Tax and regulatory news

New indirect taxation booklet available Insurance Europe has published its 2013 indirect taxation booklet which gives an overview of the taxes applicable to insurance premiums and the various declaration and payment procedures in most European states. The booklet is free to download from Insurance Europe's website. It includes information on fiscal and parafiscal taxes on insurance premiums in EEA Member States (and Croatia and Switzerland) A table of fiscal and parafiscal taxes on premiums in each of the countries is shown. Only risks covered by specific fiscal or parafiscal taxation are mentioned; other risks are subject to the basic regime shown in the 'Other classes' heading at the end of the table. There is also a description of the tax return and payment procedures for contracts taken out by way of freedom of services (FoS) according to the provisions of the European directives on insurance.hideEach entry also includes general rules applicable to all insurance companies, special rules applicable depending on the method of establishment of the insurance company. For example, an insurer established in the jurisdiction, an insurer not established in the jurisdiction and not established in the EEA, and an insurer established in the EEA operating by way of FoS. As well as insurance premium tax, the table includes parafiscal tax rates, such as:- Fire Protection Tax in Germany;- Motor Guarantee Fund in Cyprus;- Security Fund for Fire and Explosion in Belgium;- Fire Brigade Tax in Austria, Luxembourg, Poland, Slovenia and Spain;- Fire Brigade Charge in Finland and the UK;- Fire Brigade Levy in Slovakia;- Fire Prevention Tax in Iceland. Offshore reinsurance remittance tightened in Argentina Local currency controls and requirements have continued to be tightened by the local treasury regulator in Argentina, causing delays in payments to offshore reinsurers. All insurance premiums for Argentine policies should be paid in pesos. If payment is completed in a foreign currency and wired from a country other than Argentina, the payment must be converted into pesos by law and any foreign exchange-related charges are to be handled by the Producing Office. The new rules require insurers to have foreign payment requests reviewed by outside auditors prior to submission of applications to the treasury superintendent. Offshore remittance is expected to take more than six months and is subject to further currency devaluation. (Source: AIG Market Alert March 2013) Single Economic Space countries working on insurance agreement Countries of the Single Economic Space are working out a draft agreement on insurance business, according to a report by the Belarusian Telegraph Agency (BelTA), the state-owned national news agency of the Republic of Belarus. The Single Economic Space comprises Belarus, Kazakhstan, Russia and Ukraine. BelTA quoted Sergei Osenko, Head of the Central Office for Insurance Supervision of the Belarusian Finance Ministry, as saying, "Work is now in progress to develop a draft agreement on requirements for doing business on the financial markets of the Single Economic Space member states. The document will stipulate common approaches to operations on the financial market, including insurance ones." The document will determine guidelines and the order for harmonising the national legislations of the Single Economic Space member states, in particular, requirements and terms of insurance business licensing, said BelTA. According to the news agency, "The creation of the common financial market of the Single Economic Space is regulated by basic documents adopted by the countries in 2010. They include the agreement on enabling conditions for the free flow of capital on financial markets and the agreement on trade in services and investments in the Single Economic Space member states. The documents provide for harmonizing the national regulations. They are supposed to ensure the mutual recognition of the licenses for banking services, insurance services, services on the stock market issued by any Single Economic Space member state in any other SES state as from January 1 2020." EIOPA and World Bank sign insurance Memorandum of Understanding The European Insurance and Occupational Pensions Authority (EIOPA) and the World Bank have signed an operational Memorandum of Understanding (MoU) to cooperate on developing the insurance sector. According to EIOPA, the Memorandum will enable both organisations to collaborate on promoting a risk-based regulatory and supervisory framework in insurance, as well as the identification of systemic risk and the promotion of consumer protection. The agreement also covers cooperation on activities, such as seminars, providing speakers for events as well as the exchange of knowledge, technical papers and best practices. Michel Noel, Manager of Non-Bank Financial Institutions at the World Bank, said, "The World Bank is pleased to collaborate with EIOPA in promoting global risk-based supervision in insurance, strengthening the insurance regulatory and supervisory architecture for achieving sustainable development in the insurance sector, while fostering policyholders' protection. It is our desire that this collaboration will enhance the support from the international community towards these efforts." Carlos Montalvo, Executive Director of EIOPA, said, "EIOPA strongly believes that a global business like insurance demands global solutions, and that in a business built on risk, all parties, but most importantly consumers, will strongly benefit from risk based supervision and regulation. To work together with the World Bank towards this aim will be not only a privilege, but also a much needed step in the right, global, direction." Manuscript wordings discouraged in Brazil While they are not prohibited, manuscript policy wordings are being actively discouraged in Brazil. The local regulator is making filing and approval of manuscript wordings more difficult for insurers. Policyholders and brokers desiring manuscript policies can anticipate a lengthier process for both new policies and renewals. (Source: AIG Market Alert March 2013) Eased sanctions open door to coverage in Burma/Myanmar With the relaxing of European and US sanctions against Burma in 2012, companies can now technically obtain insurance from commercial insurers for certain exposures in the country. However, insurers providing coverage must perform due diligence to ensure that they are not engaging in transactions with any person on the OFAC Specifically Designated Nationals List or with the Burmese Ministry of Defense or others against whom sanctions remain in place. As a result, placement of local insurance can still be challenging. (Source: AIG Market Alert March 2013) Report outlines vulnerabilities of EU's financial markets A report on 'Risks and Vulnerabilities in the European Union's (EU) Financial System' has been published by the Joint Committee of the European Supervisory Authorities. The report identifies the key cross-sectoral risks facing the EU's financial markets and system, and sets out recommendations on how these can be addressed through coordinated policy and supervisory action by policy-makers, the European Supervisory Authorities, and Member States. Key risks facing EU financial markets include weak macroeconomic outlook; low interest rate environment; risk of further fragmentation on the single market; increased reliance on collateral; the quality of financial institutions' assets; lack of confidence in financial institutions' balance sheet valuations and risk disclosure; loss of confidence in financial benchmarks. The Joint Committee said it believes that only a concerted response by policy-makers and EU Member States can restore the confidence and trust that has been eroded during the financial crisis. As far as the insurance industry is concerned, the report looked at two main issues - declining premium growth in the insurance sector, and insurance solvency pressures. On the first issue, it pointed out that in the non-life insurance sector, year-on-year growth was positive, but added that the difference between the best and the worst performers is increasing. The full report can be accessed at https://eiopa.europa.eu/joint-committee/index.html. EU-US Insurance Dialogue Project agree work plan The Steering Committee of the EU-US Insurance Dialogue Project to increase mutual understanding and enhance cooperation has agreed on a high level work plan from 2013 to 2017. According to EIOPA, "the parties achieved agreement on a prioritisation of objectives and a schedule for the implementation of the initiatives previously agreed upon by the Steering Committee and described in the 'Way Forward Document' (December 2012)". As part of the five-year plan, an agreement was reached to move forward in 2013 with particular focus on those initiatives relating to professional secrecy/confidentiality and reinsurance and collateral requirements, as well as to begin work on some other initiatives pertaining to solvency and capital requirements, group supervision and on-site examination practices. The Steering Committee said it anticipates a public forum in late 2013 to report on the year's achievements, to launch collaborative work on supervisory colleges and to give stakeholders an opportunity to share their thoughts on best practices and experiences regarding supervisory cooperation and coordination. South Africa delays start of solvency rules for insurers South Africa is to delay the start of its new solvency rules for insurers because of uncertainty about the implementation process and the ability of companies to comply, according to a Bloomberg report. The new rules, known as Solvency Assessment and Management (SAM), will apply from January 2016, compared with a previous target of 2015, according to Ian Marshall, head of the SAM unit at South Africa's Financial Services Board, speaking at a recent investor conference in Durban. SAM will require insurers to increase the amount of regulatory capital they hold and to implement new governance, risk management and reporting systems. Turkey signs IAIS Multilateral Memorandum of Understanding Turkey is the latest jurisdiction to join an international supervisory cooperation and information exchange agreement. The International Association of Insurance Supervisors (IAIS) said that there are now 35 jurisdictions admitted as signatories to the IAIS Multilateral Memorandum of Understanding (MMoU), representing more than 52% of worldwide premium volume. The MMoU is a global framework for cooperation and information exchange between insurance supervisors which sets minimum standards to which signatories must adhere, and all applicants are subject to review and approval by an independent team of IAIS members. Fiscal Rep hosts IPT/VAT Forums across Europe Fiscal Reps is hosting a series of Insurance Premium Tax (IPT) and VAT Forums across Europe, to help insurance professionals tackle the swathe of tax changes currently sweeping the region. Mike Stalley FCA, Founder and Chief Executive of FiscalReps, said, "IPT and VAT legislation has been undergoing unprecedented levels of change throughout Europe and this is showing no sign of slowing down. This year, many governments are choosing to increase their focus on indirect taxation, introducing new taxes or revising tax laws to fund budget shortfalls. As a result, we are seeing significant insurance premium tax and parafiscal tax changes right across the continent." He added, "It is imperative for insurance businesses to keep pace with these developments to maintain tax compliance. Our European Forums provide insurance professionals with the confidence to navigate their way through these challenging legislative waters. Each forum is tailor-made for delegates who want to get to grips with and manage the complexity of IPT and VAT legislation when they transact business across the EU." Forums have already taken place in London, Ireland and Croatia, and continue in Munich, presented in German, on May 21, and in Madrid on July 25 in Spanish. The Forums conclude in Milan, to be run in Italian on September 27, and in Paris in French, on October 14. To register places at any of the FiscalReps VAT and IPT Forums for 2013, please contact Ruth Thompson on Tel: +44 (0)20 7036 8070 or ruth.thompson@fiscalreps.com. India to relax limits on foreign reinsurance The Indian Insurance Regulatory and Development Authority (IRDA) has announced the Insurance Regulatory and Development Authority General Insurance - Reinsurance Regulations 2013, which relax the limits imposed on domestic insurers buying reinsurance cover from a foreign reinsurer. The new rules state, "(Re)insurers shall place their reinsurance business outside India with only those reinsurers who have over a period of the past five years enjoyed a credit rating of at least BBB (with Standard & Poor's) or equivalent rating of any other international rating agency." The rules add, surplus over and above the domestic reinsurance arrangements class-wise can be placed by the (re)insurer independently with reinsurers, subject to the following limits of the total reinsurance premium ceded outside India being placed with any one reinsurer:- Rating of BBB (S&P) or equivalent rating, 10%;- Greater than BBB up to and including AA (S&P) or equivalent rating, 15%;- Greater than AA up to and including AAA (S&P) or equivalent rating, 20%. An insurance company wanting to reinsure more than these limits would have to seek the specific approval of the insurance regulator. Previously, the limit was just 10% regardless of the rating of the reinsurer. The rules also state, "Every (re)insurer shall maintain the maximum possible retention commensurate with its financial strength, quality of risks and volume of business. The Authority may require an (re)insurer to justify its retention policy and may give such directions as considered necessary in order to ensure that the Indian (re)insurer is not merely fronting for a foreign insurer." India's potential foreign investment rule change welcomed The chairman of the Global Federation of Insurance Associations (GFIA), Frank Swedlove, has written to India's Prime Minister, Manmohan Singh, and other leading Indian officials, supporting passage of the Insurance Laws Bill 2008 which is now pending before the budget session of the Indian Parliament. In his letter he wrote, "The global industry is most encouraged to learn that the government intends to bring up during the current session of Parliament consideration of the Insurance Laws Bill 2008 that, among other provisions, would allow for an increase in Foreign Direct Investment (FDI) from 26% to 49% in Indian insurance company joint ventures...The purpose of this open letter is to inform you that the global insurance industry looks forward to having the opportunity to work with local partners by introducing new foreign capital into new and existing joint ventures." The GFIA represents 32 national member insurance associations accounting for around 88% of the world's total insurance premium. More countries rely on indirect tax in 2013 The economic crisis has led to more countries than ever before relying on indirect taxes as a sustainable method to rebalance their budgets and stimulate growth, according to a new Ernst & Young report, 'Indirect Tax in 2013: With change comes complexity'. The report finds the growing prominence of indirect taxes places more pressure on tax administrations to enforce compliance, particularly given that a third of tax revenue is derived from VAT/GST and taxes on specific goods and services such as excise taxes, customs duties and certain special taxes. "The sheer number and variety of changes in indirect taxes in recent years - and the challenge of implementing them into accounting and reporting systems - can be overwhelming for businesses," says Philip Robinson, Global Indirect Tax Leader at Ernst & Young. "This makes it hard to keep sight of the bigger picture. The vast number of changes in indirect taxes will cause more severe consequences in the case of non-compliance and mistakes." According to Ernst & Young, the current economic climate is hampering trade and encouraging protectionist tendencies. Non-tariff barriers have grown substantially in the form of health, safety or environmental requirements. In addition, excise rates are again on the rise and new duties are being introduced. "This is particularly true in Europe, but we see also see VAT rates inching up in Asia-Pacific and the Americas. The trend is particularly noticeable with regards to specific consumer products, environmental items and financial transactions," said the report. The report indicates the number of tax audits has increased in a large majority of the 39 countries and will likely continue to increase. At the same time, many countries are applying stricter penalty regimes in the case of non-compliance and mistakes. In the report, 72% of the 39 countries indicated that penalties are increasing and only 8% saw a decrease. Regulation and Tax News in Brief AIG has noted the following changes to regulations, premiums, and tax rates: - The Hong Kong Stock Exchange now requires listed companies to have D&O insurance; - Effective April 1, 2013, the Japanese government has increased premiums for compulsory auto liability insurance by an average of 13.5%;- The regulator in Nepal has recently begun to tighten the cash before cover requirement. Premium must be received by the insurer before the cover can take effect; - The Italian Road Accident Victims' Fund tax rate payable by the insured remains 2.5%, however, as of January 1, 2013, it is charged on 95.3% premium instead of 95.9% - reducing the effective tax rate to 2.3825%;- Policies in Cyprus issued or renewed on or after March 1, 2013 are subject to an increased stamp duty charge. On new contracts for general liability and other classes, the charge has increased from €1.71 to €2.0. For property and fire, the charge has increased from €0.86 to €1.0 per contract for premiums below €1,709, and from €1.71 to €2.0 for premiums above €1,709.- Effective January 1, 2013, statutory limits for compulsory motor third party liability insurance in Moldova have increased. Rates have risen from MDL500,000 to MDL1m for damage or loss of property, regardless of the number of accident victims, and from MDL350,000 to MDL1m for bodily injury or death per person, with an aggregate of MDL5m, up from MDL700,000, regardless of the number of victims. (Source: AIG Market Alert March 2013)

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