An insurance premium tax (IPT) guide for insurers has been launched by tax compliance firm Sovos. It focuses on IPT compliance and the changing IPT regulatory landscape across the world, particularly within Europe.
IPT Compliance: A Guide for Insurers provides guidance on IPT and the digital tax landscape, as well as in-depth country-by-country information. “Governments are also enacting complex new policies to enforce IPT mandates, obtain an unprecedented amount of tax and transaction data directly, and in real time. The guide covers important regulation changes within this context, and the costs and consequences of non-compliance and solutions available,” according to Sovos.
“Sovos leads the way in tax software and this latest guide demonstrates the team’s vast experience and extensive knowledge on even the most complicated of international regulations,” commented Russell Brown, who was recently appointed as senior IPT consulting manager at Sovos, having previously worked at TMF Group, EY and Tokio Marine.
The guide states: “As proactive initiatives like electronic returns and more granular reporting become a reality in the insurance industry, factors like determining IPT liabilities, reporting transparency, audit trails and accuracy will become increasingly critical. In this way, the complexities of IPT compliance rise. Anomalies can trigger unwelcome audits from tax authorities, often leaving companies ill prepared to not only recover the vast amounts of data required but also the redirection of valuable manpower needed to address the audit while sidelined from other core activities.”
It adds: “The digitalisation of tax is a trend that will continue. Organisations need to be prepared for any changes to reporting as changes will impact their compliance obligations for the countries where they operate.”
The bulk of the report looks at indirect tax rules for insurance across the globe, split into regions and highlights IPT, premium levies, GST on insurance and other insurance taxes in each country.
It also includes ‘deep dives’ into a number of European countries. It states that 2021 has seen several significant regulation changes for insurers when complying with IPT across Europe. These include a new reporting system, an IPT increase and new exemptions.
“Within insurance, we also continue to see ongoing premium tax rate increases throughout Europe – the UK being an obvious example with three rate increases in three consecutive years (2015, 2016 and 2017), and Spain at the start of 2021. A rise in audit activity from authorities, either of the insurer or policyholder, leads to further reporting and information requirements. Each of these trends in turn affects the insurance buyer, who is required to provide more detailed information and data about their business during the renewal process,” the guide states.
Specifically, the Sovos guide points to the IPT increase in Spain, which in 2021 increased from 6% to 8%. It notes that the main reasons for the rise are that the rate hadn’t increased since 1998 and is still lower than the rate of other countries, such as France, Italy, Germany and the UK.
In February 2021, Portugal’s new stamp duty reporting portal was finally implemented. Sovos says the reporting challenges are still high for the insurance industry, noting for example that the information required to declare stamp duty isn’t always provided. Sovos says detailed tax filings are likely to become more popular with tax authorities.
In December 2020, Germany passed a law on the modernisation of IPT. It includes the expected compulsory online filing to begin taking place in 2022, as well as clarifications on the application of IPT on marine insurance and on the IPT exemption for accident insurance. “Perhaps the most important and challenging change is the updated location of risk rules. This will undoubtedly be a topic of discussion throughout 2021,” states Sovos.
In France, legislators increased taxation of insurance companies with the so-called ‘Covid tax’ at the rate of 2.6% for 2020 – a tax that will still apply in 2021 but at a lower rate.
And in Denmark, Sovos notes: “Denmark once again marks its difference from other EU countries, having announced a reduction of tax rate on insurance. This time, it applies to the flood levy. The rate reduces to DKK40 per contract from 1 July 2021, from DKK60 per contract (and per year). This is the third time in the last ten years that Denmark has reduced a tax on insurance. Prior to the flood levy rate reduction, stamp duty was replaced by a reduced IPT rate of 1.1%.”