The Non-resident Companies (General Insurance Business) Regulations 1999

Explanatory Note

(This note is not part of the Regulations)

These Regulations modify the effect of Chapter IV of Part XVII of the Income and Corporation Taxes Act 1988 (controlled foreign companies) (“Chapter IV”). The modifications relate to companies resident outside the United Kingdom which carry on general insurance business and draw up accounts relating to that business on a non-annual basis (“relevant foreign companies”), being companies in which companies resident in the United Kingdom (“United Kingdom companies”) have a relevant interest within the meaning of section 752A of the 1988 Act (inserted by paragraph 7 of Schedule 17 to the Finance Act 1998 (c. 36)).

The Regulations also amend the Insurance Companies (Reserves) (Tax) Regulations 1996 (S.I. 1996/2991) (“the 1996 Regulations”) so as to provide for the tax treatment of equalisation reserves maintained by controlled foreign companies which are relevant foreign companies.

The Regulations have effect in relation to accounting periods of United Kingdom companies ending on or after 1st July 1999 (the day appointed for the purposes of corporation tax self assessment).

Regulation 1 provides for commencement, citation and effect, and regulation 2 for interpretation.

Regulation 3 provides that Chapter IV shall have effect in relation to relevant foreign companies with the modifications prescribed by regulations 4 to 6.

Regulation 4 inserts a new section 754AA in Chapter IV so as to make provision in relation to details required to be included in company tax returns of United Kingdom companies in circumstances where it is not clear at the time the return is made whether a relevant foreign company controlled by the United Kingdom company is a controlled foreign company within the meaning of Chapter IV in the accounting period concerned.

Regulation 5 inserts a new subsection (4A) in section 755B of the 1988 Act (inserted in Chapter IV by paragraph 14 of Schedule 17 to the Finance Act 1998) which provides, in relation to accounts prepared on a non-annual basis of a controlled foreign company that is a relevant foreign company, that the amount of the deemed replacement provision under subsection (4) of section 755B that may be deducted from the chargeable profits of the relevant foreign company shall not exceed the amount that would have been deductible from those profits if the deemed provision had been an actual provision as mentioned in subsection (2)(a) of section 755B.

Regulation 6 modifies paragraph 2 of Schedule 25 to the 1988 Act (acceptable distribution policy) so as to provide for conditions to be satisfied by a controlled foreign company that is a relevant foreign company in order that the company may qualify as one pursuing an acceptable distribution policy for the purposes of Chapter IV. The conditions are that the final replacement of the technical provision in the accounts of the company takes place not later than the end of the third year following the relevant underwriting year of the company (“the close of the underwriting year”), and that the company pays a dividend in the amount specified in the modifying provision and pays that amount not later than eighteen months after the close of the underwriting year or such later time as the Board of Inland Revenue allow. The modifications of paragraph 2 of Schedule 25 also provide, that where the dividend is not paid to the United Kingdom company concerned on or before the due date, the United Kingdom company is required to amend its company tax return so as to record that the controlled foreign company has not pursued an acceptable distribution policy for the accounting period concerned.

Regulation 7 amends regulation 8 of, and inserts regulations 8A and 8B in, the Insurance Companies (Reserves) (Tax) Regulations 1996 (S.I. 1996/2991). The inserted regulation 8A provides for the tax treatment of reserves equivalent to equalisation reserves in the accounts of controlled foreign companies that are relevant foreign companies in any case where, although the company’s statutory accounts are drawn up on a non-annual basis, its returns of chargeable profits are based on accounts prepared on an annual basis. Regulations 8 and 8A are both expressed to be subject to regulation 8B which disapplies regulations 8 and 8A in any case where the final replacement of the technical provision in the accounts of the controlled foreign company does not take place on or before the third anniversary of the end of the accounting period concerned.