Digitization of Reporting – Will Insurance Premium Tax Follow VAT’s Lead?

Increasingly, technology is being infused into our day to day lives to simplify and streamline activities. From home to the workplace and everything in between, digitization can help us by removing time consuming activities, while also using the power of data to provide insights.

The digitization of tax

In this context, revenue authorities are digitizing tax filing and invoice communication to improve submission speed, reduce risk and gain more insights into taxpayer activities.

As part of the tax mix, the digitization of Value Added Tax (VAT) and Goods and Services Tax (GST) have been at the forefront of this drive globally. The broad transaction-based nature of these taxes (along with large ‘VAT gap’ between expectations of VAT revenue and actual collection by revenue authorities) have made it a key target for revenue authorities to use digitization as both a collection and auditing tool.

As part of this, API enabled filing portals are being established to enable ‘one click’ submission (in the UK), periodic reporting is being augmented by real-time or near real-time transactional reporting (in Spain and Hungary), and invoicing in many jurisdictions requires interfacing with revenue authorities before they can even be sent to counterparties for payment (e-invoicing regimes in various countries globally).

While the target areas and methods can differ between jurisdictions, what is clear is that globally there has been an exponential rise in digitization mandates for VAT and GST, which shows no signs of abating.

Will IPT be the next tax to digitise reporting?

So, with VAT as one of the most digitized major taxes in the world, should we expect to see the same for Insurance Premium Tax (IPT)? After all, IPT also has similarities as an indirect tax levied on a transactional basis, and is also often handled by similar resources within in-house tax functions, so should we see VAT developments as something that will be applied directly to IPT?

Certainly, the answer to the above is yes, however the correlation and speed is something that appears to be hard to predict.

For instance, in Spain the surcharges for Consorcio de Compensación de Seguros (CCS) are reported on a line-by-line basis and have been uploaded digitally since 2019. In this sense it does mirror the SII VAT reporting regime in Spain, albeit with a periodic rather than near real-time frequency.

Similarly, at the beginning of 2021 the Portuguese revenue authorities officially implemented digital reporting of Stamp Duty, also on a line-by-line basis. However, no equivalent regime for periodic reporting exists for VAT in Portugal.

However, the above reporting changes are the exception rather than the rule. In the majority of jurisdictions, reporting is still undertaken on a periodic, aggregated basis, with submission in some cases still being by paper-based form. What could be inferred from this is that revenue authorities are concentrating these digitization regimes on broader taxes first (such as VAT), and applying them to other indirect taxes once the submission and auditing methods are proven.

Either way, the one thing the VAT experience has shown is advance preparation for digitization can ease the pressure on tax functions in the long-term. When many of these VAT regimes have been introduced, taxpayers have only had a few months to prepare systems and data to allow for digitized filings, which can put pressure on tax and IT functions to be compliant in a timely fashion.

So, as we strongly believe over time IPT will follow this reporting trend, preparation for this inevitable change can begin now. Making sure IPT is considered in any major system changes, being able to produce compliant data extracts, and investing in active conversations with compliance partners about data quality and any upcoming mandates would be an investment that may well save substantial time and risk in the future.