In Focus: Easing the Pain of Negatives for Insurers

Edit Buliczka
May 14, 2020

Anyone involved in insurance premium tax (IPT) compliance will be only too aware of negatives.  Sadly, they almost always cause a headache and not only for financial reasons but also from a tax compliance perspective as well.

What are negatives?

Negatives for IPT purposes mean negative policy lines in documentation created to support the premium and tax figures given in an IPT return. Negatives can occur in such documentation for one of two main reasons:  mid-term adjustments, or simply because of an error.

Mid-term adjustments

Mid-term adjustments reflect any adjustments or changes made to the details in the original policy documentation. This could, for example, be the policy duration, the risks covered, or the number of the insureds under the contract as these can all be changed while a policy is running. A policy can also be cancelled before reaching its expiry date. It’s worth remembering however that not all mid-term adjustments lead to negative consequences, i.e. resulting in a negative policy line in the supporting documentation.


While mid-term adjustments are directly linked to a change made to the original policy documentation, errors are not. Errors are generally a result of incorrectly implementing or applying regulations; a lack of up-to-date knowledge of the rules; misinterpreting local rules; incorrect settings or formulas; IT system issues; operational mistakes or simply because of human error.

How to treat negatives

As with other aspects of IPT compliance across Europe, the approach to how to deal with negative lines is fragmented and as a result the compliance treatment varies country by country. Sometimes the legislation is not explicit about how to treat negatives, other times some tax authorities provide specific and helpful guidelines. In some territories, the treatment of negatives for IPT and for surcharges (various levies connecting to insurance businesses) are different. The interpretations of the local tax offices within a country may also vary and can periodically change adding to the complexity and challenges for insurers when complying.  

As an example, the different approaches and treatments adopted by Italy, Luxembourg and Germany are illustrated below.

Italy: While correcting an error may be allowed to be offset against the current liabilities when calculating the monthly liabilities, it’s not allowed to be used to offset a negative amount resulting from an error in previous reporting periods. Negatives due to cancellation or mid-term adjustments – even when the premium is paid back to the policyholders – are not allowed in Italy. Negative premium and tax amounts in the annual IPT return are also not permitted.

Luxembourg: Up to a certain threshold, both mid-term adjustments and the correction of errors can be included in the current period’s return in Luxembourg, and a negative quarterly return is also allowed.

Germany: The correction of errors is permitted but a corrective return must be submitted for the period in which the mistake was made. Mid-term adjustments can be included in the current return even if it turns the total premium and tax figure into a negative. However, an explanatory letter must be submitted alongside the return.

Whilst negatives can be a headache for many tax teams in the course of their IPT compliance, this needn’t be the case.  Resources and software can help to alleviate, or even remove, negatives caused by errors.  Using constantly updated insurance tax rates and regulations, software to reduce human error, and having access to a team of specialists experienced in complying and interpreting fragmented European regulations can help relieve the pain. 

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Edit Buliczka

Edit Buliczka is a client manager for indirect tax at Sovos. She is a Hungarian registered tax expert and chartered accountant. Edit has worked for companies in Hungary including Deloitte and KPMG and as an indirect tax manager she worked for AIG at the Service of Excellence Centre in Budapest. She graduated with an economist degree from Budapest Business School, faculty of finance and accountancy and also she has a postgraduate diploma from ELTE Legal University in Budapest.
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