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In a volatile tax landscape, the future is digital


Insurers need to start preparing to report in more detail as tax authorities become more digitally driven, says Karen Jenner of Sovos FiscalReps.

Governments across the globe are rapidly looking to technology to support drives to fill tax revenue gaps and speed up tax collection. With digitally driven regulations, some governments are now able to collect an unprecedented amount of data directly from businesses, and insurers like other companies need to start preparing to report faster and in more detail in the not too distant future.

In perhaps the most advanced technology-driven tax initiative, Chile is on its way to taking full control of accurate VAT calculation by collecting increasing amounts of real-time tax transactional data. The onus has subsequently shifted from relying on businesses to report, to the authorities sending them a bill from the data they have collated. Known as eReceipt compliance, this is just one example of increasing real-time tax reporting mandates to hit Latin America, Asia and Europe in the last 18 months.

Although this wave is yet to hit to the insurance premium tax arena, there are suggestions that we are moving in that direction.

The Italians, who require very specific annual reports to be submitted via an online Sistema Interscambio Dati (SID) channel, have led a wave of demand for more increased granular reporting. The Italian tax authority requires Freedom of Service (FoS) insurance companies, as well as domestic insurers, to submit annual Contract and Premium Reports in addition to annual Claims Reports. The level of detail required within the reports is high - including individual tax IDs for each policyholder. Specific annual Motor reports are matched against returns and payments to identify any discrepancies in settlements made.

Although many authorities still rely on paper returns, online filing and payment systems are becoming more common place, already existing within the EU alone in Spain, Finland, Portugal, Hungary, Italy and the UK to name a few. We also continue to see ongoing premium tax rate increases throughout Europe - the UK being an obvious example with three rate increases over the last three years. A rise in audit activity from authorities, either of the insurer or policyholder, leads to further reporting and information requirements. All of these trends in turn affect the insurance buyer who is required to provide more detailed information and data about their business during the renewal process.

Collation of renewal underwriting data is often a difficult and lengthy process for risk managers, and can vary depending on specific broker and underwriter requirements. Historically premium tax reporting or filing requirements post-bind have not driven renewal information requirements, but there is key information required for full compliance with the tax authorities that would be ideally collected prior to quotation:

  • Location of Risk: It is imperative in some territories to have the physical address of each entity insured. In territories such as Australia, the US and Canada, different taxes may apply dependent on the state involved in addition to the need to be able to identify when other parafiscals such as fire brigade charges (FBC) may be due - e.g. in the UK for London based risk, FBC is due although not in other parts of the UK.
  • Insured Values: For some insurance premium tax calculations and parafiscal charges, the values of each individual entity insured and on a per location basis are key. The London FBC is once again a prime example. Additionally, in Iceland, when calculating Avalanche and Landslide Prevention Tax, applicable on property insurance, a very specific fire valuation is required. The valuation is either that given in the Property Register kept by Registers Iceland, or higher if the policy documents show a different amount.
  • Definition of Property: In Spain, calculations with regard to Consorcio charges due on property insurance are renowned for their complexity. In addition to the valuation of the property it is necessary to be able to identify the type of property insured e.g. a dwelling, office, shop, warehouse or industrial risk.

Clearly, what makes it more difficult in providing a definitive list of information required by the policyholder prior to any renewal quotation is the endless (and rarely consistent) local-level laws and specific requirements on a global scale, compounded by the need for additional data at city and state level. This is on top of the specific requirements depending on the class of business being underwritten, programme structure, and any particular demands of the broker and insurer involved.

Intelligent Compliance

As we start to hear more about fintech, and see technology solutions such as blockchain being adopted in the area of global programme management, it is no surprise that these global compliance changes are giving rise to a new, smarter approach to tax - Intelligent Compliance. Combining talent, technology and regulations to create a unified, centralised, proactive compliance strategy can create greater efficiency and improved accuracy, while safeguarding insurance companies from compliance risk and burdens. 
Any technology solution needs to demonstrate:

  • Agility: Technology that is ready for future more onerous obligations, real-time reporting and ever-expanding regulations.
  • Data visibility: A central source of truth is required to ensure visibility into all tax liabilities, rates and applications and to avoid errors, fines, and penalties as well as provide audit defence.
  • Workflows: Seamless workflows that reduce manual data entry, empower automation, and ensure accuracy are essential, removing the need to have detailed tax knowledge to make informed decisions.
  • Reporting and analytics: Tax teams should be focused on innovation, strategy and oversight of the core business. Data analytics and reporting on potential issues, risks and audit triggers are key to empowering tax teams to carry out this function.

A unified, centralised approach not only eases the challenges of keeping up with changing regulations, managing deadlines and reducing risk, it also drives efficiencies, and streamlines cash flow, empowering teams to focus on more innovative, strategic tasks, and ultimately allowing insurers to focus on the core business of underwriting.