A new level of cooperation – the Covid-19 impact on IPT

Headlines around Covid-19 and the insurance industry are importantly focused in the main around potential claims, coverages and future pandemic solutions. However, both personal and corporate policyholders require access to ongoing insurance cover. Insurers providing global insurance programmes continue to be responsible to ensure validity of cover through compliant policies, which involves reporting and settlement of taxes and charges on insurance premiums to the relevant local tax authorities around the globe.

IPT rarely a high-profile issue for governments
If we consider that Insurance Premium Tax (IPT) generates only £6bn in the UK, compared to upwards of £130bn collected in VAT receipts, it is easy to see why, as a result of the ongoing global pandemic, we have to date seen little action from governments specifically directed at IPT or the taxation of the insurance industry.

The government of Manitoba, Canada, has announced implementation of some new exemptions from retail sales tax. Effective 1 July, 2020, the exemptions apply to insurance contracts covering certain property, mortgage and title insurance, and are part of a bundle of measures the province is rolling out as part of its response to the pandemic. Beyond this however, there is very little specifically addressing IPT regimes to date.

It’s likely though that IPT will be indirectly impacted by wider Covid-19 government relief plans in the coming months and years. The long-term economic effect that Covid-19 will have – and resultant pressure on governments’ income and spending – will undoubtedly change the tax landscape. We could easily see targeted concessions to help certain sectors and, of course, IPT is normally less politically charged, making an increase an easier route to boost tax revenues. But making too many predictions in these uncertain times is perhaps unwise, so let’s stick to what we know.

The majority of responses from authorities to Covid-19 on IPT are not like that in Manitoba, but as a result of broader tax concessions covering multiple or all taxes in a jurisdiction. They are often taking the form of suspension of all or many filing deadlines and other tax office activities – as we have seen in Italy (albeit currently only available to Italian residents); or the option to request delay in tax payment without penalty – as we have seen in the Netherlands. Such is the scale of the crisis that tracking the responses from tax offices is a significant task.

One particular consequence many European insurers are relieved about is the postponement of the introduction of the new monthly stamp duty reporting system in Portugal. Its introduction was due in January 2020, and had already been postponed by two months, but with no indication that either the tax office or the taxpayers were ready, Covid-19 meant it was near impossible to meet the deadline. Implementation will now be in January 2021.

Insurance companies – business as usual
The response from insurance tax departments has been, overall, resoundingly positive. Insurance companies appear well prepared for this unexpected disruption, have adapted their working patterns accordingly, and in our experience, are continuing to meet their obligations without needing to utilise the concessions available.

It may be the case that a lot of extra work is required behind the scenes, but our clients continue to report compliant premium information and make tax payments on time. Having just passed quarter-end with additional IPT filing and reporting requirements, business as usual highlights that robust and flexible processes are in place and are not impacted greatly by current changes to working practices.

Bureaucratic tax regimes
One of the biggest headaches for IPT compliance amid quarantine, lockdown and social distancing, is that of submitting paper returns. Many tax authorities have moved to online submission of returns, and these systems work well in a lockdown scenario. With a little bit of planning, it is possible to securely login and submit the declarations from wherever you may be. The need to be physically in the office is removed. Indeed, as we type, the last of the UK IPT returns are being prepared and submitted for our clients through HMRC’s portal.

However, not all tax authorities have yet made the leap to online processes, and still require returns to be presented in hard copy. From wherever they may be, the authorised signatory, at the end of the chain, will need to be able to print, sign and then deliver a return via post or courier. Simple in an office context, but the processes and equipment to handle this working remotely can be a challenge, in addition to considering potential delays in various courier services and postal systems.

Registration possibly most affected
One area of the process adopting more modern approaches, at least in the short term, is in registering to pay IPT with tax authorities. To ensure business can continue, previous legacy and bureaucratic requirements to obtain a tax ID are being relaxed, with electronic signatures replacing wet, electronic notarisations being accepted, or requirements for apostilled documents being postponed until quarantine measures ease. This appears to be an evolving trend, which many hope will lead to more modern practices once lockdown is lifted.

Fostering a new level of cooperation between tax authorities, insurer and service provider
Having discussed the pre-planning and changes to process within an insurer to handle the tax return process during lockdown, this collaboration also extends to the tax office. Taxpayers and tax offices alike are trying their best to handle what is an unprecedented and evolving situation. Because of this, there seems an understanding and willingness from all involved to work together in ways that didn’t seem possible before Covid-19.

Will it last?

Contributed by Joseph Finbow, IPT assurance director, TMF Group

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