Malta protected cell companies
Article 7 minute read

Malta protected cell companies

07 July 2020

Malta is known for its well-established legal regime regulating Protected Cell Companies (PCCs), and the benefits of a PCC have seen ongoing creation of cells within PCCs in Malta as well as in other domiciles.

As the PCC, together with any protected cells which have been created constitute a single legal person, the PCC core takes on responsibility for the management of the overall legal entity, including compliance. This has many benefits for the individual cell owners but can bring some challenges for the core.

Tax legislation regularly predates multinational insurance programmes, let alone the creation of more sophisticated insurance vehicles such as a PCC. In addition, the traditional, yet increasing, demands of the tax authorities for the reporting and settlement of insurance premium taxes (IPT) and parafiscal charges present challenges in the consolidation of a diverse portfolio of risks and stakeholders, with the core responsible for compliance of risks underwritten across the EU/EEA on a Freedom of Services basis, as well as in other parts of the globe.

Consolidating diversity within IPT compliance

The PCC core will undoubtedly handle cells of very different parent companies, from a variety of industries and with different working practices and processes. They are likely to write a wide range of insurance products and be handling a mixture of cells incorporating both traditional captive insurance business, third party insurance and possibly cover holder business.

In handling multiple insurance classes of business, and possibly blended products bespoke to the needs of the cell’s parent companies and policyholders, it’s imperative that the PCC understands the rates and the basis of tax for the products underwritten by all cells. In addition, the application of taxes, including use of exemptions and partial exemptions where appropriate.

A cell writing health business will have very different tax applications to consider to a cell writing PDBI. The manager will need a good understanding of the technical aspects of the different taxes and rates that can apply to the business being written to ensure an efficient and compliant programme for each cell. Depending on the resources and skills of the core this may be outsourced to a third-party specialist provider.

Core versus cell IPT compliance obligations

The role of the cell and the core in IPT compliance are very different. Each cell will drive the compliance obligations of the PCC as a whole, but it’s the core that will need to discharge those obligations.   

IPT registration

Tax offices would view the PCC as a single entity seeking a single registration, regardless of the number of cells writing insurance in the jurisdiction. The core, as the legal entity, will be responsible for liaising with their home state regulator to obtain authorisation to write business into other EU/EEA territories.

For Malta PCCs the MFSA would obtain authorisation on the core’s behalf, directly with the regulatory authorities of all territories within scope.

Once the core is licensed to write cross-border business there are often stipulated timeframes as to when the PCC must register for premium tax compliance, which may be handled directly or via an appointed a fiscal agent or representative for this purpose. These can vary from when an authorisation for passporting is submitted, such as in Spain where a 15 day window then requires the core to register with the Hacienda and Consorcio de Compensacion de Seguros, to within a number of days of forming the intention to receive premiums, such as in the UK. In other EU/EEA territories it isn’t essential to register with the IPT authorities until the point premiums have been paid and taxes are due to be reported and settled.

Where the policyholder can be responsible for settlement of charges, such as in Australia, the policyholder may need to consider when to register with the various authorities – it would be in the PCC’s interest to ensure that the cell and its policyholder is well aware of their obligations and responsibilities in this area when writing on a direct basis.

Occasionally there are different authorities in a single territory that the PCC needs to be registered with and separately file and report taxes for parafiscal charges. These include fire brigade charges in countries such as Finland, Germany and Austria, motor guarantee funds in France, Portugal and Greece, and compensation funds in Denmark, Ireland and Spain within Europe. The creation of a new cell writing PDBI, for example, can trigger new registrations for a PCC which had until then maybe only had cells writing general liability risks. 

IPT declaration

To manage the varying tax authority reporting and settlement requirements the core will have the challenge of consolidating data from the various cells. The filing information and declarations will need to be consolidated across all the cells and declared on a single aggregated declaration.

The monthly reporting figure will need to be collated from a variety of sources and the return cannot be finalised until all have been received. Some cells may be able to report very early on in the month, but the core may have to wait for other cells to finalise their figures. The manager will need to be able to ensure that the declaration for all the cells is therefore not jeopardised. Declaring too early can mean the reporting for some cells could be missed, while declaring too late can mean all cells are penalised. 

IPT payments

Tax payments to the authorities should normally accompany the return. The core will therefore also need to ensure that the accounts of the PCC are fully funded by all the relevant cells in time to hit the tax authority reporting deadlines – which vary from monthly, to quarterly, and in some cases annually. 

Additional reporting

As tax authorities cannot continue rate increases to grow revenues, they are seeking more efficient ways of collecting revenues due to them and more sophisticated methods of identifying additional revenue streams. An increase in reporting requirements across Europe in more recent years is indicative of this trend, giving the authorities more efficient collection models and clearer overview of a taxpayer’s affairs. The most notable and onerous reporting in Europe is perhaps found in Italy and Spain, with Portugal also introducing similar provisions. Moving away from aggregated reporting, authorities are increasingly requiring line-by-line policy reporting, including granular details of the policy and the policyholder holder.

It is key that the core is up to date with the varying registration and filing requirements of those tax authorities for the territories in scope, but also important to understand what impact these rules have on both the individual cells and the PCC as a whole.

Client management

The core will have management responsibilities for compliance beyond the day to day filing of the taxes. They will need to ensure that the varying interests of the cells are and the PCC are considered and aligned.

The core will handle all communication and enquiries from the tax authorities, whether relative to fines, penalties or audits, and splitting out accordingly the subsequent impact of requirements of any cell within the PCC. An audit from a tax office interested in the affairs of one cell, can become an audit of all cells.

Some tax jurisdictions allow a degree of flexibility or variability in some aspects of compliance. For example, several authorities permit insurers to use alternative tax points, perhaps allowing the insurer to choose between accounting for IPT on a premium booked basis rather than a premium paid basis. Insurers must normally apply the rule adopted to all their business and this can cause some conflict between cells, with one system working better for one or another.

An IPT challenge for all insurers but is perhaps felt more acutely by captives and especially PCCs, is that of tax prepayments. Most notoriously due in Italy, prepayments of tax arise in several other jurisdictions including Austria, Belgium and Spain. Prepayment rules normally require the insurer to make advanced payments of tax, based on previous tax values and ahead of the tax liabilities being realised. The prepayments are then adjusted up or down once the actual figures are known. The core then has responsibility for recovering the appropriate amount of prefunding from each cell for their share and subsequently track this against the actual tax each cell’s activities generated for that period. New cells being created and old cells being wound up can complicate this further with the previous tax figures of one cell driving the prefunding requirements of another. 

Cell owners lacking experience in insurance and for those emerging managers seeking inroads into the marketplace, can undoubtedly benefit from both the experience and shared services of a PCC in all areas including IPT compliance, with the expertise in the core and access to third party specialists to support and ensure full compliance.

Need more information? Make an enquiry with our IPT experts.

The article was originally published in Captive Review

Written by

Karen Jenner

IPT Client Engagement Director Accounting & Tax

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