The French Senate votes against the rise in creditor protection insurance taxation

What is the special insurance contract tax?

The special insurance contract tax (taxe spéciale sur les conventions d'assurances – TSCA) applies to any contracts taken out with French or international insurers, unless exempted by the law, if the risk is located in France or if the policyholder’s domicile or habitual residence is situated there. The tax is paid by policyholders. The taxable amounts collected by insurers are then paid to the French Public Treasury or Social Security Contribution Collection Office (URSSAF), according to the type of policy. 

The TSCA is equal to a percentage of the amounts paid to the insurer (premiums and additional premiums) plus policy fees (e.g. policy amendment fees) and any sums received by the insurer by virtue of the clauses in the insurance policy. The tax, whose rate varies according to the type of policy, is collected annually on the premium due date. 

Until now, for creditor protection policies taken out to cover the repayment of loans if borrowers lose their jobs, become disabled or die, the tax – at the rate of 9% – has only applied to the proportion of insurance premiums paid by policyholders to cover incapacity for work, loss of employment and a proportion of the disability suffered. The proportion of the premiums corresponding to death cover has been exempted from the TSCA.

Will every component of creditor protection insurance be subject to TSCA from 2019 onwards?

The Government Finance Bill for 2019, as adopted by the National Assembly on its first reading, proposed to abolish the exemption from TSCA that currently applies to death cover taken out as part of a creditor protection insurance policy (e.g. for a property loan or other types of credit). This would have made the total amount of creditor protection insurance premiums (including death cover) subject to TSCA at the rate of 9%. Only new creditor protection insurance policies taken out from 1st January 2019 would have been concerned by this measure.

Why make this change?

The French Ministry of Finance considers that it would make the taxation of creditor protection insurance more consistent insofar as disability and loss of employment cover are not exempted. The revenues resulting from this measure would be partly allocated to “Action Logement” – the body responsible for managing employers’ contributions to the building of subsidised housing, with the surplus assigned to the State budget. The aim is to compensate for the losses to be incurred by Action Logement once the PACTE Law (Action Plan for Corporate Growth and Transformation), which is currently being debated in Parliament, is enacted. The PACTE government bill provides for the raising of certain social security thresholds, with the result that certain small companies would no longer be required to contribute to the construction of subsidised housing. The government has undertaken to compensate for this entire loss of revenue. The average estimated additional cost for private borrowers who take out loan insurance from 1st January 2019 would be around €2 to €3 per month, amounting to inflows of €197 million in 2019 according to government forecasts.

Why did the Senators vote against the extension of the TSCA tax base?

On 7 December 2018, the Senate voted against the Government’s wishes and decided to reject this measure on the grounds that it would lead to a rise in the price of creditor protection insurance for new policies taken out from 1st January onwards and could therefore deter current policyholders from renegotiating their policies or changing their insurer. This would defeat the purpose of the scheme, which aims to encourage competition on the creditor protection market by enabling policyholders to change their policies more frequently. In addition, the extension of the TSCA tax base is expected to occur in a context of rising interest rates, starting in H2 2019, which would inevitably have an impact on the cost of property loans at a time when high property prices are making it increasingly hard for the middle classes to access the property market.

The ball is now back in the court of the National Assembly, where members of parliament will have the final say before the end of December …

Sources: Projet de loi de finances (Government Finance Bill) for 2019, as adopted on 7 December 2018 – Les Echos of 19 September 2019