This blog was last updated on October 24, 2023
As our webinar explored in depth, location of risk rules are complex and constantly evolving.
The Sovos compliance team covered many topics on the session, such as sources for identification of the location of risk and location of risk vs location of the policyholder.
Despite this deep dive, there were plenty of questions that we didn’t have time to answer. As was the case with our IPT Changes in Europe 2021: Your Questions Answered blog, we’ve provided answers to these questions in this blog.
General Liability policies
Is there a case for a General Liability policy where the activity is held in Spain and the policyholder is in France?
Where the coverage doesn’t relate to property, vehicles or travel risks then it will be dealt with by the “catch-all” provision in article (13)(13)(d). As a result, assuming that the policyholder is a legal person in this scenario, it will be the policyholder’s establishment that determines the contract. Based on the limited information provided with this question, it seems that the policyholder’s only establishment here is in France, in which case the location of risk would be in France.
UK and Brexit
If you have a risk located in EU with a local EU policy, can the premium be paid by the entity of the company in UK?
The entity within a policyholder’s group that pays the premium to the insurer doesn’t have a bearing on the location of risk for IPT purposes.
Do the location of risk rules in the UK still follow those used in the EU following Brexit, and could a UK-based policyholder declare the tax instead of the insurer?
The location of risk rules haven’t changed in the UK following Brexit and, as such, the rules remain the same as is seen in Solvency II with each of the different four categories of risk.
For declarations made by UK-based policyholders, although there are provisions in the UK legislation allowing for the tax authority to pursue policyholders in certain circumstances, these are intended as a last resort when they’ve been unable to recover IPT from an insurer and there are no relevant agreements between the UK and the insurer’s country of establishment that enable the issue to be resolved.
The general rule remains therefore that the insurer should declare the tax, assuming they’re still authorised in the territory.
Germany
Could there be double taxation caused by the new approach in Germany towards group contracts?
Based on the natural interpretation of the new German legislation and, specifically, the Ordinance for its implementation, we see there is the potential for double taxation.
In particular, if there is the potential for double taxation within the EU then this would make it considerably more controversial. We could see this in the case of a policyholder based in a Member State other than Germany and an insured person based in Germany.
Double taxation across EU Member States would be inconsistent with EU law. As mentioned, we’ll closely monitor developments to see how group contracts are treated in practice and whether the position in the new legislation is challenged at EU level in the future.
I understand the German authorities may be issuing further guidance on whether non-EEA subsidiaries of a German policyholder do create an establishment for IPT purposes if a policy written by an EEA insurer covers them alongside the German policyholder, as the amended law from December last year only mentions that non-EEA branches would be caught in the net and subject to double taxation. Up to now, the guidance seems to have been that the answer is yes, but that the Ministry of Finance may be rethinking this. Have you heard anything on this point?
We’re continuing to monitor developments in this area. Most recently, the issue is considered in the guidance issued by the Ministry of Finance on 4 March 2021, as mentioned in our webinar. As is always the case, we’ll ensure that our customers are informed of any updates as they happen.
Malta
If vehicles in Malta only include motor vehicles, how do you determine the location of risk for ships and aeroplanes?
This would be another example of when article 13(13)(d) can be used. As a result, it would be either the policyholder’s establishment to which the contract relates (assuming it’s being insured by a legal person) or the habitual residence of the policyholder (if it’s being insured by an individual). This could be the same country as where it’s registered but it may not be.
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Still have questions about IPT? Watch our recent webinar, IPT regulation changes in Europe.
