Insurance Companies (Taxation of Reinsurance Business) Regulations 1995

JurisdictionUK Non-devolved
CitationSI 1995/1730

1995 No. 1730

INCOME TAX

The Insurance Companies (Taxation of Reinsurance Business) Regulations 1995

Made 7th July 1995

Laid before the House of Commons 7th July 1995

Coming into force 28th July 1995

The Commissioners of Inland Revenue, in exercise of the powers conferred on them by sections 431C(1), 439A and 442A(2) to (6) of the Income and Corporation Taxes Act 19881, and paragraph 58 of Schedule 8 to the Finance Act 1995, hereby make the following Regulations:

S-1 Citation, commencement and effect

Citation, commencement and effect

1. These Regulations may be cited as the Insurance Companies (Taxation of Reinsurance Business) Regulations 1995, shall come into force on 28th July 1995, and shall have effect with respect to accounting periods beginning on or after 1st January 1995.

S-2 Interpretation

Interpretation

2. In these Regulations unless the context otherwise requires—

“accounting period” means an accounting period of a cedant company during which a reinsurance arrangement is in force;

“basic life assurance and general annuity business” has the meaning given by section 431F of the Taxes Act2;

“the Board” means the Commissioners of Inland Revenue;

“deposit-back arrangement” means an arrangement whereby an amount is deposited with the cedant company by the reinsurer;

“EEA Agreement” means the Agreement on the European Economic Area signed at Oporto on 2nd May 19923as adjusted by the Protocol signed at Brussels on 17th March 19934;

“EEA State” means a State, other than the United Kingdom, which is a Contracting Party to the EEA Agreement;

“inspector” includes any officer of the Board;

“internal linked fund” means an account to which an insurance company appropriates certain linked assets and which may be subdivided into units the value of which is determined by the company by reference to the value of those assets;

“investment return” means the investment return to be treated as accruing to a cedant company in respect of a policy pursuant to subsection (1) of section 442A in an accounting period;

“linked assets” has the meaning given by section 432ZA(1) of the Taxes Act5, and “non-linked assets” means assets other than linked assets;

“linked business” means business which comprises the effecting and carrying out by an insurance company of policies where benefits provided for under each policy are to be determined by reference to the value of linked assets;

“morbidity risk” in relation to a policy means the risk that the person whose life is insured by the policy will suffer any sickness, accident or infirmity;

“mortality risk” in relation to a policy means the risk that the person whose life is insured by the policy will die;

“periodical return” has the meaning given by section 431(2) of the Taxes Act;

“policy” includes an annuity contract;

“reinsurance arrangement” means a reinsurance arrangement to which section 442A applies;

“relevant profits” has the meaning given by section 88(3) of the Finance Act 19896;

section 431C”, “section 439A” and “section 442A” mean respectively section 431C, section 439A and section 442A of the Taxes Act;

“90% subsidiary” means a body corporate 90 per cent. or more of whose ordinary share capital is owned directly or indirectly by another body corporate;

“the Taxes Act” means the Income and Corporation Taxes Act 1988.

S-3 Calculation of investment return in sole accounting period

Calculation of investment return in sole accounting period

3.—(1) Where the period during which a reinsurance arrangement is in force falls wholly within a single accounting period, the amount of the investment return in that accounting period (“I”) shall be calculated in accordance with the formula—

where—

C is the aggregate of the sums paid by the reinsurer to the cedant company during that accounting period by way of commission or as a result of the surrender in whole or in part of the rights under the policy or otherwise, but excluding any sum which—

(a) forms part of the relevant profits of the cedant company, or

(b) is paid by way of commission that has been deducted from expenses of management pursuant to section 76(1)(ca) of the Taxes Act7;

P is the aggregate of the sums paid by the cedant company to the reinsurer during that accounting period by way of premium; and

R is the percentage rate of return prescribed by paragraph (2) below.

(2) The percentage rate of return prescribed is 100 per cent.

S-4 Calculation of investment return in first accounting period

Calculation of investment return in first accounting period

4. Where the period during which a reinsurance arrangement is in force falls within more than one accounting period, the amount of the investment return in the first accounting period (“I1”) shall be calculated in accordance with the formula—

where—

P is the aggregate of the sums paid by the cedant company to the reinsurer during that accounting period by way of premium or otherwise;

C is the aggregate of the sums paid by the reinsurer to the cedant company during that accounting period by way of commission or as a result of the surrender in part of the rights under the policy or otherwise; and

R is the percentage rate of return prescribed by regulation 7(2);

but where the result is less than zero, taking the amount to be zero.

S-5 Calculation of investment return in second and subsequent accounting periods other than final accounting period

Calculation of investment return in second and subsequent accounting periods other than final accounting period

5.—(1) Where the period during which a reinsurance arrangement is in force falls within more than one accounting period, the amount of the investment return in the second or any subsequent accounting period other than the final accounting period (“In”) shall be calculated in accordance with the formula—

where—

PÅnÉ is the aggregate of the sums paid by the cedant company to the reinsurer during that accounting period and earlier accounting periods by way of premium or otherwise;

CÅnÉ is the aggregate of the sums paid by the reinsurer to the cedant company during that accounting period and earlier accounting periods by way of commission or as a result of the surrender in part of the rights under the policy or otherwise;

IÅn − 1É is the aggregate amount of the net investment return in previous accounting periods, that is to say, net of tax at the rate prescribed by paragraph (2) below; and

R is the percentage rate of return prescribed by regulation 7(4) or (6), as the case may be;

but where the result is less than zero, taking the amount to be zero.

(2) The rate prescribed by this paragraph is the rate applicable in accordance with section 88(1) of the Finance Act 19898.

S-6 Calculation of investment return in final accounting period

Calculation of investment return in final accounting period

6.—(1) Where the period during which a reinsurance arrangement is in force falls within more than one accounting period, the amount of the investment return in the final accounting period is the amount by which the profit over the whole period during which the policy and the reinsurance arrangement was in force (“the whole period”) exceeds the aggregate of the amounts of the investment returns in earlier accounting periods.

(2) For the purposes of paragraph (1) above, the profit over the whole period is the amount by which the aggregate of the amounts specified in paragraph (3) below exceeds the aggregate of all amounts paid to the reinsurer by way of premiums in respect of the policy.

(3) The amounts specified in this paragraph are—

(a)

(a) any amount payable by the reinsurer to the cedant company as a result of the maturity of the policy concerned;

(b)

(b) so much of any amount payable by the reinsurer as a result of the death, illness, or infirmity of, or accident to, any person as does not exceed the amount which would have been paid by the reinsurer if the policy had been surrendered immediately before the death, illness, infirmity or accident;

(c)

(c) any amount payable by the reinsurer as a result of the surrender in whole of the rights conferred by the policy;

(d)

(d) any amount payable by the reinsurer as a result of the surrender in part of the rights conferred by the policy;

(e)

(e) any amount not falling within any of sub-paragraphs (a) to (d) above which is payable by the reinsurer to the cedant company in respect of the policy, other than an amount which—

(i) forms part of the relevant profits of the cedant company, or

(ii) is paid by way of commission that has been deducted from expenses of management pursuant to section 76(1)(ca) of the Taxes Act.

S-7 Prescribed percentage rates of return for the purposes of regulations 4 and 5

Prescribed percentage rates of return for the purposes of regulations 4 and 5

7.—(1) Where the period during which a reinsurance arrangement is in force falls within more than one accounting period, the percentage rate of return—

(a)

(a) in relation to the first accounting period, is the rate prescribed by paragraph (2) below;

(b)

(b) in relation to any subsequent accounting period other than the final accounting period or an accounting period falling within paragraph (6) below, is the rate prescribed by paragraph (4) below.

(2) The rate prescribed by this paragraph is the rate (“R”) found by the formula—

where—

D is such percentage rate as is specified in any of paragraphs (7) to (10) below and is applicable to the reinsurance arrangement concerned and, if more than such rate is so applicable, is the first applicable rate specified in the order of those paragraphs;

E is the percentage rate which results from applying the formula specified in paragraph (3) below;

F is the number of days in the first accounting period falling after the date prescribed by regulation 8(2); and

G is the number of days in that accounting period;

but where the result is less than zero, taking the rate to be zero.

(3) The formula specified in this paragraph is—

where—

A is the amount of any payment made by...

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