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The German Federal Tax office is currently reviewing the local activities of over 500 foreign insurers.  With a limited response from insurers to date, there remains open the possibility of action in conjunction with the FSA and HMRC.

The tax authorities are looking to ensure that any foreign insurers writing business in Germany are correctly applying and collecting German insurance premium taxes.  It is part of a pan-European trend for tax authorities to scrutinise the activities of Freedom of Services insurers to ensure they are not missing out on any tax revenues due.

Background to the audit

In May 2009, the Federal Tax Office (BZSt) in Bonn sent the first request to over 500 foreign insurers with German passporting rights.  This followed a similar extensive audit which was carried out in 2005.  Insures who were contacted in 2005 are not affected by this.

In their letter, the BZSt is requesting a list of all policies with risks located in Germany and premium payments received between January 2003 and December 2008.  The list of policies covering the period of 5 years should include details such as the name and address of every insured, co-insurers, premiums, tax charged, class of insurance, interception and expiry date.

The BZSt reserves the right to request certain policies after receiving the list to verify that the risk is located in Germany. The purpose of the audit is to check whether the right tax rates have been applied; they also hope to identify insurers who have not been charging premiums.  In the past, some local tax offices (like Finanzamt Hanover which is in charge of registering UK insurers) have written to insurers as well, requesting them to register for IPT and Fire Brigade tax.  However, this has only affected a few insurers from certain countries.

Most insurers have still not responded.

It seems that the response has been exceptionally low.  This is despite three requests having been sent out.

Richard Asquith of TMF VAT & IPT Services commented: “We believe that many insurers have not received the correspondence on this as the Federal Office has been using the original contact addresses lodged with the German insurance regulator.  This is often different from the current addresses of insurers, which the local State Tax offices maintain.”

Risks of fines and notification to local regulators (e.g. FSA)

Nominal fines of between Eur 250 and Eur 1,000 now apply to any insurer which has not responded in full.  However, the Federal Authorities office will next be reviewing contacting foreign carriers' local insurance regulator for assistance.  This obviously presents a huge reputational risk.

About TMF VAT & IPT Services
TMF VAT & IPT Services provides global VAT & insurance premium tax services (www.tmf-vat.com/european-ipt).  It is part of the TMF Group, which offers accounting and corporate secretarial services through 86 offices in 65 countries.