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LEGISLATION What’s the Point? The impact of tax points on the industry

RISK MANAGEMENT Why outsourcing insurance premium tax reduces non-compliance risks for captive management firms

TIMING Spectrum of pace of filing tax returns across Europe

COMPLIANCE Challenges of calculating premium taxes eased by FiscalReps’ taxDNA® calculation tool

From the publishers of

New for 2014

FiscalReps Diploma in Insurance Premium Tax (IPT) STARTING SEPTEMBER 2014 FiscalReps are delighted to celebrate ten years as the leading European Insurance Premium Tax (IPT) Experts by launching the first Diploma in Insurance Premium Tax Course. Duration

Programme Overview

1 year, starting September 2014 Who should attend? Insurance industry professionals or those with proven IPT experience (current or previous) Entry requirements Certificate in Insurance or 5 GCSEs grade C or equivalent Cost £3,000 plus VAT

t t t t t t t t t t t t t

Introduction to Insurance and IPT Global Programmes Calculating Premium Taxes Advanced Technical Calculations UK Fire Brigade Charge Historicals and Penalties European Country Updates Australian Insurance Considerations Tax Authority Investigations Premium Tax Compliance Premium Allocation Accounting for Premium Taxes Internal and External Audits

For more information, or to book a place, please contact Rebecca Taylor, Marketing Specialist: t: +44 (0)20 7036 8070 | e: t: +44 (0)20 7036 8070 | @fiscalreps FiscalReps

London office: 10 Fenchurch Avenue | London | EC3M 5BN | UK Head office: 200 Fowler Avenue | Farnborough Business Park | Farnborough | Hampshire | GU14 7JP | UK FiscalReps is a trading name of Fiscal Reps Limited | Registered in England and Wales (company number 4994134) FiscalReps®, taxbox® and taxDNA® are all registered trademarks owned by Fiscal Reps Limited




Mike Stalley, CEO, introduces the FiscalReps Indirect Tax Report 2014

Susie Crew examines the challenges that insurers face when dealing with European insurance premium tax legislation



Meet the FiscalReps team who have contributed to the report

“The only reason for time is so that everything doesn’t happen at once” – Albert Einstein



Part one: France and Spain

Felix Welch explains the idea behind taxDNA® – a calculation tool to help insurers calculate premium taxes

7 “RISK COMES FROM NOT KNOWING WHAT YOU’RE DOING…” Mike Stalley discusses what it takes to manage risk in High Risk countries



FiscalReps conducted a survey with over 130 respondents covering the issues currently facing the industry. Here are the results

Chief Executive Officer Mike Stalley explains what FiscalReps can learn from High Reliability Organisations

20 FISCALREPS CALENDAR 2014 A look at the events, conferences and training programmes scheduled for 2014



11 PILLARS OF EUROPE Part two: Germany and Italy

12 BORN IN THE USA Asher Harris, US Consultant, discusses the tax considerations for US captives


FiscalReps Indirect Tax Report 2014




ortunately the pace of change in IPT legislation in 2013 hasn’t been as rapid as that which we experienced in 2012. With this in mind, we decided to survey insurance professionals in order to assess the level of confidence in the market when it comes to premium taxes. In the first IPT survey of its kind, the findings were interesting to say the least. Of the 120+ responses received, the general theme appeared to be that most organisations have developed systems and advisory networks which have enabled them to

Written by Mike Stalley Chief Executive

business strategy has been to increase awareness of premium taxes throughout the insurance market, both through education and the provision of compliance solutions. The findings from the survey suggest that our plan has largely worked with most respondents

European political landscape and removal of requirements for fiscal representatives, our focus is on equipping clients with the tools and information to remain compliant today given the current environment MIKE STALLEY calculate and settle EU premium taxes with confidence. Furthermore, premium taxes are considered by the majority of respondents to be as important as other taxes being managed or in the case of 30% of responses, the top tax priority. Throughout this report our top IPT questions are scattered to test your knowledge. Answers can be found on page 31. One of the key elements of FiscalReps’

confident that their organisations have good systems in place to manage IPT compliance. Where the Big 4 accounting firms focus on campaigning for a unified European political landscape and removal of requirements for fiscal representatives, our focus is on equipping clients with the tools and information compliant today given the current environment. Premium taxes will remain subject to


FiscalReps Indirect Tax Report 2014

change during the coming years, but it would appear that tax managers are now well equipped to deal with changing legislation much better. FiscalReps are now working with many clients to embed premium tax knowledge into the core of their organisations’ systems and processes. The use of taxbox® and taxDNA® to automate premium tax calculations, process insurance transactions and act as a repository for global premium tax rate information and legislation is growing with many organisations seeking to centralise their premium tax information in one single location that can be used consistently across the business. Technology, together with the development of the taxSURE™ methodology, has meant that clients can place great reliance on the quality of premium tax information supplied by FiscalReps, however accessed and used. This methodology has also enabled us to grow the geographic scope of our premium tax information, but at the same time ensuring that there is consistency in terms of quality and reliability. Rome wasn’t built in a day, but the thorough approach we have adopted to collect, interpret and ultimately distribute premium tax information means that clients can use our services or access our tax data with supreme confidence. Named as tax advisory firm of the year at the UK Captive Services Awards in early 2013 is, hopefully, recognition of our focus on building a long-term, stable premium tax compliance platform for our clients.


MEET THE TEAM | FISCALREPS MIKE STALLEY, FCA, Chief Executive, founded FiscalReps, a specialist professional tax consultancy, in 2003 after experiencing the difficulties involved in achieving international premium tax compliance. Previously, Mike had worked in the insurance industry in both Bermuda and the Lloyds market in London after qualifying as a chartered accountant in 1995.

PETER HEWITT, CTA (fellow), Client Director for the European Insurance Practice, brings a wealth of VAT knowledge to FiscalReps. After eight years with HMRC he spent 25 years in Ernst & Young’s indirect tax practice. Peter has helped FiscalReps to offer indirect tax outsourcing, consulting and training services. KAREN JENNER, Client Director for the Captive Practice, joined FiscalReps with over 20 years of experience, providing invaluable global technical insurance guidance. The majority of her career was spent in AIG MAP, where she was responsible for the global insurance programmes of some of the top 100 FTSE companies. SUSIE CREW, FCA, Client Director for the European Tax Practice, qualified as an accountant with Ernst & Young in 1994 and spent much of her career as an internal auditor within the banking and insurance industries. She joined FiscalReps in 2008 as a consultant and was later appointed Head of Finance. JOSEPH FINBOW, Senior Client Manager, joined FiscalReps in 2011 from KPMG with three years’ experience in dealing with global IPT issues. Joseph’s responsible for the delivery of IPT compliance services to FiscalReps’ captive insurance clients and is a member of FiscalReps’ IPT Technical Committee which approves all IPT technical information gathered and maintained by FiscalReps. LADISLAV HANAK, Senior Client Manager for the European Insurance Practice, joined FiscalReps in 2010. In 2006 he graduated from the Faculty of National Economy of the University of Economics in Bratislava, Slovakia where he earned a master’s degree in economics. As a Client Manager he is responsible for managing the IPT compliance for several major accounts. ASHER HARRIS, US Consultant, is the Principal of a boutique law practice and gives clients access to the type of tax expertise normally only available in large law firms, together with the personal attention, responsiveness, and costefficiency of a small law practice.


FiscalReps Indirect Tax Report 2014

STUART KING, FCCA, is Managing Director of FR Global Advisors which provides management advisory services to the captive management industry, including insurance premium tax and regulatory compliance solutions and operational efficiencies for captive management firms.

NAZARET GONZALEZ, Client Manager for the European Insurance Practice has received training from Consorcio covering all areas of CLEA and extraordinary risks levies since joining FiscalReps, being the first person ever to receive such training. Nazaret joined FiscalReps straight from university where she completed a master’s degree in economics at Alicante University.

CHRISTOPHE BOURDAIRE, Client Manager for the European Insurance Practice, is a native French speaker and is country specialist for francophone territories. He also manages the IPT compliance process for his portfolio of clients. Christophe earned a degree (certificate) in Journalism at Ecole Nouvelles in Nice, France and a bachelor degree in Applied Territorial Studies completed at the University of Strasbourg.

BEVERLEIGH GUNNER, Client Manager for the European Tax Practice, has worked for FiscalReps since 2007. One of her responsibilities as a Client Manager is the oversight and manager of premium tax compliance deadlines for all territories. These deadlines are followed by clients and the FiscalReps team to ensure that all tax returns and tax payments are made in accordance with local legislation. FELIX WELCH, Client Manager for the European Tax Practice, started work with FiscalReps whilst studying for his business degree. He is responsible for managing the IPT compliance requirements of a number of major accounts. Felix also ensures FiscalReps’ software solutions taxbox® and taxDNA® deliver a consistent operational service for both FiscalReps and their clients who are licenced to use them.

GIULIA MAZZA, Administrator, recently joined FiscalReps and is responsible for client return filings in Italy and Sweden. Giulia also assists the Italian Country Specialist in updating the Tax Library and dealing with clients’ queries in this territory. Prior to joining FiscalReps, Giulia completed a Master in Arts Management at Birkbeck, University of London.



In which country is there a village where premium taxes are governed by the neighbouring country on account of the village not being accessible from its own country because of the lack of access through the surrounding mountains?

PILLARS OF EUROPE Part One: France and Spain

Spain - A Nation Divided by Nazaret Gonzalez Recently, we have seen how the economic challenges faced in Spain due to the ailing financial situation have resulted in decentralisation both politically and fiscally. As an exception to the Spanish fiscal and financial system, the Basque Country (Alava, Guipozcua and Vizcaya) and Navarra have the power to maintain, establish and regulate its own tax regimes as the Spanish Constitution protects and respects the historic rights of these regional territories. For this reason, the tax authorities from these four provinces have the same faculties and prerogatives that the tax authorities of the State have in order to carry out the levy, control, assessment, collection and audit of their own taxes and we are seeing increasing activity in this arena. For premium tax purposes, taxpayers must determine whether a location of risk exists in this part of Spain. Although this looks like a small region of Spain on a map, it is a strong and industrialised area. Both domestic and Freedom of Services business must file a specific provincial IPT return and settle the relevant IPT directly to each of the province’s tax departments in addition to the returns submitted to the central administration in Madrid. The provincial legislation states that penalties of up to 180% can be imposed in cases of non-compliance. This right to collect taxes locally only affects IPT – the Consorcio surcharges and fire brigade charges are not technically taxes and, as such, are not affected by this legislation. However, this is not the only example of fiscal decentralisation in Spain as the municipalities are collecting and controlling their own fire brigade charges. In particular, one of the municipalities has introduced a new rate of 7.5% to multi-risk property and pure fire policies in addition to the 2.5% or 5% rates that already apply on these lines. It is possible that other municipalities in Spain will see this as an opportunity to demand new charges and request insurance companies to submit and make the payments directly to them. The result will be that insurance companies deal with over 200 municipalities, which the legislation allows them to do. The financial crisis is causing each region to look into the local legislation to attempt to take control of their own assets and survive in difficult economic times. Some people may think that the decentralisation in Spain is mainly for political reasons, but as we can see from premium taxes, this is not the whole story. Only time will tell how the political and economic landscape merge together to form the Spanish tax infrastructure in coming years.

The French Simplicity by Christophe Bourdaire Why do it the easy way when you can do it the hard way? This wellknown French maxim can easily apply to IPT. With more than 10 taxes (or contributions) potentially due on insurance premiums, French IPT compliance is not the long quiet river that insurance companies would like to navigate. It holds the record for the numbers of taxes applied on insurance contracts in Europe. This is due to a specificity that France shares with other European countries and that tend to expand to the whole of Europe: the introduction of taxes and contributions to fund specific costs. The most recent example we have seen is the new “Contribution Rentes” implemented in July 2013 due on motor liability insurance premiums. This new contribution has been created in order to fund the legal increase of annuities due to victims of car accidents. Its rate is 0.8% of the premium and is applied on the same premium as the automobile contribution whose rate is 1.2% of the premium. So the question is: why not increase the automobile contribution rate instead? Because, the automobile contribution funds another expense and its rate can be increased within the limit of 2% only, which would leave no flexibility. Instead, the new “Contribution Rentes” has been created and its rate, currently 0.8% could be increased up to 1%. Unfortunately, this example is not isolated. The French administrative labyrinth is full of these small complexities that can make tax compliance seem like a quest for the Holy Grail. Registration of foreign insurers as taxpayers can be taken as another example. Indeed, a tax office specifically dedicated to non-residents (individual taxpayers as well as foreign companies) has been created. In practice a significant number of foreign companies with no office or address on the French territory remain registered to their older “territorial” tax office, a consequence of the local address of their first fiscal representative. It is not known when the transition to the new tax office will take place. Earlier this year, French President François Hollande promised a “simplification shock” for companies in order for them to concentrate more on business and growth rather than administrative procedures. The task promises to be arduous and may never be achieved in a country where another adage rules the political environment: promises, like pie crust, are made to be broken.


FiscalReps Indirect Tax Report 2014


“RISK COMES FROM NOT KNOWING WHAT YOU’RE DOING…” WARREN BUFFETT Mike Stalley discusses what it takes to manage risk in High Risk countries


anaging risk is what the insurance industry does. As a service provider to the industry with responsibility for their premium tax compliance, we must take risk management very seriously. “You can’t kid a kidder”, as they say, if FiscalReps internal risk management procedures were inadequate they would become quickly exposed by our clients, experts in risk. Given the business risks that insurers have to manage on a daily basis, it would seem sensible to offer them a “risk free” solution to this particularly thorny problem. Therefore FiscalReps services are constructed and delivered in a way which takes into account the relative risks of compliance or non-compliance on a per country basis. In assessing country risk, FiscalReps are really asking two questions; how easy is it to make an error filing taxes in that country and what are the financial implications of that error. As FiscalReps bear a level of contractual liability when delivering services to clients it is important that these questions are addressed internally. Thankfully, in 10 years of operating FiscalReps has never had to make a claim against its professional indemnity insurance. Criteria used to assess country risk: • Number of different taxes • Complexity of tax calculation • Applicable tax rates • Filing complexity • Volume of taxes settled annually • Language and currency complexities • Severity of penalty regime • Filing deadlines

Based on an assessment of the above factors for each country, FiscalReps has categorised Europe into three levels to view where the risk lies. In our operations, every return in every country is equally as important as the next, however, from an overall operations and internal risk management process, special focus is given

Written by Mike Stalley Chief Executive to those countries deemed to be High Risk. In these High Risk countries we take additional steps to ensure a complete and detailed understanding of the local tax regime and what the compliance requirements are. These include: Visits to Tax Offices FiscalReps business model is to build strong, professional working relationships with all tax authorities with which we have dealings. This approach, together with a policy of nonaggressive tax planning, has meant that we have built a level of trust and integrity, on both sides, which really benefits our clients, who are ultimately the tax payers. To supplement this we also make regular visits to these tax offices to meet the officials in charge. This enables us to discuss technical issues face-toface, resolve administrative challenges and really get an in-depth understanding of how these organisations operate and what their tax objectives are. The benefit of this approach became clear recently; FiscalReps were asked by a particular tax office for an independent view on proposed amendments to premium tax legislation before they were published. Recruitment of Native Speakers Not everyone speaks English, and in many countries official correspondence and meetings can only be held in the local language. Speaking the language of tax officials not only strengthens relationships but more importantly gives us insight into the linguistic challenges faced when trying to translate tax legislation from one language into another.


FiscalReps Indirect Tax Report 2014

Specialist Country Managers In these countries specialist country managers are appointed to manage the flow of tax information gathered and to build a highly detailed tax database which can be used internally and by clients. Appointing a specialist who is responsible for our compliance operations within that country means that we can obtain a depth of knowledge in our niche area of tax which is often unrivalled by local professionals in country. Engagement with Local Partners In countries where we are able to find highly competent tax professionals we engage with them to strengthen our core knowledge but also as an effective back-up plan. Every organisation needs a plan B and if work needs to be done locally and quickly, we have a team of people in country who are able to react swiftly and professionally. High Value Checks A feature of these high risk countries is that the rates of premium tax are generally higher; consequently the amounts of premium tax payable are often substantial. A “high value check” is performed on each tax return which is above an internally agreed tolerance level. This involves an independent manager within FiscalReps reviewing the tax return and supporting documentation for accuracy; effectively an “internal audit” before submission of the tax returns. As Warren Buffett remarked, it is important that we know what we are doing. Our depth of knowledge within the team means that we know exactly what we are doing and have put in place procedures to manage our risks. Consequently clients can use our services knowing that their compliance risks are also managed effectively. In an uncertain world, hopefully this offers our clients a welcome level of security and certainty over their premium tax affairs.


THESE HANDS SAVE LIVES Chief Executive Officer Mike Stalley explains what FiscalReps can learn from “High Reliability Organisations” (HROs)


was recently told a story about a man who when asked what he did for a living, replied that “my hands save lives!” Now this was said slightly tongue in cheek, but evidently there was an element of real conviction in his voice. It transpired that this man was an engineer for a major airline. His job was repairs and maintenance of the planes – effectively keeping them in the air and keeping the passengers safe. The implication is clear, if this particular employee does not do his job and perform consistently at the highest possible standards, planes might fall out of the sky and lives may be lost. Intrigued by this story, I did some further research and discovered that businesses of this kind are referred to as High Reliability Organisations (HROs) – an organisation that has succeeded in avoiding catastrophes in an environment where normal accidents can be expected due to risk factors and complexity. Essentially these are businesses that operate within extremely narrow tolerances of failure, especially where failure can lead to significant losses. HROs have a number of key attributes which have been subject to much academic study. These are business areas that, quite independently, FiscalReps has also focused on. Businesses which operate in these fields must ensure that the highest standards are maintained at all times and specific internal systems and controls are developed to ensure this level of performance. Typically when

Written by Mike Stalley Chief Executive you think of an HRO you would think of air traffic controllers, hospitals and the like; however many other organisations, such as FiscalReps, whose roles are very important to their clients (although albeit not literally “life and death”) can learn much from the operational approach adopted by HROs. Preoccupation with failure Anything less than a 100% success rate when it comes to filing tax returns is considered to be a failure within FiscalReps. Ensuring a 100% success rate month after month requires a certain approach. Firstly, the

filing taxes and dealing with tax officials has given us much insight and experience in this area. Secondly, there is a certain state of mind required; don’t allow last month’s 100% success rate to influence the effort required in the current month. The ability to stick to the process, not become complacent and to deliver the high standards that are expected of us is the minimum standard we aim for. Reluctance to simplify interpretations International premium tax compliance is complex. There are many technical, procedural and administrative demands placed upon taxpayers. Non-compliance is not an option and corners can’t be cut in the drive for greater operational efficiency. FiscalReps has established exactly what the compliance requirements are and has developed the necessary processes and systems to ensure that compliance is achieved, however complex and burdensome. That’s why seven sets of professional eyes check your return before the tax authority sees it.

“With over 90 different premium taxes across Europe plus many more across the globe, it is impossible for a single person to maintain all the knowledge” MIKE STALLEY, CHIEF EXECUTIVE

ability to identify what might go wrong, however minor, and to build in a contingency plan well in advance is crucial; many years of


FiscalReps Indirect Tax Report 2014

Sensitivity to operations Being able to keep running, essentially business continuity planning, is crucial for all organisations. Aside from the basic IT and property business continuity requirements, for FiscalReps this means having a well-trained, skilled and flexible workforce that is capable of covering for each other during planned and unplanned absences. A strong team of cross-trained



Name at least three European countries where you have to settle premium tax liabilities in the local currency.

specialists who are able to make decisions quickly and who can react to external events in a professional manner, whilst remaining focused on the headline objective of tax compliance, is also essential. For example, I suspect that the Finnish tax authorities don’t really care if there is six inches of snow in England; their sole concern is receiving their tax returns on time. FiscalReps have plans in place for such eventualities. Experience of dealing successfully with the unexpected is an important aspect of any business. It builds a level of operational capacity which can be called upon and delivered when essential. Commitment to resilience FiscalReps file on average between 2,000 and 3,000 tax returns per month. At certain points during the year the actual number of filings can be double that. To achieve this level of performance consistently over a 10-year period takes a particular mind set.

Operational planning forms a large part of our business. Being able to identify peak periods well in advance and accommodating them into the plan is essential. Being financially viable is equally crucial. Clients need to know that FiscalReps will be trading in the long term and can therefore rely on the longevity of their services. A prudent business model has ensured a sustainable and profitable organisation that will continue to trade successfully. Deference to expertise With over 90 different premium taxes across Europe plus many more across the globe, it is impossible for a single person to maintain all the knowledge. FiscalReps have built a unique team of in-house premium tax experts who operate on the “front line” every day. These are the tax experts, the individuals to whom our clients turn to when they have tax problems; these are the individuals that have relationships with tax officials and who practice tax


FiscalReps Indirect Tax Report 2014

every day and are best placed to make professional decisions about clients’ tax affairs. Language and tax skills are required in equal measure, as is the ability to make and support an argument regarding tax policy by referencing it back to legislation and local market practice. FiscalReps has the ability to speak to 19 tax offices in their local language. FiscalReps files and pays in excess of £180m of premium taxes on behalf of its clients every year. Our clients demand the highest possible standards of performance; one compliance failure is likely to be material and is unacceptable to us and our clients. Consequently, and unintentionally, FiscalReps has developed procedures that are representative of High Reliability Organisations. Our clients’ tax compliance and business reputations are placed in our hands every month; in response FiscalReps has built an operational platform which delivers a consistently reliable service - come what may.


FISCALREPS AND DSV – AN EVER MOVING PARTNERSHIP Mike Stalley looks at transport and logistics services provider DSV, and explains how FiscalReps has worked in partnership with the company since 2010


he DSV Group is one of the world’s largest providers of transport and logistics services. Headquartered in Denmark, The DSV Group has offices in over 70 countries. Formed in 1976 the DSV Group has gone from being a local freight forwarder to become a global logistic provider mainly through M&A such as the acquisitions of DFDS, Frans Maas and ABX Logistics. The DSV Group operations are divided into three separate divisions; Road, Air & Sea and Solutions. The DSV Group owns a captive (DSV Insurance) domiciled and licensed in Denmark through which reinsures its corporate risks on a global basis; the only exception being within the EU where it writes Freight Forwarders Liability and Cargo on a direct basis. The captive is licensed to write 8 classes of non-life insurance business within the EU-EEA and has obtained freedom of services passports to write business in 27 countries. Led by Lars Bille, an experienced risk and insurance executive, the team managing the captive is small and when first introduced to FiscalReps had limited knowledge of premium taxes across Europe. Similarly the group network, although extensive, did not have the capability to calculate local premium taxes. Typically DSV Insurance relied upon premium tax information provided by brokers and other advisors. In 2010, following a referral from another insurance company, DSV Insurance contacted FiscalReps and subsequently engaged with them to provide EU premium tax outsourcing and fiscal representation services. Following of a period of rapid growth within the captive, management had identified premium tax compliance as an area for improvement within the business; FiscalReps initial instructions were to review the premium tax rates currently applied and provide a level of comfort regarding the taxes being

Written by Mike Stalley Chief Executive applied and their calculation. It was also discovered that The DSV Group had collected premium taxes in a number of jurisdictions which had not been settled with the local tax authorities. FiscalReps embarked on a project to validate the balances owed and settle all the legacy tax amounts payable, in many cases achieving favourable final agreements with tax authorities. The FiscalReps client team of Karen Jenner and Joseph Finbow were appointed to work with DSV Insurance specifically because of their broad experience in both international insurance and premium taxes. “Building positive working relationships with new clients are crucial as it sets the foundation of a sustainable partnership”, commented Jenner “and investing time in face-to-face meetings to get to know the client and understand their business, regardless of the location of the client, is essential.” The two direct programs written by the captive have different renewal dates, invoicing dates and schedules. FiscalReps compliance team worked closely with DSV Insurance to create a tailored reporting system which ensures that the correct information is reported to FiscalReps on a timely basis, and that ultimately all the tax reporting deadlines are met consistently. FiscalReps now provides outsourced premium tax compliance services to DSV Insurance in 16 territories, also providing fiscal representation where necessary. FiscalReps and DSV Insurance


FiscalReps Indirect Tax Report 2014

continue to work closely to ensure that premium tax compliance is maintained whilst the captive continues its growth trajectory. Finbow believes that “being easy to contact, responsive and keeping clients up to date with all relevant changes to premium tax legislation is a key element of our service, which helps clients remain tax compliant”. In the future The DSV Group is expecting to bring other direct lines of business within the captive. In 2013 FiscalReps will file over 200 tax returns on behalf of DSV Insurance. In addition to the outsourcing services, DSV Insurance employees have attended a number of FiscalReps IPT Training courses, developing additional skills and knowledge which is being put to good use within the business. Bille commented that “as DSV Insurance grows we will continue to look to FiscalReps to provide the same high level of premium tax advice and service that they have done to date. We will continue to explore other ways of utilising our captive and being able to rely on accurate and reliable premium tax advice is essential.” Mike Stalley, Chief Executive of FiscalReps added “providing services for such a high profile global organisation is a real feather in our cap. However, DSV Insurance’s tax compliance is totally reliant on our team remaining focussed on the job at hand and not becoming complacent. Celebrating our success is important, but the next premium tax deadline is never far away!” Following the initial challenge of regularising the premium tax position of DSV Insurance and developing an efficient and sustainable compliance solution, DSV Insurance and FiscalReps have developed a close working relationship which has ensured on-going premium tax compliance in a pragmatic and cost effective manner.


PILLARS OF EUROPE Part Two: Germany and Italy

Full Disclosure Required

The Italian Paradox

by Ladislav Hanak In May 2012 the German Federal Government (Bundesregierung) presented proposed changes to their insurance premium tax (IPT) legislation. Implemented in December 2012, the purpose of these changes was mainly to extend the scope of the legislation and bring transparency which should lead to efficiencies in tax collection. Whereas some changes came into effect as of 1 January 2013, certain changes will be effective from 1 January 2014. One of the important changes introduced by the new IPT legislation, in force from the beginning of 2014, is the new requirement to show certain premium tax information on the insurance premium invoice. This requirement falls on both domestic and foreign insurance companies and affects all insurance premiums which fall due after 31 December 2013. German insurance premium tax legislation puts an obligation on insurance companies to show on the insurance premium invoice the insurance premium tax amount, insurance premium tax rate used and insurance premium tax identification number issued by the German Federal Central Tax Office (Bundeszentralamt für Steuern). Where an insurance premium benefits from an IPT exemption, the respective tax exemption provision shall be clearly specified. If there is no premium invoice issued, all required information must be shown in the other insurance policy documents. The German IPT legislation does not specify direct penalties for non-compliance with the above mentioned requirement, however any non-compliance related to invoicing could be seen as “inefficient accounting” and could lead into treatment of invoiced premiums as taxable premium, i.e. net of IPT. In practice it would mean, for example, if the insurer invoiced the policy holder €119 which consisted of a taxable premium of €100 and IPT of €19 and if the tax details are not specified in the premium invoice, the German tax authority could treat the total amount of €119 as taxable premium and as such as subject to the German IPT, thus creating an additional tax liability of €22.61.

by Giulia Mazza The ways of the Italian tax authorities can be sometimes be inscrutable or should we say that the penalty regime in Italy seems unclearly regulated. Indeed, according to the IPT legislation, penalties can reach astonishing percentages of the tax amount not declared in a timely manner. Judge for yourself: for late payment of IPT liabilities, the legislation states that penalties of up to 400% of the tax amount may apply in cases of fraudulent intent. However, the regime is not detailed enough to enable a correct implementation of these penalties. These rates seem to be there to intimidate rather than to redeem. While the rates are defined, the practical instances for application are not clear. This causes confusion, not only from a taxpayer perspective, but also from a tax officer’s perspective when it comes to enforcing the law. FiscalReps are aware of an insurer, who had correctly paid insurance premium tax during the year. The company was audited a few years later: the pre-payment in relation to that same year was underpaid because of a genuine calculation mistake. Pre-payment, by nature, is a guarantee for the Italian tax authority against the tax to be collected the following year. If the tax has been paid correctly, the pre-payment will be fully utilised and the remaining amount of tax will be paid by the insurance company to the authorities. In that instance, applying penalties for an underpayment of an estimate of tax that was then correctly settled seems severe. However, the ambiguity of this area within the legislation has put the tax officer in the position of having to take the prudent approach of applying a penalty for this type of erroneous estimate of future declarations. Enforcement of laws in Italy seems to be working on a literal basis, regardless of precedent cases or future redemptions of irregular positions. In conclusion, it looks like taxpayers could end up being less intimidated by penalty rates, and more by the literal interpretation of poorly defined laws. FiscalReps is here to help, with full time Italian speakers and a solid network association in Milan, namely Rossana Paini, Partner, Dr. Arietti & Associati.

Figure 1 depicts the highest and lowest of tax regimes

Figure 1

Finland IPT 24% Italy IPT 22.25% Netherlands IPT 21% Great Britain IPT 20%

HIGHER R 2014 Predictions • Spain may increase their rates – last rate movement for IPT was before 2007. • Netherlands have hinted in the past they may reduce their rates

Germany IPT 19%

Belgium IPT 9.25% France IPT 9% Spain IPT 6.15% Ireland Levy 5% Denmark IPT 1.1%


FiscalReps Indirect Tax Report 2014




In which country do you have to include the FBC amount due in the tax base for the calculation of IPT?

BORN IN THE USA Asher Harris, US Consultant, discusses tax considerations for US Captives


ith the growing number of captive domiciles and favourable tax legislation, forming and owning a captive insurance company is no longer the preserve of large multinational corporations. As many mid-market corporations consider the use of a captive as a part of their risk management strategy it could appear that captives are “easy” to form and manage. Tax considerations remain an issue however, and due care is still required to ensure that all the regulations are met in full. Potential captive owners have never had a greater choice of captive domicile. In the US, currently 39 states have enacted captive legislation. Indeed as far back as July 2011, David Provost, deputy commissioner for the Vermont Captive Insurance Division was quoted saying: “I think that eventually each state will have a captive insurance enabling law. A few states will succeed as viable ‘commercial’ captive domiciles, and the others will accommodate businesses that want to have their captive in their home state.” Outside of the US, the traditional Caribbean captive domiciles such as the Cayman Islands, Bermuda and BVI are being joined by new emerging domiciles such as St Kitts, Anguilla and St Lucia. Much focus is on capital requirements, licensing and regulatory competitiveness, however tax remains a constant challenge for captive owners to manage.

US income tax Captive insurance companies domiciled in the US are subject to federal income tax. However, favourable tax legislation has enabled smaller captives with less than $1.2m of premiums to make an 831(b) election, which exempts them from

Written by Asher Harris US Consultant

income tax on their underwriting income (premiums less reserves). Only investment income would remain subject to income tax. This legislation has seen huge growth in 831(b) or “micro-captives” in recent years, with these structures accounting for the majority of new captive formations, according to many commentators. Income tax compliance for 831(b) captives is simplified due to the premium exemption; however the requirement to file an annual tax return still remains. Offshore captives Captives located in offshore domiciles but owned by US corporations are also able to take advantage of this 831(b) election. This is achieved by the captive first making a 953(d) election to be taxed as a US domiciled corporation and then making the 831(b) election. But why would captives based in low tax jurisdictions choose to be taxed as a US corporation when they are often subject to little or no income tax in their home domicile? The reason is because of the tax status of their owner who is US domiciled. Any profits earned by the offshore captive would be taxable to its US parent at the full marginal rate – and it would not be able to make an 831(b) election. Furthermore any premiums paid to the offshore captive may be subject to US federal excise tax. Self-procured insurance tax Where a captive owner



FiscalReps Indirect Tax Report 2014

insurance directly from its own captive and the captive is domiciled in a different state then the insurance transaction could be subject to a self-procurement tax. Not all US states impose these taxes and the rules and rates do vary by state so it is essential to review the legislation in each relevant state to ensure compliance. Where the captive owner is insuring risks in multiple states through its captive there could be multiple tax filing requirements, again this is very much dependent on the tax law in each state. Anecdotal evidence suggests that state tax authorities are becoming much more focused on collection of self-procured tax. The obvious way to avoid self procurement tax is to domicile the captive owner and the captive in the same state, although this may not always be possible for legal or commercial reasons and this may mean that the captive becomes liable to in-state premium taxes instead. Other taxes If the captive is domiciled offshore and has not made a 953(d) election then any premiums paid to it in respect of US risks may be subject to federal excise tax. Any Canadian risks or operations which are insured by your captive Canadian could be subject to Canadian federal excise tax together with local provincial premium taxes which vary by province. Whilst it would appear that the weight of tax compliance is heavy, with much complexity, these problems can be navigated easily by engaging with specialist tax advisors early in the captive formation process. Once the planned captive structure and expected usage has been determined a tax compliance solution can be built, removing the uncertainty and ensuring full compliance.


WHEN PACE MEETS COMPLEXITY Susie Crew examines the challenges that Insurers face when dealing with European Insurance Premium Tax legislation


nlike VAT, based on European Union rules, there is no overriding tax policy setting authority for European Insurance Premium Tax (IPT). Consequently there are many variations of rates, treatment of classes of business, and payment methods across Europe. The Freedom of Services regime has simplified the process for international insurers, enabling insurers and captives to write business across European borders without necessarily having local branches. European insurers are required to seek “passporting rights” from their

“From an insurer’s point of view the introduction of IPT, or a change in the rate it is levied at, brings both administrative and operational burdens” local regulator. In some countries, a local fiscal representative must be appointed that deals with the tax authorities on behalf of the insurer, including filings and settlement of any taxes. Otherwise a fiscal agent can be appointed. Non-European insurers can often write business across the region on a non-admitted basis. The tax authorities, however, often then view the policyholder as liable in the first instance. For many years, the insurance premium tax liability was determined by the place where the contract was written. In Europe, the location of the risk was clarified in the Second

Written by Susie Crew Client Director Non-life Directive in 1988. In 2001, the European Court of Justice (ECJ) released a judgement that has had far reaching consequences for the insurance industry within the European Union. This case concerned Kvaerner plc, a UK resident company, which had taken out insurance cover in London for its group operations including its European subsidiaries. IPT was paid to Her Majesty’s Revenue & Customs in the UK and the cost of the insurance coverage was recharged to the subsidiaries. One of the subsidiaries was John Brown Engineers and Constructors BV in the Netherlands. Upon discovery of the insurance policy the Dutch Tax Authorities billed Kvaerner for Dutch premium tax on John Brown’s allocated share of the global premium. The European Court of Justice ruled that the Dutch Tax Authorities were entitled to collect this tax. The policyholder was held liable for the Dutch IPT. For more information on this case see

Following this case, there has been a heightened interest from international insurers and captives to be fully compliant with local tax regulations, especially in Europe. The pace of change in European IPT has been gathering momentum in the last five years, with many more jurisdictions introducing and/


FiscalReps Indirect Tax Report 2014

or increasing IPT. From an insurer’s point of view the bottom line is that the introduction of IPT, or a change in the rate it is levied at, brings both administrative and operational burdens. What information is required for the tax return? What are the bank details for the payment? What is the address for returning the tax return? Is the return online or postal? What are the deadlines for payment and for filing? Is only one return required or do branches require separate returns? Commissioner Barnier has now provided the European insurance industry with much needed clarity on the formal start date for Solvency II (the Solvency II Directive is an EU Directive that codifies and harmonises the EU insurance regulation). The difference now is that we are working towards a known start date of 1 January 2016. Solvency II is driving companies to reconsider how they structure their operations, for example moving to branch structures for EU business. Complications may however arise in countries where only one return is required. For example in the UK, unlike VAT, there are no provisions for divisional registrations. An insurer must account for all their activities under a single registration and on a single IPT return. Where the accounting is done separately by each branch, whether within or outside the EU, this means that the tax figures must be submitted and collated centrally before the single return can be completed. If insurers get it wrong, tax authorities are becoming significantly more aggressive with the imposition of fines, penalties and the potential withdrawal of an insurer’s licence or passporting rights. Heightened interest from European tax authorities, however, is focusing minds in the industry.



In terms of IPT, in which European countries are you not able to apply “location of risk” rule?

“The only reason for time is so that everything doesn’t happen at once” – Albert Einstein

Pace can be difficult to manage. Knowing when to move a little faster or take things slowly is an art form to get right. When looking at the pace across Europe, it is difficult to predict which tax authorities want you to move quickly and which allow you to take things at a slower pace. We can get a good idea of this by the complications of filing a tax return, the deadlines set and processes in each territory. • • •

Half Yearly/ Annual Process:

Over 625 deadlines annually 7 currencies (EUR, DKK, ISK, GBP, HUF, BGN, CHF) 16 languages

We have taken a snapshot of the first month of the year, January, to demonstrate different pressures insurance companies face. During January, FiscalReps estimate that the average number of returns to be filed will be 3,500. With most declarations for the monthly, quarterly and annual reporting periods being due, we can take a closer look at the complications and pace of filing for the general taxes in each country.

Finland - (Paper) - IPT - Due the 7th of each month

Sweden - IPT - Due the 12th of each month

Cyprus - Stamp Duty Due the 8th of each month

France IPT, Terrorism and NGF - Due the 15th of each month

Malta - Stamp Duty Due the 8th of each quarter

Finland - (Online) - IPT - Due the 12th of each month

Germany - IPT and FBT Due the 15th of each month

Denmark - Flood Levy Due the 15th of each quarter

Denmark - IPT, Motor, Yacht - Due the 15th of each month


Portugal - ISP - Due the 20th of each July and January

FiscalReps Indirect Tax Report 2014

Portugal - Stamp Duty, INEM, ANPC Due the 20th of each month

Slovenia - IPT and FBT Due the 15th of each month

Spain - IPT - Due the 20th of each month

Hungary - IPT - Due the 20th of each month

SPECTRUM OF PACE | FISCALREPS Key: NGF National Guarantee Fund INEM Instituto Nacional de Emergencia Medica ANPC Servico Nacional de Bombeiros FBT Fire Brigade Tax

Spain - Consorcio - Due the 31st of each month

INAMI The National Sickness and Invalidity Insurance Institute TEAA PAE The Pension Fund ISP Instituto de Seguros de Portugal

Ireland - Government Levy, Compensation Fund and Stamp Duty - Due the 25th of each month

Belgium - IPT and INAMI - Due the 20th of each month

Half Yearly/ Annual Process:

Portugal - ISP - Due the 20th of each July and January

Bulgaria - IPT Returns Due the 31st of each quarter

Bulgaria - IPT payments - Due the 31st of each month

Luxembourg - IPT Returns Due the 31st of each quarter

Netherlands - IPT Returns Due the 30th of each quarter

Switzerland/ Liechtenstein - IPT Returns Due the 31st of each quarter

Great Britain - IPT Returns Due the 31st of each quarter

Greece - IPT - Due 90 days after quarter end

Austria - IPT and FBT Payments - Due 45 days after month end

Iceland – Stamp Duty Returns, Building Safety Fee, Avalanche and Landslide, Catastrophe Premium, Valuation Fee for Compulsory Insurance Against Fire - Due the 31st of each quarter

Greece -TEAA - Due 90 days after month

If we look at the timeline above, we can see that some countries in Europe have very early tax submissions, which in turn mean insurers must collate and review their information quickly after their books have closed. This is when the option to take things slowly is almost impossible. For most insurance companies, collating this information from systems can take a few days. Time is then taken for internal checks before completion of declarations. The pace is not always as fast as we may expect. Tax authorities appear to be reviewing the reporting deadlines for the countries later in the month. Recently, we have seen the deadlines for Ireland and Belgium being moved earlier to the 25th and 20th from the 30th and 31st respectively. Do we expect more tax authorities to do this? Probably, but with the ever changing pace of society and demand for extra capital in each territory we can never be certain. If you are having difficulties getting your own pace right, why not ask FiscalReps to help? With a team of dedicated country specialists and technicians, we constantly keep up to date with developments in each European territory by visiting the tax offices and local associates, ensuring your returns are in on time, every time!


FiscalReps Indirect Tax Report 2014



Which current European premium tax legislation is signed off by Adolf Hitler?

taxDNA: THE CHALLENGE Felix Welch explains the idea behind taxDNA® – a calculation tool to help insurers calculate premium taxes


iscalReps have been providing Versicherungskammer Bayern (VKB), a major German insurance group, with outsourced EU Insurance Premium Tax (IPT) compliance solutions since 2010. The VKB Group provides personal and property insurance. It belongs to the group of public insurers, who together occupy second place in the German insurance market. It is the largest public insurer and one of the country’s top 10 primary insurers. With 15 insurance companies and three strong regional brands, it operates as a “regional insurer”. The key business regions are Bavaria, the Palatinate, Berlin, Brandenburg and Saarland; the insurer operates in health insurance nationwide. With respect to B2B-insurance business four subsidiaries also offer non-life products to originally German-based clients which expand within the EU/EEA. However, if the location of risk is outside Germany then VKB will write business on a freedom of service basis. VKB writes business directly through an individual subsidiary or a group of subsidiaries via a quota share arrangement. For instance, an individual from one subsidiary can write a policy that’s underwritten by one of the non-life insurance companies of VKB group with each subsidiary taking a predetermined percentage of the risk. Also VKB is part of international B2B non-life insurance programmes where sometimes lead insurers provide VKB with IPT details but VKB has to verify and arrange for the accurate IPT to be declared. In some smaller B2B non-life programmes VKB is lead insurer for VKB group members as well as for other German

Written by Felix Welch Client Manager

All subsidiaries of VKB faced four primary issues: 1. Difficulty in accurately and efficiently calculating IPT and parafiscal charges across Europe. 2. Reducing internal work with respect to keeping IPT relevant data for business written in a quota share arrangement as well as consistent tax rate application across the group. 3. The ability to forward the data, containing the details of business written, for FiscalReps to produce and submit the tax returns to the relevant European authorities in accordance with tax authority rules. 4. A number of disparate underwriting and accounting systems leading to difficulties when amalgamating the data for reporting

insurance companies and has to make sure that IPT calculation is accurate for the whole programme participants. Primary issues The nature and type of business that VKB’s subsidiaries write has meant that premium tax errors and discrepancies frequently occurred and took time to correct each month. Alongside the time taken to eliminate errors, inconsistent country reporting deadlines created time pressure when preparing bordereau to be submitted to FiscalReps for processing and settlement.

DATA | taxDNA Critical objectives 1. All European premium tax amounts calculated accurately at the time of premium quotation. 2. Ensure all premium taxes due to be paid by the policyholder are collected. 3. Process of calculating premium tax to be fully automated, allowing professional level knowledge of all European Union IPT rates. 4. Policy and premium tax calculation errors to be significantly reduced and possibly eliminated completely.


FiscalReps Indirect Tax Report 2014

Software Implementation Lifecycle Methodology • • • • • •

Analysis and solution design Build and unit testing System integration testing User acceptance testing (UAT) User training Pre-production review and authorisation



The solution taxDNA® To resolve the four primary issues, FiscalReps proposed the use of a bespoke version of taxDNA®. taxDNA® which is a simple calculation tool developed to assist insurers and insurance intermediaries to efficiently and correctly calculate premium taxes with little or no prior knowledge of appropriate rates. Tax rate database and calculation module taxDNA® uses the tax rate database and calculation engine from taxbox®, which is the primary software used in-house at FiscalReps to deliver outsourced IPT compliance. The tax rate database is always up to date and is maintained by a dedicated team of IPT country specialists. FiscalReps’ policy is to establish professional business relationships with all tax offices to which IPT returns are submitted. FiscalReps communicate with these local tax offices on a regular basis to ensure accurate knowledge and understanding of tax rates and application. Any changes identified are then assimilated into taxbox® and immediately available in taxDNA®. taxbox® reporting module taxDNA® is designed to quickly and efficiently process premium tax data into taxbox® for submission. The unique structure of the tax rate database and reporting module in taxbox® allows policy information entered by any users, anywhere in the world, to be amalgamated and processed instantaneously. Policy information is immediately available for FiscalReps’ client team to provide a high level premium tax review prior to submission of returns.

The delivery Analysis and design FiscalReps partnered with Scyllogis Consulting to support in delivering a bespoke taxDNA® solution. Scyllogis Consulting are insurance data management and technology specialists who have established a strong reputation with customers, spread across a wide range of geographic markets, and have a proven track record in designing system specifications. Alongside Scyllogis, FiscalReps brought in additional resources from New Bamboo, a specialist software development firm. New Bamboo are specialists in agile development using Ruby and Rails. Development Scyllogis Consulting provided the development team with a high level analysis and implementation document. Within this document, details of specific objective and deliverables were identified and agreed with VKB. Scyllogis detailed the enhancements to taxDNA® for the development team to breakdown into manageable tasks, conforming rigorously to agile development methodologies. New Bamboo’s experience in agile development allowed the project team to keep an overview of the project at all times and quickly identify potential delays before they occurred. The integration of testing into the agile development process allowed for regular review of development against objectives and deliverables. User acceptance testing Prior to user acceptance testing (UAT), an ACORD Certified Expert (ACE) was consulted to ensure that the project’s objectives, deliverables and test cases were achieved. Upon acceptance, the ACE travelled to VKB’s main office in order to train a small number of super users who were also able to


FiscalReps Indirect Tax Report 2014

run through the UAT test cases. UAT is typically the final phase of development and allows users to ensure that functionality meets expectations. During UAT, VKB identified a small number of changes which were not included within the original specification but were identified as valuable changes. As a result of working within an agile environment, the development team were able to accommodate the changes in specification to provide an enhanced product for VKB. Go live The agreed “go live” date of 1 October 2013 was met successfully. Conclusion Embedding a centrally maintained premium tax database within the operating units of VKB has meant that critical objectives 1 (accurate tax calculation at quote) and 3 (automated premium tax calculation) have been achieved immediately. In turn, this has meant that critical objective 2 (collection of all taxes payable) can be achieved as all premium taxes due have been clearly identified and calculated. With these three objectives achieved the possibility of premium tax errors will be significantly reduced and probably eliminated in the medium to long term, achieving critical objective 4. With improved premium tax calculation and processing systems internally, the work performed externally by FiscalReps to collate, prepare and submit the premium tax returns has also reduced. Contact Details Felix Welch, Client Manager, FiscalReps e: t: +44 (0)20 7036 8070




n October 2013, FiscalReps undertook to survey its network to understand the issues facing the industry in striving to be 100% tax-compliant. The driver was that the results would help define company strategy and focus our attention where it was most urgently needed. With over 130 respondents from both the insurance and captive markets, the results far exceeded expectations in terms of quality of data and depth of insight. Respondents were both existing clients of FiscalReps and others operating within the industry. Of the respondents, 73% were insurers, 10% captives, 13% captive managers and 4% brokers.

Top ďŹ ndings: 97% are confident about the accuracy of the rates of IPT they are applying. IPT is considered to be either the top priority or as important as all other taxes in the business, proving that people are taking IPT very seriously. Insurance professionals are more confident with IPT compliance than they were a few years ago, however, 22% of people still don’t know the risks of IPT non-compliance. 81% of respondents were happy that they have got the right network in place to declare all of their liabilities and they have got information at hand to help them answer IPT queries. 87% felt they had the necessary resources either internally or externally, to obtain answers about IPT compliance. All in all, the survey showed that

Is your Company?




Do you have the necessary resources either internally or externally, to obtain answers about IPT compliance?



Do you have the necessary network in place to be able to declare and settle your IPT liabilities across Europe?










FiscalReps Indirect Tax Report 2014

SURVEY 2013 | FISCALREPS How confident are you about the accuracy of the rates of IPT that your organisation is applying to the business being written?


35% YES


Have you identified the risks to your business of IPT non-compliance?


78% NO



How much of your working time is spent dealing with IPT?


What would help you manage your IPT compliance more easily? We need nothing new at the moment, my company has very few risks and FiscalReps comply to our needs” More and more information – we need a wider range of IPT News available for outside Europe”

12% 5% 0-25%



1% 75-100%

software throughout Europe in 2014, giving clients the opportunity to see how taxbox® and taxDNA® can help them fulfil their requirements.

IPT compliance is something that organisations accept needs to be done and that they have made a real effort to do it properly. Where they are unsure about how to be compliant, they know where to go to get answers to their questions. In response to the question of how FiscalReps can provide more help, the top three areas were:

2. Information From 2014, our monthly newsletter will contain information from beyond Europe.

1. Online systems As a result of the demand for more information on its technology offerings, FiscalReps will be demonstrating its

3. Harmonisation of rates and regulations regarding non EU markets Unfortunately, FiscalReps are an independent company and our focus is


FiscalReps Indirect Tax Report 2014

FiscalReps have been a great help so far, although it has been a lengthy process trying to obtain the information from the brokers to enable proper analysis of the premiums on global programmes”

on ensuring clients are compliant in ‘the here and now’. Where other firms are focusing efforts on political campaigning for harmonisation of regulations and rates which have historically been unsuccessful, our strategic driver is to get the return right, first time, every time.

“We need simpler rules, better coordination between regimes”



For risks located in the Netherlands - if a Dutch broker is used, are they liable for the remittance of the premium tax?






3 March IPT Foundation Training Course 4 March IPT Intermediate Training Course 5 March IPT Advanced Training Course 31 March VAT Foundation Training Course

1 April VAT Intermediate Training Course 2 April VAT Advanced Training Course

24–25 February Captive Live UK 2014 Royal College of Surgeons, London

9–11 March CICA International Conference 2014 Westin Kierland, Scottsdale, Arizona

27-30 April RIMS 2014 Colorado Convention Center, Denver, Colorado

May Captive Manager Summit London

15–16 May European Insurance Forum 2014 Four Seasons Hotel, Dublin, Ireland



17 June Technical Training: Series 1 - Spanish Consorcio Tax 18 June Technical Training: Series 2 - French CATNAT Fund



28 March FiscalReps’ European Forum in Dublin

23 January FiscalReps’ Breakfast Briefing: Reducing the Registration Burden

22 May FiscalReps’ European Forum in Denmark

24 April FiscalReps’ Breakfast Briefing: Captives IPT Masterclass


FiscalReps Indirect Tax Report 2014


16–18 June Airmic Exhibition 2014 The ICC, Birmingham, UK




SEPTEMBER 1 September FiscalReps’ IPT Diploma 29 September IPT Foundation Training Course 30 September IPT Intermediate Training Course



1 October IPT Advanced Training Course 6 October VAT Foundation Training Course 7 October VAT Intermediate Training Course 8 October 2014 VAT Advanced Training Course 21 October Technical Training: Series 1 - Spanish Consorcio Tax 22 October Technical Training: Series 2 - French CATNAT Fund 20–21 October FERMA Risk Management Services 2014 Square – Brussels Meeting Centre, Brussels, Belgium

11-12 November European Captive Forum 2014 Luxembourg Congress, Luxembourg

4 July FiscalReps’ European Forum in Malta

27 November FiscalReps’ Annual Indirect Tax Academy Trinity House, London

24 July FiscalReps’ Breakfast Briefing: VAT Masterclass

23 October FiscalReps’ Breakfast Briefing: Spotlight on European Premium Taxes


FiscalReps Indirect Tax Report 2014


FiscalReps Training Courses 2014




Your employees will be more able to manage your organisations' IPT compliance



s e urs VAT Training

Tra ini

How training can help your business


Let our dedicated training team teach your employees everything they need to know to become IPT specialists within your organisation.


As the only company focused specifically on this niche market of international tax compliance, FiscalReps has established a reputation as the leading experts in this field.

Your company will have IPT specialists within the organisation, saving external advisory fees

FiscalReps provides three levels of VAT Training course to ensure that attendees develop the knowledge to manage their organisations' on-going VAT compliance more effectively.

The VAT courses aim to help learners: t t t t t t

You could see a financial benefit by reducing penalties imposed for non-compliance

1. Foundation 2. Intermediate 3. Advanced

t t

Understand regional differences and responsibilities Identify issues that arise for insurance businesses Discuss the consequences of writing business Discuss partial exemption methods Identify penalties and interest for compliance failures Explain anti-avoidance provisions and interpretations of the tax authorities Understand VAT planning Explore court cases relevant to the insurance industry are dealt with

These courses can be delivered in London or at an office of your choice.

C g n i n i a

In 2013 FiscalReps delivered 6 bespoke courses to clients. Price available on request.

B e s p

o k e

All participants will receive a comprehensive learning pack and a FiscalReps certificate on successful completion of the course.

FiscalReps can deliver bespoke courses tailored to cover premium taxes that are specific to the business your company is writing.


These one day training courses will give all attendees ample practical and technical knowledge of IPT and VAT to make an immediate and positive impact within their organisation.

s e s r ou

Bespoke Training

Tra in in

Training Calendar 2014

Co es urs

FiscalReps provides three levels of IPT Training course to ensure that attendees develop the knowledge to manage their organisations' on-going IPT compliance more effectively.

These courses introduce and build upon the following subject areas: t EU-EEA directives, case law & national tax legislation t Rates of IPT to apply t Calculation of IPT across multiple business scenarios t Premium allocation methodologies t Settlement of IPT across all countries t Consequences of non-compliance

The Technical Training Courses are designed to provide attendees with the legal, theoretical and technical knowledge to reinforce their existing practical experience.

Technical Training 2: French CatNat Fund Course

ing in


u rs



Overview of French IPT CatNat Regime, Premium and Taxes (IPT on CatNat, MRPF Levy) Interactive exercises calculating CatNat Premium

n i c a l T r a

Overview of Spanish IPT Fire Brigade Charge Consorcio Compensacion de Seguros (CCS)

T e c h

Technical Training 1: Spanish Consorcio Tax

t t

3 March 29 September

IPT Intermediate

4 March 30 September

IPT Advanced

5 March 1 October

VAT Foundation

31 March 6 October

VAT Intermediate

1 April 7 October

VAT Advanced

2 April 8 October

Spanish Technical Training 17 June 21 October

Technical Training Courses

t t t

IPT Foundation


1. Foundation 2. Intermediate 3. Advanced

Learning & Development Manager, Global Risk Consultancy Practice

French Technical Training 18 June 22 October Course Fees per attendee IPT Foundation IPT Intermediate IPT Advanced

£495 & VAT £495 & VAT £495 & VAT

VAT Foundation VAT Intermediate VAT Advanced

£495 & VAT £495 & VAT £495 & VAT

Spanish Consorcio Tax £495 & VAT French CATNAT Fund £495 & VAT Attendees wishing to sign up to more than one course can avail of discounts.

For more information visit

Very useful course, reinforced but also added to my IPT knowledge and will help me in my day to day tax dealings. Senior Business Analyst, Captive & Insurance Management Organisation

IPT Training

Very good notes and information were provided - the course was delivered at a good tempo!


The trainer is extremely knowledgeable and articulate.

25 WHAT’S THE POINT? Joseph Finbow discusses the impact of tax points and in which territories they are most notable

26 IPT OUTSOURCING Stuart King explains why outsourcing insurance premium tax reduces non-compliance risks for captive management firms



The Captive Practice at FiscalReps was established in 2012 to work with captive insurers. Here we explain how this helps our clients

29 GETTING TO GRIPS WITH COMPLIANCE In the ever evolving landscape of compliance, global insurance programmes must constantly develop to meet increased demands


WHAT’S THE POINT? Joseph Finbow discusses the impact of tax points and in which territories they are most notable


key concept in indirect tax is that of the tax point. This is the event that triggers the tax liability and results in a declaration and payment being due, generally on a monthly or quarterly basis. With legislation often dated and not designed with captive insurers or their global programmes in mind, the common pattern of a captive’s premium creates tax point issues pertinent to the captive world. To illustrate how complex this can be, a single premium invoiced on a PDBI policy covering risks in just three EU territories, can generate over four different tax points, resulting in six different filing deadlines. If more territories are added to the programme, or if multiple invoices are issued, the complexity increases. Below, some of the main tax points are considered and the impact they can have on a captive’s compliance. Cash received Notable territories: UK, Germany, Italy Possibly one of the most common tax points is that of the cash received. It sounds simple enough, but it holds some hidden pitfalls if the details are forgotten and adequate attention not paid. Indeed, the term ‘cash received’ is a bit of a misnomer with the term ‘premium paid’ possibly being a more accurate description. The captive will generally need to be aware of the date that the premium is first received by them, or by any intermediary on the captive’s behalf. Of all the tax points, this is the one least likely the captive will have any control over. While some captives may be able to dictate the date that the premium will be paid and can therefore plan accordingly, others cannot and can find themselves notified of a

Written by Joseph Finbow Senior Client Manager premium receipt after the end of the month with the filing deadline rapidly approaching or already passed. Inception Notable territories: Spain (Consorcio), Iceland A far less common tax point, but possibly one causing the most difficulties for a captive, is the inception or renewal date. Most notably applied by the Consorcio de Compensación de Seguros (CCS) in Spain on the extraordinary risk surcharges, this requires the captive to make a declaration and payment of the surcharge due within a certain number of days of the policy start date. If there is one detail the captive should know, it is when the policy starts, so recognising the liability should not be the issue here. Instead, the captive could face cash flow issues, with a potentially large payment being due to the authorities before any premium has been received, or possibly even invoiced. Meeting the CCS deadline not only keeps the captive and the policyholder compliant, but can reap financial benefits, with a 5% discount being offered to the insurer for assisting the CCS in collecting the charges. The inception tax point emphasises the need for the captive to finalise the premium allocation well before inception. Being aware of the cost of charges due on a policy inception basis well before the start/ renewal of the contract is therefore vital in managing the cash flow of the captive.


FiscalReps Indirect Tax Report 2014

Written premium or maturity date Notable territories: UK, Netherlands, France The concept of the written premium, maturity or booked dates all revolve around the concept of when a premium is “due”. Variously, across tax authorities, the concept of when a premium is due can range from the ultimate date the policyholder is given to pay the premium, to the date the insurer issues the invoice, to the physical date when the entry is made in the accounts of the insurer. The subtleties of a definition can quite easily be lost in translation, and with the inconsistencies of treatment between territories and taxes, establishing the correct tax point is not straightforward. Some tax authorities do appear to appreciate the difficulties that arise here and often look for a consistent approach to be applied. Invoice date Notable territories: Denmark The invoice date, or the date of notification, can cause cash flow problems for captives because of the often generous payment terms offered to the policyholder. As premium tax returns are normally submitted for monthly or quarterly periods, issuing an invoice at the beginning of that period allows a longer stretch of time for the captive to prepare and submit the tax return. Having control over the invoice date can help with cashflow management, but caution should be taken as tax authorities may take a dim view of tax points being too artificially manipulated, especially around the time of a tax rate increase. The lack of uniformity on tax points across territories and tax authorities means that even the most straightforward of programmes can throw up compliance pitfalls. For a captive insurer, understanding the tax points and filing deadlines is not only necessary to plan cash flows, but is essential to remain compliant.



In which country is FBC applicable to only one place?

OUTSOURCING FOR CAPTIVE REASSURANCE Stuart King explains why outsourcing insurance premium tax reduces non-compliance risks for captive management firms


nce a risk is identified, an organisation typically manages it by avoiding, managing or transferring. For captive management firms, avoiding the activity of insurance-related services and the requirements of premium tax compliance is not possible. In some regulatory regimes tax compliance and settlement is the responsibility of the local corporate insured, however, very often it is an implied duty of the insurer, broker or captive manager to provide the service. Global premium tax compliance and settlement itself is not an overly complicated task, rather it’s the interdependence of ensuring an insurance programme is regulatory-compliant, premium and taxes are allocated and calculated correctly and in-force insurance policies are legally permitted in the countries they are issued. In the vast majority of cases premium tax and regulatory breaches become apparent long after the policy has been issued where delays in fiscal representative appointment can add to the delay, increasing penalties and fines. Generally the amount in question is not a material figure in an insurer’s overall financial statements. However, when the issue is eventually addressed and a tax settlement is made to the authorities, many of whom require a copy of the insurance policy or details of the insurer, the admissibility and legality of the policy can often be questioned. The result is a significantly more compounded matter with penalties and fines

Written by Stuart King Managing Director which are often multiples of the original amount due, typically dating back to the issuance date of the policy or when funds were received by the insurer. For captive management firms, noncompliance is not only a potentially significant errors and omission claim impacting firm profits but may also damage reputation both for the captive owner and

the firm, particularly if fines or breaches are material or publicly disclosed. Historical investigations can distract valuable firm resource away from day to day duties. Generally outsourcing is considered as managing the complexity of a task, gaining operational efficiencies and reducing costs and associated risk. Particularly relevant to captive management firms’ premium tax compliance is that client service teams often operate independently of each other, potentially leading to inconsistency in methodology, processes and procedures adopted across local operations and other domiciles within the same group.













Figure 1: Outsourcing process


FiscalReps Indirect Tax Report 2014




Outsourcing the premium tax function Typically, premium tax compliance duties are the remit of the production layer of a captive management service team as it is often a routine high volume administrative task, typically staffed by those less experienced and in the operational layer susceptible to high staff turnover. However, it is very often the task that carries with it the most financial and reputational risk for a firm. Presented and discussed below is a summarised internal operational premium tax process and the simplification, risk reduction and cost savings that can be realised by outsourcing the function. As can be seen in Figure 1 there are a number of steps and functions involved in the establishment, management and settlement of premium taxes. For large global insurance captive programmes the task is more complex and subject to increased risk by the number and difference in geographies involved. As an example: a captive operating in most states of the USA and the European Union will be required to calculate, file and pay annually approximately 750 (600 EU plus 150 US) individual filings and estimate returns. This estimate does not include the tax and regulatory reporting, delivery methods and numerous systems and payment processes required of each state or country. This estimate also does not include individual municipalities in some US States or certain parafiscal taxes applicable in EU countries, many of which

often require direct filings and settlement to local authorities. For a simple task there is evidently a number of key functional dependencies within a firm where weakness at any stage of the process, such as out of date tax rates, lack of new staff training, errors in preparation, staff absenteeism and delays in payment approvals, can be attributable to non-compliance that may result in regulatory breaches, fines and penalties. Typically, an outsourcing model is best suited to activities and functions that are not strategically important, are considered routine and part of a clearly defined process and those where the cost benefit of maintaining in-house expertise and resource is higher than the cost of the outsourcing provider. The provider typically has the most efficient set-up given it’s a core business service. Key areas captive management firms may wish to consider when assessing the suitability and benefits of premium tax function outsourcing, include: • Determine the likelihood and severity that a non-compliant event would have on the firm’s financial well-being and establish if this is within the appetite and tolerance of the firm’s management; • Assess requirement to resource and staff information databases and communicate tax rate and legislation changes to service team members both regionally and globally. Individuals often have to deal in international foreign speaking territories;


FiscalReps Indirect Tax Report 2014

• Establish the individual number of tax filings processed across the firm and estimate the cost of staff hours. As a general rule, depending on the complexity of the territory, estimated time incurred to complete, file and pay a single return is between 1.5 to 2.5 hours; • Consider the number and location of external tax providers engaged in the process; • In the event of a tax authority review, determine how readily available the tax records and staff skills are to deal with authorities and their approach to audits. So what are the benefits of outsourcing? • Gives companies the ability to redeploy staff to more revenue generative client driven tasks; • Enables firms to mitigate firm risk by transferring the responsibility to the outsource provider resulting in the assurance that as a group premium tax risk is mitigated; • Introduces a simplified and standard process where the administrative burden is significantly reduced; • Assures continuity of service in the event of staff departure or absenteeism; and • Guarantees cost-effective availability of expertise and up-to-date information. By outsourcing routine non-strategic tasks, many firms achieve increased revenues and client satisfaction as staff are redeployed to more added value tasks. Outsourcing also significantly reduces the risk of noncompliance (fines and penalties) as the outsourced firm is motivated to provide an error-free service.



Which country has the highest default IPT rate in the EU?



iscalReps has worked with captive insurers since its establishment a decade ago. In September 2012, the Captive Practice was established to handle this particular portfolio of the client base. In addition to the growth of overall client numbers and the need to establish a robust Client Management system, experience of premium tax compliance recognised that captives as clients of FiscalReps had a need for different services to those required by general and major insurers. To provide the best service to these clients a variation of product offering was developed. With one or two renewal dates and generally only insuring the risks of their parent and group

Written by Karen Jenner Client Director Often captives have no in-house tax department. Subsequently the annual rate reviews and data checks provided by FiscalReps to captives are highly valued and an important part of the premium allocation and invoicing process. FiscalReps’ involvement prior to the renewal process ensures accurate and prompt invoicing to the end policyholders.

“FiscalReps work regularly with local tax authorities to look at alternative offerings and solutions for captive clients, raising the profile of these vehicles which are often not considered in local legislation or understood by all the authorities” SARAH RICHARDS - DIRECTOR UBS companies, monetary premium tax returns are often only submitted once or twice a year. Nil returns are filed in all territories where there is a formal requirement to do so for the remaining monthly or quarterly submissions, to ensure compliance in all jurisdictions. The establishment of the Captive Practice has led to process enhancements and administration streamlining for these reduced frequency monetary filings, where possible, which in turn has often led to financial and administration savings for our clients.

Ad hoc policy reviews have frequently highlighted exemptions which may previously have been overlooked, or premium tax reclaims which FiscalReps have then successfully obtained – although on the reverse have highlighted some upwards revision of premium taxes and filing of historical data. In the case of the latter, FiscalReps’ understanding of clients and relationships with the tax authorities has led to mitigated fines and penalties in this area. FiscalReps work regularly with local tax authorities to look at alternative offerings and


FiscalReps Indirect Tax Report 2014

solutions for captive clients, raising the profile of these vehicles which are often not considered in local legislation or understood by all the authorities. To date, the FiscalReps Captive Practice works with more than 65 captive clients, either independent or through captive managers. Although this accounts for 25% of our client base, due to the size of premiums handled by these in-house insurers of large corporates, they account for in excess of 40% of the value of taxes remitted by FiscalReps to the various tax authorities across Europe annually. The team is led by Karen Jenner, Client Director and Joseph Finbow, Client Manager. They are supported by a team of technicians and administrators, and also have access to our in-house country specialists, registrations and finance teams on a day to day basis. FiscalReps’ understanding and knowledge of captives has recently been enhanced by the establishment of FR Global Advisors (FRGA). FR Global Advisors is a management advisory firm working with captive industry leaders to improve their business performance. Operating in Dublin, London and New York the team are specialists in international tax, accounting, risk finance, insurance regulation and captive operations. Stuart King, FCCA is Managing Director of FR Global Advisors. With overall responsibility for client assignments he ensures expectations are met and projects are delivered in scope, on time and within budget. Karen, Joseph and Stuart are confident that the development of the Captive Practice and FR Global Advisors can only improve the service offering and relationship with captive clients across the globe.




n the ever evolving landscape of compliance, global insurance programmes must constantly develop to meet increased demands. A recent FiscalReps geographic case study highlights some examples of compliance issues that keep risk managers awake at night.

Generic concerns Our study showed that there remain several compliance issues generic to all regions: • The much debated non-admitted issues, more recently with regard to Personal Accident and Travel insurances; D&O and Excess Layer policies; • Tariff requirements and their impact on premium allocations; • Government restrictions on exporting reinsurance premiums out of territory, specifically to direct writing or reinsurance captives.

Written by Karen Jenner Client Director

Regulatory issues continue to be at the forefront of concern – being frequently discussed at market forums, seminars and in industry press. From an insurer’s perspective the nonadmitted issues around Difference in Conditions/Difference in Limits (DIC-DIL) and Excess layer policies may be satisfactorily addressed from their own perspective with the inclusion of financial interest clauses. Under such clauses any “non-admitted” claims payments covered under a master policy are paid to the parent company. This may not


FiscalReps Indirect Tax Report 2014

however provide comfort to the insurance buyer who could face corporation tax charges and other hurdles in repatriating said claim payments to the relevant local insured entities. In a global programme where local admitted policies are issued, premium taxes are dealt with at local level. Complications arise in the writing of non-admitted, Freedom of Services (FOS) and DIC-DIL risk where taxes need to be repatriated from outside of the territory where the risk is located. This can particularly impact direct write captives without local presence to assist with local premium tax filings. Premium taxes are inevitably due, however the cover is written, around location of risk rules. Where premium in respect of such local risks is low, fronting and local policy issuance charges are not always cost effective. Regional concerns • The Americas The increased audit activity of the IRS, appropriate application of Federal Excise Tax (FET) in the US and application of Goods and Services Tax (GST) in Canada can cause concern and confusion for even the educated. In Latin America currency and reinsurance restrictions continue to cause headaches for insurers and insurance buyers alike. In Venezuela exporting currency through Cadivi has for many years been costly and administratively burdensome. Exportation of reinsurance from Argentina has made more recent headlines. Reinsurance overseas of risk located in Brazil involves many parties, though the process is becoming more transparent in this territory and some large corporates are able to export up to 88% of risk to reinsure to their in house captives.

FISCALREPS | CASE STUDY • Europe Many see the EU as the most straightforward region for compliant global insurance programmes due to the ability to write business on a passporting or Freedom of Services basis. The nuances in the likes of Spain and France due to the existence pools and terrorism charges however remain complex. Premium allocations are frequently open to audit and interpretation – although HMRC in the UK give guidance there is no consistent advice across the EU. Recent HMRC audits have seen challenges to a captive premium allocation relevant to a refund for disposal of assets. • MEMSA The Middle East and Africa bring their own variety of compliance issues. Reduced presence of the large insurers locally within these regions relies on the use of local fronting partners to facilitate global insurance programmes. State insurance companies, most prolific in the francophone territories, increase administration which can impact reinsurance to captives or overseas insurers. Many insurance buyers look to the use of high deductibles in these jurisdictions to avoid the bureaucracy. The involvement of state banks impacts cash flow – one insurance buyer with an African property risk saw their premium sit in a local bank for over one year before it eventually found its way to their reinsurance captive. Corporations owning captives with high value risk based in South Africa have both benefited and lost money over the years when premium has been converted from the Rand due to the volatility of the currency. Local retentions and mandatory cessions remain common in Africa. One local fronting company working with a large insurer, not too many years ago, held onto a substantial PDBI premium until a loss free policy expiry, before proposing a 90% risk retention. In this instance negotiation and the involvement of local broking expertise resolved this situation successfully, with an ultimate 10% local retention. US, United Nations and EU sanctions must also be considered, as they may prohibit insurers from covering territories in question easily within a global insurance programme. Limited availability and expertise in cover can increase this concern, especially for non-property and casualty lines of business, such as D&O. • Asia Pacific Throughout Asia tariffs remain commonplace. In Indonesia the earthquake tariff takes no account of any deductible in place, while in Malaysia surveys to ascertain property premiums can lead to delays finalising

premium allocations. Other nuances include in Vietnam property insurance now being compulsory. China is renowned for complexity around insurance. The company structure of the insurer and nature of local entity can impact local policy issuance. For larger operations of insurance buyers in China, multiple provincial location of risk may not necessitate multiple local policies. Local retentions of risk are based on the insurer’s book of business rather than on a risk by risk basis. The landscape here is continually developing and changing, with the recent introduction of cash before cover policy adding to the challenges. In Australia non-admitted insurance is permissible – though this increases premium tax costs which are borne by the local policyholder. Implications Regardless of region, there are several costs of non-compliance. In addition to reputational damage, locally or globally, fines and penalties may be imposed by a local regulator for writing insurance on a non-admitted basis, or a tax authority for non-payment of premium taxes. From a tax authority perspective honesty is often rewarded. A European policyholder experienced this when invoiced loss control inspection fees in Netherlands but not included in their IPT calculations. With

negotiation no fine was issued, though back payments were required. In Greece the appointment of multiple fiscal representatives can lead to criminal charges – this increased responsibility explains the increased cost of fiscal representation in this territory. The potentially largest financial cost of noncompliance is corporation tax. Where nonadmitted insurance has been written illegally, claim proceeds paid into a local jurisdiction could attract corporation or income tax – in many countries these taxes are in excess of 20% of the claim amount. Live examples of this have occurred under property damage and business interruption risks in Russia, where a claim was not covered under the local admitted primary policy but within the terms of the Master policy and a crime programme in Colombia relating to a Difference in Limits claim covered under a master umbrella programme. Incidentally nonadmitted insurance is now legal in Colombia. A combination of expertise is undoubtedly required in assembling a compliant global insurance programme – insurers, brokers, tax advisers and lawyers are all essential in ensuring a tailored solution for the insurance buyer. The industry eagerly awaits the launch of Global Insurance Compliance Database, estimated for the end of 2014 and an Airmic initiative, to see if this provides an additional layer of comfort to the buyer of a global insurance product.

“In addition to reputational damage, locally or globally, fines and penalties may be imposed by a local regulator for writing insurance on a non-admitted basis, or a tax authority for non-payment of premium taxes”


FiscalReps Indirect Tax Report 2014

FiscalReps Launches International Advisory Practice For Captive Management Firms’ Leadership

FR Global Advisors is a management advisory firm working with captive industry leaders to improve their business performance. Operating in Dublin, London and New York the team are specialists in international tax, accounting, risk finance, insurance regulation and captive operations. For more information contact Stuart King FCCA, Managing Director e: | t: +44 (0)20 7036 8070 | m: +353 87 234 1241

Test your knowledge... Answers to the IPT questions: A1 A2 A3 A4 A5 A6 A7 A8

Liechtenstein Bulgaria, Denmark, Great Britain, Hungary, Poland, Sweden, Switzerland, Liechtenstein Finland Switzerland / Liechtenstein Luxembourg Yes Great Britain (Inner London Boroughs) Sweden with 32% on Motor Third Party Liability (MTPL)

FiscalReps is an independent consultancy that helps insurance businesses to comply with IPT, VAT and parafiscal taxes internationally. FiscalReps offer a suite of solutions to assist clients in achieving and maintaining premium tax compliance.





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