UK Trends and Developments Contributed by: Jamela Collins, Sukhbir Kaur, Tadgh Kelly and Oliver White, Temple Legal Protection
In particular, the Court confirmed that the EU member state in which the risk is situated is determined by reference to the establishment or habitual residence of the policyholder whose business risks are insured, and that the manner in which the premium is charged, paid, or understood within a group is legally irrelevant. That analysis translates directly into domestic law. As seen, under Schedule 7A to the Finance Act 1994, as reflected in HMRC guidance IPT04320, the location of an insurance risk is likewise determined by statu- tory rules by reference to habitual residence or estab- lishment at inception rather than by party intention, contractual characterisation, or shared assumption. Accordingly, a defect arising from mis‑location of the insured risk is structural and objective, not contingent on disclosure, notice or fault, and may lawfully be relied upon by an insurer when the insured event occurs. Tax consequences for the client The tax consequences of mis‑locating the insured risk are equally significant. Under the insurance premium tax (IPT) regime, premiums are taxable in the jurisdic - tion where the risk is situated, not where the insurer is established or where the litigation takes place. IPT04320 makes clear that where the risk is situated outside the United Kingdom, UK IPT does not apply; conversely, where a risk is situated in another EEA member state, that state may assert taxing rights over the premium. Where a policy has been written on the assumption that the risk is UK‑located, but is later found to be EEA‑located by reference to habitual residence, this can give rise to retrospective IPT exposure, penalties, and interest, as well as the risk of double taxation if the premium has already been treated as taxable in the UK. The Court of Justice’s decision in Kvaerner plc confirms that internal arrangements, invoicing practic - es, or premium payment structures cannot be used to displace the objective location‑of‑risk rules, precisely to prevent regulatory and indeed fiscal arbitrage. Limits of the UK solicitor financial services exemption in cross-border insurance distribution The Financial Conduct Authority (FCA) guidance since Brexit makes clear that UK insurers and intermediaries must not assume that compliance with UK law alone
is sufficient where insured risks are located in the EEA. Firms are expected to ensure that both the issuance and servicing of insurance contracts comply with the laws and regulatory expectations of the relevant EEA member state, including obtaining local authorisation where required. The FCA has expressly warned that failure to do so risks leaving policyholders unable to receive valid claim payments, an outcome it regards as unac - ceptable. For UK solicitors arranging ATE insurance in EEA‑related litigation, this creates a material risk that UK‑issued policies may fail at the point of claim unless routed through an appropriately authorised EEA insurer. Accordingly, a UK solicitor who meets the EU Direc - tive 2016/97 (Insurance Distribution Directive or IDD) definition of insurance distribution may, in technical terms, need to be registered or authorised in the host EEA jurisdiction if local law treats that conduct as regulated. The UK solicitor financial services exemption should not be treated as a general exemption where UK firms assist EEA‑based clients in arranging litigation insurance. Under the IDD, “insurance distribution” is defined broadly to include advising on, proposing, or carrying out preparatory work in relation to insurance contracts, as well as assisting in their administration and performance, including at claims stage. Whether a UK solicitor is engaging in regulated activity must therefore be assessed first by reference to this activi - ty-based definition, and thereafter by reference to the manner in which that activity is transposed and regu- lated under the law of the relevant EEA member state. The IDD harmonises definitions and conduct stand - ards, but it does not harmonise registration or authori - sation requirements, which remain a matter for national states’ transposition of the IDD. Accordingly, where a UK solicitor engages in insurance distribution activity that is treated under host-state law as regulated insur- ance intermediation, failure to hold the required regis - tration or authorisation exposes the solicitor to enforce- ment action by the relevant EEA host-state regulator.
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