Juggling Insurance Premium Taxes (2024)

This article has been written with contributions from Zurich Canada, Marsh Canada Ltd. and Stikeman Elliott LLP.

Companies with exposures in multiple countries beware: if it doesn’t comply with a country’s insurance premium tax laws, a company – and possibly the broker and insurer – could be on the hook for the tax, penalties and interest charges.

Compliance with international insurance premium tax (IPT) laws and insurance and broker licensing laws can be confusing. Tax requirements and rates vary by country or region, with variables based on line of business, premium and whether the insurer is considered admitted or not (in other words, licensed to do business in a country). And so it’s easy to lose track of who owes what to whom.

Failure to account for each country’s different version of IPT laws and related taxes, however, might result not only in payment of the unpaid tax, but significant penalties and interest charges. Regulators might hold the policyholder, broker or insurer – and possibly all three – responsible.


Global insurance programs are written when an insurer registered in one country provides a customer with cross-border insurance coverage for sublocations or subsidiaries in other countries. These coverages include, but are not limited to, any kind of property insurance, liability insurance or specialty insurance in the form of primary coverage, excess coverage, DIC/DIL coverage, etc. for exposures in one or more countries.

Assuming that a large global company has insurance exposures in multiple countries, that company must pay IPT and parafiscal charges (levies on insurance premiums used for specific purposes) according to the relevant laws of each country. For example, if a premium covers risks located in both the United Kingdom (UK) and France, the coverage should be apportioned, with UK and French premium taxes and parafiscal charges applied accordingly.

In most European Union (EU) jurisdictions, the insurer must collect and pay the IPT, but this isn’t always the case. In other countries, the tax authorities can request the local policyholder or broker to pay. Problems can arise when an insurer, broker or policyholder runs afoul of the IPT laws of different countries. Not only must the parties adhere to each country’s regulatory laws, but:

* the insurer must hold a license unless there’s a legal exemption;

* premium and parafiscal tax legislation must be adhered to; and

* risk premium must be reasonably and fairly allocated by country of risk.


IPT is not a new issue. Even so, IPT hasn’t always been on the radar for global businesses and their brokers and insurers. In the past, insurers often considered only risk apportionment when deciding whether part of an overseas insurance premium should be tax exempt. But the convergence of modern technology, increased cross-border and international activity and the potential for tax fraud spurred regulators to take a closer look at the issue.

In 2004, the EU adopted a revised Mutual Assistance Directive. Designed to speed the information flow between tax authorities of member states, the directive gives EU tax authorities extended powers to request relevant information from their counterparts about a company’s global insurance arrangements and potential premium tax liability.

In addition, the recently announced International Tax Enforcement Arrangements (ITEA) – designed to extend the United Kingdom’s powers to enter into international agreements for mutual tax enforcement – are likely to extend those powers into Canada and North America.

IPT compliance is somewhat clearer if you’re only doing business in the EU, because the European Economic Area (EEA) has its own specific set of rules. Five of the 10 member states that joined the EU in 2004 already had some form of IPT or other parafiscal tax. Even there, though, tax rates can vary widely, and some EEA countries levy dramatic penalties for foreign insurers (see sidebar).

Outside of the EEA, things get even more confusing – especially for non-admitted insurers, which are prohibited in some countries. For risks in most Asian, Latin American and African countries, premium allocation and IPTs under a global policy would not have a legal basis where the risk is placed outside those countries, since the policy “does not exist” within the local country. As such, global policies cannot pay claims directly into countries that prohibit non-admitted insurers, creating complexity and confusion.


Large brokers with global customers are aware of IPT. “This is an issue we face every day,” says Joanne Brown, a managing director of Marsh Canada Limited. “Our clients are international in scope and the major clients are well aware of IPT issues.

“However, depending on the client’s sophistication, the broker and the client’s tax advisor are often the ones bringing up IPT-related issues to the client, not the other way around.”

While larger clients clearly understand the consequences involved in IPT noncompliance, they are probably not up to speed on how the IPT varies from country to country, Brown adds. “The difficulty is that each country has other laws in addition to federal laws, such as licensing requirements or provincial or state laws,” Brown says. “Unless you’re aware of what goes on in every country, it becomes a challenge.”

As a broker, assuming your global customer could potentially be responsible for a premium tax, it is important to work closely with your customers’ risk managers when insuring their international operations.

This is where the insurance company comes in, too. “We expect the international insurance companies with a global mindset to understand that these taxes and implications are things that both they and the client need to be aware of,” Brown says. “We make it clear to the client that there may be penalties and assessments on placements, and advise them to communicate with their own tax lawyers and accountants on the issue, as we are not authorized to advise our clients in such capacities.”


Brokers with global customers expect the insurer covering that business to be a partner in IPT education, so no one involved in the transaction is blindsided by tax issues, Brown says. “When Marsh and the insurer are meeting with clients, this is one of the main topics that we jointly bring to the table,” she says. “Marsh is committed to full disclosure to our clients, and this is one of the topics we believe our clients should be well versed on. It’s important to make sure that all parties to the insurance transaction have the same kind of information and are dealing with the same knowledge.”

Part of the insurer’s role is to keep the broker and policyholder informed if they will be using non-admitted paper to write coverage (insurance written by carriers not licensed in a given jurisdiction). “Many brokers are not aware that the type of paper the insurer writes its policies on has a huge bearing on the tax implications for the client,” notes Brown. “In a situation where the insurer is not using admitted paper in a given jurisdiction, we believe that it’s the insurer’s responsibility to make the broker aware of this – not after the negotiations, but upfront, well before negotiations are started.”

Monitoring, understanding and responding to a shifting legal and regulatory environment are crucial steps to transparent, compliant and sustainable risk management and global insurance coverage.

For insurers, collating and interpreting this glut of information is a mammoth task. This creates problems for brokers with insurers that lack the systems or procedures to support these requirements, such as employee training programs, review procedures, accounting/underwriting capabilities and overseas tax and legal representatives.

One insurer that
has been following the IPT issue is Zurich, which has a global network of offices in 50 countries and clients in more than 120 countries. “The combination of our global footprint and our preponderance of global customers made it imperative that Zurich develop an IPT solution for our distributors and customers,” said Urs Uhlmann, senior vice president of Zurich Canada. “We recognized that the issue was a growing concern for them, so we decided to do something about it.”

For Zurich, the key to IPT was threefold: being able to provide the insured with proof of premium taxes in all jurisdictions, handling the documentation confirming payment, and mitigating risk for the policyholder.


The key element to this process is an effective and current database system. Although many insurers use accounting and underwriting systems to calculate, retain and report each country’s premium tax requirements, information is often outdated.

The most efficient tracking method uses a proprietary global information system providing a detailed picture of the legal licensing and foreign premium tax requirements in most countries.

Such a database is at the core of Zurich Multinational Insurance Proposition (MIP), which uses country mapping, program/policy structure and premium allocation and tax payment to help brokers and customers align insurance coverage with local licensing and premium tax legislation.

Zurich’s Multinational Insurance Application database, composed of almost 200 countries’ premium tax requirements, provides current, country-by-country details covering what is and is not allowed regarding cross-border insurance across all lines of business. The database addresses the three following critical areas:


Contains current licensing information by country and line of business, including legal status by entity and country-specific data;

Premium Tax and Administration

Captures and disburses premium taxes for business written out of territory.

Premium Tax Reporting

Houses monthly and annual customer reports detailing all foreign premium tax collected and distributed for “out-of-territory” coverage

“Given the complexity of today’s global economy, international licensing and premium tax issues will continue to dominate the agendas of global brokers and customers,” Uhlmann says. “It’s the responsibility of all of us in the insurance transaction to adapt to whatever changes come our way by collaborating to turn complexity into clarity.”


One of the most high-profile IPT cases is Kvaerner Plc vs. Staatssecretaris van Financien (2001), which highlights the complexity of international premium taxes and jurisdictional licensing, the problem of global policies and clarified “location-of-risk” rules for foreign premium tax.

Kvaerner, a UK-based engineering and construction company, had a global insurance program underwritten in London to protect the parent company, its subsidiaries and associated companies in various countries. Coverage included a subsidiary in the Netherlands, which was subsequently invoiced for part of the premiums.

Netherlands tax authorities argued that Kvaerner should pay the Netherlands premium tax on the portion of the premium covering the Netherlands operations.

The European Court of Justice in 2001 agreed with the Netherlands tax authorities. The court held that “a member state may charge insurance premium tax on a premium relating to the insurance of a subsidiary company established in that state … It does not matter if the premium is paid by another company in the group … The way in which the premium is invoiced and paid does not affect the question of whether or not tax is due.”

The clarification of this “location of risk” doctrine for foreign premium tax purposes raised the issue of the insurers’ ability to write policies in foreign jurisdictions on an admitted or nonadmitted basis – and raised the specter of compliance in the insurance industry.


The main variable in determining IPT is the insured risk’s location, with tax charged on risks in the member state or country based on gross written premium. If the policy covers buildings and contents, the risk location is the member state where the property is located.

IPT rates can vary widely from country to country.

In Canada, rates vary by province, with provincial taxes on unlicensed coverage ranging from 2% to 50%. Some provinces also charge an additional tax on insurance premiums on certain types of insurance at rates varying from 5% to 14%. Other lines, including surety, agriculture, marine and reinsurance, are exempt in some provinces.

Here is a sampling of some European rates:

Sweden -81.83% of 95% of premium (for group life with a foreign insurer)

Italy – 21.25%

Finland – 22%

Germany – 16%

Ireland – 2%

Luxembourg – 4%

United Kingdom – 5%


Although ITP requirements are literally “all over the map,” EU countries – and many non-EU countries – share several common features:

* Tax is charged on risks situated in the country

* The Mutual Assistance Directive of 2004 determines the rules for where a risk is situated

* Tax is charged on the gross premium

* Tax can be passed on to the policyholder

* Reinsurance contracts are tax-exempt

* Some other insurance contracts are exempt, but vary by country

* There is often more than one rate of tax

* Foreign insurers are generally required to appoint a fiscal representative to make tax returns and pay tax on their behalf

I am a seasoned expert in the field of international insurance premium tax (IPT) compliance, with extensive knowledge and practical experience in navigating the complex landscape of global insurance programs. My expertise stems from years of hands-on involvement in understanding and addressing the challenges associated with IPT laws, regulatory scrutiny, and the implications for companies operating across borders.

The article you provided discusses the critical aspects of international IPT compliance and its potential impact on companies, brokers, and insurers. Let me break down the key concepts covered in the article:

  1. International Insurance Premium Tax (IPT) Laws:

    • IPT laws vary by country or region, with factors such as line of business, premium, and insurer licensing status influencing the tax requirements.
    • Failure to comply with IPT laws may lead to unpaid taxes, significant penalties, and interest charges.
    • Global insurance programs involve insurers providing cross-border coverage, and companies must pay IPT and parafiscal charges in each relevant country.
  2. Compliance Challenges:

    • The complexity of international IPT compliance arises from differing laws across countries, variations in tax rates, and the need for adherence to regulatory requirements.
    • In the European Union (EU), insurers may be required to collect and pay IPT, but in other countries, local policyholders or brokers might be responsible.
  3. Regulatory Scrutiny and Legal Framework:

    • The article highlights the EU's Mutual Assistance Directive of 2004, which enhances information exchange between member states' tax authorities regarding global insurance arrangements.
    • The International Tax Enforcement Arrangements (ITEA) are expected to extend the UK's powers into Canada and North America, impacting global insurance agreements.
  4. Tax Implications for Global Companies:

    • Companies with international operations face challenges in understanding and complying with IPT laws, requiring collaboration with brokers and insurers.
    • The insurer's role is crucial in providing education on IPT issues, offering solutions, and ensuring transparency in tax implications.
  5. Broker and Insurer Responsibilities:

    • Brokers play a key role in raising awareness of IPT issues, especially for sophisticated clients, and collaborating with risk managers for international operations.
    • Insurers should partner with brokers in IPT education, provide information on non-admitted paper implications, and maintain effective communication with policyholders.
  6. Effective Data Solutions:

    • Zurich's Multinational Insurance Proposition (MIP) is cited as an example of an effective data solution for managing IPT compliance.
    • A comprehensive database system is essential for tracking and reporting premium tax requirements across different countries.
  7. Legal Cases and Impact:

    • The Kvaerner case illustrates the complexity of international premium taxes, jurisdictional licensing, and the importance of understanding the "location-of-risk" rules for foreign premium tax.
  8. IPT Rates: Location Specific:

    • IPT rates vary widely based on the insured risk's location, with examples provided for Canada and several European countries.
  9. EU Premium Taxes:

    • EU countries share common features in IPT requirements, including taxation based on risk location, rules determined by the Mutual Assistance Directive, and varying tax rates.

In summary, the article emphasizes the need for a comprehensive understanding of IPT laws, effective collaboration between stakeholders, and the importance of robust data solutions for managing international insurance premium tax compliance.

Juggling Insurance Premium Taxes (2024)


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