| AILO's ARGUMENTS | COMMENTS |
| Insurance policies are not used for tax avoidance. Life assurance and pensions are already effectively taxed; they are not used for tax evasion purposes. | This is the financial equivalent of the Iraq Information Minister, comical Ali, stating on live TV at the end of the Iraqi war that Iraq had defeated the US army, whilst in the background one could see US tanks rolling onto the Euphrates river banks. A quick online search for EU savings tax & insurance reveals many financial advisers promoting insurance policies as the best solution for the EU savings tax directive. The largest pan European insurer expedited a notice to its distributors to remind potential clients to subscribe before the July 2010 directive savings tax directive exemption deadline.
The only reason the insurance loophole has not been not more widely used is that there are cheaper simpler methods to avoid the savings tax. Only the ill-informed would chose an insurance policy costing 1.5% p.a. to avoid the tax over a Panama International Business Company costing US$ 500 p.a. However, if insurance is the only exemption available, one can be assured it would be the product of choice for tax evaders. |
| Cross border insurance business is minuscule, accounting for less than 6% of total insurance business. Therefore not much tax evasion using insurance does occur. | The amount of unit-linked insurance business emanating from Ireland, Luxembourg, Isle of Man, Jersey, Guernsey, Liechtenstein and Gibraltar account for many billions. This is virtually all cross-border business. In any event, leaving the insurance loophole is the equivalent of leaving a hole in the dike, which would grow as other loopholes were closed. |
Insurance policies are already subject to mandatory automatic reporting. Much documentation was provided to show how fiscal representatives in each Member State are obliged to report cross border policyholders upon maturity or early full or partial surrender. ...the life insurance sector is already highly regulated and subject to effective taxation, and operates in a general environment of tax disclosure. Reporting takes place:- when the policy is taken out: the insurer will provide details of tax due on premiums or of premiums deducted in order to obtain a tax relief.
- during the term of the contract: the insurer will calculate, declare and/or settle tax withheld on surrenders and withdrawals from a policy. Similarly, the insurer will provide annual reporting of the value of a policy for yield orwealth tax purposes.
- at termination of the contract: the insurer will calculate, declare and/or settle tax due on a full surrender of the policy, and in many cases disclose the identity of the policyholder.
| What is glossed over here is that Ireland and Luxembourg dominate EU cross-border insurance savings business, and these have no obligation to report or withhold tax. Not many cross border policyholders subscribe to policies from insurers based elsewhere, e.g. Spain, Germany, France, Italy, etc. Therefore to repeatedly highlight that EU Member States automatically report on insurance policies seems to be intentional misleading. |
| A extension would create an excessive administrative burden and heavy cost for no material benefit. | The same argument put forward by every other finance industry. If this was an issue, then the entire savings tax directive would be scrapped. |
| Insurance polices are used for long-term savings such as retirement, mortgage repayment, children university, etc. Therefore this is not the same as other short-term debt claims. The key element of an insurance contract retirement provision.. | A ridiculous argument as people save for the same purposes, whether using a bank account or insurance wrapper. In fact most insurance policies can be surrendered at anytime, albeit at a penalty. Furthermore, the main reason that insurers levy a early withdrawal penalty is to ensure upfront commission payments are recuperated. |
Insurance costs: Insurers have unique additional costs, such as mortality risk and therefore a risk product is not the same as other debt claim investments. The key element of an insurance contract is risk coverage. | Insurer's solvency margin costs are significantly less than the costs of a bank. The amount for mortality cover ranges from zero for capital redemption to 5%, slightly higher in very few markets. The cost to provide for mortality risk cover is less than 0.2% p.a. Insurers levy a fee of at least 0.5% p.a. well providing for these costs. |
| Extension of the savings tax directive will discourage exercise of consumer choice and selection of pan European interest rates. The perverse effect of the measure is to discourage consumers from fulfilling another governmental objective, i.e. adequate retirement provision. | A dodgy argument implying fiscal benefits are the key consideration in investment decisions. |
| The insurer does not know the ultimate beneficiary, or his residence, until occurrence of the insured event. Also the policyholder is not the legal or beneficial owner of the asset whilst policy is in force. The nomination of beneficiaries ina policy is a feature which distinguishes life insurance from other products. By way of example, the policyholder need not be and, in many cases, is not a beneficiary. | Payout on death is not in scope. Also, the Paying Agent's responsibility for insurance benefits only kicks in when payments or surrenders are made. |
| Extension of the savings directive is a backward step, which will compromise the ability of European life insurers to compete internationally with other insurers. | Insurance benefits from insurers outside the territory will be regarded as interest, within scope. In fact if the outside insurer does not identify the interest portion of the payment, the entire insurance payment is regarded as a benefit. |
| Extension of the savings directive to life insurers is counter productive and unnecessary. It is doubtful that a withholding tax under the savings directive would produce more tax income than is already paid by policyholders; | Throwing anything, hoping something sticks to the wall. |
Problems relating to the policyholder's address:- Upon payment, the address is the trigger for the savings tax provisions. However, the insurer does not keep track of changes in address of policyholder residence.
- The concept of tax residence is not unitary. An individual may be “resident” simultaneously in multiple Member States in respect of different taxes.
- Article 3(3)(b) requires the information to be updated when the official identity document expires. There are no such existing requirements on insurers and the costs and systems implications of adhering to this will dramatically increase insurers administration costs
| These problem relate to Paying Agents for all beneficial owners of all types of investments. |
| Depending on the national rules of each jurisdiction, income on gains may already have been taxed. Member States may already have imposed tax liabilities on the annual change in the policy value. | The insurance industry bases its defense repeatedly on the presumption that all insurance policies are tax compliant and declared. The whole purpose of the savings tax directive is to catch undeclared investors. The vast majority of cross border business is from jurisdictions such as Luxembourg, Ireland, Liechtenstein, Isle of Man, Gibraltar, Jersey and Guernsey, which do not have any reporting or tax withholding obligations. |
| Policyholder may be a trust, and therefore insurer will not be able to identify beneficial owner. | This is the very same problem facing any other Paying Agent, e.g. a bank. - Trust within territory: If the policyholder is a trust based within the savings tax jurisdiction, then the trust will become the Paying Agent Upon receipt.
- Outside the territory: This is a problem that needs to be addressed for all Paying Agents. I advocate that initial settlor be deemed the beneficial owner as per 2(4)(b).
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| The tax point and type of tax due differs in each Member State. For example, the tax trigger can be at policy commencement, during the term, or upon benefit distribution, and the tax due could be income tax, capital gains tax, a special flat rate of tax, wealth or inheritance tax. In some Member States, insurance benefits are not taxable at all, and premiums are taxdeductible in respect of certain “qualifying” policies in order to encourage retirement savings. | It is irrelevant how the insurance is taxed. The aim of the directive is to exchange information so that the EU fiscal authority is aware of the policyholder. |
guideline on the extended definition of interest.