In most jurisdictions around the world, insurance premiums are subject to indirect taxation, such as VAT, GST or a specific tax, usually insurance premium tax (IPT), stamp duty or other levies.

Over the past few years and in line with a global trend of governments shifting from direct to indirect taxation, an increasing number of countries have introduced or increased taxes on insurance premiums and parafiscal charges.

In 2015 alone, various European countries such as Malta, Portugal, Slovenia, Italy and the United Kingdom have increased their IPT rates. These taxes also apply to insurers from other EU member states writing under the freedom of services (FOS) regime. The rise in the UK, which the government hopes will generate an additional £8bn of IPT over

the course of the next five years, was completely unexpected. It has raised several questions about transitional arrangements from insurers and brokers regarding the correct tax rate to apply to insurance policies that straddle the implementation date of the rate change.

Outside of Europe, insurers are in particular looking with interest at the introduction of GST in India and VAT in China; both taxes will be applied to insurance premiums, and we will keep you updated on the progress of these implementations in following issues of this newsletter.

If you have any questions, please get in touch. For more information on our IPT Services offering, please visit our IPT microsite at ey.com/IPT

David Bearman Partner

Tom Hilverkus Senior Manager

Welcome to the latest issue!

Issue No. 2, 2015

Global Insurance Premium Tax (IPT) Newsletter

| Global Insurance Premium Tax (IPT) Newsletter Issue No. 2, 20152

Overview

Kosovo

VAT of 18% introduced on most insurance contracts

China

VAT implementation plans for 2016

Tanzania

VAT of 18% introduced on non-life and reinsurance

contracts

United Kingdom

IPT standard rate increased to 9.5%

US — Validus Re Cascading FET court case

Validus Re Federal Excise Tax court case on retrocession

contracts

Italy

Changes to provincial motor IPT rates

San Marino

Insurance Tax exemption introduced for aircraft

insurance contracts

Greece

Changes announced in IPT and Pension Fund parafiscal

charge

Portugal

Increase of IPT in Madeira to 2.5%

Uganda

Withholding Tax reduced on reinsurance to 10%

Latvia

Change announced to scope of Financial and Capital

Market Commission Levy

Luxembourg

Proposal announced to introduce new 3% tax on

motor insurance contracts for civil liability

India

Service Tax increased on all insurance contracts

GST implementation may be delayed in 2016

Denmark

Tax on non-life insurance of 1.1% introduced on roadside assistance and breakdown

coverage

Seychelles

VAT exemptions have been clarified

Australia

Australian Capital Territory: Stamp Duty reduced on

life and non-life insurance contracts

Northern Territory: Stamp Duty exemption introduced on life insurance contracts

3Global Insurance Premium Tax (IPT) Newsletter Issue No. 2, 2015 |

Australia: Australian Capital TerritoryStamp duty decreased The 2015/16 budget for the Australian Capital Territory (ACT) provides for a reduction of the stamp duty for all insurance policies from 1 July 2015. Stamp duty for general insurance will be reduced from 4% to 2% and for life insurance policies that are term, temporary or insurance rider policies from 2% to 1% of the first year’s premium. The stamp duty for all other life insurance contracts remains as 20 cents on the first $2,000, or part of $2,000, of the total sum insured plus four cents for every $200, or part of $200, of the total sum insured that is more than $2,000.

As part of ACT’s taxation reform measures, the stamp duty rate on general insurance is being reduced by 20% each year until 1 July 2016, when the tax rate for general insurance premiums will reduce to nil.

Australia: Northern TerritoryStamp duty abolished on life insuranceStamp duty on life insurance policies has been abolished from 1 July 2015. However, any part of a life insurance policy that relates to a life insurance rider will be taxable as general insurance at the tax rate of 10% of the premium. This change applies to any life insurance policies issued on or after 1 July 2015, other than group insurance policies.

Denmark Change in tax on non-life insuranceRoadside assistance and breakdown coverage supplied by roadside assistance companies has become subject to the 1.1% tax on non-life insurance from 1 July 2015.

Greece IPT increased to 15%IPT has been increased from 16 July 2015 from 10% to 15% and any applicable exemptions in respect of non-life insurance, e.g., marine insurance, have been abolished.

IndiaService Tax increased to 14%The increase in Service Tax levied on non-life insurance and reinsurance policies from 12.36% to 14% has been implemented from 1 June 2015. For life insurance policies the tax rate increased from 3% to 3.5% for premiums payable in the first year and from 1.5% to 1.75% in the subsequent years.

GST implementation may be delayedDue to a delay in passing the GST Constitutional Amendment Bill through the Upper House of Parliament in the Monsoon Session, it is possible that the implementation of GST may be delayed from 1 April 2016 to later in the year, most likely 1 October 2016.

| Global Insurance Premium Tax (IPT) Newsletter Issue No. 2, 20154

ItalyChanges to provincial Insurance Premium Tax rates on motor insurance

► Province of Firenze: The IPT rate applicable to motor insurance policies for cars registered in the province of Firenze has been reduced from 16% to 9% from 1 September 2015, but only for policies taken out by car rental companies and lease companies to cover the risks of their car fleets. For all other motor insurance policies, the tax rate has remained at 16%.

► Province of Pistoia: The IPT rate applicable to motor insurance policies for cars registered in the province of Pistoia has been increased from 15.5% to 16% from 1 September 2015.

KosovoVAT introducedVAT of 18% has been introduced on all insurance premiums from 1 September 2015 except for life, health and reinsurance including related services performed by insurance brokers and insurance agents, which are exempt.

LatviaChange to Levy for Financial and Capital Market CommissionThe scope of the Levy for Financial and Capital Market Commission has been extended to include premiums received by insurance brokers from 16 July 2015. The tax rate is 0.7% from the quarterly totals of insurance premiums received with a minimum tax payable of EUR 150 and a maximum tax payable of EUR 1,000 per year. The levy applies to all insurance brokers, including branches of insurance brokers from either other EU Member States or elsewhere, which are registered in Latvia.

LuxembourgNew insurance tax proposedThe Government has proposed to introduce a new tax of 3% from 1 January 2016 on insurance contracts covering civil liability in respect of the use of motor vehicles registered in Luxembourg.

PortugalIncrease of IPT in MadeiraThe IPT rate applicable to accident, health, life, motor and travel insurance policies has been increased from 2% to 2.5% from 14 August 2015. This change was announced as part of their 2015 budget and brings Madeira into line with the National Medical Emergency Service Fund (INEM) increased tax rate for mainland Portugal, which was effective from 1 January 2015.

San MarinoInsurance Tax exemption introducedAll insurance policies relating to aircraft registered in the San Marino Registry have been exempt from the Insurance Tax of 4% as per Delegated Decree issued on 4 August 2015.

5Global Insurance Premium Tax (IPT) Newsletter Issue No. 2, 2015 |

SeychellesVAT exemptions clarifiedThe VAT rate has changed from 0% to 15% on crop insurance premiums, livestock insurance premiums and marine insurance premiums and remains 0% for marine cargo insurance premiums, insurance premiums under the agriculture disaster and fisheries insurance scheme from 2 April 2015. Marine cargo insurance premiums, insurance premiums under the agriculture disaster and fisheries insurance scheme remain exempt from VAT.

TanzaniaVAT introduced on insurance policiesVAT of 18% has been introduced from 1 July 2015 on all non-life insurance and reinsurance policies. Life and medical insurance policies are exempt, along with reinsurance of these insurance policies.

Uganda Withholding tax reduced on reinsuranceThe withholding tax rate applied to premium payments made in respect of reinsurance policies from Ugandan resident to a non-resident insurer established outside of Uganda has been reduced from 15% to 10% from 1 July 2015.

United Kingdom IPT standard rate increased to 9.5%The standard rate of IPT will be increased from 6% to 9.5% from 1 November 2015 on existing taxable insurance policies.

The increased tax rate applies to all premiums that are treated as received on or after 1 November 2015, except where insurers use a special accounting scheme. If this is the case, the increased tax rate is only charged on premiums relating to policies entered into after 1 November 2015. HM Revenue & Customs (HMRC) have confirmed that from 1 March 2016 the increased tax rate has to be applied to the majority of premiums, irrespective of when the insurance contract was entered into. There have been no additional transitional arrangements around the introduction of the increased tax rate announced by HMRC.

USValidus Re FET court case on retrocessionThe US District of Columbia Court of Appeals in Validus Reinsurance Ltd. has affirmed a federal district court’s grant of summary judgment in favor of a Bermuda-based reinsurance company, concluding that the 1% Federal Excise Tax on reinsurance premiums imposed under Internal Revenue Code Section 4371(3) does not apply to retrocession agreements between two foreign entities. The appellate decision could create refund opportunities for similarly situated offshore reinsurance companies that have entered into retrocession agreements with other offshore reinsurance companies.

6 | Global Insurance Premium Tax (IPT) Newsletter Issue No. 2, 2015

Country focus

Insurance premium taxes in DenmarkUnlike many other countries, Denmark does not have one single tax on insurance premiums. There are several taxes and contributions, which can be considered as taxes on insurance premiums or parafiscal charges relevant to insurance companies.

The Danish taxes on insurance premiums and parafiscal charges are:

► Tax on non-life insurance

► Tax on insurance of pleasure boats

► Tax on third-party insurance on registered motor vehicles

► Environment contribution (motor vehicles)

► Storm duty (fire insurance)

► Contribution to guarantee fund for general insurance companies

In Denmark, taxes on insurance premiums is a niche area which normally does not get a lot of attention. However, because of the variety of taxes and calculation methods it can be very complex. One of the reasons behind this is that there are very few published rulings regarding the taxes. Furthermore, the guidelines issued by the Danish tax authorities are kept very general in nature with regard to the information they contain.

Foreign insurance companiesIn relation to the tax on non-life insurance, foreign insurance companies established outside the EU, Norway, Iceland, the Faroe Islands and Greenland registered for the tax must appoint a Danish fiscal representative.

In relation to the other taxes on insurance premiums, all foreign insurance companies established outside Denmark must appoint a Danish fiscal representative, which is not in line with the EU rules (see ECJ-Case C–678/11, — Commission vs. Spain).

The foreign insurance company and the Danish representative are jointly and severally liable for payment of the tax.

Settlement of taxes on insurance premiumsMost taxes on insurance premiums have to be settled by the insurer. However, in relation to the tax on insurance on pleasure boats, it is the insured/policyholder who has to settle the tax if they are established outside the European Economic Area (EEA).

Failure to register and pay taxes on insurance premiumsIf an insurance company fails to register for a tax on an insurance premium in Denmark, the tax authorities will claim a repayment of unpaid tax going back at least 3 years and they can in special cases go back 10 years.

Tax on non-life insuranceOn 1 January 2013, the existing stamp duty levied on insurance premiums or the sum insured was replaced by the tax on non-life insurance.

In general, all non-life insurance premiums or the sum insured are subject to the tax when:

► The insurance agreement is entered in Denmark

► The risk insured is in Denmark, no matter where the agreement has been entered

► The parties are resident in Denmark, unless no part of the premium is payable in Denmark

7Global Insurance Premium Tax (IPT) Newsletter Issue No. 2, 2015 |

Insurance contracts where the risk of the insurance agreement is in another state within the EEA is not taxable.

Exempt from the tax are:

► Insurances that are taken out by mutual general insurance companies, which are not subject to supervision

► Workers’ compensation insurance

► Sea and transport insurance and air transport insurance

► Credit and third-party guarantees

► Re-insurance contracts

► Third-party liability insurance for motor vehicles

The tax rate is 1.1% of the premium. From a legal standpoint there is no obligation to charge the tax to the policyholder, but this is what happens in practice.

Tax on insurance on pleasure boatsThe tax applies to insurance on pleasure boats based in Denmark, including the boat’s machinery, inventory and equipment. The tax also applies to pleasure boats that solely or partly are used for business purposes.

The rules regarding what constitutes a pleasure boat in Denmark can be complicated. In general, a pleasure boat is considered based in Denmark if it is registered in the Danish register of ships or owned or leased by an individual residing in the Danish customs territory and is insured with respect to navigation within that territory. A pleasure boat owned by an individual residing outside the Danish customs territory, but where the rules on duty free importation are no longer fulfilled, is also considered based in Denmark.

The tax applies to:

► Comprehensive insurance and combination of comprehensive insurances and other insurances

► Fire insurance taken out by private individuals

► Dealer insurances (business insurance) covering pleasure boats

The tax rate is 1.34% of the sum insured. From a legal standpoint there is no obligation to charge the tax to the policyholder, but this is what happens in practice.

Tax on third-party insurance on registered motor vehiclesThe tax applies to third-party insurance on registered motor vehicles, i.e., cars, buses, lorries, vans, motorbikes and mopeds, tractors, trailers, semi-trailers, sidecars and equipment trailers.

The rates differ, and they are:

► 42.9% of the premium for third-party insurance on registered motor vehicles, tractors, trailers, semi-trailers, sidecars and equipment trailers. There is a minimum tax condition, which means that the paid tax must be at least 47.2% of the claims incurred concerning third-party liability insurances in a calendar year.

► 34.4% of the premium for third-party insurance on buses exclusively used for tourists and booked driving according to the law on bus driving. There is a minimum tax condition, which means that the paid tax must be at least 37.8% of the claims incurred concerning third-party liability insurances in a calendar year.

► DKK 230 per policy per year for third-party insurance on three-wheeled electric driven motorbikes and mopeds.

| Global Insurance Premium Tax (IPT) Newsletter Issue No. 2, 20158

Minimum taxThe rules on how to calculate the above mentioned minimum tax are very complex, e.g., there are rules regarding how much of a single insurance premium is included in the calculation and about carrying forward insurance premiums.

Environment contribution (motor vehicles)The contribution applies to insurance on passenger cars, i.e., vehicles used to transport up to nine people (including the driver) and vans weighing less than 3,500kg subject to tax on third-party insurance.

The tax rate is DKK 101 per policy per year. From a legal standpoint there is no obligation to charge the tax to the policyholder, but this is what happens in practice.

Storm duty (fire insurance)The contribution applies to fire insurance on immovable and movable property. The tax rate is DKK 60 per policy per year and is charged to the policyholder. The storm duty is administered by and paid to the Storm Council.

Contribution to guarantee fund for general insurance companies The contribution applies on each general non-life insurance policy and is paid to the guarantee fund for general insurance companies.

The contribution rate is set by the Danish Financial Supervisory Authority, which is a private independent institution set up to manage the fund where the contribution is paid.

However, the payment of the contribution has been temporarily suspended since 2010.

The Faroe Islands and GreenlandThe Faroe Islands and Greenland have their own tax laws. Thus, Danish tax laws on both direct and indirect taxation do not apply to these territories.

John Holm Andreasen Manager

Tel: + 45 73 23 31 31 Email: john.h.andreasen@dk.ey.com

Country focus

9Global Insurance Premium Tax (IPT) Newsletter Issue No. 2, 2015 |

Insurance premium tax exemption on travel insurance policies in SpainThe tax treatment of multi-risk insurance policies can be very complex from a premium tax perspective, as some risks included in the policy could be taxable and others could be exempt.

A clear example of multi-risk policies is a travel insurance policy. These policies usually cover numerous amounts of contingencies that could have a different premium tax treatment if the contingencies were covered on separate insurance policies. Some countries also establish that a travel insurance policy includes health and accident risks, making the taxation of the policy complex.

A clear example of the above can be found in Spain, where in 2014 the Spanish General Tax Directorate1 issued a binding ruling2 in relation to the Spanish Insurance Premium Tax (IPT) treatment on a specific travel insurance policy. The ruling, however, does not cover the Consorcio de Compensacion de Seguros (Consorcio) parafiscal charges application.

The case analysed on the ruling relates to a Spanish branch of a nonresident insurer issuing travel insurance policies in Spain. According to the ruling, the travel policy included an interruption of stay coverage, transfer or repatriation coverage, luggage coverage, travel accident coverage, cancellation and change of flight coverage.

Spanish Insurance Premium Tax Law 13/19963 does not specifically mention travel insurance policies as being exempt. It only states a list of exemptions in which you can find insurance operations related to international transportation of passengers or goods. Therefore, the Spanish branch needed to know what coverages would be exempt and what coverages would be subject to the Spanish 6% IPT rate.

The main point the ruling made was that the contingency covered must have a direct, exclusive and a non-incidental relationship with any international transportation. This means that the covered contingencies have to occur during the international transportation in order to be exempt.

According to the ruling, the exemption would not apply to coverage of a contingency that occurs before the international transportation takes place, such as flight cancellation coverage.

10 | Global Insurance Premium Tax (IPT) Newsletter Issue No. 2, 2015

Adam Alonso Manager

Tel: + 44 20 7951 1494 Email: aalonso@uk.ey.com

1Direccion General de Seguros, in Spanish, is the body that issues binding rulings regarding the tax treatment of the operations consulted.

2Ruling V2490–14.3Ley 13/1996, de 30 de diciembre, de Medida Fiscales, Administrativas y de Orden Social, reguladora del impuesto sobre las Primas de Seguros.

The ruling also states that the international transportation exemption cannot be applied to holiday interruption coverage where compensation could be paid in the event a holiday is interrupted once the destination has been reached.

Regarding luggage and accident coverage, the ruling states that if this is for an incident or loss that occurs during the international transportation phase of the trip, then the exemption will apply, otherwise these coverages are taxable.

Therefore, the conclusion is that the exemption would not apply to those coverages that could be covered separately from the packaged travel policy and which are not related to the international transportation of passengers. With this ruling the Spanish tax authorities are starting to take a more restrictive approach in the application of the exemption in comparison to rulings previously issued.

Finally, it should be pointed out that the ruling can be used as guidance for travel insurance policies, but insurers need to analyse if what has been said by the Spanish Authority fits in with their products and risks covered.

It is possible that following such analysis that a complex apportionment of the premium could be needed to split the elements of coverage into those that meet the international transportation exemption and those that are subject to the 6% IPT rate.

Contacts

11Global Insurance Premium Tax (IPT) Newsletter Issue No. 2, 2015 |

David Bearman Partner

Tel: + 44 20 7951 2249 E mail: dbearman@uk.ey.com

Tom Hilverkus Senior Manager

Tel: + 44 20 7951 8925 Email: thilverkus@uk.ey.com

Russell Brown Manager

Tel: + 44 20 7951 0175 Email: rbrown8@uk.ey.com

Adam Alonso Manager

Tel: + 44 20 7951 1494 Email: aalonso@uk.ey.com

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