A recent ECJ judgement has tackled the issue of the
taxation of life insurance products. The case concerned the
taxation of savings in the form of capital life assurance in Sweden
and centred on the EC rules on the free movement of services, since
direct taxation does not as such fall within the purview of the EC.
The Court looked at Article 59 which precludes the application of
any national rule which, without objective justification, impedes
or makes the provision of services between Member States more
difficult than the provision of services within the home Member
The Swedish rules establish different tax regimes
for capital life insurance policies depending on whether they are
taken out with companies established in Sweden or with companies
established elsewhere. In particular, persons insured with
companies not established in Sweden must register themselves and
declare premium payments to a central body. They must also pay the
tax themselves and for this purpose find the necessary funds. On
the other hand, persons insured with companies established in
Sweden need take no particular action since the tax is levied in
this case on the company.
The ECJ found that such rules may dissuade
interested persons from taking out capital life assurance with
companies not established in Sweden.
Furthermore, although the surrender, after a long
period, of a capital life assurance policy taken out with a company
not established in Sweden is no more costly for the policyholder
than the surrender of an insurance policy taken out with a company
established in Sweden, the situation may be different where a
policy is surrendered after a short period. The Court decided that
this is another factor liable to dissuade a person from taking out
such a policy.
The Court did not accept the argument of the
Swedish government that the principle of equal treatment is
satisfied by provisions in the Swedish legislation which allow
account to be taken of the tax applicable in another Member State.
This was because payment of such tax is not taken into
consideration unless it amounts to at least one quarter of the tax
applicable in Sweden. As a result, the taxation of savings in the
form of capital life assurance taken out with companies not
established in Sweden is in most cases liable to be higher than the
taxation of like savings with companies established in Sweden.
The ECJ, taking all the factors into account,
concluded that the legislation in question is prohibited by the EC
rules on the free movement of services within the EC.