London, 23 June 2009 – The UK Government is expected to make changes to tax regulation that will in effect give us our own 'Sarbanes-Oxley' – a move that has major implications for all insurance company leaders, warns leading outsourcing tax compliance firm FiscalReps.
The currently-discussed proposal by Her Majesty’s Revenue & Customs (HMRC) to hold the senior account in a firm personally liable for accurate tax reporting is directly parallel to Section 404 of the US fiscal regulatory framework Sarbanes-Oxley, whose introduction imposed significant compliance burden.
If a company's accountant is found by HMRC's inspectors to have made a "careless or deliberate" mistake over the accounts, he or she could be fined and their employer could also face a financial penalty.
If the move goes ahead, a whole new area of risk for any companies not on top of key taxes like Insurance Premium Tax (IPT) opens up – with the only way to avoid heavy costs being for businesses and insurers alike to immediately take steps to ensure that their tax systems and processes are robust, FiscalReps advises.
“Insurers are increasingly concerned that governments worldwide, and in the UK especially, are looking for ways to increase revenue collection and are therefore toughening their whole auditing process,” warns Chris James, the independent taxation services provider's Chief Executive. “Tax must be properly calculated and accounted for – or the organisation will end up failing its compliance obligations and now individuals could be targets of penalties.”
The risk is particularly acute in less well-known and indirect taxes like IPT. Achieving Insurance Premium Tax compliance is a key challenge for insurers and insureds alike, especially for complex, multi-state corporate policies: since insurance premium tax is not subject to a standard EU code, insurers have to deal with each country individually.
The challenge is only magnified when considering global policy solutions. In the EU the tax is calculated upon the location of the risk, rather than of the insurer or payee. It is therefore as applicable to a US corporation or Bermudian captive as to a European insurance company. Added to this, tax rates and regulations vary widely between states, requiring specialist local knowledge and tailored filing arrangements. And yet in the eyes of tax authorities, the scale of the task is no excuse for non-compliance. Governments are keen to find additional revenue at the best of times, but in the current climate indirect taxes are a harvest ripe for the picking.
“More than ever, insurers and businesses alike face heavy costs if they fail to address their IPT requirements. The economic and regulatory pressures on clawing back the money Whitehall has laid out to save the banks mean insurers caught in the firing line could be facing increasingly costly litigation, extra auditory burden or even worse,” concludes James.
“Don't let a reputation that may have taken decades to build be lost in hours as a result.”
A high resolution image of Chris James can be downloaded here.
FOR FURTHER INFORMATION
+44 (0)20 7664 6310
+44 (0)20 7664 6310
NOTES TO EDITORS:
About the HMRC proposals
Under the proposal introduced in this year’s Budget, senior accounting officers (SAOs) of large UK companies will be required to certify personally that adequate accounting systems are in place to ensure the accuracy of their tax reporting. For this purpose, large companies are defined as those that meet at least two of the following three criteria for the financial year:
• Turnover exceeding £22.8 million;
• Balance sheet total exceeding £11.4 million;
• More than 250 employees.
The proposal applies to ALL taxes (including employment taxes and indirect taxes) and will apply to all large companies liable to UK taxes and duties. This will include UK subsidiaries of foreign companies. The proposal draws on the example of SOX 404 and the obligations placed upon office holders of US corporations with respect to internal controls over financial reporting processes. Whilst it is hoped that this change will not replicate the compliance cost imposed by SOX 404, it will understandably raise concern for senior company officers.
Although in most countries the insurer is deemed responsible for the collection and payment of premium taxes, in practice there is often confusion over which party is given operational responsibility for tax settlement. But the result of a landmark ruling in 2001 by the European Court of Justice (Kvaerner), means that EU national tax authorities can pursue buyers of insurance for any premium taxes not correctly declared or paid by the insurer. IPT is a tax that is paid on insurance premiums in the EU and under different member-specific regimes to protect the client from such an eventuality. Since there is no requirement for IPT harmonisation within the EU, there are presently separate IPT regimes operated by 18 EU member states. The majority of these deem insurance companies to be liable for the collection and payment of premium tax on risks covered within their jurisdiction, regardless of the insurer’s own location. As tax rates, payment methods and regulations vary widely between territories, this represents a considerable administrative burden for insurers covering risks in multiple jurisdictions.
FiscalReps is an independent consultancy that helps insurance businesses to comply with Insurance Premium Tax and parafiscal taxes globally. The company is the European market leader, with a client list that includes many top insurers, brokers and corporate captive owners. Further information is available at www.fiscalreps.com
This press release was distributed by ResponseSource Press Release Wire on behalf of 80:20 Communications Limited in the following categories: Business & Finance, for more information visit https://pressreleasewire.responsesource.com/about.