Recognizing a provision for the follow-up servicing of insurance contracts is not justified, even where an insurance agent is obliged to maintain ongoing contact with clients.
Facts:
The claimant was a general partnership (OHG) operating as an insurance agency within the meaning of §§ 84 et seq. HGB. For newly concluded insurance contracts, the company receives a commission on signing; for existing contracts, it receives a so-called "maintenance fee" (Pflegegeld). Under the provisions of the insurance contracts, the OHG has a "duty to use best efforts," meaning that it must devote its full energy to securing new contracts on an ongoing basis and to maintaining existing contracts. On the basis of this obligation, the OHG recognized a provision in its profit determination for the performance backlog arising from the follow-up servicing obligation.
The tax office refused to recognize this provision on the grounds that no explicit follow-up servicing obligation existed. It further stated that only a general duty to use best efforts was apparent.
Decision of the Münster Tax Court:
The OHG filed suit before the Münster Tax Court. Unfortunately, the court took the same view as the tax office, namely that the OHG was neither contractually nor statutorily obliged vis-à-vis the insurance company to service the existing life and pension insurance contracts after their conclusion (so-called "follow-up servicing"). Rather, the contractual clause was non-binding and, in its overall context, applied more to the objective of concluding further contracts. Accordingly, no binding contractual obligation could be derived from it.
Furthermore, the follow-up servicing obligation was not enforceable under civil law because the clauses were indeterminate in content. Even if there were a breach of the follow-up servicing duty, such breaches would remain without consequence in the absence of specific contractual obligations—this also argues against recognizing a provision for it.
The BFH had likewise already ruled in the past that customer care for the purpose of expanding the portfolio does not give rise to a performance backlog (BFH judgment of 9 June 2015, Az. X R 27/13). With regard to the possibility of recognizing a provision, the BFH required an agreement on the follow-up servicing obligations that is unambiguous in content.
Note:
A further case is currently pending before the BFH concerning the requirements for a contractual follow-up servicing obligation (Az. IV R 34/14).
Given the fundamental importance of the matter, an appeal was permitted. It now remains to be seen how the BFH will specifically decide, and the matter therefore remains of interest.
Frequently asked questions
Frequently asked questions
Are insurance agents permitted to set up a provision for the follow-up servicing of contracts?
According to the ruling of the FG Münster, setting up a provision for the follow-up servicing of insurance contracts is generally not permitted. Even if the agent is obliged to maintain ongoing contact with clients, this alone is not sufficient. The prerequisite would be a contractually clear and enforceable follow-up servicing obligation.
Why does the Münster Tax Court not recognise a general duty of effort as grounds for a provision?
In the court's view, a general duty of effort is primarily aimed at concluding new contracts and retaining existing business in the sense of acquisition. Such clauses are substantively indefinite and not enforceable under civil law. Breaches therefore remain without consequence, so no performance arrears arise that would justify a provision.
What requirements does the BFH set for a provision for follow-up service obligations?
In its ruling of 09.06.2015 (X R 27/13), the BFH requires a clear and unambiguous contractual agreement on the follow-up service obligation. Mere customer relationship management aimed at expanding the client base does not trigger a performance arrears. Only specifically defined and enforceable obligations can justify a provision.
What is the significance of distinguishing between commission for new business and portfolio maintenance fees when forming provisions?
Commission for new business is paid for newly brokered contracts, whereas portfolio maintenance fees are paid for existing contracts. The payment of a portfolio maintenance fee does not automatically entail a concrete obligation to provide follow-up service. What matters is solely whether there is a substantively defined and legally enforceable obligation to provide ongoing client support.
Has the final word been spoken on provisions for follow-up servicing?
No. The Münster Tax Court allowed an appeal against its decision due to the fundamental significance of the matter. In addition, another case concerning the requirements for a contractual follow-up servicing obligation is pending before the BFH (Az. IV R 34/14). Affected insurance agents should monitor further developments.