Update: 25 January 2024 by James Brown

Judgment in the Netherlands and Lloyd’s Position on Space Insurance

There have been a couple of key developments in the space insurance landscape in recent months from an IPT perspective.

 

The Netherlands’ judgment on space insurance

In October 2023, a District Court in the Netherlands passed judgment on its view of the compliant IPT treatment of space insurance. Whilst this only affects the Netherlands at present, it is one of the first countries to make a judgment in this context.

In the case, the insurance covered the reduced commercial book value of satellites launched into orbit. From a location of risk perspective, the court deemed that the risk resided in the Netherlands on the basis that this was the location of the establishment of the policyholder.

In light of this finding, the court considered the possible applicability of the IPT exemption that exists in the Netherlands for transport insurance. The court held that this exemption only applied to the coverage up until the point that a satellite was separated from the rocket being used to launch it into orbit. After this point, it viewed that it was no longer being transported as the in-orbit movement was incidental to the actual coverage.

 

Lloyd’s perspective on space insurance

In December 2023, Lloyd’s published its position on the treatment of space insurance, in part following its own work on the subject and in part as a response to the findings of the Dutch court. It confirmed its general agreement with the decision in the Netherlands.

More broadly, it confirmed its view that any separately apportioned insurance of the launch risk should benefit from international goods in transit IPT exemptions that may apply depending on the country. In-orbit risks will not benefit from these exemptions, however.

Nevertheless, if the risk location is a country with a more widely applicable space insurance IPT exemption (e.g. the UK), then that exemption could potentially still apply to in-orbit risks.

Although neither of these developments are legally binding across the European Economic Area, they will inevitably influence market practice.

If you have questions about your approach to the premium taxation of space insurance, speak with an expert.

 

Update: 27 October 2022 by James Brown

The Current Standing of Space Insurance

Space insurance and the application of IPT on these policies has been a talking point in recent months. The main question? Location of risk.

This blog considers the background and explores the current state of space insurance.

What does space insurance cover?

Space insurance typically provides a broad range of coverage relating to spacecraft, such as satellites and rockets, but also covers the vehicle used for launching the spacecraft.

Although not an exhaustive list, some of the classes of insurance set at European Union (EU) level that we expect to be included are:

How do you tax Space Insurance?

Given the different elements of coverage possible, it is important to tax each element appropriately.

For example, the portion of the coverage related to damage to the spacecraft itself (including fire) may result in certain parafiscal charges due on property and fire insurance in some countries.

On the other hand, the portion of the coverage relating to the transport of the spacecraft may benefit from one of the exemptions that exists in many EU jurisdictions for goods in transit insurance.

It is worth noting that the United Kingdom has an IPT exemption relating to contracts of insurance for the operation of spacecraft within certain classes of business (including those classes identified above). The scope includes the operation of the spacecraft during launch, flight, orbit or re-entry, and the operation of the launch vehicle and any business interruption cover. This does not, however, extend to risks relating to spacecraft construction.

How do you determine Location of Risk?

There may be multiple risk locations depending on the specific coverages provided on the policy.

When parts of a spacecraft are manufactured and then subsequently assembled, for example, they are considered moveable property and, as such, would be taxable in the property’s location based on EU rules, if contained in a building there.

When transporting spacecraft ahead of launch, then it would be taxable in the location of the establishment of the policyholder to which the insurance contract relates. Similarly, risks covering the launch, ongoing operation of the spacecraft once in orbit, and during the de-commissioning stage should be expected to be taxed in the same way.

From discussions within the market, we are aware that the practice has generally been to treat space policies as wholly exempt from IPT and parafiscal charges. This is rather than taking the approach to look at each element of the policy to see if they should be taxed, and if so, then how should the location of risk rules be applied to determine the correct country or countries.

Despite this practice, the market is presently rethinking its approach to taxing these policies. This is to mitigate the risk of assessments from EU tax authorities claiming for unpaid taxes. Subject to any future legal rulings affecting the market, the likely outcome is that IPT and parafiscal charges are charged as outlined unless there is a specific exemption.

Need help with space insurance?

Still trying to figure out how to approach space insurance? Get in touch with our IPT experts today.

There are several countries within the European Union (EU) and European Economic Area (EEA) that have introduced a Fire Brigade Tax (FBT). Fire Brigade Tax is payable on certain premium amounts and usually in addition to Insurance Premium Tax (IPT).

Fire Brigade Tax, or the Fire Brigade Charge (FBC) or Fire Protection Fee (FPF) as it’s known in some territories, is levied on the proportion of the premium that covers fire risks. Fire Brigade Tax is calculated on the fire premium multiplied by the applicable Fire Brigade Tax rate, which seems straightforward but, as is often the case with IPT, some countries have made this calculation quite complex.

This blog summarises the challenges around Fire Brigade Tax calculation and what to consider when calculating Fire Brigade Tax, as well as including country specific rules. For further information about country specific Fire Brigade Tax rules read our blog posts about UK, Portugal and Slovenia.

How to calculate the fire proportion

Solvency II Directive 2009/138/EC doesn’t provide a definition of fire proportion.

The following approach is the most common way to determine the fire proportion of FBT regulations (e.g. Austria).

  1. Where the insurance policy covers 100% fire risks: Fire Brigade Tax is calculated on 100% of the taxable premium
  2. Where the insurance policy covers multi-risks and the fire risk can be determined: Fire Brigade Tax is calculated on the fire premium only.
  3. Where the insurance policy covers multi-risks and the fire proportion cannot be determined: Fire Brigade Tax is calculated based on proportions dictated by the Fire Brigade Tax regulations or by a tax office guidance. Alternatively, there can be a market practice which is followed and accepted by the local tax offices or the bodies where Fire Brigade Tax is payable.

In Luxembourg the rule is as follows: where the fire and natural forces element cannot be separately identified, the 6% rate applies to 40% of the premium in case of household contents or 50% of the premium in case of non-household contents. This is based on guidance issued by the Luxembourg Tax Office.

In Belgium, the taxable premium for Security Fund for Fire and Explosion charge (Fire INAMI) is dependent on the type of risk covered. The fire proportion is determined by the Law on compulsory healthcare and compensation insurance. For example, for premiums covering terrorism risks the fire proportion is 35%, while for electricity risk it’s 10%. It‘s not possible to deviate from these dictated fire proportions.

In Austria the fire proportion rate can be determined by the insurer based on the covered risks.

An interesting example of Fire Brigade Tax calculation is Finland where the taxable basis of IPT is increased by the amount of calculated Fire Brigade Tax.

As these examples demonstrate, there are many different approaches to the Fire Brigade Tax. Insurers need to stay up-to-date with the local Fire Brigade Tax regulations to correctly calculate the Fire Brigade Tax amount.

When calculating the fire proportion, it’s important to understand that Fire Brigade Tax is not only applicable for fire risks but is due on other risks too. Understanding what risks may trigger Fire Brigade Tax liability requires familiarising ourselves in the mappings of the covered risks.

Which class of businesses or risks could be impacted by Fire Brigade Tax?

The immediate answer is Class 8, Fire and Natural Forces. According to Annex I of the Solvency II Directive Class 8, Fire and natural forces covers “All damage to or loss of property (other than property included in classes 3, 4, 5, 6 and 7) due to fire, explosion, storm, natural forces other than storm, nuclear energy, land subsidence.”

And from this definition it’s not difficult to figure out what other classes may be impacted by Fire Brigade Tax. So, these are Class 3 Land Vehicles, Class 4 Railway rolling stock, Class 5 Aircraft, Class 6 Ships, Class 7 Goods in Transit and Class 9 Other Damage to Property.

From a risks point of view, Fire Brigade Tax is usually charged on theft, hail and frost damages on top of the fire, storms or land subsidence.

Up-to date knowledge of the Fire Brigade Tax rates is required to calculate Fire Brigade Tax. Plus, you also need to know how the settlement is working, that is where to declare Fire Brigade Tax, what form should be used and the payment method etc.

Fire Brigade Tax rates

Staying up to date with Fire Brigade Tax rates is even more important. In our ever-changing world tax rates increase and decrease constantly depending on the climate and politics.

Fire Brigade Tax rates vary across the EU. In Slovenia Fire Brigade Tax rates increased from 5% to 9% as of 1 October 2022. The new rate is applicable to policies that were cashed on or after 1 October 2022.

In some countries there are no separate Fire Brigade Tax regimes as such, but if fire is covered by the premium, then the applicable Insurance Premium Tax rate is higher. Examples include France and Greece. In Greece if the premium covers fire risks a higher IPT rate of 20% is applicable.

There are countries (Iceland), where, broadly speaking, Insurance Premium Tax applies only if fire is covered.

And lastly, there are countries where separate Fire Brigade Tax regimes exist and Fire Brigade Tax is calculated on the fire proportion and the applicable Fire Brigade Tax rate is applied. Examples include Austria, Germany and Luxembourg.

The Fire Brigade Tax rates discussed so far are in territories where the taxable premium rate model is used. However, there are Fire Brigade Tax regimes using other rate models too, like the sum insured. This is the case in Liechtenstein where Fire Brigade Tax is calculated based on the value of the property.

Within the frame of this topic, it’s also worth mentioning that Fire Brigade Tax can be insurer borne, insured borne or both. In Austria for example, 4% of the Fire Brigade Tax is insured borne and is invoiced to the policyholder as an addition to the premium and the other 4% is insurer borne and is deducted from the collected premium.

Fire Brigade Tax settlement process

Completing the Fire Brigade Tax obligation requires submitting the tax declaration and paying the corresponding tax. These two processes can be referred to as settlement.

The variety of Fire Brigade Tax settlement processes is colourful. Differences exist in:

For compliant tax settlement, it’s vital that understanding and interpretation of Insurance Premium Tax regulation is up-to-date and accurate.

Need to learn more about Fire Brigade Tax regimes? Contact Sovos’ IPT expert team who are happy to help you.

Update: 27 July 2023 by Edit Buliczka

Changes to IPT registration requirements in Austria

The registration requirements for settling taxes in a country are similar  – if not the same, usually involving the central tax administration or tax authority.

This, however, is not always the case and there are exceptions. For example, due to a recent change in Austria, the registration requirements for Insurance Premium Tax (IPT) in favour of third-country insurers have been modified.

Third-country insurers can register and settle IPT liabilities directly with the Austrian Tax Office under this legislation, which takes effect on 1 January 2024. Currently, IPT payable on insurance premiums with third-country insurers must be handled by an authorised representative or the policyholder.

In Austria, IPT is levied on the collected premium and Fire Brigade Tax (FBT) may also be due if the policy includes fire risks.

The Austrian Tax Office has not changed the law that governs FBT rules. The FBT legislation is simpler than the IPT law, with no special regulations for local, EU or EEA-based or third-country insurers. The FBT Law states: “if the insurer has no domicile (seat) in a contracting state of the Agreement on the European Economic Area, but an authorised representative has been appointed to accept the insurance premium, then the latter is liable for the tax.”

There’s a possibility the FBT laws were purposefully left unaltered because the term “insurer” may be understood in a way that covers third-country insurers. As a result, third-country insurers can already register directly with the Austrian Tax Office for FBT purposes.

Interestingly, in Austria, both IPT and FBT are controlled by the Central Tax Administration – commonly referred to as the Austrian Tax Office and there is just one taxID used for both IPT and FBT.

Contact our team of experts if you have any questions concerning the Austrian IPT Registration.

 

Update: 4 October 2022 by Dawn Rowlands

Understanding the role of branches with IPT

Registering for IPT across Europe is often complex and can raise several additional questions. This is particularly pertinent if your company has branches established in different territories: can we register our head office and file a single return for all branches via this registration? What about branches operating on a freedom of service (FoS) basis? What about domestic branches? Is it mandatory or optional to register branches?

Before we dive into these questions, let’s take a closer look at why branches are useful. Some insurers prefer to have a separate IPT registration for their branches, even if it’s not a mandatory requirement of the country. It’s often an easier method of handling IPT compliance for the country, based on the reports generated from internal accounting systems. For acquisitive insurance companies who may be using legacy systems, it’s simpler to have individual branch registrations rather than consolidating all branches into a single return filed via the head office.

Can we register our head office and file a single return for all branches via this registration?

For many territories, it’s not mandatory to have branches operating as it’s possible for EU domiciled companies to register and file taxes through their head office, operating under FoS across the European Union. However, this is territory dependent and some require branch registration, as we will explain later.

Can branches operate on a Freedom of Services basis?

In addition to the registration of your head office operating on a FoS basis, it’s also possible to register branches in some territories. Each branch must also be authorised independently by the regulators in their country of domicile to operate on a FoS basis.

Is it mandatory to register branches for IPT?

In some territories such as Spain, Portugal and Italy it’s not mandatory to have a branch as taxes can be filed via a company’s head office. However, if your company does operate branches in these territories it is mandatory to be registered separately to head office. This requires companies with multiple branches to have multiple registrations, each with their own independent tax identification number. The registrations are managed separately, and a tax return is required for each of them.

Country requirements are also subject to change. For example, in Austria it was previously mandatory for branches to be registered separately to their head office. This rule changed and branch registrations are no longer permitted, with all returns being filed through the FoS head office. Any existing branch registrations had to be deregistered with the Austrian tax authorities.

Domestic branches – what are they and when is IPT registration required?

A domestic branch is a branch of a company whose headquarters are located in a different country to where the branch is domiciled, and where the registration is required. For example, your head office could be in Germany, you write insurance business liable to IPT in Italy and you have an established branch domiciled in Italy – the Italian branch will be considered as your domestic branch.

If your company has branches and wishes to register for IPT in the country where your branch is domiciled, some tax authorities insist the domestic branch has a separate registration to its head office. This applies in Hungary, Germany, Italy, Portugal, Slovakia, and Spain.

Are there different rules for domestic branches?

In some instances, domestic branches will have different tax points to those operating under FoS.

Why is this information so important?

If a branch or head office operating in the territory is operating noncompliantly, this will directly impact all parts of the business operating in the territory, and the fines will be levied accordingly.

Take Action

Want to learn more about branches and IPT registration? Speak to Sovos’ tax experts today.

Continuing our IPT prepayment series, we take a look at Italy’s requirements. In previous articles we have looked at Belgium, Austria, and Hungary.

All insurers authorised to write business under the Italian regime have a legal obligation to make an advance annual payment for the following year. Refer to this blog for a general overview for IPT in Italy.

What is the prepayment rate in Italy?

The amount of prepayment is calculated as a percentage of the total IPT and Anti-Racket contribution made in the previous year, deducting any IPT paid in respect of Motor Third-Party Liability business. The IPT prepayment rates increased from 85% for tax year 2020 to 90% for 2021 and 100% for tax year 2022 onwards.

All insurers writing non-life insurance risks in Italy need to pay 100% of their 2021 tax bill in November 2022 as a 2023 prepayment, in anticipation of their future tax liabilities. Once settled, the prepayment can be offset against IPT liabilities (excluding Motor third-party liabilities) arising from February 2023, when the January 2023 tax liabilities are due. Businesses can use excess prepayment to offset tax liabilities in the next period or offset against the next prepayment.

When is the prepayment due?

Prepayment is due by 16 November each year. No prepayment is required if the insurance company deregistered for IPT purposes prior to the prepayment deadline. Penalties and interest for late payments are strictly applied by the Italian tax authorities. They are time sensitive and calculated daily and payable alongside tax liabilities/prepayments.

How can prepayment be recovered?

Where the prepayment for the year is not fully utilised, balances can be carried forward to offset against future liabilities or used towards next year’s prepayments. If a company is no longer writing business in Italy and doesn’t expect further premiums to be received, they should formally file for a reclaim of any prepayment credits. Recovery is made through a formal reclaim and takes significant time (a few years) for the authorities to process and return the funds.

Why is Italian prepayment painful?

Although prepayment shouldn’t represent an additional cost to insurance transactions, it can pose some cash flow considerations for insurers. It’s Important to note prepayment is due on a historical basis and cannot be settled based on an estimate of future tax liabilities. The legal obligation to pay the prepayment doesn’t cease, even if the insurance company foresees termination of their insurance risks in Italy. This creates issues for insurance companies winding down their Italian exposures, starting underwriting Italian risks through EU based subsidiaries, or when closing the business.

Most UK insurers changed their company structure due to Brexit. A special application for transferring the prepayment credit needs to be made to the Italian tax authorities for mergers or portfolio transfers and a response or approval from the tax office can take significant time.

When an insurer is exiting Italy, be it due to Brexit or any other reason, being aware of their current and ongoing prepayment obligations is key to minimising unnecessary pain in the future.

Take Action

Get in touch with our tax experts today for advice on how to navigate this often confusing IPT procedure in Italy. Questions about IPT in general? Read this guide to IPT compliance.

It’s time to return to Insurance Premium Tax (IPT) prepayments – a continuation of our blog series on this important IPT topic. You can find the first entry in our blog series here.

IPT is declared and settled differently throughout Europe. Monthly, quarterly, or biannual declarations – the frequency varies across Member States – and some jurisdictions request prepayments to ensure the liabilities due from insurance companies are collected in good stead.

Hungary is one country where legislation states prepayments are required. However, the prepayment obligation is a new requirement, introduced alongside the so called ‘extra profit tax’ or supplemental IPT, which is payable on an annual basis. No prepayment is required in relation to the ‘normal’ insurance premium tax paid monthly.

What is a prepayment?

Prepayments are defined as a tax payment credit made to a tax authority before the payment is actually incurred.

This prepayment tax will be deducted to cover the tax liabilities until the total credit is used, then current liabilities must be paid by the basis applied in each “jurisdiction“.

You can learn more about IPT prepayments in our blog.

IPT prepayments in Hungary

Before the introduction of extra profit tax, or supplemental IPT, prepayment for IPT in Hungary wasn’t a requirement. The ‘normal’ IPT is paid monthly with no prepayment obligation and there is no need to submit an annual return.

In Hungary the prepayment concept is used for taxes where there is an annual declaration obligation, such as in the case of corporation tax.

Regarding IPT, the prepayment obligation was introduced with the extra profit tax regime. Extra profit tax or supplemental IPT is an annual tax. This might be the reason for the introduction of the prepayment obligation for this tax type.

Supplemental IPT prepayment is due on 30 November 2022 regarding 2022 (bi)annual supplemental IPT, while for 2023 the prepayment is due by 31 May 2023.

Based on the original concept, the basis of the prepayment for 2022 was the premium collected during the period between July 2021 and June 2022, applying the rates applicable for 2022. However, this was modified shortly after the issuance of the Government Decree of 197/2022 on extra profit taxes.

This adjustment most likely occurred as the original concept would have generated a substantial overpayment since the base period to calculate 2022 prepayment is one year and the supplemental tax is due only for the second half of 2022. According to the updated rules the basis of the 2022 prepayment remained the same but the applicable rates were changed from 2022 rates to the rates normally applicable for 2023. The 2023 rates are half of the 2022 rates, decreasing the prepayment amount by reducing the rate instead of changing the base period from one year to half year.

Regarding 2023, the calculation of the prepayment is equal to the supplemental tax paid for 2022 in January 2023.

The tax office confirmed that any overpayment regarding the extra profit tax/supplemental IPT can be offset against the ’normal’ IPT and vice versa. This is because the extra profit tax has the same tax code (number 200) and is payable to the same bank account as the IPT.

For example, if the prepayment for 2022 is higher than the 2022 extra profit tax there will be an overpayment on the 200 tax account at the end of January. This overpayment can be offset against the January 2023 IPT liabilities which are payable by 20 February 2023. Or if the insurance company has an IPT overpayment at the end of November 2022, this overpayment can be used to cover the extra profit tax/supplemental IPT prepayment obligation.

Take Action

Get in touch with our tax experts today for advice on how to navigate this often confusing IPT procedure.

In the next edition of our series of blogs in Insurance Premium Tax (IPT) prepayments, we look at a less familiar regime to many, the Austrian IPT Prepayment.

IPT prepayments in Austria

Those who are well versed in the IPT sphere will be perplexed at this blog, as they most likely will never have paid a prepayment in Austria.

This is because the prepayment is only due in the event of the November tax period being paid late. Due to the elongated deadline of Austrian IPT and Fire Brigade Tax (FBT) this rarely happens in practice. As a reminder, the tax payment in Austria must be made by the 15th day (due date) of the second consecutive month (i.e January 2022 period due 15 March 2022).

But what if the November deadline isn’t paid in full by the 15 December? A special advance payment of 1/12 of the sum of the calculated tax amounts of the last 12 tax return periods must be made. This special advance payment is credited against a subsequent self-calculation for the declaration period of November.

What about penalties in Austria?

With respect to IPT, FBT and Vehicle Insurance Tax (VIT), the rules are as follows:

Austria’s compliance requirements

Insurers should be aware that whilst tax payments are paid monthly, the return is due on an annual basis, the deadline being 30 April. The return(s) includes the tax ID, name of the insurer, tax amount on a per month basis, and the amount paid in tax for the year in question thus far.

For FBT liabilities the amount is split evenly between the insured and the insurer. So, for a risk with 100% fire portion and €100.00 premium, in addition to the €11.00 IPT amount the insured would also pay €4.00 FBT. The remaining €4.00 of FBT would be from the insurer.

From an exemptions perspective there is quite an exhaustive list in Austria. Some of which are export credit, cross-border cargo, reinsurance, and livestock (If the insured amount doesn’t exceed €3.650, as well as insurance of livestock with a small livestock insurance association).

Keeping abreast of changes in IPT compliance requirements in Austria and across the EU can be challenging. Our team of experts can guide you through the details and ensure you are on the right compliance path.

Meet the Expert is our series of blogs where we share more about the team behind our innovative software and insurance premium tax (IPT) compliance services.

As a global organisation with indirect tax experts across all regions, our dedicated team are often the first to know about regulatory changes and developments in global tax regimes, to support you in your tax compliance.

We spoke with Mai Nguyen, senior compliance services representative who explained why it’s so important for insurers to get IPT filing right and shared her top three tips for submitting IPT liabilities.

Can you tell me about your role and what it involves?

I’m a senior compliance services representative – specialising in IPT at Sovos. I joined the company over four years ago and I deal with a diverse portfolio of 30+ clients, helping them with the entire cycle of IPT submission.

My team reviews data provided by our clients, creates a summary of tax due and confirms IPT and parafiscal liabilities due for a specific period. My day-to-day tasks include approving the IPT liabilities to be declared correctly and compliantly and authorising payments to be made on behalf of our clients.

My role is to oversee the day-to-day operational management whilst ensuring all compliance requirements are met consistently. I also work closely with clients to answering their queries to ensure their IPT submissions meet the strict regulations set by global tax offices.

Could you explain the IPT filing process and why it’s important for insurers to get it right?

The IPT filing process varies from one territory to another and it’s crucial for insurers to follow it accurately and compliantly. There are many elements that need to be considered in this process:

IPT filings can be made online in Portugal, Spain, Ireland, Finland and Germany. This filing method is becoming a common trend and is likely to be introduced in other jurisdictions.

In Portugal a data file must be uploaded to a web portal which requires detailed information for each policy such as NIF number (policyholder Tax ID), postcode, country code and territoriality.

In Spain the IPT portal determines the declaration period for each transaction, tax payment or any interest payment due. The portal links the payments due directly to the bank account, meaning the payment is made by direct debit.

IPT filings can be made by post or in person. With any method, it’s important to make sure that deadlines are met to avoid unnecessary penalties.

The consequence of noncompliance is not only the penalty or interest regimes imposed by tax offices but also the indirect costs to insurers which are more significant. These can include the cost for correcting the mistake, as well as additional associate or representative costs. Noncompliance could also have an adverse impact on the insurer’s reputation.

What are your top tips for audit controls when submitting IPT liabilities?

To avoid the unnecessary consequence of noncompliance when submitting IPT liabilities, here are my three top tips:

How can Sovos help insurers with their IPT compliance?

It can be very challenging for insurers to ensure that IPT is declared accurately and compliantly while adhering to the latest rules and regulations. Here at Sovos, our dedicated IPT Compliance Services team is equipped with in-depth expertise and the most up-to-date changes to help insurers meet all IPT requirements to make submissions efficient and compliant.

All IPT compliance information can be found through Sovos’ blogs, webinars, tax alerts, LinkedIn, Twitter and newsletters.

Take Action

Have questions about IPT compliance? Speak to our tax experts or download our e-book, Indirect Tax Rules for Insurance Across the World.

It’s time to return to Insurance Premium Tax (IPT) prepayments – a continuation of our blog series on this important IPT topic. You can find the first entry in our blog series here.

Throughout Europe’s different countries and jurisdictions, IPT is declared and settled in different ways. Monthly, quarterly, biannually – this varies across Member States – and some jurisdictions request prepayments to ensure the liabilities due from insurance companies are collected in good stead.

Belgium is one country that states within its legislation that IPT prepayments are required.

What is a prepayment?

You can learn more about IPT prepayments in this blog however for those who missed our coverage on the topic, prepayments can be defined as a tax payment credit made to a tax authority before the payment is actually incurred.

This prepayment tax will be deducted to cover the tax liabilities until the total credit is used up and then current liabilities must be paid by the basis applied in each jurisdiction.

IPT prepayments in Belgium

Each jurisdiction uses a different method to apply prepayments and we explain how this is legislated in Belgium.

The prepayment is due no later than 15 December each year. The tax base for the prepayment will be the amount paid in November of the current year, that is based on the tax liabilities of the October period.

It’s important to follow the state on the Belgium tax law in order to pay and submit the return within the deadline because when the tax hasn’t been paid within the deadlines set out previously, penalties will automatically be due to the Belgium tax authority from the day the payment should have been made.

The previous prepayment will be deducted during the next tax period (December, January, February and March) correspondingly submitted in January, February, March and April.

Unused prepayments

What happens if an insurance company paid the prepayment but during the three first months, the insurance company has not used that credit, perhaps because no policies were subscribed and therefore no submission or payment was due?

In these cases, the entire, or part of the prepayment is still pending to be deducted and a formal reclaim should be requested to the tax authority in order to obtain the unused prepayment.

Although this appears to be a simple process, not following the rules or not processing the returns, payments, or refunds within the correct deadlines can see the insurance company receive penalties or obtaining the refund for the unused prepayment could be prevented.

Take Action

Speak to our team today for advice on how to navigate this often confusing tax procedure.

The Dutch government issued an updated Policy Statement for Insurance Premium Tax (IPT) on 12 May 2022. The first of its kind since February 2017, the update is intended to replace the 2017 version in full. While the majority of the content remained consistent, there were notable details pertaining to Netherlands storage insurance and ‘own transport’ insurance. These changes will be effective from 13 May 2023.

Storage insurance in the Netherlands

The change extends the scope of storage insurance that can still be regarded as goods in transit insurance, increasing from storage of up to one month to three months. It may even be possible to show goods in transit insurance applies for storage greater than three months, but the onus is on the insurer to prove an absolutely necessary connection between storage and transport.

It’s general market practice in the EU to consider storage of up to 60 days as being part of the goods in transit coverage, making the Dutch approach more flexible in this regard. Any goods stored beyond the 60 days are treated as a property risk, taxable where the goods are located and not where the policyholder has their establishment.

It’s useful to consider this change from the perspective of both IPT rate application and location of risk. In terms of the former, the IPT exemption applicable to all goods in transit insurance in the Netherlands widens this exemption to policies involving longer periods of storage.

Regarding location of risk, the relevant provisions in EU Directive 2009/138/EC determine that in the case of goods in commercial transit risks, the risk location (and therefore the country entitled to levy IPT and/or associated levies) is the policyholder’s establishment to which the contract relates. Where storage insurance does not constitute goods in commercial transit, the risk location is the location of the property itself.

As a result, goods stored in the Netherlands for more than three months as part of a transport policy will generally be taxable there, even where the policyholder’s establishment is elsewhere. Whereas goods stored in the Netherlands for less than three months will not be taxable in the country (unless the policyholder’s establishment is also in the Netherlands).

‘Own Transport’ insurance

The other key takeaway from the Policy Statement was on the subject of ‘own transport’. This is defined as transport ‘where no transport company is contracted, but commercial transport is involved’, confirming the exemption for transport insurance is equally applicable to scenarios where companies arrange for the transportation of commercial goods for their own benefit. As such, the exemption is not restricted to third-party contractors utilised for the transport.

The Policy Statement also states the exemption applies to:

However, the exemption does not apply to insurance of own goods which, although transported are not for the sole purpose of transferring it to another place of destination. This could include the tools of a contractor that are stored in his delivery van.

Is further change possible?

The changes outlined above are relatively minor given they relate solely to goods in transit business. One more fundamental change that had been mooted as a possibility was for the Netherlands to introduce stricter rules on the application of IPT to non-EEA risks, as we saw in Germany at the end of 2020.

The scope of the changes in Germany caused considerable confusion in the market at the time so it’s possible the Dutch government has put any potential plans on hold for now. This will be an interesting issue to monitor as countries seek out alternative ways to generate tax income.

Take Action

Want to understand more about how these changes affect your business? Get in touch with our team of experts to see how Sovos can help ease your IPT compliance burden.

There are some countries across Europe where declaring and settling insurance premium tax (IPT) and parafiscal charges on time is not enough to prevent late payment penalties. You may ask why. Or you may say it’s unfair. The answer is simple.

Some European countries collect insurance premium tax and parafiscal charges or part of them in advance before they become due for payment. We call these prepayments, advance payments or provisional payments. And missing the deadline for the prepayment can be penalised by the tax offices.

This blog will give you an overview of how prepayment regimes work. At the end of this blog, we’ll list the countries where prepayment rules are in place without detailed requirements. In later blog posts, we will discuss the detailed prepayment rules in these countries in depth.

How do IPT prepayments work?

Prepayment or advance payment in the taxation world is a payment that is paid before the tax is due. Therefore, when a prepayment is paid, it’s unknown how much the actual tax will be.

There are various prepayment tax calculation methods. In IPT, the most common calculation is when the prepayment amount is based on the tax amount paid for the previous reporting period. Either the same tax amount or maybe a certain percentage of this tax is required to be paid in advance. However, there are other methods used.

For example, in Poland, there is a quarterly prepayment obligation. The prepayment amount is based on the premium amounts collected in the current quarter. Another example is in Austria, where there is a unique prepayment approach. According to the regulation, you can opt not to pay the prepayment if you pay the IPT liabilities for the November period one month earlier than the standard deadline, so not by 15 January but on or before 15 December instead.

There are similarities in the legislation on how the amount of the prepayment is considered in the final tax due. In most cases, insurers can offset the prepaid tax amount against the future period`s tax obligation. But there are differences in the “how”.

For example, in Belgium, the prepayment made in December can be offset against the December liability. Also, in January and February (the Belgian Tax Offices recently added these two months), periods’ liabilities and the remaining should be reclaimed. In Italy, the prepayment made in November can be fully offset against the next year’s IPT liabilities and against the following tax years’ liabilities until it is used up entirely. Alternatively, insurers can also reclaim it from the Italian tax authority.

If we take a closer look at the calculation of the prepayment, we can conclude that it’s usually based on the tax amount of the same tax type. However, in Italy, the basis of the IPT prepayment isn’t only the paid IPT but also what has been paid for the 1% Consap parafiscal charge.

When do IPT prepayments need to be made?

The due dates to pay prepayments vary across Europe. Some due dates fall at the end of the year, such as Austrian IPT and the Italian IPT. However, for the Italian Hunting Accident Victims’ Fund (HAVF) and Road Accident Victims’ Fund (RAVF) and the Spanish Fire Brigade Tax (FBT), the advance payment is due in January. The advance payment for the Hungarian supplemental IPT is due in November and May. On the other hand, the prepayment is due every quarter regarding the Polish Ombudsman fee.

Where do IPT prepayment regimes exist in insurance taxation?

Without pursuing completeness, here is a list of the prepayment regimes across the EU:

Take Action

Contact our team of experts today for help with IPT compliance or download our e-book Indirect Tax Rules for Insurance Across the World.

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 are often the first to know about regulatory changes and developments in global tax regimes, to support you in your tax compliance.

We spoke with Hector Fernandez, principal compliance tax services representative, who explained the complexities surrounding Spanish insurance premium tax (IPT) and how Sovos helps insurers operating in Spain.

Can you tell me about your role and what it involves?

I’m a principal compliance tax services representative at Sovos. As part of my role I work with the different teams helping them with the tax requirements of different tax authorities.

I also work with clients with IPT requirements in Spain, helping them with the many elements of tax compliance.

Ensuring compliance with Spain’s IPT reporting requirements is especially complex, why is this the case?

As mentioned in previous blogs about Spanish IPT, Spain has one of the most complex monthly and annual IPT reporting procedures. It’s challenging due to many factors such as multiple IPT tax authorities (national and provinces), additional entities to deal with including the Fire Brigade Tax (FBT) and the surcharges that must be paid to the Consorcio de Compensación de Seguro (CCS) or other bodies like Spanish Motor Insurers Bureau (OFESAUTO).

Modelo 480 – IPT Form:

In Spain, five tax authorities charge IPT: the National Tax Authority (AEAT) and four provinces (Alava, Guipuzcoa, Navarra and Vizcaya). They are responsible for the policies in those territories. The Modelo 480 contains the same information for different tax authorities, but the formats and requirements can vary.

The annual submission coincides with the December monthly period, which means that it occurs at the same time as submitting the last monthly submission of the year and the annual report.

The Modelo 480 is a yearly overview form submitted by insurance entities that summarise monthly returns and payments. Insurers must include exempt premiums written during the year on this form because this information is not included in the monthly returns.

The data provided in this summary form will be broken down by class of business and monthly payment. While this form is purely informative, it’s vital since it helps tax authorities to find any mistakes, inconsistencies or fraud that could have been committed in the monthly submissions.

Fire Brigade Charge:

There is a compulsory annual return for those entities that subscribe to Fire and Multi-risk policies in Spain (Class 8 & 9). The report is submitted through a specific portal provided by CCS. Insurers must submit the return before the last day of April.

In this report, the different Fire or Multi-risk policies must be declared and broken down by the postcode where the risk is located and include the taxable premium of each policy.

CCS will share this information with the local bodies with competencies to calculate and charge the Fire Brigade in Spain, including councils and provincial councils or the body that helps the insurance companies to deal with this surcharge such as GESTORA (Gestora de Conciertos para la Contribución a los Servicios de Extinción de Incendios).

Green Card:

Those insurance companies that provide car insurance must deal with the Green card surcharge paid to OFESAUTO, the body in charge of this surcharge. Companies must provide the number of car insurance policies issued during the year, and the body will issue the invoice.

How can Sovos help with these reports?

Spanish IPT complexity is based on the timing and the high amount of data that insurers must take into account to provide accurate data to the tax authority. It’s important to have software that can compile and process vast amounts of data in an accurate way.

Sovos’ team of IPT experts can help ease the burden of Spanish IPT compliance, through our managed services or consultancy offering as well as our IPT determination software.

Take Action

Still have questions about Spanish IPT? Sovos can help. Contact our team of experts today or watch our webinar on The Complexity of Insurance Premium Tax in Spain.

An increasing insurance premium tax (IPT) trend is using transactional level information in various returns and reports. Preparation and education are key to ensuring details are being captured on an ongoing basis rather than at the last moment. Furthermore, in some cases where legacy systems are being utilised and don’t have the capability to capture all required fields, a software update may be required. All relevant parties in the data supply chain should educate themselves on the importance of collecting the details to avoid the often painstaking and time-consuming exercise of going back to the policyholder to collect the required information.

Many businesses initiated this trend because of the changes to the Consorcio de Compensación de Seguros (CCS) reporting system in 2019. However, this is not always the case as some countries have had transactional submission in place for some time. Two such examples would be Cyprus and Malta. For the former, Policy Number, Class of Business, Inception/Expiry Date, Premium and Tax Amount are required per policy. The same fields are required for the latter bar Inception/Expiry Dates. We rarely experience any difficulties for insurers collecting this information, as these are common fields often being collected at the source.

Italian transactional trends

Whilst this may surprise some, Italy is another country where transactional level information is required to be recorded. The main difference here is that these details aren’t required for ongoing tax submissions but rather in the form of IPT books which must be regularly maintained and contain the transactional information for the preceding ten years. You can find more about the required details here.

The IPT books are mandatory for successful prepayment transfer following a Part VII portfolio transfer, general prepayment reclaims and historicals. Transactional details are also required for the Claims Report and Contract & Premium Report.

Spanish transactional trends

The changes in CCS submission brought the trend of transactional submission to the forefront of insurers’ thinking. A mandatory field for successful submission is the postcode, which many insurers weren’t capturing at the time. To help insurers with this change, there was a six-month transitional period where insurers could submit policies without the postcode. However, this field then became mandatory and the requirement was that the preceding six months of reports would need updating.

Greek transactional trends

The introduction of the Greek Annual Report in 2019 brought another layer of complexity for insurers. The main issue was the requirement for the VAT/tax registration number to be populated. Where it was impossible to collect, insurers sometimes opted to submit incomplete reports. To date, we haven’t experienced pushback from the tax authority for omitting this detail, but we cannot guarantee this will continue to be the case.

Portuguese transactional trends

The most recent change has been to Portuguese Stamp Duty submissions. This change brought elements of the Greek Annual Report and the CCS changes together, in the sense that the geographical area required population (Azores, Madeira, Mainland) and the tax ID of the policyholder were required. Unlike in Greece, there was no option of submitting incomplete reports; if all necessary details were not populated, the insurer couldn’t pay the tax.

The trend towards transaction reporting will increase

The above list is by no means exhaustive but gives a good idea of the exponential complexity facing insurers for ongoing compliance. Simply put, the insurer must have agile systems to deal with any potential changes. We believe that more countries will implement transactional reports in the coming years, so it would be prudent to set up certain controls now to help prepare and ease the burden later.

As the world of IPT compliance is so fragmented across territories, keeping abreast of changes in reporting requirements can be challenging. Our team of experts can guide you through the details and ensure you’re on the right compliance path.

Take Action

Need help ensuring your IPT compliance? Get in touch with Sovos’ team of experts to discover the benefits of a managed service provider.

A parafiscal tax is a levy on a service or a product which a government charges for a specific purpose. It can be used to financially benefit a particular sector (public and private).

Unlike the drastic changes in Stamp Duty reporting within the Portuguese region, the parafiscal taxes have remained consistent and unchanged for many years. Sovos helps customers report the central parafiscal taxes within the region:

The reporting of these taxes is varied and comprehensive which can become confusing for businesses unfamiliar with the requirements. The parafiscal charges, more notably INEM and ANPC, are reported on a monthly declaration structure, whilst PR and FGA are reported on a quarterly structure, and ASF is reported on a half-yearly basis.

ANPC and INEM: monthly reporting

The ANPC and INEM are reported quarterly, and premiums concerning the Azores, Continent (mainland Portugal), and Madeira must be split. This should be identified by the insurer and declared to the corresponding tax authorities.

The tax ANPC (also known as the National Authority for Civil Protection Contribution) can be applied in classes 3 – 13 and is commonly applied at 13% of the fire risk premium. However, this rate is not consistent for all classes of business and can fluctuate accordingly.

Moreover, the tax INEM (also known as the National Institute of Medical Emergency Contribution) can be applied to classes 1, 2, 3, 10 and 18 and at 2.5% of the taxable premium. The rate of 2.5% is consistent between all classes of business and reported on the compliant tax point with Portugal, which is the cash received date (much like ANPC, FGA, PR and ASF). Finally, an annual report for INEM needs to be reported directly to the tax authorities, confirming the total liabilities due throughout the fiscal year.

FGA and PR: quarterly reporting

The reporting of FGA and PR is completed quarterly and submitted on two separate returns. The tax PR is reported at 0.21% of the premium (relating to motor insurance) for classes of business 1, 3 and 10; whilst an FGA rate of 2.5% of the premium (relating to Compulsory Third Party Liability) is only applicable to class 10.

ASF: half yearly reporting

The ASF tax is applied at a tax rate of 0.242% of the taxable premium and is calculated on all classes of business. The rate of 0.242% is confirmed annually by ministerial order within Portugal. So, the tax authority can effectively change the rate annually. It’s also important to mention that a separate rate of 0.048% applies to life insurance and is included within this return.

Take Action

Need to ensure your business is fully compliant with the ever-changing IPT requirements in Portugal? Get in touch with Sovos’ tax experts.

Update: 26 January 2023 by Edit Buliczka

Hungary: Return template for 2023 published

The Hungarian Tax Office (HUTA) released the 2023 insurance premium tax (IPT) return template last month.

According to the government decree of 465/2017, return templates must be made available at least 30 days before the due date. The first IPT return of the year is due by 20 February 2023, pertaining to the monthly IPT liabilities for January 2023.

The new IPT return template replicates the template from 2022, though the code, rates and scales for 2023 extra profit tax (EPTIPT) are different.

Coding of the tax returns in Hungary are usually formatted so that the first two digits indicate the tax year – in this case, 23 for 2023 – and the remaining digits, which are typically numbers, specify the type of tax. IPT and EPTIPT fall under the same tax code of 20. Therefore, the IPT/EPTIPT return code for 2023 is 2320.

Based on advice obtained from HUTA, it was confirmed to Sovos that the return template will not refer to the declared EPTIPT prepayment. Instead, the difference between the final EPTIPT liability and the declared EPTIPT prepayment will be recorded as an additional debt or overpayment on the HUTA tax account. As a result, insurers must manually calculate the payable EPTIPT and make their payments accordingly.

Download our free IPT compliance eBook for additional information or read our guide to Insurance Premium Tax.

 

Update: 30 December 2022 by Edit Buliczka

Hungary: Increased insurance Extra Profit Tax 2023 rates

It’s been less than a month since the Hungarian Tax Office (HUTA) published instructions for insurance premium tax (IPT) for 2023 and the rules have already been amended.

The amendment is in line with the recently issued government decree (No. 582/2022) published on 24 December 2022. This alters the tax rates for 2023.

The update affects the final scale (premium collected in 2023 exceeding 36 billion Hungarian Forints) in relation to non-life and life insurance premiums.

The rates for premium amounts collected from non-life policies climbed from 7% to 12%. Rates for premium amounts collected from life policies grew from 3% to 5%.

Need more information about Hungary’s Extra Profit Tax? Speak with our Insurance Premium Tax experts.

 

Update: 15 December 2022 by Edit Buliczka

Hungarian Tax Office publishes extra profit tax and prepayment rules for 2023

On 29 November 2022 the Hungarian Tax Office (HUTA) published instructions for the insurance premium tax (IPT) rules applicable for 2023 liabilities. This guidance includes the rules for extra profit tax and extra profit tax prepayment payable for 2023.

The information provided for 2022, including the section about the overpayment of the extra profit tax prepayment, is essentially repeated in this guidance. It states that reclaims are possible for any overpaid prepayment. The question is how? Even if the HUTA hasn’t released the referenced 2320 declaration form yet, if the 2320-04 additional profit tax settlement page of the return doesn’t change, the oddity we highlighted in our earlier update on 14 November  2022 still exists. The anomaly is: Is the entire declared extra profit tax payable again? Can we deduct the prepayment that was previously made? If yes, how?

Another notable piece of information in the new guidance is the date of the extra profit declaration for 2023. It states that the due date is 30 January 2024. This date is 31 January 2024 according to the government decree.

We are hoping these anomalies will be cleared before the extra profit tax for 2022 is due, that is by 31 January 2023. We are going to update this blog once new information is available.

Read our IPT compliance guide for further information.

 

Update: 15 November 2022 by Edit Buliczka

Hungary: anomalies around insurance premium extra profit tax

On 2 November 2022 the Hungarian Tax Office (HUTA) published the declaration form for settling the insurance premium extra profit tax or supplemental insurance premium tax (EPTIPT) prepayment and the extra profit tax.

In this update we will be discussing anomalies around the declaration form’s publish date, its content, and its guidance.

Facts about insurance premium extra profit tax in Hungary:

The publish date of the extra profit tax declaration form

1. In its guidance issued to Sovos, HUTA confirmed that if an insurance company with Hungarian tax registration terminates its taxable activity in Hungary, deregistering between July 2022 and the issuance of the declaration form, the company is liable to declare its extra profit tax liabilities at the date of the deregistration. HUTA adds that since the Decree determined a final settlement deadline of 30 November for extra profit tax prepayment and 31 January 2023 for extra profit tax, the deregistering insurer can and should fulfil its obligation before these final deadlines. The compliant approach for the date of deregistration in Hungary is 15 days following the termination of the activity.

Anomaly: How it is possible to settle extra profit tax liabilities and submit a declaration (online submission is compulsory in Hungary), for example on 15 September, if the declaration form has not been published by that date?

 

2. According to a government decree (No. 465/2017 on the detailed rules of tax administration) the declaration forms should be published at least 30 days before the tax due dates unless there were adjustments in the regulation during this period.

Anomaly: Although both 31 October and 1 November were public holidays in Hungary in 2022, the phrase “at least” suggests the form was published before the public holidays, leaving more than 30 days for taxpayers to prepare rather than less.

Extra profit tax declaration form and guidance

1. Separate sheets were created in the declaration form for ‘normal’ or monthly insurance premium tax (IPT), the insurance premium extra profit tax prepayment and the insurance premium extra profit tax. The sheet for the settlement of extra profit tax does not include a line to deduct the amount of the prepayment.

In the guidance issued by HUTA to Sovos, it states that as the monthly insurance premium tax, the extra profit tax prepayment and the extra profit tax have the same tax code (No. 200), all payments can be automatically offset against each other.

Anomalies:

2. Based on the guidance and as per the declaration form, corrective/substitute return should be submitted in relation to ‘normal’ IPT, extra profit tax prepayment and extra profit tax if the amount of these liabilities appears to be incorrect following the submission of the return.

Anomalies

The above anomalies are just examples around the extra profit tax prepayment and extra profit tax declaration. Sovos submitted queries to HUTA to clarify these anomalies. We predict some of these anomalies will be clarified soon with the issue of an adjusted declaration form and an amended guidance.

Still have questions about Hungary’s extra profit tax? Get in touch with our Insurance Premium Tax experts.

 

Update: 11 July 2022 by Edit Buliczka

As of 1 July 2022, Hungary introduced an Extra Profit Tax scheme, which levies supplemental Insurance Premium Tax (IPT) on insurance premiums. The introduction of the Extra Profit Tax scheme is a temporary measure and aims to cover the increased governmental costs caused by the conflict in Ukraine. The Extra Profit Tax scheme is applicable not only for the insurance sector but also for other sectors, including airlines, medical, energy, telecommunications and banking.

The following blog gives an overview of this tax, highlighting some interesting features and anomalies around this tax.

What is Hungary’s Supplemental IPT?

On 4 June 2022, a Government Decree was published in the Hungarian Official Gazette, numbered 197/2022, with the title “About Extra Profit Taxes”. One may wonder why a government decree regulates a new tax method. To answer this question, we need to research and read the Hungarian Constitution and another law about special measurements in case of catastrophes. Adding two new sections to the mentioned law on 25 May 2022 made it possible for the government to introduce the Extra Profit Taxes in a government decree instead of adjusting the relevant laws. The Extra Profit Tax scheme includes the Supplemental IPT. Although the Government Decree refers to particular tax laws, such as the 102/2012 IPT Law, the Extra Profit Tax regulations are not and will not be built into these tax laws.

Overview of the Supplemental IPT

Supplemental IPT is a temporary tax effective as of 1 July 2022 for 18 months and will end on 31 December 2023. This tax is due on non-life and life insurance policies written by both Freedom of Establishment and Freedom of Services insurers. A similar sliding scale system on the income collected is applicable for this new supplemental IPT as it is for the existing IPT. The scales for 2022 are as follows:

  1. Under 1 billion Hungarian Forint (HUF)
  2. Over 1 billion and below 18 billion HUF
  3. Over 18 billion HUF

While for 2023, the scales are the following:

  1. Under 2 billion HUF
  2. Over 2 billion and below 36 billion HUF
  3. Over 36 billion HUF

The rates vary depending on when the taxpayer collected the premium and the type of insurance policies. In 2022 the rates are higher for non-life and life insurance policies than in 2023, also noting that the life rates are half of those applied to non-life policies. For further details about the rates, please read our tax alert, Hungary: Supplemental IPT Introduced Due to Ukraine Conflict.

The declaration and the payment are due by 31 January 2023 and 31 January 2024, respectively. There is also a prepayment obligation for both years with due dates of 30 November 2022 and 31 May 2023. For further details about the prepayment, please also refer to the abovementioned tax alert.

Interesting features about the Supplemental IPT

The introduction of this tax is one of the features which is unique in taxation. In Hungary, in normal circumstances, taxes are introduced, or the existing taxes are modified via laws. Generally, tax laws should be published at least 30 days before they come into effect. In the case of the Extra Profit Tax scheme, the legislative body fulfilled none of the above.

Another interesting feature to mention is that although it is called supplemental insurance premium tax, it is also due on life insurance policies. In Hungary, there is no existing insurance premium tax on life policies as these policies are exempt.

No prepayment is due for the existing IPT, but prepayment is due to be paid for the supplemental IPT.

Supplemental IPT is a type of Extra Profit Tax, but it seems that there is no separate tax code given to it. The Supplemental IPT should be declared on the IPT declaration form and paid to the same Hungarian Tax Office account as the existing IPT.

Anomalies and open questions around Supplemental IPT

The base period to calculate 2022 prepayment is one year, although the supplemental tax is due only for the second half of 2022. On the other hand, the prepayment for the whole 2023 year is equal to the amount of the half-yearly 2022 supplemental tax. As such, insurance companies will likely overpay the tax with the 2022 prepayment. This overpaid tax will then need to be reclaimed or can be offset against the existing IPT or used for the 2023 prepayment or 2023 supplemental IPT. Is it for purpose or just a mistake and it will be amended?

In the guidance issued by the Hungarian Tax Office on 1 July 2022 on supplemental insurance tax rules for 2022, the tax authority mentioned that taxpayers should declare the supplemental tax on the standard IPT tax declaration form, 2220. However, the tax authority did not update the form by 1 July 2022. As the due date of the prepayment and the supplemental tax differ from that of the existing IPT, there is still an open question of how the form will look to make the distinction between the existing IPT, the prepayment and the supplemental tax. Hopefully, a new return template will be published soon to answer these questions.

As explained above, there is still ambiguity and questions around this new tax. Sovos is dedicated to keeping our clients up to date and informing you as soon as the clarified information is available. Please contact our dedicated IPT compliance team if you have any questions.

Take Action

Still have questions about Insurance Premium Tax? Download our IPT Guide, written by our team of IPT experts.

The complexities of Spain’s insurance premium tax regulations can be daunting for anyone responsible for IPT reporting and compliance for this country.

Apart from the different tax authorities involved with Spanish IPT reporting and various submission processes, there are also many different declarations that tax compliance teams must be aware of.

Here we’ll look at some of the more challenging aspects of IPT reporting.

What is a Modelo 480 form?

Although the Spanish tax authorities receive declarations monthly for insurance premium tax they also require an annual declaration. The annual declaration form is referred to as a Modelo 480. This form contains a monthly summary of information by class of business and a section to provide exempt premiums. Modelo 480 is also due to the four tax authorities for the Basque region provinces, which are different formats but contain the same information. The deadline remains in January alongside the December declarations.

What is the Modelo 50?

Most of the insurance classes include a charge for the Fund for Winding up of Insurers (or the Modelo 50) even if the policy is exempt from IPT. The Modelo 480 acts as another form of review by the Spanish authorities to ensure they receive the correct amount of tax. They can cross reference the premium amount declared for the Fund for Winding up of Insurers against the premium reported on Modelo 480.

Spain’s Fire Bridge Charge

Another of the more notorious annual reports is the Fire Brigade Charge. The Fire Brigade Charge report can take around four years to complete one tax period. With prepayments and adjustments, incorrect submissions can take equally as long to fix. Reports require careful attention to detail as taxpayers cannot make corrections after submission.

Historically, an insurer could apply either a 2.5% for a multi-risk policy or a 5% rate for pure fire and be confident that the total requested by the tax authority would be around that number. More recently, this is no longer the case with the change in economic climates and more instances where the claims are higher.

How to comply with Spain’s Fire Brigade Charge reporting

The process begins with a report concerning Property and Fire policies written in the previous year. At the beginning of the following year, the taxpayer makes a prepayment based on that report. The year after, the taxpayer submits a report with the actual premiums written during the previous year. Finally, in the fourth year, the difference between the prepayment and actual premiums written is confirmed and adjusted should there be any discrepancies. Simply put, the 2022 Fire Brigade tax period will be closed in 2026!

Modelo 0-6 becomes obsolete

Another of the more complicated annual reports was the Modelo 0-6, which became obsolete with the introduction of the new reporting system. This report focused on the Extraordinary Risk taxes due on Property Damage, Fire, Business Interruption and Accident. The new system allows real-time information to be accessed should a claim against a policy be made.

Take Action

Still have questions about IPT in Spain? Get in touch with Sovos’ team of IPT experts or watch our webinar on The Complexity of Insurance Premium Tax in Spain.

Identifying the location of risk for Insurance Premium Tax (IPT) purposes is the first step to ensuring IPT compliance in a given territory. This area perhaps isn’t as straightforward as it first seems for marine insurance.

As with the location of risk rules for all classes of insurance in Europe, the starting point for marine insurance is the Solvency II Directive (2009/138/EC), in particular Article 13(13). Article 13(13)(b) refers to ‘vehicles of any type’, which is generally understood to include not just motor vehicles but also ships, yachts and aircraft within its scope. Based on this, the location of risk for marine insurance is identified by the ‘Member State of registration’. As this phrase is not defined in the Directive, there has been some confusion about what ‘registration’ refers to in this context. This is illustrated nicely by a case heard in the European Court of Justice (ECJ) in April last year.

North of England P&I Association v German Federal Central Tax Office (C-786/19)

This case involved insurance contracts with companies established in Germany and entered into the register of companies held by the District Court in Hamburg. The owners entered the vessels into the shipping register maintained by the same court in Germany. The case arose because the vessels were temporarily authorised to fly the national flags of Malta and Liberia. The German tax authority argued that German IPT was due on these contracts because the vessels remained on the German shipping register throughout the flagging out period.

In contrast, the insurer contested that the risk location should be determined by the Member State that certified that the ship is fit for use and whose flag the ship flies. Malta treats marine insurance as exempt from its Stamp Duty regime, so if the insurer was successful with its argument, then no taxes on its insurance premiums would be due in the European Union.

The ECJ held that the location of risk was in Germany despite the temporary flagging out of the vessels. This decision was because the vessels remained on the Hamburg District Court’s register, which had the primary function of proving ownership. As the owner has the primary interest in insuring the vessel to protect their financial interest in it, the register evidencing ownership was key.

What next for the marine insurance location of risk rules?

It is worth highlighting that it is unclear how much weight should be placed on this case. This is for a couple of reasons. Firstly, the Ordinance for the implementation of the relevant German legislation refers specifically to ‘shipping registers kept by the local courts’ as being determinative, which differs from the position of other territories. Additionally, a significant issue not addressed by the case is what happens when a Member State doesn’t have a shipping register.

We at Sovos haven’t seen a major shift in the approach taken by insurers since the judgment, meaning in many instances that the ship’s flag is continuing to be seen as pertinent by the market. It will be interesting how the ECJ deals with similar future cases.

We’re happy to help any insurers writing business in Europe that have questions about the location of risk rules, whether concerning marine insurance or any other insurance to ensure taxes are correctly declared.

Take Action

Contact Sovos’ team of experts for help complying with marine location of risk rules or download our Location of Risk Rules for IPT eBook for more information.

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 are often the first to know about regulatory changes and developments in global tax regimes, to support you in your tax compliance.

We spoke with Manisha Patel, senior compliance services representative – Insurance Premium Tax (IPT), about their role, how they support Sovos clients and their top compliance tips for captives.

Can you tell me about your role and what it involves?

I’m a senior compliance services representative – IPT at Sovos. I joined the company over five years ago.

My role at Sovos is multi-faceted. My primary responsibility is to oversee IPT compliance for an extensive portfolio of clients, specifically within the captives practice.

I help ensure that all clients’ tax requirements are met, including checking and signing off tax returns and ensuring that correct payments are made to relevant tax authorities within specified statutory deadlines. Additionally, I help advise clients on more complex or urgent queries that have been escalated within the team.

What is a P&I Club?

A P&I Club is a non-profit cooperative association of marine insurance providers that provides P&I insurance to all its member companies. A P&I Club covers a broad range of liabilities, including loss of life, personal injury, cargo loss or damage, pollution via hazardous substances, wreck removal, collision and property damage.

These clubs offer ship owners the highest limits and broadest ranges of coverage. Through their participation in a P&I Club, the member clubs share claims above an individual’s retention via a pooling structure. Pooling together allows members to provide the insurance

cover needed by ship owners and their ships to trade while meeting compulsory insurance and financial security requirements.

What are your tips for captives to ensure IPT compliance?

Increasing numbers of global tax authorities are switching to digital submissions and, in some cases, require more detailed information to complete these submissions.

My tip for captives would be to invest time learning about these ever-changing requirements for your relevant territories and organise yourself in a way that you can easily and readily have the information you need to hand. This will reduce your business’s risk of errors and non-compliance when settling IPT.

What are the most common ways Sovos helps captives?

Sovos’ Captives Team caters to the specific needs of captive insurers. Our team can review any program a client may have before the program’s renewal, where we can assist with premium tax calculations, validate applicable country tax rates and prepare payment summaries. Due to limited in-house expertise, we recognise that sometimes additional guidance is needed.

Our IPT Managed Services Team offers a vast amount of knowledge, providing the expertise to our Captive clients through webinars, tax alerts and newsletters to boost their confidence with tax filing and reporting. Additionally, our Consultancy Team can assist with any further queries.

Take Action

Have questions about IPT compliance? Speak to our experts or download our e-book, Indirect Tax Rules for Insurance Across the World.

Insurance Premium Tax in Italy is complex. This blog helps insurers navigate challenges in Italy, from IPT rates to reporting requirements. You can find all recent updates on IPT in Italy below in the update section.

Read our Insurance Premium Tax guide for an overview of IPT in general.

Update: 1 September 2023 by Edit Buliczka

Italian Tax Reform

The Italian Tax Reform Bill went into effect on 29 August 2023. The bill was adopted by the Italian Parliament on 9 August and published in the Italian official gazette on 14 August.

Only the general principles of the execution of the tax reform were laid down in this bill; no specifics or changes to existing tax legislation were made. On the other hand, the bill includes information about the timeline for these changes, stating: “The Government is delegated to issue, within twenty-four months from the date of entry into force of this law, … one or more legislative decrees that revise the tax system.

Among other key taxes, such as VAT and the Corporation Income Tax (CIT), Article 17 featured a change in the timeframes for assessing IPT. The revision’s goal is to bring it in line with other indirect taxes. It also necessitates changes to the IPT penalty structure, as well as the procedures and criteria for tax application. Finally, it is said that the new guidelines should rationalise the applicable IPT rates.

The bill also includes generic principles that are applicable to all taxes, such as:

Article 21 envisages an Italian Unified Tax Code to be implemented by 29 August 2024. It will reorganise and combine existing tax legislation into a comprehensive tax code.

This tax code will be divided into two parts: a general part with unified regulations for the common elements of tax systems and a particular section with regulations for individual taxes.

Sovos will keep a close eye on the Italian Tax Reform process, so stay tuned for updates or contact our experts if you have any special queries.

 

Update: 28 June 2023 by Edit Buliczka

What is the IPT rate in Italy?

Different IPT rates are applicable in Italy, depending on the type of insured risk provided to the policyholder. The rates vary from 0.05% to 21.5%.

For example, the highest IPT rate applies to legal expenses, whilst payments received from insurance policies covering risks of navigation of ships registered in Italy are subject to 0.05%. Some premium amounts are exempt from IPT.

It is important to note that the Italian class of business does not correspond to the European Solvency II Directive class of business. There are 33 business classes in Italy, numbered from AB1 to AB33.

What are the penalties and interest for IPT in Italy?

Italy is known for its strict application of laws and harsh penalty regime, charging up to 400% of the tax liabilities due. Penalties and interest for late payments are time-sensitive, calculated daily and payable alongside tax liabilities.

What is the basis of Italian IPT calculation?

The taxable premium is the income generated under an insurance contract, comprised of the premium plus any accessory fee stated in the contract of insurance (without any deductions). Any amount paid by the policyholder to the insurer is a taxable premium.

What parafiscal charges exist in Italy on the top of IPT?

Beyond IPT, premium amounts derived from various risks trigger parafiscal charges. The most significant parafiscal charge is the CONSAP (Solidarity Fund for Extortion and Usury Victims) with a rate of 1%.

Parafiscal charges are also due on risks such as:

Is IPT due on returned premiums in Italy?

If an insurance company receives a premium, IPT is due even if the insured is subsequently reimbursed.

IPT credits relating to policy cancellations or adjustments are not permitted and should not be reclaimed from the Italian tax authorities, nor offset against current liabilities. According to art. 4. Law 1216/1960, IPT “does not cease to be due even if the premium is fully or partially returned to the policyholder for any reasons”.

Italian trade body ANIA clarified the applicability of this provision, permitting tax reclaims only if the tax has not been fairly collected. This provision includes clerical errors or an incorrect qualification of the risk or scope of the insurance contract based on the information available when the policy was written.

For example: if the insurer mistakenly overcharged the policyholder and the policyholder overpaid the tax, the overpaid IPT can be deducted from tax liabilities arising in the same reporting period, i.e., the calendar year.

What are the IPT filing and payment frequencies in Italy?

Italian IPT is payable monthly, whereas the return is due annually. Prepayment is also necessary with a deadline of November and equals 100% of the IPT plus CONSAP paid in the previous calendar year.

Some parafiscal charges such as EMER are declared and paid alongside the IPT, whilst others like RAVF and HAVF have different deadlines.

Although insurers pay tax liabilities monthly, and file declarations annually, there is a legal obligation to maintain IPT books. IPT books are chronological ledgers on a policy level that must be readily available should the Italian tax authorities request the company records. The authorities mainly request IPT books for tax office audits, investigations or to support formal requests by an insurer.

What are the prepayment rules in Italy?

Insurers are required to make an annual prepayment to the Italian tax authorities in anticipation of future tax liabilities. Prepayment is due by 16th November each year. It is calculated as a percentage (100% for 2022) of total IPT and Consap contribution made in the previous year, deducting any IPT paid in respect of Motor Third-Party Liability business.

Once settled, this prepayment can be offset against IPT liabilities (excluding Motor Third-Party liabilities) arising from February, when the January tax liabilities are due.

Are life and sickness policies exempt from Italian IPT?

Life plans are exempt from IPT in Italy unless they have been written prior to 1 January 2001. If the life insurance policy was purchased before this date, the premium is subject to a 2.5% IPT rate.

What reports do foreign insurance companies in Italy have to submit?

On top of the annual IPT return, insurance companies must file a variety of reports to several governmental agencies including the Italian Tax Office. The Motor report is embodied in the annual IPT return. There is an obligation for domestic and EU and EEA-based foreign insurance companies to submit separate reports about written insurance contracts, premiums and claims.

There are also a growing number of reports that foreign insurance companies need to submit to the Italian Supervisory Authority (IVASS).

Learn more about additional reporting requirements in Italy.

What are the IPT challenges in Italy?

Many factors make IPT in Italy unique and one of the most challenging jurisdictions from a compliance perspective. This includes monthly tax settlements, an annual declaration, prepayment rules, treatment of negative premiums and the various reports that need submitting to the Tax Office, regional municipalities or IVASS.

Updates on Insurance Premium Tax in Italy

28 June 2023

Italian Tax Office postpones penalty regime application date

The Italian Tax Office released a new circular on 19 April 2023 granting the opportunity to benefit from the 1/18 penalty regime. This follows the Legislative Decree n. 34/2023 from 30 March 2023.

With Circular No. 9/E, the Italian Tax Office has clarified the procedure, the extent of the measure and the ways of access. The circular emphasises that payments can be made in instalments, up to 20 equal payments over a five-year period.

The application date has been pushed out from 31 March 2023 to 30 September 2023.

22 March 2023

Italy implements new tax break measures

The 2022 Italian Budget (Law 197/2022) introduced new measures under the ‘tax break’ scheme (“tregua fiscale”) to promote the settlement of tax irregularities and pending tax assessments.

The Italian tax authority (Agenzia delle Entrate) issued Circular letter no. 02/2023 to provide further clarification and guidance on the new tax measures.

The new regulation allows taxpayers the choice to regularise their tax positions for prior years up to 2021. If they choose to do so, the penalty associated with the regularisation decreases to 1/18th of the minimum penalty – provided that they complete the regularisation by 31 March 2023. In addition to submitting the corrective tax returns, taxpayers must pay the outstanding taxes, penalties and interest by this date.

The law allows taxpayers to make the payments in eight quarterly instalments, with the first due by 31 March 2023. An interest rate of 2% per year applies to the following instalments, which they must pay by 30 June, 30 September, 20 December and 31 March each year.

Additionally, the legislator extended the application of the reduced penalty regime to tax assessments and tax notifications (“avvisi di accertamento, rettifica o liquidazione”) which are already submitted. This ruling applies if the submitted regularisation was not appealed before 1 January 2023, when the regulation came into force, as long as payment is made by 31 March 2023.

12 December 2018

Italian parliament approves changes to IPT prepayment rates

The Italian Parliament approved the 2019 Budget Act on 30 December 2018. As anticipated, the approved budget includes increased IPT prepayment rates. The approved rates are as follows:

For completeness, these new rates overrule those approved in last year’s Budget Act. However, the deadline remains 16 November each year.

Take Action

At Sovos, our experienced IPT specialists can help your business ensure compliance in Italy. Get in touch about the benefits a managed service provider can offer to ease your IPT compliance burden.