1. Taxing Insurance Products: Travel Insurance Peter Hewitt FTII Head of European Tax Practice, FiscalReps Beverleigh Gunner Client Manager – European Tax Practice, FiscalReps

2. Agenda Overview Problematic areas Country specific examples Questions

3. Overview As a product it can often consist of multiple coverages, such as: Cancellation of travel or of accommodation arranged in connection with travel Delayed or missed departure Curtailment of travel or of the use of accommodation arranged in connection with travel Loss or delayed arrival of baggage Personal injury or illness or expenses of returning home Travel is not a defined class in most territories

4. Problematic Areas Location of Risk The Location of Risk changes depending on the length of a policy. Duration of four months or less - the location of risk is determined by where the policyholder took out the policy Duration of over four months, the location of risk changes to the habitual residence

5. Problematic Areas Apportionment In some countries travel insurance is taxed at a specified rate, on the ‘predominant supply’ basis In others, some form of ‘hybrid rate’ may be required based on an apportionment of the premium to the different component classes Apportionment rules vary, but the main theme is that they are justifiable and reasonable Apportionment

6. Problematic Areas Tax Points To determine when the tax is due for settlement it is necessary to determine the tax point date of the insurance transaction The tax point date will determine the date that the tax must be recorded in the books of the insurers and the date that the tax is due for settlement Again, each country has different rules on application of the tax point date Multiple tax point dates can cause significant internal accounting problems so again a practical solution must be found to manage this Tax Points

7. Inclusive/Exclusive Tax Base Inclusive/Exclusive Basis If the premium is not shown on the invoice, the Italian tax authorities may argue that the premium taxes should be applied on the gross rather than the net premium This calculation would increase the tax and lower the premium each insurer receives Inclusive/Exclusive Basis

8. Inclusive/Exclusive Tax Base Gross Premium:EUR 1,212.50 Net Premium: EUR 1,000.00 IPT Rate: 21.25% IPT: EUR 212.50 The Italian authorities may request that the IPT should be calculated on the gross premium IF the net premium and IPT values are not shown on the invoice. Gross Premium: EUR 1,212.50 Net Premium: EUR 1,000.00 IPT Rate: 21.25% IPT:EUR 257.66 Difference of EUR 45.16 Gross Premium:EUR 1,212.50 Net Premium: EUR 1,000.00 IPT Rate: 21.25% IPT: EUR 212.50 The Italian authorities may request that the IPT should be calculated on the gross premium IF the net premium and IPT values are not shown on the invoice. Gross Premium: EUR 1,212.50 Net Premium: EUR 1,000.00 IPT Rate: 21.25% IPT:EUR 257.66 Difference of EUR 45.16

9. HMRC and Travel Insurance HMRC and Travel Insurance - Standard rated or higher rated? When the higher rate was introduced, it only applied to travel insurance (excluding free travel insurance) when sold by: A travel agent or tour operator; or A person connected to a travel agent or tour operator; or A person paying all or part of the premium, a related fee or commission to a travel agent or tour operator Since 1 August 1998, the scope of the higher rate was been extended to include all taxable travel insurance (including free travel insurance) HMRC and travel insurance - standard rated or higher rated?

10. HMRC and Travel Insurance However… Only insurance policies specifically regarding travel should be taxed at the higher rate. There are some policies which have an incidental travel insurance element such as household insurance covering loss of personal property outside the home. You could argue that these be apportioned between the higher and standard rates but these are not normally seen as a travel policy and therefore, standard rated.

11. Questions