London, England, December 1, 2010 – A sharp increase in the number of insurance premium tax (IPT) rate rises announced this year proves that governments are focusing more on this tax as a way of repairing public finances, according to insurance tax compliance specialists FiscalReps.
Speaking to an audience of more than 100 insurance and tax compliance professionals at FiscalReps’ annual IPT Forum in London last Friday, chief executive Mike Stalley said: “We have seen more IPT increases announced in the past 12 months than in the previous two years put together. For example, in 2011 the UK and Netherlands will increase their rates, while Bulgaria will introduce IPT for the first time. It is clear that many cash-strapped governments see premium tax as an under-exploited revenue source.”
He continued: “Such frequent rate changes make it more difficult for insurers to stay tax-compliant internationally, but governments’ increased interest in IPT makes compliance more important than ever. Germany and the Netherlands are the most vigilant IPT enforcers, regularly initiating tax inspections, but there is no doubt that other governments will follow suit to maximise their revenues.”
In accordance with the European Union’s Freedom of Services principles, a number of countries have recently ended their requirement for insurers to use locally-based fiscal representatives. However, Stalley explained that many of the traditional obstacles to the self-filing of taxes remain in place: “Although some countries are dropping the need for a local tax representative, they are doing little or nothing to simplify their tax-filing processes. As a result, insurers still face a potential minefield if they seek to pay their taxes directly and without an adequate understanding of local requirements.”
Forum delegates heard a vivid illustration of the intensified compliance pressures and challenges facing insurers through an account of the present situation in Greece. George Zafiriou, managing director of Athens-based brokers and IPT filing experts Comergon, explained that Greece’s public finance crisis has transformed the way the country’s government is pursuing tax revenues. He said: “The Greek government has introduced more financial reforms in the past nine months than in the previous 50 years, and they are going with a vengeance after people they believe are not paying taxes correctly.”
However, Zafiriou said that complying with Greece’s notoriously complex tax law and filing requirements remains a huge challenge for the uninitiated. Core to this problem, he explained, is the fact that Greek law was based on the Napoleonic Code and has since evolved in a piecemeal fashion, creating countless inconsistencies and contradictions. He added that further challenges await the unwary insurer through the great number and variety of IPT and indirect tax rates applied within Greece, not only to insurance classes, but also to coverage types within classes. Lastly, Zafiriou explained that the tax-filing process remains extremely labour-intensive, typically requiring a person to queue for meetings with many different tax-receiving bodies. Zafiriou remarked: “The Internet may have reached Greece, but it has yet to make much impact on the way you can file your taxes there.”
John Wallis, credit manager at Travelers, explained to delegates that greater boardroom sensitivity about tax compliance had changed the way the multinational insurer manages its IPT obligations. Wallis said that, following the introduction of the Sarbanes-Oxley legislation in the United States, Travelers felt obliged to undertake a critical appraisal of the IPT compliance process it had developed in-house. As a result of this review, he and his team concluded their system provided inadequate reassurance that the company was constantly on top of the latest changes in national IPT rates and regulations. Wallis explained that, to overcome this challenge, Travelers chose to replace its in-house solution with taxDNA™ software and fiscal representative services from FiscalReps, which enabled the company to fully meet the compliance demands of Travelers’ board.
Lastly, delegates heard independent economics commentator Roger Nightingale give his assessment of the outlook for international economies and trade over the next several years. Nightingale’s entertainingly delivered, if sobering, insights provided a helpful overview of the economic backdrop that may shape insurance decisions in the coming decade.