The Five Pillars of IPT Compliance

Elliot Shulver
July 1, 2020

For anyone relatively new or unfamiliar with insurance premium tax (IPT), an understanding of each of the core components is key to ensuring compliance. They also sit in a logical sequence of five distinct areas.

  • Location of risk
  • Class of business
  • Applicable taxes and tax rates
  • Declaration and payment
  • Additional reporting

 1.Location of risk rules

This essentially is having a clear understanding of where the risk lies to determine in which jurisdiction the premium taxes should be declared.  The rules can be complex and vary across different territories but having a clear process will help.

You’ll need to determine:

  • Is the policy insurance or reinsurance?
  • What is the nature of the risk?
  • Who is insured and where are they located?

Next, check which rules apply. The EU’s four rules determine the correct jurisdiction depending on the nature of the risk:

  • Location of property
  • Registration of vehicles
  • Country of residence in which you took out the travel policy
  • Anything else that doesn’t fall into the above categories

Download our recent location of risk rules webinar to learn about the rules in more detail.

2.Class of business

A class of business is basically the category the risk falls under. Within the EU there are 18 classes of non-life business, ranging from accident and motor to miscellaneous financial loss and general liability.

The EU provides brief descriptions of each of these classes as well as some specific examples. The information is used by local tax authorities as guidance when implementing their own tax legislation.

Local rules vary so it’s important to understand your insurance policies to ensure the correct and relevant class of business is applied. Some policies may include more than one class of business which will affect the proportions of the premium that relate to each business class.

Our blog, Three Key Steps to Apply IPT on New Lines of Business is a useful resource.

3.Calculating taxes

Having determined the location of risk and the correct class of business the next step is to determine the taxes that apply and need settling.

Tax rates across the EU are fragmented and there are even more variations when you look at the varying tax rates within a jurisdiction. For example, in Spain you have an IPT rate applied at 6% yet you might also have some extraordinary risks surcharges calculated at 0.0003%.

Also consider who must carry the cost of these taxes. Is it the insured or the insurer? In most cases it’s the insurer’s responsibility, however it can fall to the policyholder.

  • Insurer borne taxes generally can’t be shown to the policyholder and are therefore a cost to the insurer
  • Taxes borne by the insured must be shown on policy documents, so the policyholder knows what taxes they are liable for.

Key to being able to determine which taxes and what rate to apply is having access to reliable software.

Download our ‘Back to basics’ webinar, to  learn more about how to calculate taxes.

4.Declaration and payment

Here again the rules vary country by country around the frequency for declaring and settling liabilities. They can be monthly, quarterly, bi-annually and annually. Failure to declare within the deadline will result in penalties and/or interest so knowing the deadlines for each return and when payment must be made are crucial.

Some tax authorities have strict rules and are quick to enforce them. Others are more lenient dealing with penalties on a case by case basis, and some (such as the UK) take a behaviour led approach where full disclosure and cooperation could lead to a far reduced penalty.

5.Additional reporting – will IPT follow where VAT leads?

Tax authorities across the world are taking a more granular approach to tax reporting to prevent fraud and reduce the tax gap. With VAT mandates in place across Latin America and more recently spreading into Europe and Asia, the VAT gap is reducing. So as governments transition to digital tax compliance wanting more data and faster, you can expect IPT will in time follow. The Spanish authorities, for example, have already started on this journey with the introduction last year of new digital reporting requirements for Extraordinary Risk Surcharges.

To stay ahead of the curve, the more prepared you are today the easier it will be to face the challenges that lie ahead as the pace of change in digitising tax compliance increases.

Take Action

Keep up to date with ever changing rules by subscribing to our blogs and following us on LinkedIn and Twitter. We also host regular webinars with our in-house specialists who are on hand to help.

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 IPT
August 12, 2020
Can IPT Drive Behavioural Change in the Population?

Unprecedented times. It’s a phrase that’s been used so much of late but the pandemic is certainly not the first incident that has adversely affected society on a global scale. Before coronavirus, there had been a strong focus on environmental issues and initiatives. With an increase in extreme weather incidents over the last decade, governments […]

E-Invoicing Compliance EMEA
August 12, 2020
Portugal: Details on the QR Code and UUID Expected

In February last year, the Portuguese government published the Law Decree 28/2019 rolling out changes affecting e-invoices. The goal of the Law Decree is to simplify and consolidate pieces of law that are scattered around the Portuguese legal framework. However, the effectiveness of many of those rules is still dependent on further regulation, such as […]

ShipCompliant
August 11, 2020
10 Steps to Expand Your Winery

Looking to enter a new market or bring new wines to the marketplace? Growing any business can be complicated, and the beverage alcohol industry is no exception. Not knowing how or where to begin can be the biggest hurdle. From market research and branding to strategic considerations and compliance, this 10-step guide will get you […]

ShipCompliant
August 10, 2020
Ask Alex: Your Bev Alc Compliance Questions Answered (August 2020)

Do you have questions about the rules, regulations, and compliance requirements of the beverage alcohol industry? This series, Ask Alex, is a perfect opportunity to get those pressing questions answered straight from one of the industry’s regulation and market experts, Alex Koral, Senior Regulation Counsel, Sovos ShipCompliant.  To take advantage of this opportunity and get […]

Tax Compliance
August 7, 2020
GAO Urges IRS to Overhaul 1099 Reporting for the Gig

A couple of weeks ago, the Government Accountability Office (GAO) released a report to the Senate Finance Committee describing the issues the IRS faces in enforcing income tax compliance for gig economy workers. The report highlighted long-standing issues the government has been grappling with in receiving tax information necessary to enforce compliance along with specific […]