Tax evasion through net policy brokerage

Destruction of existence through liability for insurance and sales tax?


Since a ruling by the VG Frankfurt am Main, BaFin has no longer prosecuted violations by intermediaries of the commission fee ban, but insurers are still bound by it under supervisory law. Commissions can be up to more than 38 percent of the initial premium for property insurance business.


Thus, it is obvious for intermediaries and fee-based advisors to provide the insurance coverage “net” to the policyholder without a calculated commission, and to have the customer promise a remuneration for this themselves and largely free of lapse liability. In practice, this often opens the door to tax evasion.


Advice from tax advisor does not protect from punishment

The evasion of taxes and duties is part of everyday life, also in insurance sales. A perennial issue, for example with sales tax, is the broker supervisor paid overhead. VAT is payable because there is regularly no brokerage with end-customer contact, which means that in many cases it is not possible to prove that the service is exempt from VAT.

The cross-country tax advisor will then typically write under the financial statements for the tax return that “the substantive audit of the approaches” had not been the subject of his engagement. For the sales representative, the end result is tax liability for up to more than 10 years, plus interest and penalties. Clean documentation in one’s own files and legally compliant declaration to the tax office might have cost less than half in the end. In addition, the Trade Licensing Office will later determine unreliability and withdraw the license, for example, as an insurance broker.

No less dangerous are pusher columns in open-plan offices, with the task of phoning off certain PKV customer lists, without a registration with the social insurance having taken place for these bogus self-employed persons. Many a sales director at an insurer has advanced millions to such offices in order to be able to look into the mountains with a stovepipe in the insolvency of the sales department.


Insurance tax in the case of fee-based brokerage of net tariffs

In the case of insurance tax, the concept of insurance under insurance law is not relevant. Thus, models of other mutual coverage in common “pots”, such as those used to save premiums, are also covered. If the insurer charges the fee itself and collects it in addition to the premium – with a separate fee agreement – there is no dispute that this is also subject to insurance tax.


Insurance tax or value added tax is usually payable

If no sales tax or insurance tax is charged on a contingency fee charged only by the agent for the brokerage, is it questionable whether this is legitimate? This could be a so-called “evasion” – in terms of tax law, these are arrangements which, purely according to the wording of the law, would lead to the desired effect – in this case exemption from insurance tax – but which ultimately do not have this effect because they essentially have no other economic background than that of saving taxes.

Section 42 of the German Fiscal Code (Abgabenordnung, AO) states, among other things, that “the tax law cannot be circumvented through the abuse of legal structuring options. … An abuse exists if an inappropriate legal arrangement is chosen that leads to a tax advantage for the taxpayer or a third party that is not provided for by law in comparison to an appropriate arrangement.” Arrangements to evade insurance tax will not be recognised in the foreseeable future and not only will a tax arrears payment be due, but it will also be a case of tax evasion.

Particularly critical as possible evasion are models in which there is a tariff premium with full commission payment, but optionally the otherwise same tariff with lower or without included commission can be chosen, whereby the intermediary then agrees this or a corresponding, possibly also lower fee, supposedly free of insurance tax, directly with the policyholder. The insurer who provides products that can be designed in this way may then be accused of aiding and abetting tax evasion.

Value added tax when charging commission for “advice on call”?

Another flaw is whether the fee paid by the policyholder is for fee-for-service brokerage or for fee-for-service insurance advice. In the case of simple tax or insurance advice, sales tax is regularly incurred. Creative intermediaries agreed with their clients that the commission or brokerage paid by the insurer would be compensated on a time basis or as a lump sum for future client consultations at a later date.

Creative design can lead to the additional accrual of value added tax – or to its evasion with the consequence that in the morning the tax investigation department confiscates files and hard drives.

Later, BaFin may order the liquidation of such business models if the customer’s credit balance has been properly accounted for for more than one year, as this would be tantamount to a bank-like deposit business. In addition, private customers could try to demand the complete credit balance, because fee-based consulting is only permitted for insurance brokers in relation to non-consumers, § 34d GewO.


Liability for tax and tax liability

The policyholder owes the tax office the unlawfully uncollected insurance tax, and the intermediary and insurer are liable in addition. It is recommended to policyholders to pay attention to the fact that either an insurance tax (VersSt) is included in the fee or the intermediary commits himself to take over this tax later and to exempt the policyholder from it.

This can be done before a contract is concluded, or for current contracts other than life and health insurance.

Experienced traders among the CCs will also want loan security for exemption. Furthermore, it is advisable to obtain advice expressly in accordance with § 6 VVG directly from the insurer (VR) because of the question of whether there is an insurance tax obligation for the fees paid and how the policyholder should behave.

Since an answer to a simple question would only be a non-binding declaration of knowledge, it is important to expressly request advice in accordance with § 6 VVG for one’s own decision, since the insurer is liable for this. In addition, it would also be necessary to ask whether the insurer waives the right to deduct the insurance tax. to the insured person, should he have to pay them himself.

At the same time, the future policyholder could announce to the intermediary, as well as to the insurer, that he will obtain binding information from the Federal Central Tax Office (BZA) if the result of the statement is not satisfactory.

However, the opposite is more likely to be the case: in the case of net tariffs, the insurer requires a declaration by the policyholder that he will later bear the insurance tax alone. The public prosecutor will then use such declarations as evidence that the policyholder deliberately accepted the possible unlawful tax evasion and thus acted (conditionally) intentionally – and for the insurer and intermediary as evidence of aiding and abetting this.

Particularly if on all sides the obvious clarifying inquiry was renounced with the federal central office for taxes, none of the involved ones will have thereby still a chance after usual criminal jurisdiction to make an unavoidable legal error also only rudimentarily credible.


Questionable quality of model providers?

Intermediaries who want to dedicate themselves to fee-based consulting and are approached by corresponding concept providers and distributors with net policies should demand a corresponding exemption from the distributor for any insurance tax and value added tax back claim, or verifiably from the insurer, furthermore for the costs of legal representation in tax matters, incl. the insurance company. z. e.g. in criminal tax proceedings for evaded insurance tax, as well as for penalties and fines because of this.

The usual terms in the agent’s legal expenses and property damage liability insurance will not provide coverage here.

Obtaining binding information from the BZA Steuern is helpful – therefore, as an intermediary, you should ask the sales department what the result of such an obvious inquiry at the BZA Steuern was. If it was not even inquired, this helps already times to judge the quality of such model suppliers better.


Risks and side effects

With up to more than 10 years of tax liability, significant sums can pile up. If it is more than 50 TEUR, and up to 100 TEUR in evasion, a suspended prison sentence is also possible in addition to a fine. Depending on the landscape, six-figure evasion amounts are sufficient for a prison sentence to no longer be suspended – so with a commission volume of 500 TEUR or more within 10 years, you are a candidate for placement at state expense.

The chargeable binding information by financial authorities is the only recommendable way if a design could already have a borderline appearance. Whoever wants to rely on any so-called “tax expert opinion” must necessarily check (or have checked) whether the expert opinion professionally and in terms of content fulfils about a dozen legal requirements, so that one could later successfully invoke it vis-à-vis tax authorities and the criminal justice system on the grounds of “unavoidable legal error”. Otherwise, any expert will say that this error does not count as exempt from punishment because it was avoidable.


by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm


by courtesy of (released on 2014-12-03)

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About the author

Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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