The global tax landscape is rapidly changing as more tax jurisdictions require detailed electronic transactional reporting. This trend also applies to premium taxes, with Spain leading the way having introduced a new digitised reporting system and requesting Consorcio surcharges be declared on a transactional line-by-line basis. Greece shortly followed with detailed IPT reporting and most recently Portugal is also following in the footsteps of Spain and Greece by introducing changes to how stamp duty is declared from 2020.
This new 2020 reporting requirement by the Portuguese tax authorities was originally set to be introduced in February for the January 2020 stamp duty return. It was first delayed until April 2020 with an obligation to submit three tax returns for the periods of January, February, and March 2020 by 20 April 2020. However, due to the current Covid-19 pandemic, implementation of the new reporting system has been postponed further with the January 2021 submission due in February 2021.
This delay should give insurers additional time to gather the mandatory information required by the new system to ensure they can fulfil the obligations to provide a complete and more accurate reporting.
In addition to information currently being requested, mandatory information required for successful submission of the returns will include:
- Territoriality: the exact location the risk has been issued from (i.e. within or outside Portugal)
- Insured Name (Tax ID): the policyholder’s tax ID
- Insured Country Code: the policyholder’s country code to which the tax ID belongs
- Location of the risk insured in Portugal: the postcode to which the contract relates to, due to the requirement by the Portuguese authorities to file the stamp duty on a provincial level, or at least whether the risk is located in Mainland Portugal, Azores or Madeira.
Challenges for insurers
One challenge insurers will face is obtaining tax IDs for policyholders not resident in Portugal. A possible solution to this would be to provide the Tax ID number of the country for which the policyholder is resident (e.g. VAT number) but further guidance has yet to be provided by local authorities on specific cases.
Another possible issue is the treatment of cancellations and reimbursements. Previously, the system allowed for inclusion of negatives in the current reporting return or offsetting refunds against future liabilities within a 12-month period. But this is set to change. A replacement return of the initial tax period where the policy has first been declared should be required with the new system, and refunds related to policies declared prior to 2021 may not be possible and may have to be written-off.
How Sovos can help
Sovos IPT is able to generate the relevant file which will be compatible for upload to the Portuguese reporting system. Once the data provided has been thoroughly reviewed and includes all relevant mandatory information, it’s ready for upload to Sovos IPT software. Once the reporting system is opened by the Portuguese authorities, the submissions will begin. Due to uncertainties around the outcome from the reporting system, further modifications may be required based on discussions with the tax authorities.
With this new change, it’s clear that tax authorities are looking to minimise tax gaps by requesting information at a transactional level, on an ongoing monthly basis. It won’t be long before other local tax authorities follow suit as the squeeze on budgets tightens.
Understanding and interpreting local tax rules can be challenging. With tax authorities globally becoming more demanding in terms of the data they collect and the frequency, it’s more important than ever for insurers to be aware of the changing requirements wherever they write business and to ensure they remain compliant.