Spain’s Tax System – The Complexities of Compliance

Elliot Shulver
April 21, 2020

Spain’s tax system is one of the most complex in Europe. For this reason, it presents a unique challenge for insurers when it comes to insurance premium tax (IPT) compliance. It has various taxes on insurance premiums with varying rates and several reports which must be declared. There are four provinces in Spain, each requiring their own declaration process, which leads to communications with at least five different tax offices. To add further complexity, Consorcio began a new, upgraded method of reporting Extraordinary Risk Surcharges. This new method, introduced in 2019, was at the forefront of premium tax reporting as it stepped away from the traditional tax return method to one of a data file upload. Other tax authorities have followed with their own modernised declaration and reporting methods and it’s likely this trend with soon continue more widely across Europe.

Premium tax reporting

For reporting premium taxes, five regions make up the jurisdiction in Spain. Madrid controls the main or central administration of Spain and is by far the largest administration area. To the north of Spain four provinces make up the other regions namely, Alava, Guipuzcoa, Navarra and Vizcaya. Each region holds its own tax administration and has its own authority to control its tax collection. Premium tax returns need to be prepared and sent to each tax administration according to the relevant policy risk location.

Back in 2019, Consorcio introduced a radical new reporting requirement into the IPT world. This was the first of its kind and entailed replacing the old form-based submission method with a coded Data File upload to a portal. This portal then determined the tax payment, the declaration period for each transaction and any interest payments due. The portal and submission links directly to a bank account, meaning a direct debit payment transfers automatically as soon as Consorcio receives confirmation. This new approach benefits the tax authority enabling it to have faster, more accurate, and increased detail of policyholder information and it’s expected that other tax authorities will follow suit.

Fire Brigade Charge

The calculation of the Spanish Fire Brigade Charge brings its own challenges adding further complexity for tax teams at insurers. By the end of the calculation process it can take up to four years to declare fully one years’ worth of premiums. The process begins with a report in respect of property and fire insurance written in the preceding year. At the beginning of the following year the taxpayer then makes a prepayment based on the previously submitted report to determine the amount to be declared. In the following year, the taxpayer then submits a report with the actual premiums written during the previous year. Finally, in the next year, the difference between the prepayment and actual premiums written are confirmed and adjusted accordingly if there are any discrepancies. This can be in the form of an additional payment or a refund back to the taxpayer.

With Spain providing a challenge to any taxpayer trying to stay as compliant as possible, it’s key to understand the various taxes, reports and processes involved. The reporting of the Fire Brigade Charge is a lengthy process, the Consorcio’s Extraordinary Risk Surcharges reporting is new, and taxpayer’s systems need to prepare for when other tax authorities follow which they are expected to do. The four provinces add further challenges as taxpayers need to be aware of the location of their insurance risks and whether they are in these regions. It all adds up to be one of Europe’s most complex tax systems which is why local language expertise and a deep understanding of regulations is key to applying the correct rules and maintaining compliance.

Take Action

To read more about the insurance landscape and tax compliance, download Trends: Insurance Premium Tax and follow us on LinkedIn and Twitter 

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Elliot Shulver

Manager, IPT compliance for indirect taxes at Sovos. With 6 years’ experience of indirect tax, including IPT, VAT and Gambling Duties and part qualified chartered accountant, Elliot is responsible for our Consultancy practice, as well as providing regulatory updates for our global compliance solution suite.
Share This Post

LATAM VAT & Fiscal Reporting
May 20, 2020
Sovos Acquires Taxweb, Extends Tax Determination Capabilities in World’s Most Challenging Compliance Landscape

Earlier this month Sovos announced its second acquisition of 2020, completing our solution for Brazil with an unparalleled offering that solves tax compliance in the place where it is most challenging to do so.  Too many companies doing business in Brazil have been burdened by managing multiple point solutions for continuous transaction controls (CTCs), tax […]

EMEA VAT & Fiscal Reporting
August 4, 2020
New VAT Rules for Online Marketplaces and Imports of Goods into the UK

The United Kingdom’s HMRC has issued new guidance on the VAT treatment of cross-border sales of goods and online marketplaces beginning 1 January 2021, following the end of the transition period. Cross-Border Sales under £135 New rules will apply when a business sells goods for £135 or less to a UK customer and the goods […]

EMEA VAT & Fiscal Reporting
August 3, 2020
New EU Tax Package: VAT Priorities

On 15 July 2020, the European Commission (EC) adopted a new Tax Package, intended to increase tax compliance while reducing administrative burden on businesses. The Tax Package contains a number of proposals related to VAT, of which three in particular stand out: A single EU VAT registration for taxpayers; Modernized VAT reporting obligations; and Facilitated […]

IPT
August 3, 2020
Should Insurers Receive an IPT Holiday From Their Governments?

It’s been a tough year for businesses. Whilst many have accepted that 2020 is likely to be a year to forget, unfortunately tax still needs filing and paying. Tax authorities have been understanding – nobody could have foreseen this – and there has been a concerted effort to provide SMEs with tax relief and postponements […]

Asia Pacific E-Invoicing Compliance EMEA India
July 31, 2020
India: Last-Minute Changes to the Proposed E-Invoicing System

The October deadline is fast approaching for the Indian CTC invoicing mandate, but it remains a moving target. In a swift move that was published just two months prior to go-live, authorities have now changed the scope of who is affected by the reform, as well as updated the JSON format. Why the change? The […]

ShipCompliant United States
July 30, 2020
2020 DtC Wine Shipping Mid-Year Report

Since we released the annual Direct-to-Consumer Wine Shipping Report in partnership with Wines Vines Analytics back in January, a lot has changed when it comes to how consumers are getting their wine. The COVID-19 pandemic swayed buying channels drastically, shifting traditional retail and on-premise sales over to ecommerce sales. With brick-and-mortar retailers being closed down […]