Tax consultation on Solvency II - Mazars - United Kingdom
Tax consultation on Solvency II
The Solvency II Directive, which establishes a revised set of EU-wide capital requirements, valuation techniques and risk management standards is planned to take effect from October 2012.
Ahead of QIS 5, the final Quantitative Impact Study under Solvency II, HMRC and HM Treasury have released their consultation document, inviting comments by 2 June 2010, about how they propose to address the tax considerations in time for implementation.
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The main proposal in the document which is fairly certain to be implemented, is that as from 2012, the accounts under Schedule 3 to The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 ("the Accounting Regulations") derived from the original Schedule 9A of the Companies Act 1985 accounts, rather than the regulatory returns, will be the basis for calculating the trading measure of the profits of a life insurance company. This raises a wide range of specific queries designed to address transitional issues (not only the FSA return to the Accounting Regulations switch but also the switch from UK GAAP to IFRS4 Phase I to IFRS 4 Phase II) and other considerations including, crucially, the issue of volatility and the relevance of the availability of profits to when they should be taxed.
Issues specific to general insurance, with particular reference to the abolition of claims equalisation reserves (“CERs”) and the calculation of technical reserves.
- Although it is not a necessary consequence of Solvency II, HMRC is also consulting about the possibility of replacing the I-E regime.
The consultation raises many questions and represents a major opportunity for the industry to factor in tax concerns in the modelling and requirements in Solvency II and we will be responding to the consultation by 2 June.
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