94 Faaborg-Gelting Linien v Finanzamt

Flensburg [1996] ECR I-2395, paragraphs 12 to 14, concerning the classification of
restaurant transactions, where the transaction in question comprises a bundle of
features and acts, regard must first be had to all the circumstances in which that
transaction takes place.

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29 In this respect, taking into account, first, that it follows from Article 2(1) of the
Sixth Directive that every supply of a service must normally be regarded as distinct
and independent and, second, that a supply which comprises a single service from
an economic point of view should not be artificially split, so as not to distort the
functioning of the VAT system, the essential features of the transaction must be
ascertained in order to determine whether the taxable person is supplying the cus­
tomer, being a typical consumer, with several distinct principal services or with a
single service.

30 There is a single supply in particular in cases where one or more elements are to be
regarded as constituting the principal service, whilst one or more elements are to
be regarded, by contrast, as ancillary services which share the tax treatment of the
principal service. A service must be regarded as ancillary to a principal service if it
does not constitute for customers an aim in itself, but a means of better enjoying
the principal service supplied (Joined Cases C-308/96 and C-94/97 Commissioners
of Customs and Excise v Madgett and Baldwin [1998] ECR I-6229, paragraph 24).

31 In those circumstances, the fact that a single price is charged is not decisive. Admit­
tedly, if the service provided to customers consists of several elements for a single
price, the single price may suggest that there is a single service. However, notwith­
standing the single price, if circumstances such as those described in paragraphs 7
to 10 above indicated that the customers intended to purchase two distinct services,
namely an insurance supply and a card registration service, then it would be neces­
sary to identify the part of the single price which related to the insurance supply,
which would remain exempt in any event. The simplest possible method of calcula­
tion or assessment should be used for this (see, to that effect, Madgett and Baldwin,
paragraphs 45 and 46).

32 The answer to the first two questions must therefore be that it is for the national
court to determine, in the light of the above criteria, whether transactions such as

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those performed by CPP are to be regarded for VAT purposes as comprising two
independent supplies, namely an exempt insurance supply and a taxable card reg­
istration service, or whether one of those two supplies is the principal supply to
which the other is ancillary, so that it receives the same tax treatment as the prin­
cipal supply.

Question 4

33 If the national court holds that CPP is to be regarded as acting as an insurer who
assumed the risk insured and thus performed transactions regarded by national law
as unlawful, it must be borne in mind that the Sixth Directive is based on the prin­
ciple of fiscal neutrality. As regards VAT, that principle, as the Court has already
held, precludes, other than in cases not relevant here, lawful and unlawful transac­
tions being treated differently (see Case C-283/95 Fischer v Finanzamt Donau-
eschingen [1998] ECR I-3369, paragraph 22).

34 The United Kingdom Government submits, however, that restricting the exemp­
tion to transactions of authorised insurers was justified in view of the introductory
sentence of Article 13B of the Sixth Directive.

35 It must be observed that that provision, in accordance with the principle of fiscal
neutrality, makes no distinction, as regards the exemption for insurance transac­
tions it provides for, between lawful and unlawful transactions in national law. It
follows that those two categories of transaction must be treated in the same fashion.

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36 The answer to Question 4 must therefore be that Article 13B(a) of the Sixth Direc­
tive is to be interpreted as meaning that a Member State may not restrict the scope
of the exemption for insurance transactions exclusively to supplies by insurers who
are authorised by national law to pursue the activity of insurer.

Costs

37 The costs incurred by the United Kingdom and German Governments and by the
Commission, which have submitted observations to the Court, are not recover­
able. Since these proceedings are, for the parties to the main action, a step in the
proceedings pending before the national court, the decision on costs is a matter for
that court.

On those grounds,

THE COURT (Sixth Chamber),

in answer to the questions referred to it by the House of Lords by order of 15

October 1996, hereby rules:

1. Article 13B(a) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the

harmonisation of the laws of the Member States relating to turnover taxes
— Common system of value added tax: uniform basis of assessment is to be
interpreted as meaning that a taxable person, not being an insurer, who, in

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the context of a block policy of which he is the holder, procures for his cus-
tomers, who are the insured, insurance cover from an insurer who assumes
the risk covered, performs an insurance transaction within the meaning of
that provision. The term 'insurance' in that provision extends to the catego-
ries of assistance listed in the annex to First Council Directive 73/239/EEC
of 24 July 1973 on the coordination of laws, regulations and administrative
provisions relating to the taking-up and pursuit of the business of direct
insurance other than life assurance, as amended by Council Directive
84/641/EEC of 10 December 1984.

2. It is for the national court to determine, in the light of the above criteria,
whether transactions such as those at issue in the main proceedings are to be
regarded for the purposes of value added tax as comprising two independent
supplies, namely an exempt insurance supply and a taxable card registration
service, or whether one of those two supplies is the principal supply to which
the other is ancillary, so that it receives the same tax treatment as the prin-
cipal supply.

3. Article 13B(a) of the Sixth Directive 77/388 is to be interpreted as meaning

that a Member State may not restrict the scope of the exemption for insur-
ance transactions exclusively to supplies by insurers who are authorised by
national law to pursue the activity of insurer.

Kapteyn Hirsch Mancini

Ragnemalm Schintgen

Delivered in open court in Luxembourg on 25 February 1999.

R. Grass P. J. G. Kapteyn

Registrar President of the Sixth Chamber

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