IPT Location of Risk Changes: Your Questions Answered

Sovos
July 14, 2021

As our webinar explored in depth, location of risk rules are complex and constantly evolving.

The Sovos compliance team covered many topics on the session, such as sources for identification of the location of risk and location of risk vs location of the policyholder.

Despite this deep dive, there were plenty of questions that we didn’t have time to answer. As was the case with our IPT Changes in Europe 2021: Your Questions Answered blog, we’ve provided answers to these questions in this blog.

General Liability policies

Is there a case for a General Liability policy where the activity is held in Spain and the policyholder is in France?

Where the coverage doesn’t relate to property, vehicles or travel risks then it will be dealt with by the “catch-all” provision in article (13)(13)(d). As a result, assuming that the policyholder is a legal person in this scenario, it will be the policyholder’s establishment that determines the contract. Based on the limited information provided with this question, it seems that the policyholder’s only establishment here is in France, in which case the location of risk would be in France.

UK and Brexit

If you have a risk located in EU with a local EU policy, can the premium be paid by the entity of the company in UK?

The entity within a policyholder’s group that pays the premium to the insurer doesn’t have a bearing on the location of risk for IPT purposes.

Do the location of risk rules in the UK still follow those used in the EU following Brexit, and could a UK-based policyholder declare the tax instead of the insurer?

The location of risk rules haven’t changed in the UK following Brexit and, as such, the rules remain the same as is seen in Solvency II with each of the different four categories of risk.

For declarations made by UK-based policyholders, although there are provisions in the UK legislation allowing for the tax authority to pursue policyholders in certain circumstances, these are intended as a last resort when they’ve been unable to recover IPT from an insurer and there are no relevant agreements between the UK and the insurer’s country of establishment that enable the issue to be resolved.

The general rule remains therefore that the insurer should declare the tax, assuming they’re still authorised in the territory.

Germany

Could there be double taxation caused by the new approach in Germany towards group contracts?

Based on the natural interpretation of the new German legislation and, specifically, the Ordinance for its implementation, we see there is the potential for double taxation.

In particular, if there is the potential for double taxation within the EU then this would make it considerably more controversial. We could see this in the case of a policyholder based in a Member State other than Germany and an insured person based in Germany.

Double taxation across EU Member States would be inconsistent with EU law. As mentioned, we’ll closely monitor developments to see how group contracts are treated in practice and whether the position in the new legislation is challenged at EU level in the future.

I understand the German authorities may be issuing further guidance on whether non-EEA subsidiaries of a German policyholder do create an establishment for IPT purposes if a policy written by an EEA insurer covers them alongside the German policyholder, as the amended law from December last year only mentions that non-EEA branches would be caught in the net and subject to double taxation. Up to now, the guidance seems to have been that the answer is yes, but that the Ministry of Finance may be rethinking this. Have you heard anything on this point?

We’re continuing to monitor developments in this area. Most recently, the issue is considered in the guidance issued by the Ministry of Finance on 4 March 2021, as mentioned in our webinar. As is always the case, we’ll ensure that our customers are informed of any updates as they happen.

Malta

If vehicles in Malta only include motor vehicles, how do you determine the location of risk for ships and aeroplanes?

This would be another example of when article 13(13)(d) can be used. As a result, it would be either the policyholder’s establishment to which the contract relates (assuming it’s being insured by a legal person) or the habitual residence of the policyholder (if it’s being insured by an individual). This could be the same country as where it’s registered but it may not be.

Take Action

Still have questions about IPT? Watch our recent webinar, IPT regulation changes in Europe.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Sovos

Sovos was built to solve the complexities of the digital transformation of tax, with complete, connected offerings for tax determination, continuous transaction controls, tax reporting and more. Sovos customers include half the Fortune 500, as well as businesses of every size operating in more than 70 countries. The company’s SaaS products and proprietary Sovos S1 Platform integrate with a wide variety of business applications and government compliance processes. Sovos has employees throughout the Americas and Europe, and is owned by Hg and TA Associates.
Share This Post

EMEA VAT & Fiscal Reporting
November 29, 2022
Expert Series Part V: New Roles for IT in the Wake of Expanding Global Mandates

Part V of V – Christiaan Van Der Valk, vice president, strategy and regulatory, Sovos  Click here to read part IV of the series.   Government-mandated e-invoicing laws are making their way across nearly every region of the globe, bringing more stringent mandates and expectations on businesses. Inserted into every aspect of your operation, governments are […]

EMEA IPT
November 23, 2022
Fire Brigade Tax in Slovenia

Problems encountered with Fire Brigade Tax rate increase in Slovenia Slovenia’s Fire Brigade Tax (FBT) has changed. The rate increased from 5% to 9%. This came into effect on 1 October 2022. The first submission deadline followed on 15 November 2022. Unfortunately, the transition has been plagued by problems. We discuss some issues and how […]

E-Invoicing Compliance EMEA
November 22, 2022
E-invoicing and Fiscal Digitization in Africa

African countries are following e-invoicing and continuous transaction control trends implemented rapidly by many countries around the globe. Each country in the continent is developing their variation of a tax digitization system. This means there is currently no standardisation with compliance requirements differing in each jurisdiction. A common transaction reporting feature among African countries is […]

EMEA VAT & Fiscal Reporting
November 22, 2022
Expert Series Part IV: New Roles for IT in the Wake of Expanding Global Mandates

Part IV of V – Ryan Ostilly, vice president of product and GTM strategy EMEA & APAC, Sovos Click here to read part III of the series.   Government-mandated e-invoicing laws are making their way across nearly every region of the globe, bringing more stringent mandates and expectations on businesses. Inserted into every aspect of your […]

E-Invoicing Compliance EMEA
November 16, 2022
Denmark E-Invoicing Requirements

New bookkeeping law – Lov om bogføring On 19 May 2022, the Danish Parliament passed a new bookkeeping law – Lov om bogføring – introducing requirements for companies to use a digital bookkeeping system. Section 16 of the Law requires many Danish companies to use a digital bookkeeping system and make their bookings electronically. The final […]