The European Court of Justice has ruled on the recovery of taxation by Germany’s Federal Central Tax Office (the BZS) for insurance of German registered seagoing vessels operating under the flag of another country.

The case involved a United Kingdom insurance company and the BZS which sought payment of tax on insurance premiums paid for the provision of insurance cover for various risks linked to the operation of sea-going vessels entered in the shipping register maintained by Germany.

However, the ships were flying the flag of another Member State or of a third State under a temporary flagging out authorisation. The claimant had received premium payments that were not declared in Germany. However, the BZS issued a tax recovery notice to the claimant following a tax inspection carried out in 2012.

The BZS argued that under the German Insurance Tax Act (VersStG) the insurance premium at issue was fully taxable in Germany.

The European Court of Justice examined the fact that “The peculiarity of the main proceedings resides in the fact that the ships in question were entered in the shipping register maintained by the District Court, Hamburg and continue to be registered there, even though, following the grant of flagging out authorisation made by BSH, which is the responsible German authority, those ships temporarily fly the flag of another Member State or of a third State.

“It is in that exceptional situation that the question arises whether the ‘Member State of registration’ is the State which maintains the shipping register in which the primary purpose of entering the ship concerned is to prove ownership of that ship, or rather the State whose flag is flown by that ship, where that ship can also be entered in a register.”

As a result, the court ruled that “where insurance contracts concern the provision of cover for various risks linked to the operation of sea-going vessels which are entered in the shipping register maintained by a Member State but which fly the flag of another Member State or of a third State under a temporary flagging‑out authorisation, the State that must be considered to be the ‘Member State of registration’ of the ship concerned and therefore, to be ‘the Member State where the risk is situated’, within the meaning of those provisions, holding the exclusive power to tax premiums paid with respect to those insurance contracts, is the Member State which maintains the shipping register in which the primary purpose of entering that ship is to prove ownership of that ship.”

The court’s verdict means parties involved in closing an insurance contract for seagoing vessels must follow this decision.

While the latest reform of the VersStG became effective from 10 December 2020 in Germany, the wording of paragraph 1(2) of the VersStG remained unchanged and, therefore, the European Court of Justice's decision is applicable to it.

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