Tax and regulatory news

UK increases Insurance Premium Tax to 10% The UK has increased Insurance Premium Tax (IPT) by 0.5% to 10%. The increase was not as steep as many feared, with some predicting a rate of 12.5% or more. However, it is the second rise in four months-the tax was raised from 6% to 9.5% in November 2015. Announcing the increase in his Spring Budget, the UK's Chancellor of the Exchequer, George Osborne, said: "To respond to the increasing extreme weather events our country is facing I am today proposing a further substantial increase in flood defences. That would not be affordable within existing budgets. So I am going to increase the standard rate of Insurance Premium Tax by just half a percentage point - and commit all the extra money we raise to flood defence spending. That's a £700m boost to our resilience and flood defences." Ben Flockton, insurance tax partner at PwC, said: "This will undoubtedly fuel further speculation about the rate heading towards 20% to be aligned with the VAT rate, as is already the case in some other countries such as Germany and the Netherlands. Perhaps of greater concern to many insurers is the prospect of gradual but frequent rate rises. This announcement follows only days after the full implementation of the last rate rise and implementing these changes entails significant and often expensive systems changes and administrative processes."hideSteve Norman, IPT Technical Manager at TMF Group, explained that transitional arrangements have been announced and exempt insurance contracts, and those that attract the higher rate, are unaffected. "Insurers operating the Special Accounting Scheme can apply the current standard rate (9.5%) to premiums received before 1 February, 2017 relating to contracts entered into before 1 October, 2016. The new standard rate will be applicable on all premiums received on or after 1 February, 2017, regardless of when the contract was entered into. For insurers operating the cash accounting scheme there are no such arrangements; all premiums that are taxable at the standard rate received on or after 1 October, 2016 are to be taxed at 10%," he said. European insurance sector supports Anti-Tax Avoidance Directive Insurance Europe has said that the insurance sector supports the objective of tackling tax avoidance and abusive tax practices, and the creation of a level playing field for all businesses. It said it believes that the outcome of the Organisation for Economic Cooperation and Development's (OECD) base erosion and profit shifting (BEPS) action plan should be implemented in the EU in a coordinated fashion through the Anti-Tax Avoidance Directive, as to do so would avoid unilateral differentiation between member states. But the association warned that any additional requirements that go beyond the OECD's recommendations would not necessarily combat aggressive tax planning, harmful tax regimes and tax fraud, but may potentially harm the competitiveness of the EU, and any such measures should be subject to an impact assessment. In addition, EU tax proposals should be in line with the OECD outcomes which will be implemented in other (non-EU) jurisdictions, to ensure consistency in the scope and timing of proposed measures. A competitive disadvantage would otherwise exist compared to non-EU jurisdictions, which would penalise European companies and be harmful for future investments in the EU, said Insurance Europe. Indian insurers welcome 'use and file' norms The Indian general insurance industry believes that the 'use and file' norms unveiled recently by the Insurance Regulatory and Development Authority of India will ensure faster growth in the industry, though the regulations may lead to price rises for those products, said the Press Trust of India (PTI). The new norms, which come into force from April 1, 2016, will allow marketing of corporate products before regulatory approval. "The new system would enable insurers to adapt faster to the requirements of commercial entities. All of these changes are positive, indeed path breaking," ICICI Lombard General Insurance managing director and chief executive Bhargav Dasgupta told PTI. "We have asked the industry body General Insurance Council (GIC) to prepare the common wordings while designing covers for the corporates," New India Assurance Chairman/Managing Director G Srinivasan, who is also the chairman of GIC, told PTI, adding:, "A price rise across the segments is very much expected." Indian regulator reveals response to FDI limit increase The Chairman of the Insurance Regulatory and Development Authority of India (IRDAI) believes the response to the recent increase in upper limit of foreign direct investment (FDI) to 49% from 26% "has been quite good" with 16 applications and six approvals. In an interview in The Hindu Business Line, TS Vijayan, Chairman of IRDAI, said: "So far, 16 applications were received for increase in foreign investment. Of these, six applications involving inflow of INR2,556 crore, were cleared by the IRDAI and Foreign Investment Promotion Board (FIPB). With reference to regulations, 21 were notified, and an equal number is on the anvil. Largely, we hope to complete the task by the end of this financial year." He also said that insurers have yet to respond to the recently issued guidelines permitting them to go for initial public offers. "But I expect some transaction soon," he said. "The valuations we saw in the proposals seeking hike in foreign investments are quite encouraging. Further, not everybody is interested in hiking stake to 49% fully and is leaving some space. This is a positive indication, and I expect to see interest in IPOs soon." Mr Vijayan added: "The industry is showing a positive trend in its business performance. With the latest amendments, new regulations, IT initiatives and introduction of new distribution channels, it will progress further." Insurance M&A activity to continue in 2016 The pace and scale of change for the insurance industry has never been greater, according to DLA Piper. "We are not alone in the assessment that the insurance industry is at an inflection point. The trajectory for individual companies and the industry overall will be determined by numerous commercial, regulatory and legal factors, and by how adept (or not) insurers are in responding to these forces," said the law firm in its '2015 Year End Review and Forecast for 2016.' It said that after a period of Solvency II acclimatisation, insurance deal activity increase again in 2016 as the search for capital efficiency, diversification of risks and synergies continues. DLA Piper also noted the growing mutual attraction of insurance markets inside and outside of 'traditional' regions. "Developing markets, particularly in Asia, Latin America and Africa, continue to attract investment from the US and Europe. There is a marked reverse trend reflecting an increase in momentum throughout 2014 and into 2015, such that a number of Asian investors have invested capital into Europe and the US. The potential growth of this trend is also, in part, due to certain changes in regulation that have allowed Chinese firms more flexibility to pursue overseas M&A opportunities," said DLA Piper. Ten things insurers should know about Brexit (but are afraid to ask) The law firm Hogan Lovells has produced a pessimistic 'Ten things insurers should know about Brexit' list. "There is a massive question mark over how long in practice, following a vote to exit, the new relationship of the UK with the EU would take to negotiate. Nobody knows. Solvency II dealing with just one industry took 15 years. It took the UK over 10 years to negotiate its way into the EU," Hogan Lovells says in its downbeat assessment of the implications of an out vote. The law firm's list of things insurers should know about a potential Brexit are: 1. The right of an insurer to passport (essentially to carry on business in all EEA states by having a licence in just one of them) between the UK and the remaining EEA states may be lost. 2. The current right of an insurer to be subject to prudential regulation (e.g. on solvency and governance) only in its home state could be lost. The regulation of groups could lead to duplication of work if groups are required to account to regulators in both the UK and the EU. 3. If you are a UK reinsurer, EEA states may be able to restrict your ability to cover local risks, for example by denying local cedants credit for the reinsurance you provide to them unless you post collateral in their favour. 4. If you are looking to acquire a stake in a UK insurer, it may be that the UK government will not be constrained by the limited grounds for refusing a change of control that currently apply under the EU Acquisitions Directive. 5. If you are a UK insurer, an insurance business transfer that you undertake may not be binding on your EEA policyholders. You may no longer be able to transfer business to a transferee situated elsewhere in the EEA. 6. Judgments obtained in the UK may no longer be enforceable in other EEA states. 7. If you have registered a trade mark or other IP in the UK, that may no longer be protected in other EEA states. 8. It is unclear whether the UK would be considered sufficiently safe for data to be lawfully transferred to it under EU data protection legislation. 9. Leaving the EU could mean that UK companies cease to be able to benefit from tax advantages currently available as a result of the EU's fundamental freedoms, for example, those provided by the Parent-Subsidiary Directive, the Merger Directive and the Capital Duty Directive. 10. In relation to UK law that is derived from EU law, how will UK judges interpret the UK law? In line with ECJ interpretation, even new ECJ interpretation post-Brexit? Myanmar insurance regulator to grant foreign licences The Insurance Business Supervisory Board (IBSB) in Myanmar is planning to grant licences to European insurance companies that have had offices in Myanmar for three years to operate in Thilawa Special Economic Zone, according to local media group Eleven Myanmar. Three Japanese companies, Tokia Marine & Nichido Fire Insurance, Sompo Japan Insurance and Mitsui Sumitomo Insurance, are already licensed to operate in the Special Economic Zone. Eleven Myanmar quoted an official from the IBSB as saying: "The western companies mostly meet the criteria. They need to have had offices in Myanmar for three years. Some of them will reach three years this year. If so, they can apply to operate in the Special Economic Zone when they meet the criteria." New executive director of EIOPA confirmed The European Parliament confirmed the appointment of Fausto Parente as the new Executive Director of the European Insurance and Occupational Pensions Authority (EIOPA). His five-year term starts on April 1, 2016. Fausto Parente is currently Head of the Supervisory Regulation and Policy Directorate of IVASS - Istituto di Vigilanza sulle Assicuarazione - the Italian Insurance Supervisor. "The next five years are extremely important for EIOPA in managing, adopting and fostering the necessary changes to move from regulation to supervision in the insurance sector," said Mr Parente. "I am fully committed to contributing to further build up EIOPA, as a strong inclusive supervisory authority with a clear focus on the interests of EU citizens". Indian and UAE regulators sign Memorandum of Understanding The Insurance Regulatory Authority of India (IRDA) and the Insurance Authority of the United Arab Emirates (UAE) have signed a Memorandum of Understanding (MoU) for bilateral cooperation. According to India's Ministry of External Affairs, "The MoU aims at promoting cooperation between the concerned authorities in the field of insurance supervision through a framework for cooperation and by increasing mutual understanding through the exchange of regulatory and relevant supervisory information to ensure compliance with their respective laws and regulations." The MoU was one of several agreements and MoUs exchanged during the state visit of Crown Prince of Abu Dhabi Sheikh Mohamed Bin Zayed Al Nahyan to India. Ernst & Young's Global Insurance CCO survey Chief compliance officers (CCOs) in insurance are confronted by new challenges and opportunities on a seemingly daily basis, according to Ernst & Young's Global Insurance CCO survey. Substantial changes have taken place in many compliance functions, while others are still underway with more likely to follow, said Ernst & Young. The survey found that compliance plays a significant role in achieving organisational success, and compliance activity levels are high, with widespread and increasing use of assessments, monitoring and testing. It also found that reporting of compliance activity is extensive. Regulatory interaction is frequent, said the survey, which added that "compliance owns the relationship with the regulator in 38% of insurance entities surveyed." Consumer protection is high on the CCO agenda with 72% of CCOs surveyed saying their business is feeling the impact of new regulation and shifts in regulatory focus around consumer protection. And it noted that compliance functions have increased in size over the last year, and further growth is likely due to the need to meet complex regulatory requirements and growing management expectations for the role of compliance.

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