Based on HM Revenue & Customs guidance
If a UK company takes out a political risks policy covering assets of an overseas business establishment or subsidiary, Insurance Premium Tax (IPT) can be due in certain circumstances. For example, if the policy protects the investment of the UK company in the overseas establishment and compensates it for the loss of the capital invested, HM Revenue & Customs consider that the risk relates to the UK company and that UK IPT is payable on the premium. They also believe that a policy covering the equity investment of an UK parent company in an overseas subsidiary is liable to UK IPT.
If the risk can be shown to attach to the overseas establishment or subsidiary, UK IPT will not be due although there may be an exposure to premium taxes in the country where it is located. This could happen, for example, if the overseas establishment or subsidiary is the policyholder or in the case of property where the policy covers its loss through a political action. For policies, which cover buildings and their contents, location is determined by the location of the property.
Underwriters have questioned this interpretation in respect of certain policies but it is suggested that, as a practical measure, the approach advocated by HM Revenue & Customs is followed. The Political Risks Sub-committee of the Lloyd's Market Association (LMA) endorses this approach.
