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:
- Class 1 – Accident including injury to spacecraft and launch crew members
- Class 7 – Goods in transit, including transport of the spacecraft ahead of launch
- Class 8 – Fire and natural forces for fire risks to the spacecraft – this includes during manufacture, assembly and launch
- Class 9 – Other damage to property for various other risks to the spacecraft, including during manufacture, assembly and launch
- Class 13 – General liability, i.e., losses sustained by other parties caused by spacecraft operation and during the de-commissioning stage when the spacecraft potentially returns to Earth
- Class 16 – Miscellaneous financial loss for business interruption coverage in respect of the spacecraft
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.
