The Insurance Companies (Taxation of Reinsurance Business) (Amendment No. 2) Regulations 2003

Explanatory Note

(This note is not part of the Regulations)

These Regulations amend the Insurance Companies (Taxation of Reinsurance Business) Regulations 1995 (S.I. 1995/1730) (“the principal Regulations”). The principal Regulations make provision for the purposes of section 442A of the Income and Corporation Taxes Act 1988 (c. 1) (“the Taxes Act”) in relation to the calculation of the investment return on an insurance policy or annuity contract which is the subject of a reinsurance arrangement.

Regulation 1 provides for citation, commencement and effect. Authority for the retrospective effect of certain of the amendments is given by paragraph 58 of Schedule 8 to the Finance Act 1995 (c. 4).

Regulation 2 introduces the amendments to the principal Regulations.

Regulation 3 amends regulation 2 (interpretation).

Regulations 4 and 5 amend regulations 4 (calculation of investment return in first accounting period) and 5 (calculation of investment return in second and subsequent accounting periods other than final accounting period) respectively, in particular so as to allow the investment return to be less than zero in certain circumstances.

Regulation 6 amends regulation 6 (calculation of investment return in final accounting period) so as to modify the way in which the investment return in earlier accounting periods is calculated for the purposes of calculating the investment return in the final accounting period.

Regulation 7 amends regulation 7 (prescribed percentage rates of return for the purposes of regulations 4 and 5). The amendments allow the investment return to be less than zero. They also change the method of calculation so as to take account of the fact that the investment return may consist wholly or partly of dividends and other distributions of companies resident in the United Kingdom (which, if received directly by the cedant company, would be exempt from corporation tax).

Regulation 8 inserts a new regulation 7A (treatment of amounts of investment return which are less than zero).

Regulation 9 amends regulation 9 (exclusion of certain reinsurance arrangements from section 442A) so as to extend the types of reinsurance arrangement that are excluded from the operation of section 442A of the Taxes Act.

Regulation 10 amends regulation 11 (exclusion of certain business from section 431C) so that reinsurance business which is overseas life assurance business is no longer excluded from section 431C of the Taxes Act save where there is an election under new regulation 11A (election for certain business to be excluded from section 431C) in relation to it.

Regulation 11 inserts new regulation 11A.

Regulation 12 makes consequential amendments to regulation 13 (transfers of reinsurance arrangements effected by novation or insurance business transfer schemes).