Examples of establishments:
- subsidiary companies
- branches of companies
- representative offices
- offices managed by the businesses’ own staff or by independent persons who have the authority to act for the business as an agency would
- tied selling agents (independent persons who have the authority to act for the business)
- factories and workshops
- mines and quarries
- oil and gas wells
- drilling platforms (fixed to the sea bed).
In addition, it seems to be industry practice to regard a construction site as an establishment. However an establishment must have some degree of permanence, for example a construction project site, in the absence of any other establishment, lasting for six months would not be considered an establishment but one lasting for a year or more would be. This is similar to the test used for direct tax purposes in double taxation agreements.
The status of subsidiaries
It is common for a policy to cover a subsidiary company as well as the parent company. Typically the parent arranges the insurance and pays the premium, which is usually, although not always, recharged to the subsidiary.
Normally a subsidiary would not be an establishment of the parent company as it has a separate legal identity. For tax purposes a contract covering a parent company and a subsidiary can be regarded as covering more than one establishment and if appropriate the premium must be apportioned. For example, if a UK company takes out an employer’s liability policy that also covers its French subsidiary the premium must be apportioned. UK premium tax is due on the proportion that covers the UK parent company but the balance of the premium that covers the overseas subsidiary is subject to French taxes.
Where there is more than one establishment and global risks
It can be possible for more than one establishment to be covered by a policy. For example a UK company may operate two oil-rigs, one within 12 nautical miles of the UK coast and one outside the 12 mile limit. If it takes out an employer’s liability policy covering its staff on both rigs it will be necessary to apportion the premium. Each oil rig constitutes an establishment for regulatory and premium tax purposes. The proportion that covers the first oil rig will be subject to IPT and the balance covering staff on the oil-rig that is outside the 12 mile limit is not subject to IPT.
Establishments
Determining the location of risk for some liability and miscellaneous financial loss insurance can be difficult, particularly when there is no subsidiary company or branch involved, ie a presence for the risk to be attached to.
In these circumstances whether or not there is an establishment for regulatory and fiscal purposes is often determined by reference to the nature of the activity of the insured in the jurisdiction.
The examples provided are only illustrative. In practice underwriters may be asked to underwrite policies where the rules are not clear, in those circumstances they should contact Lloyd's for further guidance.
