Wave of tax demands rolling towards insurers
The article was first published in Versicherungsmonitor on April 28.
Transport goods insurance has come under scrutiny from the tax authorities. Insurers offering transport insurance policies have been facing increasing tax demands for some time now. The reason for this is a ruling by the Federal Fiscal Court that is over a decade old, which tax auditors have recently discovered.
Tax audits are generally considered a nuisance. As long as they are only a nuisance, they are dismissed as an unavoidable part of doing business. However, when the companies being audited stand to lose money, things tend to get unpleasant. This is exactly what is currently happening to a steadily growing number of insurers that have transport insurance policies in their portfolios.
The starting point for this development is a ruling by the Federal Fiscal Court (BFH) dated December 13, 2011 (Ref. II R 26/10). In this ruling, the BFH stated that tax exemption can only be claimed for so-called insurance packages if the premium portion attributable to the tax-exempt insurance component is shown separately.
In a letter dated July 31, 2013, the Federal Ministry of Finance (BMF) recognized the conditions established by the BFH for the tax treatment of insurance packages. At the same time, it explained in more detail in the letter under what conditions and in what form insurance premiums must be shown separately as part of an insurance package. However, it was not necessary to amend existing contracts concluded before the BFH ruling was announced. In this respect, it should be sufficient if the necessary breakdown is made in the premium invoice in future.
Applicable to transport goods insurance?
What does all this have to do with transport insurance? Under the conditions set out in Section 4 (1) No. 10 of the Insurance Tax Act (VersStG), transport goods insurance is also exempt from insurance tax. However, the problem is that transport insurance policies are often offered in conjunction with other types of insurance. As a result, the BFH ruling on the taxation of insurance packages may be applicable. At least, that is how the tax authorities see it.
However, the insurers do not want to accept the additional tax claims. They have two options for avoiding the tax burden. On the one hand, they can take action against the additional tax assessment in the traditional manner. On the other hand, they also have the option of passing on the additional taxes to their policyholders. The right to exemption from a tax claim by the tax office is based on Section 426 (1) of the German Civil Code (BGB). This is because, according to Section 7 (8) of the Tax Payment Act (VersStG), the tax debtor and the tax payment debtor are genuine joint and several debtors.
Of course, it is important to keep an eye on the "statute of limitations." The joint and several liability claim under Section 426(1) BGB is subject to the three-year statute of limitations under Sections 195 and 199 BGB. Since the limitation period begins at the end of the year in which the claim arose and the creditor became aware of the circumstances giving rise to the claim and the identity of the debtor, the limitation period is likely to begin to run only upon notification of the tax assessment notice, subject to specific circumstances in individual cases.
Tax issues still unresolved
Insurance policyholders are understandably less than enthusiastic when, many years after concluding a contract, they are suddenly required by insurers to pay back insurance tax that has been levied retrospectively. The reflex reaction is often to accuse insurers of failing to draft the contract in such a way as to avoid the accrual of insurance tax.
However, this argument can regularly be countered by the fact that an insurer has no duty to provide information regarding the most favorable legal or tax structure. Whether brokers involved can also fall back on this position is at least debatable.
The majority of tax and legal questions that arise for insurers and policyholders in connection with additional tax claims for transport insurance contracts are currently still unanswered. This is mainly due to the lengthy duration of the appeal proceedings and, in particular, the subsequent fiscal court proceedings. Many of these proceedings have only just begun, so it will probably be some time before there is a realistic chance of breaking the wave of additional tax claims.
