Prepared by Luca Lavazza, Alessia Zanatto, Davide Accorsi, Sudul Arsakulasooriya
In its ruling reply No. 17 of last January 12, 2023, the Italian tax authorities commented on the concept of ancillary nature for VAT purposes of the sale of the extension of the legal warranty.
In the ruling reply in comment, the claimant is an entity operating in the sector of production and sale of cars that, in application of the provisions recited by the Consumer Code[1], is required to guarantee the purchaser of the car a legal guarantee of conformity lasting two years from the date of delivery of the good. This warranty is therefore an implicit component of the cost of sale of the automobile.
In addition to the aforementioned warranty, the applicant intends to offer its customers a time extension of the legal warranty (hereinafter also referred to as “conventional warranty”) for an additional fee.
Both the legal warranty and the conventional warranty are benefits linked to the car and, therefore, in the event of the transfer of ownership of the car, the new buyer can request their application, if necessary.
The applicant sells its cars to intermediaries (dealers or concessionaires), who subsequently resell them to end customers.
The applicant points out that the signing of the conventional warranty contract can take place at two different times: (i) at the same time as the purchase of the car; in which case the conventional warranty is invoiced together with the purchase price of the car directly to the dealer; (ii) after the purchase of the vehicle; in which case the conventional warranty is invoiced directly by the applicant to the owner of the car itself.
Having said that, the applicant requests to know whether the conventional warranty can be qualified, for the purposes of value added tax, as an ancillary service, within the meaning of Article 12 of Presidential Decree No. 633/1972, to the main transaction of sale of the car and, therefore, subject to VAT.
On this point, the Italian tax authorities, emphasize that it is useful to note, with specific reference to the question under interpellation, the clarifications made by the Court of Justice of the European Union in the Case C-584/13 of July 16, 2015[2], in which the EU judges clarified that “any insurance transaction presents, by its nature, a connection with the object of the same. However, that connection cannot be sufficient in itself to determine whether or not there is a single complex supply for VAT purposes”.
In the case under consideration, the Court, for the purposes of excluding the recurrence of a single transaction for VAT purposes, valued in particular: (i) the circumstance that the purchaser of the vehicle can purchase such a means of transport without underwriting the guarantee, having the option of entering into the guarantee contract with a different company; (ii) the guarantee is provided by an economic operator independent of the dealer of a vehicle.
In line with the above-mentioned EU case law, the Italian tax authorities are of the opinion that the sale of the extension of the legal warranty by the applicant company cannot be qualified as an ancillary service of the main transaction of the sale of cars, especially in view of the following elements:
- “the purchaser of the vehicle (dealer or final customer) is not obliged to sign the extension of the legal warranty, given that the same has the option, both at the time of entering into the contract of sale of the vehicle and after the act of purchase, to turn to a third party for the conclusion of the warranty contract.
- the sale of the extension of the legal warranty seems to be carried out by the selling company as an intermediary of another taxable person (insurer), given that it reports that its corporate purpose is the production and sale of cars”.
In conclusion, the Italian tax authorities believe that the provision of extended warranty in the present case is to be considered exempt.
It is noticeable that, following this approach, the conclusions reached may have significant impacts on industrial/distribution companies, which may see their right to deduction limited in view of the extended warranty provided (if they are considered exempt for VAT purposes).
[1] See Legislative Decree No. 206 of September 6, 2005.
[2] The case involves some used vehicle dealers who offered buyers of such vehicles, with the intervention of the NSA Sage company, which became Mapfre Warranty, a guarantee to repair any mechanical failures of such vehicles.
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