France is one of the most challenging countries in Europe when it comes to the premium tax treatment of motor insurance policies. This is mainly due to the variety of taxes and charges that can apply and the differing treatment of different vehicle types.
This blog provides all the information you need to know about the correct treatment in France.
Which taxes are payable in relation to motor insurance policies in France?
First and foremost, Insurance Premium Tax (IPT) applies to motor insurance provided in France. The rate can vary (rates correct as of December 2024):
The standard rate for risks of any type relating to motor vehicles is 18%
The rate is usually 33% in the case of compulsory class 10 motor liability coverage
The rate for compulsory class 10 coverage is reduced to 15% for coverage provided to commercial agricultural vehicles and commercial vehicles greater than 3.5 tonnes
Class 3 motor cover is treated as a form of property coverage within the scope of contributions to the EUR 6.50 Common Fund for Victims of Terrorism when located in France. There is also a requirement to collect a CATNAT premium (with specific rates for motor coverage which are increasing from January 2025). IPT and contributions to the Major Risk Prevention Fund are due on this premium.
Compulsory class 10 cover triggers National Guarantee Fund contributions. This currently results in three separate rates applicable to premiums, set at 1.2%, 0.8% and 0.58%, respectively.
Finally, it is worth noting that class 3 or 10 coverage of vehicles used for agricultural operations may be excluded from the scope of contributions to the Major Risk Prevention Fund. They do, however, result in separate contributions of 11% due to the National Agricultural Risk Management Fund.
How are taxes on motor insurance policies calculated in France?
The majority of taxes and charges on motor insurance policies in France are calculated as a percentage of the taxable premium and are directly charged to the insured. There are some exceptions, though.
Where applicable, the 0.58% National Guarantee Fund contribution and contributions to the Major Risk Prevention Fund are both insurer-borne so do not result in direct additions to the premiums charged to the insured.
The EUR 6.50 contributions to the Common Fund for Victims of Terrorism are a fixed fee and apply to each insurance contract per annum – regardless of the premium value.
It should also be noted that the IPT treatment of motor insurance can be extended to include ancillary coverage, such as passenger accident cover. This is because the IPT treatment applies to risks of any nature relating to land motor vehicles. It is important to assess each risk to determine whether it is considered a risk related to land motor vehicles as this can be a contentious area in French law.
What vehicles are exempt from tax in France?
Electric vehicles are subject to an IPT exemption, albeit this was amended from January 2024 so that 75% of the premium was treated as exempt (with the remaining 25% being taxable as normal).
A 75% exemption applies to insurance incepting in 2024 for vehicles registered in 2024, but only in relation to the first insurance contract following the vehicle’s registration up to a maximum of 24 months. There is no law currently in effect extending this treatment for vehicles registered in 2025, so such vehicles will not benefit from the 75% exemption as it stands.
Coverage of any nature relating to commercial agricultural vehicles and commercial vehicles greater than 3.5 tonnes benefits from a full IPT exemption, except compulsory class 10 coverage. However, this does not provide an exemption from the applicability of the parafiscal charges mentioned above.
If you still have questions about the taxation of motor insurance policies or IPT inFrance, speak to our experts.
Australia E-invoicing
Australia is on its e-invoicing journey. It has slowly been rolling out electronic invoicing rules and requirements since 2018, when it launched a joint project with New Zealand.
Fast forward to the current day and the country has mandated government agencies to be able to receive e-invoices. While it is not planning on doing the same for B2B, there is a plan for businesses to be able to request electronic invoices.
This page has all you need to know about Australia e-invoicing. Bookmark it to stay in the know as things change.
Since 1 July 2022, only Australian government agencies covered must be able to receive e-invoices. The full list of the e-invoicing-enabled Australian government agencies is available here.
B2B e-Invoicing in Australia is currently optional. The Australian Department of Treasury (ATO) proposed introducing the Business E-Invoicing Right (BER) in 2021 and adopting the mandatory B2B e-invoicing using the Peppol format. The rollout for larger companies was planned to start in July 2023.
Based on communication from the ATO, the current government will not proceed with this rollout. Instead, it strongly encourages businesses of all sizes to engage with the concept of Peppol e-invoicing and pilot it on their own terms ahead of any potential mandate.
If taxpayers opt to issue e-invoices for B2B transactions, they must do so via Peppol’s four-corner model in the PINT A-NZ format.
Electronic invoices must be securely archived for at least five years and formatted in a specific way.
Format of electronic invoices in Australia
On 15 November 2024 it became mandatory to format electronic invoices as PINT A-NZ, following other non-EU countries (Japan, Singapore and Malaysia) in using Peppol’s international invoice specification.
PINT A-NZ is a joint specification between Australia and New Zealand, and it differs slightly from the previous A-NZ specification.
For specific information on how to format an e-invoice in Australia, read the A-NZ PINT specifications.
Timeline of e-invoicing adoption in Australia
Australia’s journey to implementing e-invoicing has been short compared to many other countries. Here are the key dates:
25 October 2018: Australia and New Zealand enter an agreement to jointly explore e-invoicing
December 2019: Australia adopts Peppol framework as its common e-invoicing standard
1 July 2022: Mandatory for government agencies to receive e-invoices
15 November 2024: PINT A-NZ format becomes mandatory
15 May 2025: The prior A-NZ format is no longer supported
Peppol e-invoicing in Australia
Australia and New Zealand have separate Peppol Authorities, though they began working together in 2018 to jointly establish an approach to electronic invoicing.
After entering the ‘Australia and New Zealand Government Electronic Invoicing Arrangement’, the nations adopted the Peppol Interoperability Framework.
As a result, the Australian Taxation Office became the Australian Peppol Authority, and legislation was passed to allow the tax authority to implement e-invoicing.
It’s worth noting that the country’s tax authority does not have access to e-invoices transmitted between businesses. This approach differs from those seen in many other countries, primarily because e-invoicing is often seen as a means of closing the tax gap—meaning tax information is transmitted to national tax authorities in almost real time for transparency and validation.
Navigating U.S. sales tax requirements can be especially challenging for multi-national corporations unfamiliar with the complexities of state-specific laws, rules, and regulations.
In this session, Brian Sengson and Charles Maniace will explore the fundamental elements of US sales tax, discussing the types of business activities that could create a US sales tax compliance obligation, and the steps necessary to create an effective compliance process. Attendees will leave with actionable insights to help their organizations avoid costly compliance mistakes.
Key Takeaways:
Understand the structural differences between U.S. sales tax and VAT and their implications for your business.
Learn how to identify “nexus” obligations across multiple states.
Gain strategies for complying with evolving regulations, rules, and requirements.
On 5 November, the long-awaited EU Commission’s VAT in the Digital Age (ViDA) proposal was approved by Member States’ Economic and Finance Ministers (ECOFIN). This webinar will examine the three pillars of the ViDA package and how you can prepare for the changes it will bring.
European tax authorities are advancing SAF-T implementation, introducing new requirements that will impact VAT compliance across the region. This webinar will offer insights into key updates, including Portugal’s SAF-T delay to 2026, Ukraine’s on-demand SAF-T for large taxpayers in 2025, Greece’s mandatory transport data fields in myDATA e-books from 1 December 2024, Romania’s SAF-T extension to non-established companies and mandatory e-reporting of B2C invoices from January 2025 and France’s reduced PPF scope and new PDP designation requirement for all companies.
In this webinar, we will revisit the foundational principles behind this mandate, covering its evolution up to the latest developments, so you have all you need to keep your business compliant.
Peppol E-invoicing explained: What it is and how it works
The global adoption of electronic invoicing is accelerating. Governments worldwide are pushing to adopt e-invoicing to digitally transform their national systems and, often, to close the VAT gap.
While many countries have introduced their own e-invoicing mandate to digitise fiscal controls, the requirements and systems implemented by each country often fail to align with one another. This makes it complex for multinational organisations to meet their electronic invoicing obligations.
To enhance interoperability, countries across Asia and Europe are embracing Peppol, a framework established to simplify interoperability for e-invoicing and other procurement documents. But what exactly is it? This blog has all the information you need.
What is Peppol?
Peppol began in 2008 as an effort to standardise public procurement in governments across the European Union. It is a framework made up of specifications that enable cross-border electronic procurement and a method of sending invoices to customers. Peppol integrates business processes by standardising the way information is structured and exchanged.
In recent years, Peppol has expanded its remit to include APAC. Singapore was the first Asian country to establish a Peppol authority. As well as being established in Europe, it also includes Australia, Japan, Malaysia and New Zealand.
What does it stand for?
Peppol is short for Pan-European Public Procurement On-Line, as it was initially a European initiative.
While receiving e-invoices has been mandated by law for all public sector entities in the EU since April 2020, being Peppol one of the options chosen by many countries to implement such obligation, and Peppol’s name derives from its European service, the standard is now being adopted outside of the union. Malaysia and Singapore are two non-European countries that have embraced Peppol in recent years, for example.
How does Peppol work?
While we have made it clear that Peppol is an EU-wide standard for exchanging electronic documents like e-invoices, that doesn’t explain how it actually works.
The European Union laid out standards for electronic invoices. These documents must meet the required specifications and, in most cases, be sent through its network. Most public sector entities in the EU are required to be able to receive such invoices, creating a uniform and universal method of invoicing B2G transactions across the region.
It’s worth noting that while the public sector is obligated to receive these invoices in some cases, they can also be sent to companies for B2B transactions. Peppol enables the efficient electronic exchange of e-invoices, purchase orders, and other business documents, whether you are a private business or a public organization.
Peppol invoices are sent to the recipient through a Peppol Access Point. This connects to the Peppol network and comes from an approved service provider, allowing businesses to electronically exchange documents with other organisations with an Access Point.
Peppol connects organisations through a network of Peppol-accredited Service Providers, removing barriers to electronic trading created by closed ‘three-corner’ networks.
What is a Peppol authority?
To ensure that the aforementioned Access Points follow the rules and regulations set out, it has official authorities. They are also in place to “set national requirements for the design and content of Peppol documents,” according to PEPPOL itself.
There are currently 17 Peppol Authorities in place, all of which are national bodies – bar one. OpenPeppol is the only authority which is not attached to a country as it serves as the official Peppol Authority in jurisdictions where no authority exists.
Why use it?
Its widespread implementation makes it an appealing option for many. Considering the variety of approaches to electronic invoicing across countries, the appeal to Peppol is the standardisation and interoperability of global electronic document exchange.
Having a collection of common standards for transferring electronic documents for every country an organisation conducts business in makes the process simpler – thus reducing the possibility of errors.
Standardising the way information is structured and exchanged makes it more secure. As well as invoices and purchase orders, Peppol has the potential to automate the exchange of any kind of business document, between any organisation, anywhere in the world.
Which countries use Peppol?
Peppol currently has 37 member countries, 29 of which of which are in Europe.
Outside of Europe, countries that have implemented Peppol standards include:
Australia
Japan
Malaysia
New Zealand
Singapore
Peppol Corner Models
Corner models are frameworks for digital transactions. There are multiple approaches, though Peppol’s base framework is the 4-corner model
3-Corner model for e-invoicing
Now considered an old model, the 3-corner model for e-invoicing required senders and receivers to connect through a single service provider. Buyers would often decide on which service provider they use, meaning suppliers had to use multiple systems across their customers.
4-Corner model for e-invoicing
An upgrade to the previous approach, the 4-corner e-invoicing model connects four entities. The four corners are:
Sender
Sender’s Access Point
Recipient’s Access Point
Recipient
The introduction of Access Points secures transactions by ensuring that communication of documents is sent and received correctly, using document validation, Know Your Customer (KYC) procedures and more.
5-Corner model for CTC
As seen in Singapore, Peppol also has a 5-corner model. This approach adds another corner to the traditional model, being the Tax Authority/Government central platform. This framework is also known as Peppol CTC.
The 5-corner model allows tax authorities to receive almost real-time access to invoices, ensuring that tax information is transferred correctly.
At the discretion of the applicable government, the central platform can either validate documents before they are sent to the recipient or allow certified service providers to validate them instead, serving as a repository for the electronic invoices.
Peppol VIDA pilot project
This pilot project established by OpenPeppol demonstrates that the network and e-invoicing specifications can also be used to meet the digital reporting requirements of the EU’s VIDA proposal.
The project is open to EU Tax Authorities/Administrations, Service Providers and end users.
Sovos is participating in this pilot project. We are a respected member, serving as a provider in both Malaysia and Singapore.
Learn more about the adoption of electronic invoicing and its many rules and regulations in our E-invoicing Guide. For help complying with e-invoicing requirements and other tax considerations, consider our Compliance Cloud solution.
By Christiaan Van Der Valk
The French tax administration has just announced structural changes to the 2026 French e-invoicing mandate that will discontinue the development of the free state-operated invoice exchange service. This decision will put increased pressure on taxpayers and software vendors to select a certified ‘PDP’ to fill the void created by this decision.
A complex scheme, years in the making
When France introduced mandatory business-to-business e-invoicing in its 2020 Finance Law, the tax administration conducted a broad comparative study of how other countries had implemented similar obligations. However, France adopted a unique approach, creating the complex ‘Y model,’ which combined elements from several countries’ systems. Like Italy for example, it included a central state-operated platform (the ‘PPF’) that businesses could use as a free, basic service for the exchange and reporting of e-invoices.
Division of labor between PDPs and the PPF in the original ‘Y-scheme’ design
In parallel with the PPF’s own ability to exchange e-invoices for French taxpayer, the French tax authority solicited candidate PDPs to perform the same function for more complex business use cases.
These organizations were registered, put through vigorous testing and some were pre-approved, pending final testing with the PPF. PDPs are designed to seamlessly exchange invoices with each other and are required to report these transactions to the PPF.
And as it turned out, many companies in the French market decided to use a PDP to organize the exchange of invoice data with trading partners in a way that fits their unique business circumstances. Other French businesses counted on the availability of the free-of-charge PDP services to be provided by PPF, rather than selecting a private PDP.
The overall architecture of data flows between the public and private entities involved in the French scheme led to unprecedented complexity in the technical specifications released by the public administration. It has been clear for some time that this complexity was putting strain of budgets and timelines for the technical development of the PPF by the French public administration.
How does the PPF’s scope change impact businesses that were relying on the free PFF?
The French tax administration (DG-FIP) announced on 15 October that while the development of the PPF will continue, its focus will shift to providing directory services for routing e-invoices, without offering PDP services.
As a result, many French businesses and software vendors now face the challenge of securing the services of a private PDP. Although the e-invoicing mandate’s go-live date on September 2026, initially applies only to the largest businesses, more than four million companies will have to rely on PDP-enabled accounting software to receive those transactions regardless of their size.
Take Action
Sovos was one of the first PDPs to be pre-authorized by the French tax authority and brings more than two decades of experience providing compliance technology for businesses in France. Sovos is uniquely positioned to meet the needs of companies that must now choose a reliable provider.
From managing VAT compliance to familiarising yourself with the VAT registration timelines, Alex Smith, Senior Director of Consulting Services will detail the most critical compliance challenges for companies expanding internationally.
Join Steve Sprague, Chief Product & Strategy Officer at Sovos, for an insightful discussion on how SAP customers can navigate the shift toward SAP’s Clean Core and ensure their tax compliance processes are future-ready. As governments worldwide accelerate the move toward digital tax reporting and real-time compliance mandates, businesses face new challenges in staying compliant while managing complex ERP systems.
In Italy, the insurance premium tax (IPT) code (which is being revised as of the date of this blog’s publication) and various other laws and regulations include provisions for taxes/contributions on motor hull and motor liability insurance policies.
This article covers all you need to know about this specific indirect tax in the country.
Which taxes are payable concerning motor insurance policies in Italy?
In Italy, there are four types of charges payable on motor insurance policies:
Insurance Premium Tax (IPT/RCA)
Contributions to the Solidarity for Victims of Extorsion and Usury (CONSAP)
Contributions to the Emergency Fund (EMER)
Contributions to the Road Accident Victims` Fund (RAVF)
How are the taxes calculated for motor insurance policies in Italy?
Whilst motor insurance policies can include various coverages as add-ons, this blog’s main focus is on motor hull and motor liability.
Motor Hull (Class 3)
Calculating taxes on land vehicles, i.e., motor hulls (Class 3), is simple. There is only IPT at 12.5% and CONSAP at 1%.
The taxable premium is the basis of these taxes. Both taxes are declared in the annual IPT return and payable monthly.
Motor Liability (Class 10)
The taxation of insurance policies against civil liability arising from the circulation of motor vehicles is more complex.
The IPT rate (so called Responsabilità Civile Auto or RCA tax) is determined on a provincial level. Legislative Decree 6 May 2011, No. 68 quotes that the rate of the RCA tax is equal to 12.5%. However, this can be increased or decreased by the province or metropolitan city by a maximum of 3.5%. That is why RCA tax rates are sometimes referred to as a tax with a rate ranging from 9-16%.
In Italy, there are 20 regions, each with one or more autonomous provinces or cities. To complicate matters further, the province or city can modify the tax rates within the tax year.
CONSAP does not apply on motor liability policies, however EMER is at a rate of 10.5% with an additional 2.5% required for RAVF.
RCA and EMER are declared in the annual IPT return, and payments are due monthly.
Although RAVF is also declared annually, the declaration process differs, and there is also a prepayment obligation. The actual amount of RAVF depends on the management fee set annually by the Italian insurance supervisory body (IVASS) – the percentage of which is published during November for the next year.
As previously stated, IPT/RCA regulations are undergoing major renewal (during 2024). The legislation governing the tax provisions on private insurance and life annuities (Law 29 October 1961, No. 1216) is part of the Italian Government`s tax reform initiatives.
According to the available draft legislation, the IPT law will be divided into three parts:
Minor taxes (technical aspects of this tax)
Assessment rules (procedure rules)
Penalty regulations
The government extended the deadline for enactment of the new regulation to the end of 2025.
What vehicles are exempt from tax in Italy?
There are not many exemptions available for IPT/RCA tax, nor for CONSAP, EMER and RAVF. However, cars registered in Italy to NATO Allied Force benefit from an exemption from IPT/RCA.
Every quarter, our VAT Snapshot webinar brings you the latest global e-invoicing updates to help your business meet the ever-changing demands of new and evolving mandates. In this session we’ll share updates for Estonia, Latvia, Lithuania, Poland, Slovenia, Greece, Malaysia and Saudi Arabia.
Compliance Network: E-Invoicing, E-Receipts and E-Archiving
Global Compliance for Continuous Transaction Controls
Sovos Compliance Network is complete, continuous and connected. We process over 6 billion compliant invoices per year through our Compliance Network, more than 60 times other industry providers.
A core component of our Indirect Tax Suite, Sovos Compliance Network helps you:
Effortlessly map indirect tax compliance requirements with suppliers, buyers and consumers
Ensure your transactional documents adhere to the latest local regulations
Connect seamlessly with the right government agencies and certified platforms
Distribute invoices to trading partners where required
Build the Sovos Compliance Network into every transaction
The solution provides:
B2B & B2G Transaction Compliance
The world’s first complete solution for e-invoicing compliance, including clearance, CTC and global post-audit models.
Prove integrity and authenticity with universal, compliant archiving, including compliance maps, preservation sets, timestamps and signing and validation services.
“Compliance is now inside the transaction, elevating its importance and driving businesses to look beyond just meeting a minimum threshold. Now, the goal is a global view of compliance with a single source of data that allows them to generate actionable business intelligence”
Kevin Permenter, Research Director IDC
Sovos Compliance Network
Global Coverage
Post Audit and CTC e-invoicing in 65+ countries.
Future-Proof
Comply today and enjoy the peace of mind that scalable solutions are built-in for tomorrow.
Always-on
Ensure invoices continue to flow so your business and its supply chains run smoothly.
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Minimize the need for ad hoc IT involvement and investment in compliance updates.
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Mitigate penalties and reduce your total cost of compliance by centralizing CTC compliance in one place.
Embedded in the Business Process Platforms You Use Today
Looking for more information on Compliance Network?
40% of CFOs around the world say that they do not trust the accuracy of their financial data, with their biggest issue being able to access and analyze financial data in real time.
SAP S/4HANA migration projects create an opportunity for businesses to mitigate this risk and drive transformative results.
Join us for an insightful webinar featuring Marco van der Veer, Senior Tax Technology Manager at Sovos, as he explores the critical intersection of ERP transformation and tax compliance. This session will provide you with:
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Much is being made about the introduction of SAP’s ‘Clean Core’ concept and how it will impact a business’ ability to customize its ERP to meet the unique needs of its operation. In this first blog in a series taking on the issue of Clean Core, I’d like to focus on the realities of what it is, why it’s important and the reasoning behind it.
What is SAP Clean Core?
SAP defines ‘Clean Core’ as a method of integrating and extending systems in a way that is cloud-compliant, while ensuring governance over master data and business process. In simpler terms, the move to SAP Clean Core helps protect the integrity of the SAP platform by limiting the extent of customization. And for good reason.
As a software vendor, you can’t lose control of your own code because you’re allowing so much customization and additional code to be added by your customers and or their consultants. These customizations are often intended for very specific use cases that may impact only a small number of customers. A ‘Clean Core’ architecture protects the SAP platform and its customers by limiting these excessive customizations.
The Problem with Over-Customization
When a platform becomes overly customized, SAP, the platform owner, must deploy a tremendous amount of development and support resources to ensure that they are accounting for all the changes and capturing feedback from the field.
This generally requires the platform owner to be in a perpetual state of developing hot fix code patches to repair ‘breaks’ in the system brought on by over customization. While customers would only be required to implement the code patches there were relevant to them, SAP was still on the hook for developing thousands of these patches. The cost and resources of doing so were growing exponentially, and needed to be reined in.
Benefits of Clean Core for SAP Customers
As anyone who has worked in or with IT for any period of time can attest to, the most complicated environments are ones where there is a great deal of customization. Early on in Information Technology, it was the Wild West, where based on the knowledge and experience of your architect, is how your businesses network would be constructed.
Then, thankfully, platforms and standards entered the discussion and businesses were able to construct environments that enabled them to operationalize new capabilities quickly, while simultaneously lowering costs and driving down dependencies within IT departments. The position SAP is taking here, and one that I agree with, is that clean core will be the next stage in making your environment more productive and efficient.
Implications of SAP Clean Core on Taxes
One of the most significant implications of Clean Core is in tax compliance. Clean Core opens up new possibilities for businesses to employ personalized tax technology outside of their traditional SAP environments. Rather than trying to build complex coding to tackle increasingly complex tax rules within their ERPs, they can integrate dedicated tax engines that are automated and seamlessly update to changing regulatory environments.
SAP Clean Core offers businesses the opportunity to simplify their IT environments, reduce customization, and improve system stability. The implications of Clean Core on taxes are especially promising, as businesses can now leverage specialized tax technology that integrates smoothly with their SAP systems, ensuring compliance without added complexity.
Coming Next
Stay tuned for the next part in this series, where we will dive deeper into how Clean Core impacts specific tax processes. Upcoming segments will cover:
Part IV: Clean Core benefits and business performance
Part V: Eliminating Tax’ dependency on IT
Tax authorities across Eastern Europe continue to move ahead with SAF-T adoption, with upcoming changes impacting VAT compliance requirements for businesses operating in the region.
In this exclusive webinar, you’ll get in-depth insights on:
– Romania’s SAF-T expansion: The tax authorities will expand the scope of businesses impacted by this requirement to non-established companies from January 2025
– Bulgaria’s SAF-T Introduction (2025): Learn about Bulgaria’s planned adoption of the SAF-T framework and what it means for businesses operating in the region
– Poland’s Extended SAF-T Reporting: Discover how Poland is expanding its SAF-T filing requirements and how this may affect VAT compliance and audits
Join our expert, Clementine Mayor, VAT Consultant as she unpacks the latest developments in VAT reporting across Eastern Europe. Don’t miss this opportunity to understand how these changes will shape the future of VAT audits and prepare your business for compliance.
Italy: IPT Treatment on Used Vehicle Warranty Services
On 21 May 2024, the Italian tax authority published a ruling (No. 110/2024) on the IPT treatment of warranty services provided in relation to the sale of used vehicles.
The ruling dealt with a scenario in which a company (the ‘Applicant’) provided warranty services to dealers within the same company group, with the latter offering these warranties to the purchasers of the vehicles. The Applicant also separately entered into insurance contracts with an insurance company to obtain coverage for the costs it incurred in repairing the vehicles sold when required under the terms of the warranty.
The insurance contract concluded between the Applicant and the insurance company would only be subject to IPT in Italy if the policyholder’s relevant establishment was located in Italy, in line with the location of risk rules.
More significantly, however, the ruling also addressed the warranty services provided by the Applicant to the dealers. For these, the ruling assessed that guarantees such as these do not satisfy the requirements of an insurance contract with an insurance company as the contracting party. The VAT treatment of this arrangement was outside the scope of the ruling, but it was conclusive in outlining that IPT does not apply to such an arrangement.
Comparing this ruling to the position in Germany highlights the possibility of a lack of harmonisation in this area without an EU-wide position.
Read our blog on general matters of IPT in Italy for additional information.
Germany: The Application of IPT rather than VAT to Guarantee Commitments
Following the publication of various circulars by the Federal Ministry of Finance in Germany in 2021, rules on the taxation of guarantee commitments were made effective 1 January 2023. This blog explains how this affects insurers and other suppliers.
Scope of the rules for guarantee commitments
The Ministry of Finance published its initial circular in May 2021. This was in response to a Federal Fiscal Court judgment. It concerned a seller of motor vehicles providing a guarantee to buyers beyond the vehicle’s warranty.
In these circumstances, the circular confirmed that the guarantee is not an ancillary service to vehicle delivery but is deemed to be an insurance benefit. As such, it would attract IPT instead of VAT – unless the guarantee is considered a full maintenance contract.
The circular did not prompt immediate concern within the insurance sector. Markets outside the motor vehicle industry weren’t concerned either. The presumption was that it was limited to the specific context of the motor vehicle industry.
Matters changed the following month. The Ministry of Finance clarified that the tax principles it outlined in fact applied to all industries. As a result, the scope of these rules became potentially limitless in Germany. All guarantees provided as additional products to goods or services sold are now within the scope of the application of IPT.
The clarification could impact industries like those organisations selling electrical items and household appliances.
Effect on insurers and other suppliers
The effect on traditional insurance companies should be relatively limited as they do not usually provide guarantees as part of the sales of goods and services. There could arguably be a significant impact on other suppliers that do provide such guarantees.
First and foremost, there is a potential increase in the cost of providing the guarantees caused by the application of IPT. Unlike input VAT, a supplier cannot deduct IPT from its taxable income – it must either increase prices to compensate or accept a less favourable profit margin.
Any companies that purchase the guarantees cannot reclaim the IPT either, as they can do with VAT. The standard IPT rate of 19% in Germany is high compared to most European countries. This exacerbates these issues.
There are also practical considerations to bear in mind for suppliers obliged to settle IPT with the tax authority. They are presumably required to be registered for IPT purposes like insurers, although the Ministry of Finance has not formally confirmed this.
Perhaps more difficult is the issue of licensing. The Ministry of Finance circulars focus on taxation, leaving it unclear whether other suppliers are now required to obtain a license to write insurance under German regulatory law.
Looking for more information on general IPT matters in Germany? Our German IPT page can help.
Determining and calculating IPT liabilities in various regions can be challenging.
Sovos IPT Determination is a compliance software designed to streamline Insurance Premium Tax (IPT) calculations and ensure accurate tax reporting.
In this webinar, Ramesh Sudhan, Sovos’ Director of Product and Research & Development, will guide you step-by-step through several typical processes supported by the solution.
