Technology Disconnect in Insurance – Why IPT Needs Prioritising

Christophe Bourdaire
November 24, 2020

Many insurers still depend on legacy systems to file insurance premium tax (IPT). Whilst cost is sometimes the reason for this decision, some organisations simply don’t prioritise technology upgrades, instead, choosing to focus on initiatives that improve the customer experience or other business workflows.

Can this situation continue? Unlikely for much longer, as more tax authorities require insurers to submit extensive data to their electronic tax portals for IPT.

Depending on what systems are in play in an organisation, those built on Excel spreadsheets could be far more costly than investing in IPT reporting technology. Furthermore, if information is lost, inaccurate or inadequate, insurers could face fines and reputational damage – a cost that is much more difficult to recover.

Why have insurers under-prioritised IPT technology?

Put simply, there has not been the need to.

Electronic IPT submissions are a recent development, however the increase in digital transactional reporting is likely to accelerate the need for more robust systems that collect the information required by tax authorities.

Manual systems struggle to keep pace with the latest tax updates and filing requirements. This is further complicated with cross-border filing as every country’s requirements are different.

In the case of manual reporting, an EU-heavy insurer would need a system capable of writing tax in 27 different ways. Building a tailored system like this is often too complicated and expensive for internal IT teams.

With a bespoke system often out of the equation, many insurers instead try to apply their domestic tax approach abroad, but again, nearly every country does things differently. This risks missing taxes or paying double tax in error should incorrect information be applied.

There can also be a difference in how premiums are split for taxations. In some countries it’s split but with others there is one single tax rate.

One of the main differences country to country is the tax point. There is no standard definition across EU countries. In the majority of countries, the tax point is when the premium is paid but for others it’s when the invoice is issued or when payment is due to be made, which could be two different dates.

For example, if a UK company is insuring a UK group that has subsidiaries in European territories and a contract covers multiple territories, the invoice is sent to the UK holding company. It’s one invoice with one premium amount and one tax amount, but it will cover five or six jurisdictions.

The underwriting system should split tax by country but if the tax authorities were to query the invoice to confirm payment of tax, the invoice covering all territories would not be sufficient. There would need to be additional formal documentation explaining the premiums applicable for each individual country.

In the case of many insurers, this information will be in a spreadsheet or a manual underwriting system. It’s likely that in the very near future we’ll reach a point where this method is inadequate for tax queries issued by authorities.

On the VAT side there is already the clearance system – where the invoice must be validated by tax authorities first before being sent to the customer. If this system were to be implemented in insurance now, the technology required to help collate and submit this granular data is not widely used. Although IPT is a smaller tax concern to authorities than VAT and historically it hasn’t been seen as an urgent tax to digitise, this is changing with more countries likely to follow Spain’s model.

Sovos IPT solutions help insurers navigate the multiple IPT tax requirements across the EU and beyond. There is no need to build and develop IPT technology internally and our tax experts keep our solution updated with the latest changes to ensure tax is filed correctly and compliantly.

Manual systems have always been error prone but with more and more jurisdictions likely to digitise their IPT collection, now is the time to get ahead, prepare for the inevitable widespread digitsation of IPT and prioritise your reporting technology.

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Author

Christophe Bourdaire

Senior Regulatory Specialist, Regulatory Analysis. Christophe joined Sovos FiscalReps in 2011 and has been managing the IPT compliance process for a portfolio of captives and French speaking clients. Based in France, he focuses on the development of the global IPT content and technology offering. Christophe completed a degree (certificate) in Journalism at Ecole Nouvelles in Nice, France. He is a native French speaker, and also speaks fluent Spanish.
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