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HMRC internal manual

General Insurance Manual

Double taxation relief: overseas branch profits: foreign taxes on UK insurers where there is no "permanent establishment": premium taxes


True premium taxes (such as the United Kingdom’s insurance premium tax) are in the nature of indirect taxes, and while they are usually collected from the insurer they will normally be passed on to the policy holder by way of an addition to the policy premium. They will invariably be outside the specific taxes listed in any tax treaty; will not be “substantially similar” to the listed taxes; and will not qualify for unilateral relief under ICTA88/S790 because they do not correspond to UK corporation tax. In some states, however, such as Sweden, a proportion of an overseas insurer’s premium income is treated as a deemed profit, which is then subjected to the state’s normal income tax regime. In principle, such taxes qualify for credit relief, subject to the restrictions mentioned below.


The United States federal excise tax is something of a special case. This is charged on insurance and reinsurance premiums paid to foreign insurers at a rate of 4% or 1%. The1975 UK/USA DTC provided an exemption from the tax where the premiums “are the receipts of a business of insurance carried on by an enterprise of the United Kingdom”. Under the 1975 agreement, a UK insurance company was not normally liable to the tax and was not entitled to any credit for it. The 2001 UK/USA DTC, which came into effect on 31 March 2003, amended this so that the exemption does not now apply if the policies are entered into as part of a “conduit arrangement”. UK resident insurers may elect for the 1975 agreement to apply for 2004. Tax Bulletin 70 of March 2004 explains what is meant by a “conduit arrangement”, and sets out the procedure for establishing exemption from FET and the conditions for the election to “grandfather” the 1975 treatment.


A second special case is a somewhat similar tax on insurance and reinsurance premiums that is levied in Argentina. The normal rate is 4%, but in Article 7(4) of the treaty which came into force from 1 January 1998 there is a reduction to 2½% for UK insurers. The Argentine tax (which is technically part of the income tax) qualifies for credit under the treaty. Until 1 January 1998 the tax qualifies for unilateral credit relief, but only to the extent that it is imposed on profits that have their source in Argentina.