authorities operate independently of each other and assuming that the Finnish tax office was successful the following situation may occur; Example 2: UK tax authorities insist on keeping their increased 85% allocation but the Finnish authorities are successful in forcing a switch to the original 25% allocation in their favour. The overall tax cost would then be: (100,000 x 85% x 6%) + (100,000 x 25% x 23%) = 10,850 Resulting in an overall increase in tax payable, following the successful challenge by both tax offices. Anecdotal evidence suggests that many tax authorities are starting to review premium tax allocations as a route to securing higher premium tax revenues. There is also a fear among some compliance practitioners that should tax authorities reach the conclusion that the market practice adopted by the industry is not appropriate, legislation could be introduced to dictate the methodology adopted. As EU member states are not required to harmonise IPT policy it is unlikely that they will adopt a common methodology framework.
COMMON PITFALLS Lack of Evidence: Sufficient evidence documenting the choice of methodology is not maintained meaning that if the allocation is challenged, a taxpayer is unable document the rationale used to reach the conclusions it has and therefore is unable to defend the position taken. Lack of Review Process: There is no evidence to confirm that a regular review of the chosen methodology, which was signed off a few years earlier, is still relevant to the current circumstances. Again, the lack of supporting evidence would hamper a taxpayer when forced to defend a position that it has taken. Methodology Changes Every Year: A frequently changing methodology may also arouse the suspicions of tax authorities as it may signal an attempt to change the premium allocation to reduce the overall tax burden. Again, if sufficient evidence did not exist to support the decisions taken the taxpayer could find it hard to defend a position adopted.
GRIPT – Global Risks & Insurance Premium Taxes - Page 16 of 32 27th November 2012 | Š Fiscal Reps Limited 2012