Tax and regulatory news
New insurance premium tax regime for Hungary
As part of a package of financial measures Hungary will reorganise the tax regime levied on insurance premiums from 1 January, 2013. Hungary passed a law to introduce full Insurance Premium Tax on Freedom of Services insurance on 9 July, 2012. The planned rates for the new insurance premium tax were 10% for property and accident insurance and 15% for comprehensive motor insurance.
It is possible other classes will be taxed as well, according to TMF Group, including credit insurance and legal expenses insurance. Life and health insurance will be exempt but policies for supplemental accident insurance relating to life policies are taxable. The proposal to tax compulsory motor third party liability insurance has been dropped.
hide
The authorities passed an amendment to the new Act on 19 November. Insurers will be charged different tax rates depending upon their premium income:
* up to gross premium income of HUF1 billion, 2.5%;
* between HUF1 billion and HUF8 billion, 5%;
* higher than HUF8 billion,10%.
However, TMF Group said that the authorities are yet to publish details of the insurance classes affected by this amendment and what will happen to the proposed higher 15% tax rate for comprehensive motor insurance. The new tax will replace some of the existing Hungarian taxes levied on insurance policies – fire brigade charge and the surcharge on insurance companies. The Hungarian accident tax will not be repealed now following an amendment to the original bill.
TMF Group added that all insurers, both resident and non-resident, will be expected to pay the new tax on insurance policies when a risk is located in Hungary. At present, the tax will be levied on the insurer, not the insured as in most other European countries.
Qatar to set up single regulatory authority
Qatar has issued law Number 13 of 2012 to regulate the Qatar Central Bank (QCB) and Financial Authorities, according to the Qatar News Agency (QNA). According to reports, the new legislation makes way for setting up a single regulatory authority for banks, financial services companies, exchange houses, the Qatari bourse as well as insurance providers, including banking, financial and insurance entities registered with the Qatar Financial Centre (QFC). The new authority is to be placed under the Qatar Central Bank (QCB). Insurance and reinsurance companies are currently regulated by the Ministry of Business and Trade.
Dutch IPT plans change again
The Dutch coalition government has again changed its plans with regard to the proposed raising of the Netherlands insurance premium tax rate from 9.7% to 21% in 2013, according to TMF Group. It has been agreed in the Lower House of the Parliament that the rate will rise on 1 January, 2013 but that it will not only apply to policies incepting from that date. If either a new or renewed policy incepts before 1 January, 2013 but the premium due date is after this then 21% should be charged.
TMF Group said, “The authorities are also looking to pass special transition rules to avoid potential underpayment of tax for premiums paid between 1 October, 2012 and 31 December, 2012 that relate to policies incepting after 31 March, 2013, but as this has been done in the expectation that insurers will take actions to ensure 9.7% is charged to the insured, this proposal may change.”
Guernsey’s zero-10 regime approved by the EU
Guernsey’s zero-10 corporate tax regime has been given the final seal of approval by the EU. Earlier this year, the EU Code of Conduct Group on Business Taxation concluded that the deemed distribution provisions meant Guernsey’s zero-10 corporate tax regime was harmful. As a result, the Guernsey parliament, the States of Guernsey, agreed to repeal the deemed distribution provisions from 1 January, 2013.
In September, the EU Code of Conduct Group assessed Guernsey’s repeal of the deemed distribution provisions and agreed that this removed the ‘harmful effects’ of the Island’s corporate tax regime. Now, the EU’s Economic and Financial Affairs Council (ECOFIN) formally ratified that Guernsey is compliant with the principles of the EU Code of Conduct on Business Taxation.
Fiona Le Poidevin, Chief Executive of Guernsey Finance, said, “The deemed distribution provisions primarily affect locally resident shareholders and, therefore, it is very much a case of business as usual for the international client base of our finance industry.”
Guernsey’s Chief Minister, Peter Harwood, said: “It is a testament to the hard work undertaken by all in recent years and the significant European engagement that we are considered both compliant with the principles of the Code of Conduct and also that under the proposals set out by the European Commission we are not considered to be a tax haven. This is a not inconsiderable achievement given the misinformation and misperceptions that continue to be perpetuated in some quarters about our jurisdiction.”
Germany changes IPT compliance regime
The German parliament has approved changes to the German insurance premium tax compliance regime. TMF Group said the German parliament has stepped away from the most radical proposed changes, including issuing separate policies for mixed health/travel policies, or removing the option of a co-insurer settling on behalf of the follow insurers.
The changes are part of the Verkehrsteueränderungsgesetz/VerkehrStÄndG (Indirect Tax Changes Act). TMF Group explained that the compliance changes include:
* New filing frequency thresholds: quarterly filings raised to EUR6,000 per annum; and introduction of a EUR1,000 threshold for annual filing;
* IPT amounts now have to be stated on invoices along with the IPT registration number;
* The Official exchange rates must be used as per German VAT requirements;
* There are clearer definitions of when the insurance premium is taxable, as well as who is liable and can be held liable (distinguishing between admitted and non-admitted insurance);
* A change to the definition of the applicable territory: previously Territorial Waters (12 nautical miles), now includes Exclusive Economic Zone (200 nautical miles).
The effective date is the 1 January, 2013, with some parts, including record keeping and invoicing requirements, from 1 January, 2014 to take into account changing of IT systems.
Italy joins IAIS’ information exchange agreement
The insurance supervisor of Italy has joined an international supervisory cooperation and information exchange agreement. Peter Braumüller, Chairman of the Executive Committee of the International Association of Insurance Supervisors (IAIS), said that the Italian insurance supervisor was the latest signatory to the IAIS Multilateral Memorandum of Understanding (MMoU).
There are now 33 jurisdictions admitted as signatories to the IAIS MMoU, representing more than 51% of worldwide premium volume. The MMoU is a global framework for cooperation and information exchange between insurance supervisors, setting minimum standards to which signatories must adhere. Through membership in the MMoU, jurisdictions are able to exchange relevant information with and provide assistance to other member jurisdictions.
Global tax changes round-up
Recent global tax changes include:
* Plans are being formulated in China for a new Independent Insurance Authority for Hong Kong, separate from the State. These will include a new levy on insurance contracts of 0.1% of any premium values;
* Gambia is to replace 15% Sales Tax on insurance premiums with VAT;
* The Indian Education Levy on insurance has increase to 12.36%;
* Ireland has published a Bill to make the health insurance levy permanent;
* GST zero rating on trade credit insurance provided from outside of Singapore;
* Uganda has introduced a new 0.5% levy on insurance premiums, payable to the Insurance Institute for the purposes of developing an insurance training programme. (Source: TMF Group)
Spanish provinces change regional Insurance Premium Tax
Four Spanish provinces, Navarra, Álava, Guipúzcoa and Vizcaya (the last three form part of the Basque region) will require insurers that write both domestic and Freedom of Service business, to file a specific provincial IPT return and settle the relevant IPT directly to the province’s tax department rather than the national authorities in Madrid, according to Fiscal Reps.
The provision in Spanish law 12/1981, de 13 de Mayo that gives these Autonomous Communities the right to collect their own taxes, including IPT (article 31) but excluding Consorcio charges, has been in place since 1981. However, it is only now that the provinces have decided to exercise these powers, mainly in response to the ailing economic situation in Spain.
Fiscal Reps warned that other regions in Spain, such as Barcelona, will see this as an opportunity to demand such powers, though the current legislation only covers the four provinces mentioned above.
Greece makes significant changes to the taxation of motor business
The Greek Government recently announced a number of changes to the Greek Motor Guarantee Fund (MGF), though the relevant legislation has not been published yet, according to Fiscal Reps. These include a 1% rate increase to the MGF charge, a one-off MGF enrolment fee of EUR50,000 for insurers writing Motor Third Party Liability (MTPL) and a minimum annual contribution of EUR10,000 to the MGF. The MGF shall be levied at a new rate of 6% on the gross premium of any Greek or FOS insurer. Previously, insurers were required to pay a 5% levy on the net premium only (i.e. exclusive of policy fee which was typically charged at 20% – 35% of the net premium).
OECD report shows lower tax revenues in Latin America
Tax revenues in Latin American countries are lower as a proportion of their national incomes than in most OECD countries, but are rising slowly. ‘Revenue Statistics in Latin America’ shows that the average tax revenue to GDP ratio in the 15 Latin American countries covered by the report increased from 19% in 2009 to 19.4% in 2010, after falling from a high point of 19.7% in 2008.
The report, produced jointly by the OECD, the Inter-American Centre of Tax Administrations (CIAT) and The Economic Commission for Latin America and the Caribbean (ECLAC), notes that though the tax to GDP ratio did rise significantly across Latin American and Caribbean countries over the period 1990-2008 – by 5.8 percentage points compared to 1.5 for the OECD – at 19.4% in 2010 it is still far lower that the OECD average of 33.8%.
Across both OECD and Latin American countries there are wide national variations. In 2010, the tax to GDP ratios for the Latin American and Caribbean countries range from 33.5% in Argentina (close to the OECD average) to 11.4% in Venezuela and in OECD countries from 47.6% in Denmark to 18.8% in Mexico. The share of tax revenues collected by local governments in Latin America is small in most countries and has not increased, reflecting the relatively narrow range of taxes under their jurisdictions compared with OECD countries.
Denmark replaces stamp duty on non-life insurance with tax
A new tax on non-life insurance will be introduced in Denmark on 1 January, 2013. The new tax replaces the current stamp duty. In general, insurances that are currently subject to stamp duty will be subject to the new tax, according to KPMG. However, there are some changes and third party liability insurance for motor vehicles will be exempt from the new tax. The current exemption for insurances where the sum insured does not exceed DKK12,000 will be abolished. This change means that extended warranty insurances, e.g. for televisions, computers and refrigerators will be taxable from 1 January, 2013.
The method for calculating the tax on combined insurances will change. For example, the stamp duty on household insurance that includes fire and water damage is currently calculated on the insurance with the highest premium. From 1 January 2013, the tax will be calculated on the total premium.
The other changes relate to the tax rate, period, and foreign insurance companies. KPMG said the main changes are:
* The tax rate is 1.1% of the charged premium;
* The tax must be reported and paid no later than the 15th of the month following the tax period (month).
* Insurance companies established in the EU, Norway, Iceland, Liechtenstein, Greenland and the Faroe Islands can register without appointing a Danish representative. Insurance companies established in other countries must appoint a Danish representative.
* A Danish representative will be jointly and severally liable for payment of the tax.
According to the transition rule, as of 1 January, 2013 all charged premiums are liable to the new tax, even if stamp duty has previously been paid for the same insurance policy.
British Columbia and Quebec move to new tax regime
British Columbia is proposing to move from a federal-provincial harmonized VAT regime to a goods and services tax (GST) and provincial sales tax (PST) regime, while Quebec is proposing to harmonize more of its provincial tax rules with the federal GST, according to KPMG.
Quebec proposes to harmonize more of its Quebec Sales Tax (QST) rules with the rules for the federal GST, with effect from 1 January, 2013. Despite these changes, Quebec will maintain its QST separate from the GST, so businesses will still have to deal with two separate tax regimes in the province.
According to KPMG, one of the most significant changes under the modified QST will make financial services QST-exempt, as opposed to QST zero-rated. As a result, businesses providing financial services will generally no longer be entitled to claim input tax refunds for the 9.975% QST paid on expenses related to these services, significantly increasing some costs.
Impact of the US Dodd-Frank Act on captive owners
Captive owners in the US are reassessing their obligation for state premium tax on insurance policies directly procured from their wholly owned captives (which are non-admitted outside their state of domicile) as a result of the passage of the Non-Admitted and Reinsurance Reform Act (NRRA) in 2010, according to Marsh.
The NRRA, which is part of the Dodd-Frank Consumer Protection Act and applies to all policies effective after July 21, 2011, was aimed at streamlining the assessment and collection of self-procurement state premium taxes on placements with non-admitted insurers, whereby only the insured’s ‘home state’ under the insurance contract may now impose and collect the tax, said Ellyn Casazza, a Senior Vice President in the Captive Solutions Group at Marsh in the US.
Prior to the passage of the NRRA, each state in which an insured had insurable exposures had the authority to impose and collect self-procurement tax.
Ms Casazza explained that the home state for the insured under the NRRA is defined as follows:
* The state in which an insured maintains its principal place of business; or
* If 100% of the insured risk is located out of the state referred to above, then the state to which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated; or
* If more than one insured from an affiliated group are named insureds on a single non-admitted insurance contract, the term ‘home state’ means the state whereby the member of the affiliated group that has the largest percentage of premium attributed to it either:
* Maintains its principal place of business; or
* If 100% of the insured risk is located out of the state where the affiliate maintains its principal place of business, then the state to which the greatest percentage of the insured’s taxable premium for that insurance contract is allocated.
She added that the tax due by the insured to its home state will be based on either the total policy premium at the home state’s premium tax rate or if the home state is a tax-sharing state, then the tax will be calculated by allocating premiums by state of exposure and applying the applicable state’s premium tax rates.
Since the tax rate in many states is upwards of 6%, premium taxes could significantly offset the tax benefits of captives, she said.
Captive owners may be able to reduce the burden of self-procurement tax due in their home states, according to Ms Casazza, by having the captive issue separate policies for those that were previously insured under one policy. Since the home state (and the applicable state statute) under each separate policy will vary, a portion of the premium under the separate policy may now reside in a state with a more favorable tax rate.
Alternatively, captive owners could move their captives to reside in their home state (assuming the state permits the formation of captives) whereby the captive would be admitted and licensed and thus no self-procurement tax would apply.
To ensure an organization understands the full implications of the NRRA, Marsh said it recommends that insureds undertake the following steps (at a minimum):
* Identify the premium associated with policies written on a direct basis with your captive;
* Determine the applicable home state for the insured(s) under each insurance contract written by the captive per the NRRA definition of the home state;
* Review the home state legislation to confirm whether the state imposes a premium tax for independently procured insurance with a non-admitted insurer and follows the NRRA or if the state is a tax sharing state for premium assessment and collection purposes;
* Have your captive advisor conduct a financial impact analysis weighing the financial benefits obtained with the captive (e.g., tax benefits and other economic advantages of the captive) against the obligation to remit self-procurement tax;
* Review alternative structures regarding the issuance of different policies and the captive’s domicile options that may support a significant reduction in self-procurement tax obligations.
