GFIA Annual Report 2023-2024

Taxation

International tax regulation steps up to another dimension

GFIA keeps a close eye on ongoing and upcoming initiatives in the taxation field

By Suzy Zozor, chair of the GFIA Taxation Working Group

For over four years now, the GFIA Taxation Working Group has been closely monitoring the discussions within the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). To address the tax challenges arising from the digitalisation of the economy, these discussions led to a Two-Pillar approach, introduced in October 2021, known as Pillar One and Pillar Two.

Technical Explainers

Pillars One and Two: continued complexity

If all implementation conditions are satisfied, Pillar One will enable the reallocation of excess profits made by in-scope multinational companies to market jurisdictions, beginning in 2025. GFIA has successfully advocated for the exclusion of insurance and reinsurance, classified as Regulated Financial Services, from the scope of Amount A of Pillar One.

Pillar Two introduced two sets of rules in the international tax framework to achieve a global minimum taxation of multinational enterprises:

two interlocking domestic rules: the Income Inclusion Rule (IIR) and the Under-Taxed Payments Rule, which serves as a backstop to the IIR. Both sets of rules are components of the Global anti-Base Erosion (GloBE) rules, and
a treaty-based rule, the Subject to Tax Rule (STTR), which allows developing countries to request the introduction of provisions in double tax treaties to achieve a minimum nominal taxation of 9% on covered payments, such as intra-group insurance and reinsurance premiums.

The latter was officially launched on 19 September 2024, when nine countries signed the STTR Multilateral Instrument in Paris. Ten additional countries also expressed interest in signing the Convention, including two EU member states.

“GFIA has successfully advocated for the exclusion of insurance and reinsurance, classified as Regulated Financial Services, from the scope of Amount A of Pillar One.”

Over fifty jurisdictions have transposed the Pillar Two GloBE rules into their domestic regulations or intend to do so. Meanwhile, discussions at the OECD level continue to refine the guidance on the applicable rules, as well as the framework for reporting requirements and dispute resolution mechanisms. In most implementing countries, the GloBE rules will be applicable to the 2024 fiscal year, with a first reporting requirement due in June 2026.

While the concept of a global minimum tax is relatively simple and straightforward, the GloBE rules are exceptionally complex. In-scope groups will have to comply with a tangle combination of Model Rules, a Commentary to the Model Rules, illustrative examples, harmonised information return, along with an ongoing process of guidance release, and the local domestic transposition of OECD rules.

Pillar Two achieved the introduction of an additional set of rules to the current financial, accounting and tax reporting processes. And on top of this, some jurisdictions are even more creative, and introduce variations or additions to the rules designed by the OECD/G20 Inclusive Framework on BEPS members locally. Transposing these rules to domestic tax regulation thus gives way to operational issues that need to be addressed in a harmonised way to allow for consistent compliance by companies. GFIA sent a note to the OECD Secretariat in August 2024 highlighting a selection of those issues for consideration, as member associations continuously advocate locally for simplification and clarification in the domestic transposition rules.

“The tax challenges of an increasingly digitalised and globalised economy are becoming more acute across jurisdictions.”

The UN unveils the shape of things to come

The tax challenges of an increasingly digitalised and globalised economy are becoming more acute across jurisdictions. Developing and emerging economies thus feel entitled to an improvement of their tax-to-GDP ratio. In such circumstances, the tax framework stemming out of decades of discussions, multilateral agreements and peer reviews at the OECD no longer appears comprehensive, inclusive or fair enough.

The UN Committee of Experts on International Cooperation in Tax Matters started the process of updating the UN Model Double Taxation Convention in light of the new challenges posed by the market. Among issues on their agenda, cross-border insurance and reinsurance appear to need reviewed rules to avoid perceived loopholes in tax resources for jurisdictions where (re)insurers collect premiums.

The Committee first considered introducing modifications to Article 5 on Permanent Establishments and Article 7 on Business Profits of the UN Model Convention to encompass cases of local insurance activities that are currently unaddressed. GFIA, alongside member associations, published a paper explaining the specifics of cross-border insurance and reinsurance and the risk of double taxation that arises from shifting the rationale for taxation from a deemed permanent establishment to the mere collection of premiums in a jurisdiction. The Committee later refined their proposal, with a draft Article 12 C providing for a withholding tax on gross premiums collected in the event of cross-border insurance and reinsurance. GFIA responded, willing to participate in the drafting of the new rules to the taxation of cross-border insurance and reinsurance.

The stakes of the discussions taking place in UN working groups on taxing insurance and reinsurance transactions may rely on how often countries will resort to UN Model Convention clauses in future double tax treaties. But the UN General Assembly gave a mandate to an Ad hoc Tax Committee to work on a renewed framework for international tax cooperation. Furthermore, the statutes of the Committee of Experts on International Cooperation in Tax Matters are said to be changing in 2025…

Something is definitely happening at the UN on tax issues, a slow shifting of powers between the OECD and the UN. Exciting times are upcoming and the GFIA Taxation Working Group stands ready to participate in all discussions relevant to the industry.

Suzy Zozor

France Assureurs

Suzy Zozor

France Assureurs

Print version

Awareness-raising campaigns

Insurers across Europe are involved in a broad range of awareness-raising campaigns. For instance, in Germany, risk-awareness campaigns are implemented jointly by state authorities, consumer protection organisations, the insurance industry, architects and other stakeholders. Their collaboration is built around a common goal: to raise awareness of the effects of climate change and natural hazards, of the benefits of loss prevention, and of best practices as regards natural catastrophe-resilient buildings. The high level of risk awareness in Germany is one of the reasons for the relatively low protection gap; indeed, the insurance penetration rate for natural perils such as storm or hail is more than 90%.
Most European insurance associations have initiatives to raise risk awareness, such as dedicated workshops, events and educational seminars, as well as frequent in-depth articles, themed newsletters, presentations and other publications.
Many French insurers have launched prevention campaigns and also support the campaigns of “Assurance Prévention”, an association founded by the French insurance association (France Assureurs). Assurance Prévention has produced numerous leaflets, infographics, quizzes, etc. to raise awareness of natural risks. Through its initiatives, it aims to develop a “culture of risk prevention” among students and teachers.

The Greek insurance association (HAIC) launched a digital awareness campaign — “Better to know than to think you know” — to provide consumers with useful information about private insurance and to set the record straight on some misperceptions. The campaign consists of six videos to educate the public about how private insurance works. Most of the videos emphasise the need for resilience in the face of natcat risks and the role of insurers in protecting private property. The videos are hosted on the interactive iknow-insurance.gr platform, which allows visitors to do a short quiz to test their knowledge of private insurance and then obtain additional information.
Insurance Sweden is currently working with its members on a common methodology for calculating carbon dioxide emissions during building repairs. The aim is to raise awareness of the impact on CO2 emissions of rebuilding after fire or water damage, and thus of the importance, from that perspective as well, of preventing such damages.
Insurance Sweden published a statistical report in October 2021 on how different municipalities and regions have been affected by damage caused by flooding, storm and fire.
Spotlighting the central role of municipalities in climate-change adaptation, Insurance Sweden ranks Swedish municipalities according to their adaptation work. The methodology is based on the European Commission’s Adaption Support Tool (2013). The ranking is released every other year, the June 2021 version is available here.
UNESPA, the Spanish insurance association, launched a dedicated website in October 2021 — “Naturalmente Protegidos” (Naturally protected) to explain how natcat insurance works in Spain. It focuses on 10 different risks (rain, flood, wind, drought, frost, hail, snow, earthquake, volcanic eruption and lightning) and details for each how insurance covers property, life, harvests and livestock. The website illustrates the success of the Spanish public-private natcat insurance model. It was jointly developed by private insurers (UNESPA), the Consorcio de Compensación de Seguros (CCS) government scheme and Agroseguro, Spain’s agricultural insurance system, and was launched within the framework of Estamos Seguros, UNESPA’s financial education campaign (running since 2016).
In collaboration with CEPYME, the Spanish confederation of SMEs, UNESPA launched in October 2020 “Prevenir para crecer” (Prevent to grow), a website with information on insurance for SMEs. The website highlights potential risks to which SMEs are exposed, including natcat-related risks, and provides advice on how to prevent them.
Insurance Ireland, the Irish insurance association, and a number of Irish insurers have launched consumer blogs and information repositories on their websites to share useful information with consumers about responsible and ESG investing.

Education

The European insurance industry works to increase financial literacy in relation to risk awareness, insurance protection and long-term savings:

The Croatian Insurance Bureau (HUO) launched a first educational project in 2009, “Financial literacy in the Republic of Croatia”, which was followed by a range of educational activities, often implemented jointly with independent insurers. One of these activities, “Safer Tomorrow”, was initiated in 2021, and aims to raise citizens’ awareness of the benefits of insurance. Within the framework of the project, HUO launched several videos and infographics, some of which specifically target young people.
The HUO organises a yearly competition for the best scientific paper, the best graduate thesis and the best undergraduate thesis in the field of insurance. HUO also publishes the “Croatian magazine for INSURANCE”, a scientific journal for professionals to advance good practice in the sector. Finally, some insurers in Croatia created a colouring book for children to promote financial literacy at a young age in a fun and simple way.
In Italy, the ANIA Academy, together with CeTIF (Research Centre on Technologies, Innovation and Finance of the Università Cattolica del Sacro Cuore), launched the second edition (2022) of the 2nd level master’s in insurance management to train professionals and enable them to respond to the challenges of the “new normal”.
ANIA is also collaborating with LUISS Business School to develop a major course in insurance management as part of its Executive Master in Financial Management.
Insurance Europe produces information for consumers as part of its “InsureWisely” financial education initiative. This includes one-pagers on different insurance topics, including how to limit the effects of natural catastrophes.
The French insurance association (France Assureurs) developed a series of educational booklets within the framework of EDUCFI (the French national strategy for economic, budgetary, and financial education), an initiative launched by the French Central Bank. These booklets help users to better understand how insurance works and what insurance products do and do not cover.
The Spanish insurance association (UNESPA) set up a financial education programme for schools, “El Riesgo y Yo” (“The Risk and I”). It involves 40 insurance undertakings and 164 volunteers and aims to give 2 500 teenage school students basic financial knowledge and insights into risk management.