Slovakia increases VAT 1% to 20% +++ +++ EU - 2009 VAT refund deadline delayed from Sep 2010 to Mar 2011 +++ Poland - 1% VAT increase to 23% +++ Australia - Victoria Fire Service Levy to be scrapped in July 2012 +++ UK - VAT to increase from Jan 2011 +++ Romania - increases VAT 5% to 24% +++ UK - confusion on UK 1% IPT increase +++ Andorra - 4.5% VAT to be introduced +++ India - GST to be implemented April 2011 at three standard rates +++ Bulgaria - to introduce insurance premium tax at 2% +++ Finland - VAT and IPT raised to 23% +++ Belgium - the 9.25% insurance premium tax on credit insurance has been withdrawn +++ Canada - HST introduced in British Columbia and Ontario +++ Hungary - implements insurance premium tax +++ Bulgaria - Intrastat reporting thresholds increased +++ UK - HMRC backs down on VAT on InsuranceWide comparison website +++ France - changes requirements for fiscal rep on insurance +++ Bulgaria - New proposals being pushed with the World Bank to introduce mandatory Catastrope Fund to cover earthquakes etc. +++ +++ EU adopts new VAT Directive on electronic invoices +++ Portugal - increased VAT by 1% to 21% +++ New Zealand - increases GST to 15% +++ Spain - VAT rate increases to 18% +++ Croatia - a 10% motor 3rd party liablitiy risk premium will be charged from 2009 to cover traffic accident costs +++ Czech Republic - new rules on non-resident traders extends the requirement to VAT register +++ Greece in second emergency VAT increase from July +++ Hungary - increased VAT rate to 25% +++ Czech Republic - proposal to change VAT payment point to when cash received +++ Mexico - simplification of VAT reporting +++ EU - ECJ court ruling imposes VAT on salary sacrifice schemes and vouchers +++ Italy - extends reverse charge on VAT for foreign companies +++ Denmark - extension of VAT reverse charge on services from non-resident suppliers +++ Panama - increases VAT to 7% +++ Denmark - overhaul of VAT registration process to comply with EU employment law +++ Estonia - reduced VAT increased from 5% to 9%; many items now on standard rate +++ France - National Guarantee Fund levy on insurance premiums is rising +++ Mexico - increases VAT 1% to 16% +++ Estonia - 2% increased VAT from July 09 to help combat financial crisis +++ EU - New proposals to force all EU member states to switch to monthly VAT reporting to help combat fraud +++ EU - more proof required for VAT import exemptions for onward supply relief +++ EU - Revised Mutual Assistance Directive issued to assist tax authorities share information on VAT and IPT +++ EU - new electronic service to verify authenticity of VAT numbers +++ Finland - Traffic Safety Charge for 2009 will be Euro 7.2m +++ France - Tough new invoice requirements to help combat fraud +++ Taiwan - introduces VAT refunds for non-resident businesses +++ France - French Motor Insurance Parafiscal Charge hike from 0.1% to 0.6% +++ France - Natural Disaster Compensation Scheme has increased again from 8% to 12% +++ France - New information requirements for foreign companies applying for non-resident VAT registrations +++ Taiwan - introduces VAT refunds for non-resident businesses +++ France - Confirmation of changes to ACOSS levies, which are now managed by URSSAF +++ Germany - New IPT levy on Surety and Financial Guarantee reinsurance +++ India - sets CENVAT at 10.3% Germany - valid VAT number may not be sufficient evidence alone to allow for zero rating on intra-community supply +++ Germany - proposal to scap the requirement for annual VAT returns +++ Greece - withdrawal of Stamp Duty underway; Life and Damage insurance now exempt +++ Hungary - rules on tax point (now when invoice paid) creates risks for VAT recovery +++ India - many new activities brought into Service Tax regime +++ Hungary - Aircraft hull and aviation liability is now exempt from the 1.5% Fire Brigade Charge +++ Ireland - New retrictions on VAT relief on bad debts +++ Ireland - government insurance levy on non-Life increases from 2% to 3%; new 1% levy on Life +++ Mexico - simplification of VAT reporting +++ Italy - Hunting Accident Victims' Fund changed to 5% of 94% of premium +++ Italy - Scraping of the requirement on VAT-registered businesses for the annual filing of lists of customers and suppliers +++ Italy - Court ruling that VAT reclaims deadline should be two years +++ Italy - potential to defer VAT payments to point where cash received +++ Latvia - standard rate VAT increased by 3% to 21% from Jan 2009 +++ Latvia - 2% VAT increase to take standard rate to 23% from 2010 +++ Luxembourg - Fiscal representation revived for importers of goods +++ Luxembourg - international shipping vessels registered in Lux are IPT exempt +++ Netherlands, The - Tax authorities increase IPT rate from 7% to 7.5% +++ Poland - Potential for quarterly VAT returns +++ Poland - Plans for reverse charge on consignment stock +++ Poland - New 12% Parafiscal Charge on Motor Liability contracts to cover medical care at accidents +++ Poland - improved import VAT set-off scheme for established importers +++ Poland - Polish insurance chamber of commerce says 12% levy on 3rd party motor insurance to go +++ Poland - motor liability insurance is now exempt from the Fire Brigade Tax +++ Romania - Proposals being drawn up with the World Bank for new compulsory national catastrophe program +++ Romania - invoice issuing deadline has been extended to 15 days after the month of the taxable supply +++ Slovakia - adoption of the Euro brings new VAT return form +++ Slovakia - calls for increased VAT rate from the IMF +++ Spain - switch from quarterly to monthly VAT returns proposed +++ Spain - online submissions for non-residents; local bank account still required +++ Sweden - IPT now introduced at 32% of gross premiums on 3rd party liability risks +++ Sweden - group life insurance from Swedish or EU insurers is exempt from IPT +++ Switzerland - VAT rate increase to 8% in 2011 +++ Ukraine - VAT e-filling obligatory +++ United Kingdom - VAT registration threshold increased to GBP70k +++ Seychelles - introduction of VAT at 10% in 2012 +++ Jersey - call for rise in 3% VAT rate +++ Romania - imposes intra-community supply registers +++ India - GST implementation now planned for April 2011 +++ UK - wins ECJ case on restricting VAT refunds to non-EU banks and insurers +++

Business Insurance EU VAT increase insurance outsourcing costs

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E.U. tax rule may increase insurers' outsourcing costs

Change in method of calculating VAT may add to expenses

Posted On: Jan. 03, 2010 6:00 AM CST

Michael Bradford

BRUSSELS—Some European insurers and reinsurers could see their tax bills rise significantly under changes to the way value-added taxes are charged on business outsourced to non-European Union countries.

The additional costs could be enough to cause combined ratios to creep up and give insurers fiscal headaches when they can ill afford more expenses, experts say.

A new E.U. “place of supply” rule that went into effect Jan. 1 requires VAT to be charged based on where the recipient of services is located. That reversed the previous requirement that the tax be assessed in the place where the service was rendered.

The rule creates a new tax liability for E.U. businesses that outsource services to countries such as India that have no VAT. Insurers and reinsurers that outsource to countries with lower VAT rates than their home countries also will see their tax bills increase.

While the rule won't affect insurance transactions, which generally are exempt from VAT, insurers that outsource services such as administrative, clerical, technological and others that are nonfinancial will feel the pinch.

The new rule is the latest VAT concern for insurers. In October, the Luxembourg-based European Court of Justice ruled that Swiss Reinsurance Co. is responsible for €2 million ($2.9 million) in VAT on a portfolio transfer seven years ago of 195 life reinsurance contracts.

The reinsurer transferred the portfolio from a German subsidiary to the Zurich-based parent. The court ruled that the transfer was not an exempt insurance transaction and therefore was subject to Germany's VAT.

Insurers and reinsurers are particularly affected by the new E.U. rule because, unlike many other types of businesses, they will be unable to offset the VAT. Because financial services companies are exempt from European VAT, insurers do not hold VAT numbers. The numbers allow companies that are charged the tax to offset it with the amount of VAT they charge others.

If no loopholes exist that would allow insurers and reinsurers to skirt the new VAT rule, “it is likely to be of significant importance to the majority of European insurers,” said Vasilis Katsipis, general manager-analytics at A.M. Best Europe Ltd. in London.

British insurers may be particularly affected because they tend to outsource services more heavily than those located in continental Europe, Mr. Katsipis said. German insurers that outsource to Eastern European countries also could see expenses rise as a result of the change, he said.

Mr. Katsipis and others said it is unclear how much the change could cost the insurance and reinsurance markets. The Assn. of British Insurers said it could not provide an estimate of the potential expense to U.K.-based companies, many of which outsource to India.

The costs could be high, given that VAT rates are generally double digits in Europe. The rate in Britain, for example, is 17.5%.

Richard Asquith, managing director of TMF VAT & IPT Services, a unit of London-based TMF Group, said the cost to British insurers alone could run several hundred million pounds.

Mr. Asquith said some U.K. insurers have tried to create VAT grouping structures whereby insurers' related companies can offset the irrecoverable VAT liability. But E.U. officials are looking to undermine that approach because of perceived abuses whereby some insurers have used companies not fully bound to them and, therefore, VAT grouping structures may not be effective in avoiding the tax, he said.

The VAT rule change is “fairly significant,” said Tony Lynne, director-indirect taxes at KPMG L.L.P. in London. “It will clearly have some impact on the attractiveness of non-E.U. locations,” he said, but insurers and reinsurers likely will view the rule as “painful but not a deal breaker.”

He acknowledged, though, that if some insurers already have concerns about the quality of services provided by outsourced operations, the addition of VAT could make them reconsider the relationship.

Not all companies will take a significant hit from the VAT changes.

Swiss Re acknowledged that it will be affected by the change, but the impact “will by no means be material,” the Zurich-based reinsurer said in a statement.