Taxtion Issues

IPT – the Euro tax man’s new revenue source

Insurance premium tax compliance across many countries around the world, especially Europe, has been one of the most challenging obligations for multi-territory insurers.  Historically, it has not been a big issue since tax authorities have been almost as disinterested as insurers have been poorly informed.  However, this is changing fast.  European tax authorities, armed with new EU legislation, are moving in on insurers and insureds, which they see as easy targets.

The Tax Man Cometh

For many years, premiums paid for policies which covered more than one territory only attracted IPT in the country of policy issuance. For example, IPT on an English property policy covering locations in the U.K. and the Netherlands would only be paid to the Inland Revenue in England – none of it would be forwarded to their Dutch counterparts. Similarly, if a Spanish parent pays the whole premium and asks its French subsidiary to reimburse their share internally, the issue of IPT will probably not be handled properly. "But who cares? This is the way it has always been done" - is probably what people say. But in these days of Compliance, Financial Service Authorities, Transparency, etc, all parties involved in the transaction need to get things sorted out before the Tax Man comes along with a big stick – and not only the Tax Man but the Compliance Officer, too.

How IPT works

IPT is an indirect tax on the gross premium written. Insurers providing risk coverage across European borders under the Freedom of Services Directive are probably liable for IPT in almost every country covered under their policies.  Where an insurer is writing a domestic only policy, the tax authorities will expect the insurer to register for IPT, calculate amounts payable on policies, collect this, file periodic returns and pay over any taxes due. In some countries, like the Netherlands, the broker does a lot of this preparatory work. Where an insurer covers a handful of countries under one policy, they are expected to be registered for IPT in each of those territories and they usually are through their branches or subsidiaries. If we are talking about a cross border policy and the insurer does not operate in the territory concerned, there is no local policy but the insured there has to pay their share of the premium, the carrier should appoint a local fiscal representative to collect the relevant tax. But how often does this happen? This is when problems can start.

Why is it so difficult to get to grips with?

The principle reason for the difficulties around European IPT is that it does not come from a central, source code of legislation – like VAT.  Whilst the separate jurisdictions have built up the fundamentals from the same risk classes, details vary enormously.  Tax rates, too, vary hugely from 1% of the premium right up to 45%.

On top of this, there is limited credible information covering the whole of Europe.  There are very few directories to be purchased, and those which exist are light on the detail of compliance. (Of course, the French tax authorities ‘losing’ their IPT team this summer in a property move did not help the cause either).

Parafiscal Charges as well?

Whilst insurers have started to get to grips with IPT, the next hurdle is Parafiscal Charges. These are levies set by various national organisations on top of the IPT on policies. The most common and (relatively!) easy to understand is Fire Brigade charges on property insurance. This occurs in many countries.

Which countries levy IPT

There is an IPT system in most of the ‘old’ European countries and in many countries globally.  Variations are enormous, particularly around Life and Pensions business.  In the new EU Accession countries, there are some early adopters (e.g. Slovenia), and some viewing it as a VAT issue (e.g. Bulgaria).  Otherwise, beyond Europe, regulators will insist on local establishment which is the easiest way to ensure payment of taxes.

Compliance

Most European countries still require insurers to appoint a local fiscal representative.  This is a person who is jointly and severally liable.  The good news is that this person will be able to keep the insured compliant for IPT and the wealth of Parafiscal Charges.

In preparing this Spotlight article we received invaluable assistance from the global management and accounting outsourcing firm TMF in London (www.tmf-group.com e-mail richard.asquith@tmf-group.com) for which we are grateful.

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