How to Comply with Switzerland’s Stamp Duty Reporting Requirements

As Switzerland is not part of the European Economic Area (EEA), several premium tax issues need to be considered by insurers when they are providing insurance policies in this country. These considerations are around location of risk, double taxation and compliance concerning stamp duty, which is the main tax that Switzerland levies on insurance premiums.

What are Switzerland’s location of risk rules?

Switzerland is not in the EEA, and it has not adopted any of the location of risk rules that generally apply in the rest of Europe. These rules are mainly the result of European Court of Justice cases, such as the Kvaerner plc v Staatssecretaris van Financiën case 2001 (Case C-191/99) that determined how non-life insurance should be taxed for policies covering policyholders in multiple EEA jurisdictions.

Consequently, this means that premiums are not apportioned between risks located in Switzerland and elsewhere before determining how to tax a policy. Instead, the primary driver for determining if stamp duty is due is the location of the principal policyholder named on the policy:

• Domicile is not located in Switzerland: no stamp duty is due on the premium the insurer receives from the policyholder regarding the policy, including any premium that relates to a Swiss risk.
• Domicile is located in Switzerland: stamp duty is due on the entire gross premium paid by the policyholder for all countries covered on the policy. This is irrespective of the location of any of the other countries, including those in the EEA, where risks are located because the normal location of risk rules in the EEA are not applicable.

Double taxation

The upshot of the principal policyholder having their domicile in Switzerland is that double taxation on insurance policies can occur, as local premium taxes could be due on the premiums in the countries outside of Switzerland in addition to the stamp duty that has to be paid there.

In the scenario where the insurer is not established in Switzerland, it is unlikely that the presence of a taxation treaty between the country where they are resident and with Switzerland will remove the possibility of double taxation in these circumstances. However, it is possible that in some cases a local policy covering Swiss risk for a Swiss domiciled policyholder and a master policy covering all other countries for a policyholder domiciled elsewhere could be arranged by the insurer to mitigate against a double taxation scenario.

Any such approach needs to be carefully considered. The Swiss Federal Tax Administration could deem such an arrangement as being artificially made to reduce the stamp duty liability, especially if they conclude the coverage on the master policy is really for a policyholder domiciled in Switzerland and should be taxed there.

Compliance with Switzerland’s stamp duty requirements

The settlement of stamp duty depends upon the location of the insurer writing the policy:

• For Swiss insurers, including Swiss branches of non-Swiss insurers: the insurer is liable to pay the stamp duty quarterly to the Swiss Federal Tax Administration, supported by form 11 that confirms the total tax being declared for all relevant insurance policies. If the insurer does not pay the stamp duty, it cannot be settled by the policyholder or anyone else as they are not jointly and severally liable for the tax debt.
• For non-Swiss insurers, including non-Swiss branches of a Swiss insurer: the Swiss policyholder is liable to pay the stamp duty using form 12 quarterly to the Swiss Federal Tax Administration. In these cases, details of the non-Swiss insurer, including their name, type of insurance provided and its duration must be included in the form submitted with payment.

In this latter scenario, the policyholder must submit a separate declaration for each policy, which can mean that this process is onerous. Still, Sovos can assist insurers in ensuring compliance is maintained with the Swiss Federal Tax Administration. You can find out more about IPT compliance in Switzerland in our recent webinar “IPT Compliance: Europe and Beyond”.