Guarantee extensions and their tax treatment
Guarantee extensions dock onto the expiry of the usual manufacturer guarantees (generally 12 or 24 months) and extend the guarantee obligation by a certain period (e.g. a term of five years). Guarantees are voluntary legally binding commitments to perform a particular action, or to refrain from doing so, if a specific event occurs. Unlike statutory guarantee obligations (e.g. supplementary performance, abatement, withdrawal from contract or claims for damages), guarantees are characterized by a fundamentally conceded assurance irrespective of fault. Due to the voluntary nature of the service, the type and scope of the guarantee can be freely determined by the guarantor by means of the specific guarantee scope.
It is usual practice for retailers to insure guarantee extensions with respect to customers using equipment insurance coverage. Often retailers obtain corresponding equipment insurance coverage in their own name and on their own account (so-called genuine contract for the benefit of third parties). The retailers then pass the costs for the guarantee extension onto customers via the purchase price. The customer thus insured is entitled to press claims from the equipment insurance coverage against the insurer directly according to the respective underlying insurance policy provisions in any case of liability.
In taxation terms, the following applies in the practical case illustrated above: A fee paid by the retailer for the granting of insurance coverage to the insurer is VAT exempt, but is subject to insurance tax. This avoids a double charging with value-added and insurance tax. The costs passed onto the customer for the granting of the guarantee extension by the retailer represent a VAT-independent but in turn also a VAT-exempt service in the form of the “provision of insurance coverage” for the benefit of the customer. There is no liability to pay insurance tax with respect to the costs passed from the retailer to the customers from the conclusion of the insurance policy.
It must be borne in mind that the tax treatment of the guarantee extensions depends on the respective particulars of the individual case, for example, how they have been regulated in an independent guarantee contract. It is therefore not possible to make a general statement on the tax situation. In instances of doubt, the tax treatment should therefore be discussed with an expert advisor in matters of VAT and insurance tax.
Dr. Herbert Buschkühle is an attorney-at-law/tax advisor/notary public/ specialist attorney for tax law/ specialist attorney for inheritance law at PKF WMS Dr. Buschkühle PartG mbB Rechtsanwälte Steuerberater, a co-operation partner of PKF WMS Bruns-Coppenrath & Partner mbB Wirtschaftsprüfungsgesellschaft Steuerberater Rechtsanwälte (member company of the PKF network).