Italy Insurance Premium Tax Penalties and Tax Break Measures

Update: 13 March 2023 by Fabio Largo

Italy implements new tax break measures

The 2022 Italian Budget (Law 197/2022) introduced new measures under the ‘tax break’ scheme (“tregua fiscale”) to promote the settlement of tax irregularities and pending tax assessments.

The Italian tax authority (Agenzia delle Entrate) issued Circular letter no. 02/2023 to provide further clarification and guidance on the new tax measures.

The new regulation allows taxpayers the choice to regularise their tax positions for prior years up to 2021. If they choose to do so, the penalty associated with the regularisation decreases to 1/18th of the minimum penalty – provided that the regularisation is completed by 31 March 2023. In addition to submitting the corrective tax returns, taxpayers must pay the outstanding taxes, penalties and interest by this date.

The law allows taxpayers to make the payments in eight quarterly instalments, with the first due by 31 March 2023. An interest rate of 2% per year applies to the following instalments, which they must pay by 30 June, 30 September, 20 December and 31 March each year.

Additionally, the legislator extended the application of the reduced penalty regime to tax assessments and tax notifications (“avvisi di accertamento, rettifica o liquidazione”) which have already been submitted. This ruling applies if the submitted regularisation was not appealed before 1 January 2023, when the regulation came into force, as long as payment is made by 31 March 2023.

Seeking more information on tax in Italy? Speak with a member of Sovos’ expert team.

Update: 15 June 2022 by Daniela Dinkova

In Focus: Why is Italy’s IPT Regime so Challenging?

Tax compliance in Italy – where do we start? From monthly tax settlements to an annual declaration, prepayment, additional reporting and treatment of negative premiums – all these factors make Italy unique and one of the most challenging jurisdictions from an insurance premium tax (IPT) compliance perspective.

Let’s break it all down:

Insurance taxes

IPT rates range from 0.05% to 21.25%, depending on the class of insurance written. In addition to Italian IPT, there are also several insurance parafiscal charges:

• Emergency Treatment Fund
• Solidarity Fund for Victims of Extortion and Usury
• Road Accident Victims’ Fund
• Hunting Accident Victims’ Fund
• Package Holiday Consumers Fund
• Builders’ Surety Fund

Filing and settlement frequency

Monthly payments are due by the end of the month following the reporting month, except in December. The payment for November liabilities is brought forward to 20 December. Whilst, the annual declaration is due by 31 May following the calendar year.

IPT books

Although tax liabilities are paid monthly, and declarations filed annually, there is a legal obligation to maintain IPT books. IPT books are a chronological ledger on a policy level that must be readily available should the Italian tax authorities request the company records. IPT books are mainly requested for tax office audits, investigations or to support formal requests by an insurer.

Additional reporting

In addition to the monthly payments and annual declaration, the following reports are also required in Italy:

• Contracts & Premiums report – Due by 16 March
• Claims report – Due by 30 April
• Motor report – part of the annual IPT report due by 31 May

We explained additional reporting requirements in Italy in a previous blog.

Prepayment

Insurers are required to make an annual prepayment to the Italian tax authorities in anticipation of future tax liabilities. Prepayment is due by 16th November each year. It is calculated as a percentage (100% for 2022) of total IPT and Consap contribution made in the previous year, deducting any IPT paid in respect of Motor Third-Party Liability business. Once settled, this prepayment can be offset against IPT liabilities (excluding Motor Third-Party liabilities) arising from February, when the January tax liabilities are due.

In some cases, insurers can be required to hand over significant amounts of money to the tax office who will hold those amounts, in some cases for several years. Although prepayment should not represent an additional cost to insurance transactions, it can pose some cash flow considerations for insurers. Important to note is that the prepayment is due on a historical basis and cannot be settled based on an estimate of future tax liabilities. Businesses can use excess prepayment to offset tax liabilities in the next period or offset against the next prepayment.

Return premium

IPT credits relating to policy cancellations or adjustments are not permitted and should not be reclaimed from the Italian tax authorities nor offset against current liabilities. According to art. 4. Law 1216/1960, IPT “does not cease to be due even if the premium is fully or partially returned to the policyholder for any reasons”. Therefore, if the insurance company receives a premium, IPT is due even if this is subsequently reimbursed to the insured.

ANIA (the Italian trade body) has provided some clarifications to the market on the applicability of this provision, permitting tax reclaims only if the tax has not been fairly collected. This provision includes clerical errors or an incorrect qualification of the risk/scope of the insurance contract based on the information available when the policy was written.

An example of this is if the insurer mistakenly overcharged the policyholder, and the policyholder overpaid the tax. In such instances, the overpaid IPT can be deducted from tax liabilities arising in the same reporting period, i.e. the calendar year.

Penalties and interest

Italy is known for its strict application of laws and harsh penalty regime – up to 400% of the tax liabilities due. Furthermore, penalties and interest for late payments are time sensitive and are calculated daily. Additionally, penalties and interest are payable alongside tax liabilities.

Given its unique reporting standards, we recommend that insurers underwriting business in Italy are familiar with the intricacies and requirements in this jurisdiction. This will help them maintain compliance and avoid costly mistakes that could take significant time to resolve.