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Spain’s Tax System – The Complexities of Compliance

Elliot Shulver
April 21, 2020

Spain’s tax system is one of the most complex in Europe. For this reason, it presents a unique challenge for insurers when it comes to insurance premium tax (IPT) compliance. It has various taxes on insurance premiums with varying rates and several reports which must be declared. There are four provinces in Spain, each requiring their own declaration process, which leads to communications with at least five different tax offices. To add further complexity, Consorcio began a new, upgraded method of reporting Extraordinary Risk Surcharges. This new method, introduced in 2019, was at the forefront of premium tax reporting as it stepped away from the traditional tax return method to one of a data file upload. Other tax authorities have followed with their own modernised declaration and reporting methods and it’s likely this trend with soon continue more widely across Europe.

Premium tax reporting

For reporting premium taxes, five regions make up the jurisdiction in Spain. Madrid controls the main or central administration of Spain and is by far the largest administration area. To the north of Spain four provinces make up the other regions namely, Alava, Guipuzcoa, Navarra and Vizcaya. Each region holds its own tax administration and has its own authority to control its tax collection. Premium tax returns need to be prepared and sent to each tax administration according to the relevant policy risk location.

Back in 2019, Consorcio introduced a radical new reporting requirement into the IPT world. This was the first of its kind and entailed replacing the old form-based submission method with a coded Data File upload to a portal. This portal then determined the tax payment, the declaration period for each transaction and any interest payments due. The portal and submission links directly to a bank account, meaning a direct debit payment transfers automatically as soon as Consorcio receives confirmation. This new approach benefits the tax authority enabling it to have faster, more accurate, and increased detail of policyholder information and it’s expected that other tax authorities will follow suit.

Fire Brigade Charge

The calculation of the Spanish Fire Brigade Charge brings its own challenges adding further complexity for tax teams at insurers. By the end of the calculation process it can take up to four years to declare fully one years’ worth of premiums. The process begins with a report in respect of property and fire insurance written in the preceding year. At the beginning of the following year the taxpayer then makes a prepayment based on the previously submitted report to determine the amount to be declared. In the following year, the taxpayer then submits a report with the actual premiums written during the previous year. Finally, in the next year, the difference between the prepayment and actual premiums written are confirmed and adjusted accordingly if there are any discrepancies. This can be in the form of an additional payment or a refund back to the taxpayer.

With Spain providing a challenge to any taxpayer trying to stay as compliant as possible, it’s key to understand the various taxes, reports and processes involved. The reporting of the Fire Brigade Charge is a lengthy process, the Consorcio’s Extraordinary Risk Surcharges reporting is new, and taxpayer’s systems need to prepare for when other tax authorities follow which they are expected to do. The four provinces add further challenges as taxpayers need to be aware of the location of their insurance risks and whether they are in these regions. It all adds up to be one of Europe’s most complex tax systems which is why local language expertise and a deep understanding of regulations is key to applying the correct rules and maintaining compliance.

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Elliot Shulver

Consulting Manager, IPT compliance for indirect taxes at Sovos. A chartered accountant with 6 years’ experience of indirect tax, including IPT, VAT and Gambling Duties, Elliot is responsible for our Consultancy practice, as well as providing regulatory updates for our global compliance solution suite.
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