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IPT Challenges: Retrospective Compliance
Insurers often find themselves in a position of needing to declare taxes for reporting periods that have elapsed. Letís take a closer look at the issue of retrospective tax filings, for insurers operating on a Freedom of Service basis in the European Economic Area.
There can be a variety of reasons for an insurer finding itself in a position where it needs to declare premium taxes for prior periods; an analysis of risks covered on an insurance product could highlight that tax should have been paid at a different rate, an internal audit could discover unpaid premium taxes on the balance sheet, premium allocation issues could be uncovered, and many other issues beyond.
If an insurer finds itself in this position, it is crucial to take steps quickly and decisively to settle any unpaid taxes, in order to minimise and mitigate potential penalty and interest charges. The way that retrospective tax filings are treated is not consistent across the EEA, as is often the case where premium taxes are concerned.
Statute of limitations
The first consideration is the statute of limitations in the territory or territories concerned. This refers to the time limit that unpaid taxes are due, or can be pursued by the authorities. This can range from as low as three years to in excess of 10 years in certain territories. In many territories, the time limit can be increased if evasion or other tax offences are suspected. Interestingly, the time limit can also be different when applying for a reclaim; in Italy you have a shorter period of time to reclaim overpaid taxes than you have to declare underpaid taxes. In some cases the limitation is absolute, and it is not possible to declare taxes older than the limitation period, in others it is possible to declare taxes further back than the defined limit.
TMF Groupís local offices are able to discuss such issues with the tax offices around Europe, to ensure that retrospective declarations submitted are acceptable to the tax authorities.
Penalty fees and charges
The main reason to file unpaid taxes quickly and efficiently is to reduce penalty charges. Most tax authorities will apply penalties and interest charges to declarations of unpaid taxes, and these amounts will generally increase as time elapses. Some territories, such as Greece have penalties that increase for each month that the tax is late. Others, such as Italy and the UK, have a differing rate whether for delayed/incorrect returns, or non-submission. On the other hand, a few territories apply a flat fee, which is somewhat more straightforward.
Late registration penalties also have to be considered, where an insurer hasnít registered to pay taxes before tax became due. Interest charges are also applicable in many territories; as one would expect, the amounts increasing the later the submission is. In some territories, mitigation is possible Ė an explanation to the tax authority can reduce the penalties imposed. Demonstrating that an insurer has taken steps to ensure that taxes are paid in a timely fashion going forward can also mitigate penalties, in some cases. TMF Groupís network of local offices work together with clients and the tax authorities to achieve the best possible settlement.
Methods of submission
Another consideration that varies across the EEA is the required method of submission of unpaid taxes. In some territories this can be relatively simple; a letter confirming the amount(s) due, outlining the corresponding periods, or annual returns summarising the new totals. Some territories take a more onerous approach and require that you file corrected returns for each period where the taxes were previously reported incorrectly. In Italy, alongside corrected returns for each period, you have to submit a premium register dating back to the periods where taxes were underpaid - this is an extremely time-consuming process, where precision is essential due to a particularly punitive penalty regime.
Talk to us
TMF Group has been assisting insurers dealing with retrospective compliance alongside their ongoing obligations for over a decade. Our network of European offices brings local expertise to ensure prompt resolution to any issues surrounding retrospective taxes, coordinated centrally by our IPT team in the UK. Our team are happy to discuss any issues around the area of retrospective tax compliance, and are keen to allay any concerns an insurer may have.