Meet the Expert is our series of blogs where we share more about the team behind our innovative software and managed services.
As a global organisation with indirect tax experts across all regions, our dedicated team is often the first to know about new regulatory changes and the latest developments on tax regimes worldwide to support you in your tax compliance.
We spoke to Menuka Thajali, senior compliance services representative here at Sovos, to discover how her work helps ensure Sovos customers remain IPT compliant.
Can you tell me about your role and what it involves?
As a senior compliance services representative within the Insurance Premium Tax (IPT) Compliance Services Department, I oversee the day-to-day operational management and delivery of IPT compliance for an extensive portfolio of customers within the captives practice. Whilst most of my work is with Sovos captive clients, I also work with a mix of mutual insurers, protected cell companies (PCC) and some standard insurers.
One of the roles of the IPT Managed Services Department is to review data sent over by clients. It’s important to understand the risks covered to ensure correct tax application for the specific risk and territory has been applied, and that the data is within the relevant reporting requirements. We assist with the preparation of IPT and parafiscal returns and submit the declarations in addition to processing payments for our customers to the relevant tax authorities within the statutory deadlines.
Can you tell us about your work with captives?
Working with captives requires our team’s extensive knowledge of international tax regulations, including working alongside our consultancy team. This is because for captives, unlike standard insurers, the risks covered are specific to its parent company. We help them ensure their product’s risk is correctly mapped to territorial tax legislation and any other relevant risks based on the Solvency II Classes of business.
Alongside this, we also assist captives with any queries on location of risk rules, treatment of negative premiums, exemptions applicable to their specific products, tax reclaims and anything IPT-related. A key part of working with captives includes reviewing the premium allocation for their annual programs, providing confirmation of taxes chargeable to the policyholder and insurer before invoicing.
What should captives be aware of when it comes to premium allocations and invoicing requirements?
There are many facets to IPT compliance, premium allocations, and invoicing requirements, and it’s my team’s job to ensure captives understand them. There are many details captives need to be aware of when considering premium allocations and invoicing requirements, including understanding the location of risk and its applicable rules and ensuring the premiums are allocated to the correct territory by following the location of risk rules for EU territories.
It’s also essential to know the tax point, in other words the event that triggers the tax liability to become due, within specific territories. Within the EU/EEA, the tax points vary territory by territory with the most common tax point being the premium paid date. However, there are some territories which require taxes to be declared before premium collection, i.e., on the inception date or on invoicing. Having knowledge the relevant tax points will ensure that the filings deadlines are being met, and the insurer budgets for cash flow where taxes are due prior to premium collection.
In terms of invoicing requirements, captives should be aware that these can vary depending on the territory. For example, in Germany, insurers are required to include the tax ID of the insurer on the invoice, and only the taxes that can be passed onto the policyholder should be shown. In general, taxes borne by the insurer should not be included on the invoice.
Do you have any tips for captives to ensure IPT compliance?
The best tips to ensure IPT compliance are to be aware of the tax reporting and filing requirements for the territories that captive insurer operates in and ensuring that the taxes are filed within the latest rules and regulations. Due to limited in-house expertise with some businesses, captives may choose to outsource the cross-border IPT compliance to an external service provider or consultants, for compliant and accurate filing.
Having a clear picture of the varied IPT regulations and requirements enables companies to prepare in advance of deadlines, alleviating any possibility of misfiling or penalties.
With an increased amount of digital reporting requirements being introduced across various territories, such as Spain CCS and Portugal Stamp Duty, which involves reporting of detailed policy information at a granular level, it’s essential to have all the policy details collected during underwriting level. It’s also vital for insurers to have the appropriate tools and systems in place to assist with the extraction and storage of the policy information to avoid errors and reporting delays.
How can Sovos help captives?
IPT expertise can be very limited within in-house insurance teams. Sovos has developed several solutions to ensure captives and other insurers can be confident in their tax filing and reporting and invoice management. This includes the Sovos Captives Solutions Tool, built specifically to assist with captive’s premium allocations and IPT requirements.
Many captives use Sovos’ IPT Managed Services to ensure their IPT compliance. The Sovos IPT Managed Services Team includes tax experts across many jurisdictions to deliver IPT compliance for insurers. As well as managed services, the Sovos consultancy team is available for specific IPT and policy queries or for those that don’t need a fully managed service for their IPT needs.