Foreign tax inspectors may make flying raids on UK companies

Foreign tax chiefs could launch raids on UK insurers, which may unwittingly owe hundreds of millions of pounds.

Treasury officials have discussed other member states' tax authorities paying visits to UK companies to chase up sums owed under European insurance premium tax (IPT) rules, sources said.

Experts believe many companies are unaware that they could be storing up tax liabilities on risks in other European states but insured in the UK.

A European Court of Justice decision in 1999 ordered that if a UK group insures its subsidiaries in other member states it must pay local IPT on their risks - even if the insurance is arranged in the UK and the parent does not charge its subsidiaries for the service.

But until now insurers have not been chased for the payments. That is set to change under moves to coordinate European tax authorities' work.

Indirect tax consultant Bob Jones, of accountant Littlejohn Frazer, said the threat of visits from foreign tax collectors was a wake-up call for UK insurers.

"The potential is there for hundreds of millions of pounds in liabilities," he said.

Mutuals and smaller specialist companies were most at risk of falling foul of the rules. Jones also warned tax inspectors would scrutinise insurers' mechanisms for charging premiums to their foreign subsidiaries. This could create a bureaucratic burden and lead to differences in interpretation, he said.

"It's got the potential to be significantly awkward administratively, not to mention the expense," he said.

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