As we approach the end of the first full year following the effective departure of the United Kingdom (UK) from the European Union (EU), for many UK insurers this has seen the use of other EU-based entities within their structure to write business in the EU. These entities were often explicitly established to deal with this scenario.
As is now common knowledge, UK insurers can no longer write business in the EU on a Freedom of Services (FOS) basis as the Brexit deal didn’t include relevant provisions for financial services. One potential area of uncertainty that many UK insurers may now face is how to declare and settle historical insurance premium tax (IPT) liabilities written by their UK entity before Brexit took effect on 31 December 2020.
How should a UK insurer file historical IPT in the EU?
As with most compliance topics related to IPT, this varies from country to country but, thankfully, the situation is relatively straightforward in most territories. Authorities in the EU generally understand that there may be liabilities written on a FOS basis at the time. Therefore, there should be a mechanism in place to facilitate the declaration of such liabilities in the present day.
For example, in the case of the Netherlands, supplementary declarations can be made to declare historical liabilities. We understand that it’s possible to initiate similar processes in other EU territories including, Germany, Finland and Luxembourg.
What about where the UK insurer is not registered in the relevant country?
The situation can be slightly more complicated where a UK entity was not registered initially or has already deregistered from the country in which it has determined it has historical liabilities to declare. For example, in Slovakia, a UK company can no longer register in the country to declare its IPT.
If only historical liabilities are required to be declared, the Slovakian tax authority has confirmed that insurers can appoint a representative like Sovos to settle these amounts without an IPT registration being formally completed.
Notwithstanding the above, as a general rule we recommend that if a UK insurer anticipates that it may have historical liabilities in any EU jurisdiction, it should remain registered in that country until these liabilities have been identified and declared in full. After this has been done, the deregistration can be processed if required. This is to ensure the most efficient means of settling the historical tax. Given that it has been nearly a year since Brexit took effect, any such liabilities should be identified and declared as soon as possible because authorities may seek to deregister inactive UK entities. For example, this is expected in France by the end of the year.
If there are any countries where a UK insurer has identified any historical EU liabilities, then Sovos is best placed to assist. We can advise on how to declare these liabilities and can proceed with those declarations where possible based on the relevant country’s legislation and guidance.
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