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Find out more about IPT.
The potential for insurers and captives to write insurance contracts across European borders now extends to over 30 countries. However, European IPT compliance requirements are strict, and often difficult to follow or comply with. TMF IPT Services can help - with professionals in over 30 offices in Europe, and 86 globally, we have the market reach.
Freedom of Services regime
As part of the free market reforms of the European Union in the early 1990's , the single European insurance market was created. This permitted insurers to write insurance risk contracts in any other EU country with a local branch or subsidiary. All that was required was permission from the insurer's local regulator, who facilitated the granting of Passporting Rights with other countries. There was no need to comply with direct taxes (e.g. corporation tax) across Europe.
However, this still left the location of the risk and liablity to indirect taxes open.
2nd Non-Life Insurance Directive
For many years, it was assumed by the European insurance industry that any indirect tax was due in the country where the insurance contract was concluded. This interpretation was corrected in the 2nd Non-Life Insurance Directive, which held that any tax was due in the country where the insurance risk was located. This was further clarified in the European Court of Justice ruling of the Kvaerner Case (2001).
This means, for example, that an insurer or captive writing risk cover in 10 European countries would need to comply with the indirect tax rule in each territory. This can provide many difficulties since the rules and tax rates for the same classes of insurance vary in each EU State.
Insurance Premiums and EU Indirect Tax
The rules on indirect tax for European insurance are initially provided within the EU VAT Directive (originally known as the 6th Directive on EU VAT). This Directive provides the common rules on VAT for member states of the European Union. Members of the EU are required to transpose the EU VAT Directive via local laws. For example, the French General Tax Code and the German Umsatzsteuergesetz.
At present, under the EU VAT Directive, insurance services (and most financial services) are exempt from European VAT. The VAT Directive does though allow individual countries to impose local taxes (Insurance Premium Tax) or levies (Parafiscal Charges) on insurance premiums.
European countries are free to set their own IPT rates and Parafiscal Charges on insurance. At present, harmonisation on European IPT is some way off. It is worth noting that the proposed new Financial Services VAT Directive may bring IPT under its remit.
Find out more about IPT.