Insurance premium taxation (IPT) in European Economic Area (EEA)
A major trend in recent years has involved the introduction of new and increased premium-related taxes. For example, the current taxes have meanwhile been increased in the UK and France. In addition, the number of tax audits is increasing, with clients' internal allocations being reviewed and insurance premium allocation may be dimensioned in proportion to cross border insurance solutions.
The only exemption is Romania, which recently decided to decrease the payments applicable to locally established insurers. Let us see what is announced at the year-end. All premium related taxes in EEA are calculated, accounted and remitted by If as direct insurer (local of cross border insurance solutions) or our local partners.
This year we have a very special celebration: Finnish IPT has now 50th anniversary. It was supposed to be a temporary tax, but currently it has the highest overall tax rate in Europe at 24%. It hits all entities insuring risks located in Finland. In a case the insurer is a third country company (outside EU/EEA), the client becomes liable to report and pay the IPT.
Slovakia introduced 2017 a new 8 % IPT which covers all lines of non-life line business.
The Netherlands has recently issued a new law. The most interesting part concerns co-insurance as according to Dutch legislation the leading coinsurer should handle the IPT. In The Netherlands that is the case, however, the new law has tightened the specific conditions pertaining to this. In the Dutch market, however, also the broker may be subject to obligations to pay IPT.
IPT in coinsurance solutions has been argued in the industry as some insurers consider IPT payment as a liability of the leading insurer, others argue for the other way around. It is evident, that each country has its own set of rules or the rules are silent on this issue.
In recent circular the local tax administration confirms that tax cannot be paid back on return premiums as tax should be returned on refunded premium as technically it is not due. This practice is similar to Italy.
Foreign Account Tax Compliance Act (FATCA), new obligations
The Foreign Account Tax Compliance Act (FATCA) is a U.S. law aimed at preventing tax avoidance by U.S. taxpayers through the use of offshore accounts. It entered into force in July 2014. Since then well over 100 countries have now signed up to Intergovernmental Agreements (IGAs) with the US to implement FATCA.
Premium payment from US For non-life and risk life insurance (other than life savings) FATCA was not a huge burden at the beginning. It applied to risk premiums paid from the US to a foreign entity. Based on this US insurers, brokers and direct clients have requested the so called W-8BEN-E form that discloses the foreign insurer’s status.
In the event that no such form is furnished, the US withholding agent (i.e. local insurer, broker or client) has an obligation to withhold 30% from the insurance premium paid to off shore insurer. If P&C has naturally delivered the requested forms and is therefore compliant with FATCA.
Tax councel, If