Finance Ireland: taxman watchful on insurance premium tax |
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Kieran Desmond, MD of TMF Ireland, takes a look at how international IPT works and what Ireland-based insurers should be doing to ensure they are keeping clients, the European tax authorities and regulators happy. Scope of European Insurance Premium Tax IPT is a worldwide tax, in many forms, on insurance contracts. It is generally calculated as a percentage of the gross premium. In most countries, initially, it is the insurer or captive who is responsible for the calculation, collection and payment of any taxes. In most countries, the policyholder is next in line for the tax liability. Should the contract issuer fail to take care of the IPT, then the tax authorities are able to pursue the insured party. It is this last requirement that has been propelling IPT compliance up the ‘to-do’ lists of insurers. Policy holders are becoming increasingly concerned that they will be left holding the liability if the insurer ignores IPT. With this worry in mind, they are often looking for an indemnity from the insurer or broker against any unsettled EU Insurance Premium Tax liabilities . In addition to IPT, there are also a number of other levies on insurance, payable to various local bodies. These ‘Parafiscal Charges’ range from the standard Fire Brigade levy on property in most territories through to funding national priorities, such as contributions for earthquake losses in Iceland. Many countries exclude Life and Marine cover from IPT, and reinsurance is largely exempt. Where is European IPT due? For many years, it was assumed that the Insurance Premium Tax liability was determined by the place where the contract was written. In This last point was underlined in the key European Court of Justice Kvaerner Case (2001). This centred on the Norwegian engineering giant, Kvaerner, which had taken out insurance cover in Following this case, there has been a scramble by international insurers and captives to be fully compliant with local tax regulations, especially in Freedom of Services IPT Unlike VAT - a sales tax based on European Union rules - there is no overriding tax-setting authority for European IPT. This means there are many variations in terms of rates, treatment of classes, payment methods etc. What has simplified the process for pan-European insurers is the Freedom of Services (‘FOS’) regime. This enables insurers and captives to write business across European borders without establishing local branches. European insurers are required to seek ‘Passporting Rights’ from their local regulator, which then notifies each relevant country regulator and then permission is automatically granted. This system has enabled The FOS regime applies to EU countries, plus European IPT Variations The implementation of Insurance Premium Tax regimes across The complexities in Central and European IPT Compliance Once the Irish insurer has determined the location of any IPT liability, the next phase is to tackle compliance. The insurer or captive must calculate the taxes due on any premiums written within the reporting period. This is based on the risk category and appropriate rate in the target country. Details of the main European IPT rates are provided on TMF’s website www.tmf-vat.com; this also includes the principal Parafiscal Charges. The taxes should be charged to the policy holder, as part of the premium, and then remitted to the relevant tax office. This requires the insurer to have registered as a taxpayer in each territory, and submit periodic filings with accompanying tax settlement payments. In many countries, the insurer is required to appoint a local fiscal representative. Their role is to assist with the IPT calculations and payments, as well as maintain in-country records of premiums. However, due to the opaque nature of Insurance Premium Tax, and the difficulty in finding up-to-date guidance on regulations and rates, this can be a fraught experience. Often, many Irish insurers can believe that they are correctly calculating and submitting IPT payments to the relevant authorities, but actually may be missing several sub-rules on rates or Parafiscal Charges. Several tax offices are lax in checking filings on a regular basis, so potential liabilities can go missing for years. Unfortunately, when the tax authorities do then come to audit back returns, this can leave large balances outstanding which attract hefty penalties and interest payments. Mediterranean countries seem to be a major source of concern in this area for Irish insurers, where applications to bring IPT filings up-to-date are sometimes ignored. The Tax Man’s Interest in Ireland-Originated IPT In the past 18 months, IPT due from insurance contracts written from Evidence of the tax authorities’ interest grows by the day. For example, authorities in Often, the foreign tax authorities will know about Irish insurers’ intentions to write business in their territory even before the first premium is written. In It now seems that insurance regulators are also getting involved. Several European regulators have been actively cooperating with the foreign tax offices on exchanging information on the activities of multi-programme insurers. It is therefore vital that Irish underwriters are clear on their international IPT liabilities and see that these are dealt with promptly, or they could be putting the insurer at risk with the regulators. A good example is Many policyholders have also been asked to confirm the tax treatment on their cover. This is leading many corporates and their captive managers to seek indemnities from their insurers. Steps to Take if Non-Compliant As outlined above, most insurers who have been writing risk-cover across borders are probably liable to European IPT. However, the complexities and lack of clear guidance on EU IPT mean that there are still many insurers who are non-compliant. The good news is that most of the tax authorities remain open to discussion on settling previous liabilities without harsh fines or punishment. In these cases, the key seems to be to contact the relevant tax authorities (through a local fiscal representative if this a local requirement) to detail the background to the situation. Many countries have been very flexible with this approach. It is recommended not to try to pre-calculate any potential penalties or fines as the tax authorities may consider waiving some of them if approached first. Summary IPT on international insurance has always been a complex and confusing area, historically overlooked by insurers, policyholders and the tax authorities. However, with This has to be tackled now if Irish insurers are to be certain of maintaining their clients’ trust and their own valuable reputations. Kieran Desmond is the MD of TMF Ireland, which assists clients with IPT compliance through 79 offices worldwide. TMF Ireland provides a range of other outsourcing solutions including accounting, payroll, company secretarial services, as well as a comprehensive suite of corporate services to structured finance entities. The TMF Group is a global independent management and accounting outsourcing firm.
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