Has the head office or holding company taking out the global cover correctly identified the relevant overseas entities and risks to enable the insurance company to correctly calculate the IPT or parafiscal charges for each applicable jurisdiction? This would be by location of the risk in the EU, but other criteria are used elsewhere. If this has not been done and robustly documented the insured group might be vulnerable to further liability or assessment. A risk assumed to be in the UK on which IPT of 6% has been paid, would if found to be located in another EU country lead to a (probably higher) local IPT charge. The average IPT rate across Europe is 10% and the average assessable period 5.5 years.
Where insurance costs have been reallocated or recharged the VAT position should be validated. In the case of EU corporate groups are the entities in the same local VAT group so that the recharges can be disregarded for VAT purposes? If not, reverse charging probably applies; has this been dealt with correctly? The position beyond the EU will require local knowledge to determine the correct treatment.
With regard to recharges the transfer pricing should be considered. Has the recharge or allocation of insurance premiums been calculated on an arm’s length basis and has this been evidenced satisfactorily? We would expect the method to take account of each local entity’s claims experience and insured value, and how any retentions/limits are attributed to each jurisdiction.
There may also be corporate income tax considerations arising in either the parent or subsidiaries insured in respect of either payments or receipts depending on the nature of the insurance relationships and cash-flows. For example, in respect of payments a tax deduction may not be achieved if the payment is not wholly and exclusively for the benefit of the paying company, if there is not a genuine transfer of risk, or if transfer pricing requirements have not been met. Similarly it may be necessary to review the taxation position in respect of receipts.
Groups should review any multijurisdictional insurance contracts to determine if there are potential exposures to transfer pricing, VAT and/or global IPT or other parafiscal taxes. Where a liability does exist, advisers with international networks can usually assist in mitigating potential exposures, for example by negotiating with the relevant fiscal authority. Consideration should be given to proactive action to identify ways of managing cross-border taxes payable by investigating apportionment of risk and potential alternative allocation keys (whilst remaining compliant from a transfer pricing, VAT and IPT perspective).