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Unlike Insurance Premium Tax (IPT) where the determination of where tax is due is based on the location of the risk covered, supervision levies are due when the entity carrying out insurance business is deemed to be under the supervisory regime.
In some European Economic Area (“EEA”) Member States, IPT is not employed as a method of taxing insurance business. Instead, there can be levies charged on premium that fund the insurance supervisory authority, or other contributions funding other insurance-related concerns, rather than contributing to the central government tax take.
The Financial Supervisory levy is the only tax charged on insurers active in the Romanian market. However, from July 2015 the Romanian authorities decided to remove this burden from branches of EEA Insurers. Logically it is surprising that the authority excludes a branch of a foreign entity from this levy as a branch is recognised as a permanent establishment in Romania.
In contrast, the Polish Insurance Ombudsman has tightened its control over EEA insurers. Since February 2014, the Ombudsman levy has not only applied to Polish insurers and foreign insurers having a branch in Poland, but also EEA insurers undertaking business in Poland on a Freedom of Services (FOS) basis.
It is therefore interesting to look into these countries; how they define entities with different legal status conducting insurance activities and how they impose the liability of the supervision fees to these entities. The entities concerned are resident insurance companies, branches of EEA Member State insurers (EEA Insurers), EEA Insurers without a local branch carrying out business on a Freedom of Services basis (FOS Insurers), branches of third-country insurers (a permanent establishment), representatives of third-country insurers (not a permanent establishment).
Romania
Romania defines in law the right of an EEA Insurer undertaking businesses in Romania into two categories – FOS Insurers, and Romanian branches of EEA Insurers. The difference between the two determines tax liability. Previously in law, FOS Insurers were exempt from the Policyholder’s Protection Fund contribution; the contribution was only due on Romanian branches of EEA Insurers. In July 2015, however, the legislation changed to emphasise that Romanian branches of EEA Insurers need not pay this levy.
Poland
According to the Polish law, a Polish branch of an EEA Insurer is deemed to be a domestic insurance company, and a FOS Insurer as a foreign insurance company. Although the purpose of the EU single market is to remove restrictions including double taxation burdens in providing goods and services in other EU Member States, the Polish Finance Insurance Ombudsman has started to charge on all foreign insurers including FOS Insurers. Nevertheless, the other two levies, funding the Polish Chamber of Commerce and Finance Supervisory Authority KNF, are not yet charged on the activity of foreign insurance companies.
Croatia
According to the legislation in Croatia, the Supervisory Levy doesn’t concern FOS Insurers as no physical establishment is applicable in this case. The Insurance Act gives definitions to three kinds of legal person. They are “Insurance undertaking”, “Member State and the undertaking”, and “Third country and the undertaking”. Because they all have establishments in Croatia, be it a headquarter or a branch, they are subject to the Supervisory Levy.
Hungary
The Hungarian Supervision Fee is charged on “Hungarian resident insurance companies, Hungarian branches of EEA insurers, and the representatives of third-country insurance companies”. However, the law specifies a lower rate for branches of EEA Insurers. FOS Insurers are not liable for the fee.
Latvia
The Latvian Fund for the Protection of the Insured covers contributors including Latvian resident insurance companies, branches of EEA Insurers and third-country insurers, and FOS Insurers. The levy is due only on premiums that are received from natural persons. In terms of the supervision fee paid to the Financial and Capital Market Commission, FOS Insurers are exempt. However, the rate is lower on branches of EEA insurers than on resident insurance companies and branches of third-country insurers.
Lithuania
In the same vein, the Supervisory Authority Levy isn’t charged on FOS Insurers; and the rate charged to branches of EEA Insurers is two times lower than that on the resident insurers and branches of third-country insurers.
The table below is a summary based on the TMF Group online tax calculation tool, IPT Quote, which provides a clearer view on the issue.