The General Insurance Reserves (Tax) (Amendment) Regulations 2003

Amendment of the principal Regulations

5.—(1) Amend regulation 3 (recalculation of technical provisions for the purposes of section 107) as follows.

(2) In paragraph (2), after the definition of “the recalculation date” insert—

““relevant transaction” means any disposal or acquisition (in whole or in part) of the rights or liabilities of—

(a)

a corporate general insurer under a contract of insurance; or

(b)

a reinsurer under a contract of reinsurance;”.

(3) In paragraph (3)—

(a) omit sub-paragraph (b) and the word “and” preceding it;

(b) in Rule 2.1—

(i) for paragraph (a) substitute—

“(a) where the earlier period of account is the general insurer’s first period of account which began on or after 1st January 2000, were provisions made and taken into account for that period, and; and”

(ii) in paragraph (b) for “was provision” substitute “were provisions”;

(c) in Rule 3.1 for “or qualifying contract” substitute “, qualifying contract or relevant transaction”;

(d) for Rule 4.1 substitute—

“4.1.   This Rule applies where either Rule 4.1A or 4.1B is satisfied.

4.1A.   This Rule is satisfied if—

(a) on or after 1st January 2004 a corporate general insurer enters into a qualifying contract, other than a reinsurance to close contract, with another person (“the reinsurer”) and—

(i) the corporate general insurer and the reinsurer are connected companies; or

(ii) the qualifying contract is, or forms part of, a transaction, as a result of which a company connected with the corporate general insurer (“the connected company”) directly or indirectly agrees to meet a liability of the corporate general insurer or any further liability representing that liability, through any number of such agreements (“the replacement agreements”); and

(b) Rule 4.1C applies.

4.1B.   This Rule is satisfied if—

(a) on or after 1st January 2004, as a result of—

(i) a relevant transaction between a corporate general insurer and a company with which it is connected (“a connected company”), or

(ii) a series of transactions having the same effect as a relevant transaction between a corporate general insurer and a connected company,

the connected company directly or indirectly replaces the corporate general insurer as a party to a contract of insurance including by way of novation; and

(b) Rule 4.1C applies.

4.1C.   This Rule applies if the person assuming the liabilities—

(a) is not within the charge to corporation tax in respect of income arising from the qualifying contract or the relevant replacement agreement, assuming there were such income; and

(b) is not a controlled foreign company in relation to which—

(i) an apportionment under section 747(3) falls to be made regarding, or

(ii) section 748(1)(a) applies to,

the accounting period in which the qualifying contract is made.

This is subject to the following qualification.

• This Rule applies only to the extent that the qualifying contract reinsures liabilities represented in technical provisions which the corporate general insurer has previously taken into account.

• In this Rule “the person assuming the liabilities” means, as the case requires, the reinsurer referred to in Rule 4.1A(a) or the connected company referred to in Rule 4.1A(a)(ii).”;

(e) in Rule 4.2—

(i) after “qualifying contract” insert “or the relevant transaction”; and

(ii) in paragraph (a) after “under that contract” insert “or that transaction”;

(f) in Rule 5.4 for “where a foreign currency discount rate is to apply (see regulation 5)” substitute “where the calculations under these Regulations are carried out in Australian dollars, Canadian dollars, euro, Japanese yen, Swiss francs or United States dollars (“the relevant foreign currency”)”;

(g) in Rule 8.1—

(i) in paragraph (b) after “in relation to” insert “the same earlier period of account”; and omit sub-paragraphs (i) and (ii);

(ii) in the words following paragraph (b) after “the adjustment is a deficiency, that is” add “subject to Rule 8A”,

(h) after Rule 8 insert—

“8A.1.   This Rule applies if, in respect of the provisions made for the earlier period of account—

(a) an election has been made under section 107(4) for the earlier period of account in question, and

(b) the result of applying Rule 8 is a deficiency.

8A.2.   Where Rule 8A.1 applies, apply Rules 6 to 8 but, in carrying out the calculation made at the end of the later period of account, add to the amount of the original provisions—

(a) the amount of any losses set off, under section 393 of the Taxes Act (losses other than terminal losses of a trade)(1) against the trading income of the company’s general insurance business for the period of account for which an election under section 107(4) was made in respect of the provisions for the earlier period of account; and

(b) any amount which remains to be set off against the profits of the company’s general insurance business for the period of account for which an election under section 107(4) was made in respect of the provisions for the earlier period of account under—

(i) section 393A of the Taxes Act (trading losses: set off against the profits of the same or an earlier accounting period)(2);

(ii) Chapter 4 of Part 10 of the Taxes Act (group relief);

(iii) section 83 of, and Schedule 8 to the Finance Act 1996 (non-trading deficit on loan relationships)(3);

(iv) paragraph 35 of Schedule 29 to the Finance Act 2002 (non-trading losses on intangible fixed assets); and

(v) other charges on the income of the company;

after treating any other profits of the general insurer for the earlier period as being reduced in priority to the profits of its general insurance business.

This is subject to the following qualifications.

8A.3.   The qualifications referred to in Rule 8A.2 are that—

(a) the total amount added in accordance with it to the provisions for all earlier periods of account taken together shall not exceed the sum of the amounts found under paragraphs (a) and (b) of that Rule; and

(b) the adjustment made under that Rule shall not exceed the amount of the technical provisions for the earlier period of account.

8A.4.   Compare the result of applying Rule 8A.2 with that found before applying it.

• If both the amounts are deficiencies, for the purposes only of Rule 9 the smaller deficiency is the amount referred to in section 107(3).

• If the result of applying Rule 8A.2 is an excess—

  (a)

  it is disregarded for the purposes of section 107(2); and

  (b)

  the deficiency produced by Rule 8 is disregarded for the purposes of section 107(3).

8A.5.   If any amount mentioned in Rule 8A.2 is amended in accordance with any provision of the Taxes Act, the adjustment made under that Rule shall be amended accordingly.”;

(i) in Rule 9.1—

(i) for “at the rate specified” substitute “at the rate or rates specified in respect of the period mentioned below”;

(ii) for “therefrom” substitute “from the amount of such interest”; and

(iii) for the words from “until” to “as if they were accounting periods” substitute “until the stop date”;

(j) after Rule 9.1 insert—

“9.1A.   Interest shall be calculated on the amount of the result of Rule 8 or 8A (as the case requires) in respect of the period—

(a) beginning with the stop date, and

(b) ending with the date when corporation tax for the later period of account becomes due and payable at the rate specified in regulation 3ZA(1) of the Taxes (Interest Rate) Regulations 1989(4),

but as if there were deducted from the amount of such interest corporation tax at the rate fixed for companies generally (within the meaning of section 13(1) of the Taxes Act) for the later period of account.

9.1B.   In Rules 9.1 and 9.1A the “stop date” is the earlier of—

(a) the date when corporation tax for the later period of account becomes due and payable; and

(b) the tenth anniversary of the date on which corporation tax for the earlier period of account became due and payable.

Subsection (1) of section 59D of the Taxes Management Act 1970 (day when corporation tax due and payable)(5) applies for the purposes of this Rule and Rules 9.1 and 9.1A as it applies for the purposes of that section but as if the references in that subsection to an accounting period were to a period of account.”; and

(k) in Rule 9.3 for “sections 92 to 94” substitute “92 to 93A(6)”.

(1)

Section 393 was amended by section 99 of the Finance Act 1990 and section 73 of, and paragraph 8 of Schedule 15, and Part V of Schedule 19 to the Finance Act 1991.

(2)

Section 393A was inserted by section 73(1) of the Finance Act 1991 and amended by paragraph 26 of Schedule 20 to the Finance Act 1996, section 39(1) of the Finance (No. 2) Act 1997 and paragraph 32 of Schedule 2, and the relevant entry in Schedule 4, to the Capital Allowances Act 2001.

(3)

Section 83 was substituted by section 82 of the Finance Act 1998, and amended by paragraph 3 of Schedule 25, and Part 3(12) of Schedule 40, to the Finance Act 2002. Schedule 8 was amended by section 40(2) of the Finance (No. 2) Act 1997, paragraph 64 of Schedule 5 to the Finance Act 1998 and paragraphs 17 to 19 of Schedule 25 to the Finance Act 2002.

(4)

S.I. 1989/1297: regulation 3ZA was inserted by regulation 6 of S.I. 1998/3176 and amended by regulation 2 of S.I. 2000/893.

(5)

Section 59D was substituted by paragraph 29(2) of Schedule 19 to the Finance Act 1998 and amended by section 40(3) of the Finance Act 2002.

(6)

Sections 92 to 94 were substituted by section 105 of the Finance Act 2000. Section 92 was amended by paragraph 88 of Schedule 2 to the Capital Allowances Act 2001 (“CAA ”) and paragraph 2 of Schedule 24 to the Finance Act 2002 (“FA 2002”). Section 93 was amended by paragraph 89 of Schedule 2 to CAA, section 103(4)(b) of, and paragraph 3 of Schedule 24 to, FA 2002 and paragraph 3 of Schedule 27 to the Finance Act 2003. Section 93A was amended by paragraph 3 of Schedule 27 to Finance Act 2003.