The Insurance Companies (Taxation of Re-insurance Business) Regulations 2018

PART 3 Section 90 of the Act – tax treatment of the cedant - prescribed arrangements

Section 90 of the Act – tax treatment of the cedant - prescribed arrangements

7.  Except where regulation 13(2) applies, the re-insurance arrangements prescribed in this Part are excluded from the operation of section 90 of the Act(1).

Excluded and non-excluded business

8.—(1) A re-insurance arrangement is prescribed where condition 1 or 2 is satisfied in relation to the arrangement.

(2) Condition 1 is satisfied where the business being re-insured is excluded business by virtue of regulation 5 and—

(a) in cases where the re-insurer is resident in the UK, where section 68 of the Act applies to the re-insurer in respect of the investment return; or

(b) in cases where the re-insurer is resident outside of the UK and the re-insurance arrangement is effected by the re-insurer through a permanent establishment situated in the UK, where section 68 of the Act applies to the permanent establishment in respect of the investment return.

(3) Condition 2 is satisfied where—

(a) section 68 of the Act applies to the cedant in respect of the investment return on the backing assets; and

(b) if an amount is due by the cedant to the re-insurer in return for the cedant having use of the backing assets, none of the amount reduces the I minus E profit of the cedant.

Cedant and re-insurer being group companies: re-insurer not resident in the UK

9.—(1) A re-insurance arrangement is prescribed where conditions 1 to 5 are satisfied in relation to the arrangement.

(2) Condition 1 is satisfied where—

(a) the cedant (“C”) is a 90% subsidiary of the re-insurer (“R”);

(b) R is a 90% subsidiary of C; or

(c) C and R are both 90% subsidiaries of the same body corporate.

(3) Condition 2 is satisfied where—

(a) C is resident in the UK; or

(b) C is resident outside of the UK and the re-insurance arrangement is effected by C through a permanent establishment of C situated in the UK.

(4) Condition 3 is satisfied—

(a) in cases where the re-insurance arrangement is not effected with a permanent establishment of R, where—

(i) R is resident in an EEA state (other than the UK where the UK is a member of the EEA); and

(ii) R is chargeable to tax under the laws of the territory in which it is resident in respect of the investment return; or

(b) in cases where the re-insurance arrangement is effected with a permanent establishment of R, where—

(i) R is resident in an EEA state (other than the UK where the UK is a member of the EEA);

(ii) the permanent establishment of R is not situated in the UK; and

(iii) the permanent establishment of R is chargeable to tax under the laws of the territory in which it is situated in respect of the investment return.

(5) Condition 4 is satisfied where none of the obligations of R under the re-insurance arrangement are subject to a further re-insurance arrangement.

(6) Condition 5 is satisfied where—

(a) the charge to tax on the investment return is on a basis equivalent to that of the I minus E rule; and

(b) the rate of tax on the investment return is no less than the policyholder’s rate of tax(2).

Non-investment risk arrangements

10.  A non-investment risk arrangement is prescribed.

Re-insurance of protection business and of immediate needs annuities

11.  A re-insurance arrangement is prescribed where the business being re-insured—

(a) is protection business, within the meaning given by section 62 of the Act but as if subsection (2)(b) referred to a contract made before 1st January 2013; or

(b) is business which consists of the effecting or carrying out of immediate needs annuities, referred to in section 57(2)(d) of the Act.

(1)

By virtue of section 90(1) to (3) of the Act, where risk in respect of a policy or contract attributable to an insurance company’s BLAGAB is re-insured, for the purposes of the I minus E rules the investment return is treated as accruing to the company. By section 90(5)(c), such descriptions of re-insurance arrangement as are prescribed by regulations are excluded from the operation of section 90. See also section 90(6) by virtue of which no re-insurance arrangement may be prescribed where the policy or contract was made, and the re-insurance arrangement effected, before 29th November 1994.

(2)

For policyholder’s rate of tax, see section 102 of the Act.