Insurance Tax Law Modernisation Act 2021 - and already two decrees from the BMF
The Insurance Tax Law Modernisation Act (VersStRModG) of December 9th, 2020 has now been in force for exactly three months. The Federal Ministry of Finance already feels obliged to publish two multi-page decrees on this. This technique fits in seamlessly with the tendency not to set down democratically legitimated decisions in the law itself, but to record them in an implementing regulation or even a tax decree. This technique, which in the complex field of tax law also describes the critical proximity of the financial administration and the legislature, is unacceptable. Only the judiciary with its central jurisdiction at first instance at the Cologne Fiscal Court as well as the appellate instance can intervene in a corrective manner and, if necessary, also clarify constitutional issues through corresponding referrals to Karlsruhe.
A number of questions were already raised by interested experts during the legislative process, without, however, being able to change the wording of the law in the end.
- The decree on insurance tax for personal insurers (dated 27 January 2021, III C 4 - S 6405/21/10001 :001 (DOK 2021/0095952)), which was published a few weeks ago, immediately raises the question of whether the principle of insurance tax exemption for personal insurance is being called into question. The BMF is endeavouring to exempt from tax exemption by means of a decree the complex regulation on the coverage of such products which, according to their economic effect, do not serve to protect the insured person against risks of illness or life. The newly invented term "risk person" will certainly trigger questions of interpretation. The risk of infection via partially taxable products for the remaining contract area is only inadequately covered by the decree, and the insurers' obligation to collect additional data will trigger costs that will be out of reasonable proportion to the fiscal effect. So was the political goal of opening up the personal insurance segment in favour of the insurance tax the real reason for the amendment to the law after all?
- Under the date of 4 March 2021, the BMF is dealing with § 1 VerStG (III C 4 - S 6400/21/10001:001) due to the changes in content.
- The legislator has also created a new concept in this area with the term "material policyholder", this in § 1 para 5 Insurance Tax Ordinance to the Insurance Tax Act, which is to be read in conjunction with § 1 para 2 sentence 3 of the Act. Unfortunately, the decree does not succeed in clearly describing this concept of the "material policyholder" or the equally strained concept of the "permanent establishment to which the insurance relationship relates" in such a way that taxpayers would receive clear instructions for action. With regard to the term "material policyholder", the intention is apparently to go beyond the group-oriented interpretation of the European Court of Justice as made in the "Kvaerner" decision (C-191/99 of 14.06.2001), so that in all contractual arrangements with policyholders who are not natural persons and which do not concern the special circumstances of § 1 para.2 sentence 1 IPT, the "person to whom the risk is located" is to be decisive. Accordingly, if a non-natural person insures "third-party risks", including those of third parties who are not part of a group, the location of the risk depends on this third person whose risks are covered by the insurance. The intention of the legislator - this can be inferred from the examples in the decree and the explanatory memorandum - is obviously to gain additional tax access in situations in which the policyholder is not resident in Germany, but the insured risk in the sense described can be allocated to Germany. Not a word is said about the fact that, conversely, this must mean that the German right of taxation does not (or no longer) exist for all "material" risks in the aforementioned sense that are not located in the Federal Republic of Germany according to the identically applied rules. As correct as the further development of the principles of the ECJ ruling “Kvaerner” may be, the consequence of the BMF would be astonishing if the view represented here is so shared by the tax authorities. However, the one-sided examples in the decree give rise to fears that the necessary consequence will not be drawn, at least not a word is said about it.
- The decree also does not really comment on the concept of "permanent establishment". It is emphasised that an interpretation in accordance with § 12 AO should apply insofar as the facts of § 1 para. 2 sentence 2 no. 4 VersStG are concerned: an interpretation under EU law should not be considered because the risk is not located in any Member State. The further question whether independent legal entities or, according to the wording of the law, "Unternehmen" are covered by the insurance tax concept of permanent establishment remains unanswered. It seems clear to us from the wording of the law that independent legal entities are not covered in this sense; it is to be feared that the next question of interpretation burdening the affected policyholders and insurance companies will thus only be clarified by the courts.
The legislator and the executive are obviously not aware of, or they accept, that and which effects uncertainties of the content of the law trigger; thus, the insurance company or the broker will, solely from his point of view and for his own protection, regularly request and claim insurance tax from the customer to an extent that covers the tax ambiguities as complete ("fiscal") as possible. Only in a second step will it be possible to clarify the question of the materially correct amount of insurance tax together with the client, if necessary only in lengthy proceedings. This is certainly not helpful for all taxpayers.
Because there is interest and uncertainty about the German legal changes, also and especially in the international insurance market, we have also translated the original German note into this English version; we have also translated the BMF decree to give an impression of the discussion. The translation is not authorised.
Cologne, 11 March 2021