PwC study on tax function for the insurance industry in EMEA

Broad consensus on the relevance and backlog demand for the digital transformation

Your expert for questions

Dr. Till Hannig
Partner, EMEA Insurance Tax Leader at PwC Germany
Tel: +49 171 3380235

Companies are in cross-national agreement about the importance of their tax department 

During periods of growing regulatory pressure and the necessary adjustment of company processes to ESG factors, EMEA insurance companies’ tax functions face immense challenges. They must ensure that all regulations are adhered to and that potential risks are managed. They are obliged to ensure maximum transparency – towards the authorities, but also towards stakeholders and employees. 

Overall, tax departments are an important player in the context of strategic corporate governance. This is recognized by most insurance companies that we surveyed for our study on “The tax function of the insurance industry in the EMEA region”. 

Nevertheless, differences can be identified between countries – particularly on the topics of Tax governance and the inclusion of the tax department into IT strategy. Countries vary here enormously and almost all companies surveyed still have tasks to complete.

Study overview

Significance of tax departments in the insurance industry

Most of the insurance companies in the EMEA region (Europe, Middle East, Africa) consider their tax departments to be critical: 88.2% of those surveyed have established their own tax department.

The tax departments of over half of companies (51.5%) report to senior management, underscoring their role in strategic decisions – e.g. in Switzerland. Here, the bulk of the tax function relates to the direct responsibility of the CFO. 

In 42.4% of companies, the tax departments are linked to the finance/accounting area and are thus involved more heavily in financial and compliance processes. This is the case for most companies in the United Kingdom, in particular.

Illustration: Management level responsible to which the taxation department reports (EMEA-wide) - PwC

Tax departments perform a wide range of tasks in insurance companies: Tax reporting tops the list for most companies (94.1%), followed by internal tax consultancy (88.2%) and tax accounting (85.3%). In contrast, measures relating to taxation policy and tax transparency, as well as the issue of income tax, were only undertaken by a fraction of the tax departments of the companies surveyed.

Illustration: Tasks performed by departments/offices of the insurance group that have responsibility for taxation matters. - PwC

Strategic focus and integration 

The tasks that are performed in collaboration with other departments show a clear strategic focus: The tax departments are involved in M&A deals in 80.6% of cases, group-internal restructuring (77.4%) and investment decisions (77.4%). The tax departments are also generally called upon when new products are being launched, to address transfer prices and documentation, for the formation of operating facilities, and for project financing, in order to provide taxation consultancy for implementation and planning.

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The tax function of the insurance industry in the EMEA region

Tax governance in the context of ESG and digital transformation

Dealing with taxation forms is an integral part of responsible entrepreneurial activity and an important point on companies’ ESG agenda. This is why a transparent taxation strategy is attracting increasing attention from investors, customers, and society as a whole. 

The diversity in organisational structures and regulatory requirements in EMEA leads to massive differences with respect to Tax governance: While 68% of companies state that they have an approved taxation strategy, just 39.4% prepare a fiscal transparency report. Depending on the country, fiscal transparency reports are not necessarily a mandatory requirement.

In Italy, for instance, none of the companies surveyed indicated that they had a fiscal transparency report, while in Germany it was just 13% of the companies surveyed. In the United Kingdom, on the other hand, all companies (100%) regularly prepare fiscal transparency reports, because they are obliged to disclose their taxation strategy under the UK Finance Act 2016.

Closely related to the themes of governance and regulation are the implementation of tax compliance management systems (tax CMS), which can be used to establish fundamental processes and the taxation strategy. The implementation of such tax CMSs varies considerably from one country to another: In Germany, 68.8% of companies have implemented a tax CMS pursuant to IDW AS 980, while other countries – South Africa or France – do not report any implementations. Overall, in the EMEA region 40.6% of the insurance companies surveyed have not implemented a tax CMS. 

Illustration: Implementation status of a tax CMS - PwC

In terms of digital transformation, the study shows a backlog among the companies surveyed: Just 15.6% of companies indicate that they have a digital roadmap, while a further 21.9% are in the planning phase. 

Nevertheless, 67.7% of the companies call on IT experts to push ahead with the digitization of tax processes. In the future, this collaboration between IT and the tax function is likely to become more important. Nevertheless, currently there are major differences between the countries: For instance, in Italy and South Africa no exchange appears to take place yet whatsoever between the IT and tax departments.

“Insurers see the relevance of the tax function. However, they must incorporate it more into the digital transformation process in order to reliably meet growing transparency requirements.”

Dr. Till Hannig,EMEA Insurance Tax

Overview of further study findings

Existing personnel structure

The personnel structure of the companies queried varies: Half of the companies have five employees or less, while the personnel strength of the tax department depends to a large extent on the size of the relevant company. The United Kingdom stands out: An average of 24 specialists work here in the insurers’ tax departments, while it is an average of just four in Austria.

Handling deferred taxes

The question in relation to the handling of deferred taxes shows that the majority (65.6%) of companies disclose deferred taxes in line with local accounting standards. In this context, the impact of Pillar II remains to be seen and may require a careful analysis of the specific risks, requirements and business practices of the insurance companies.

Using shared service centers and sourcing

There is a growing trend towards sourcing, and towards outsourcing certain company processes to Shared Service Centers (SSC): 24% of those surveyed indicated that they have an internal SCC. By outsourcing certain taxation processes, insurance companies are keen to concentrate more on their core competencies while efficiently managing their fiscal obligations.

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The tax function of the insurance industry in the EMEA region

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The methodology

For our study we surveyed 40 insurance companies in Austria, Belgium, France, Germany, Ireland, Italy, South Africa, Spain, Sweden, Switzerland, the Netherlands and the United Kingdom. The companies surveyed included property, casualty, life, health and reinsurance.

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Dr. Till Hannig

Dr. Till Hannig

Partner, EMEA Insurance Tax Leader, PwC Germany

Tel: +49 171 3380235