GIM6340 - Technical provisions: periods of account beginning on or after 1 January 2000: General Insurance Reserves (Tax) Regulations: transfers of business

Regulation 4: business transfers

Regulation 4 deals with transfers of business in general and disapplies Rule 4 of Regulation 3 (see GIM6240) where the transactions caught by that Rule are between UK companies. In contrast to Rule 4, Regulation 4 works on a “stand in shoes” principle under which the transferee company takes over the FA00/S107 position from the transferor.

Regulation 4 deals with transfers of business, whether by

• a transfer made in accordance with Part 7 FSMA 2000,
• a transfer that would fall within Part 7 but for the fact that business transferred is outside the EEA,
• a transfer made under the law of another EEA member state
• portfolio reinsurance, or
• novation of liabilities.

Regulations 4(1), 4(1A) and 4(2) deal with FSMA transfers or their equivalent under the law of another EEA state, and transfers of non-EEA business. They apply only where the transfer of business occurs after the date at which the regulations came into force, and apply whether or not the transferor and the transferee are connected. Regulation 4(2) is a “stand in shoes” provision, that is, it causes the transferee to be treated as if it had written the transferred business itself and as if anything done by the transferor in connection with the transferred business was done by the transferee. “Anything” includes all tax deductions made by the transferor, the cost of liabilities transferred and the history of FA00/S107 additional receipts or expenses incurred in connection with the business, and also carries over the effect of a FA00/S107 (4) election to the transferee. The result is that FA00/S107 calculations proceed after the transfer in just the same way as they would have done if the transfer had not happened. In particular the transfer does not restart the clock by changing the period for which the provisions are treated as first made.

Regulation 4(2A) caters for the case where transfers of business do not take place at the end of the period of account of the transferor. Where this occurs there are no technical provisions made and taken into account at the date of the transfer, and at the end of the period there are no provisions in respect of the transferred business. So this Regulation deems amounts that would have been made and taken into account as technical provisions at the date of the transfer to be technical provisions for the purposes of the calculations. An election under FA00/S107 (4) can then be made in respect of these deemed amounts. A calculation is therefore carried out at the date of the transfer. The transferee inherits the position of the transferor. The effect of any election on the calculations of profit for the period of the transferee first ending after the transfer (assuming no further election is made) will be reflected in the Case I profits and the Regulation 3 calculations of the transferee for that period.

Regulation 4(3) refers back to Rule 4. It applies, like Rule 4 to a reinsurance of business and novations. It disapplies the Rule 4 principle that the qualifying contract or relevant transaction is ignored when the transferor and transferee are connected, provided the transferee is either within the charge to corporation tax, or subject to a CFC apportionment under ICTA88/S747 (3), or operates an ADP in accordance with ICTA88/S748 (1)(a). In these circumstances, the reinsurer (or retrocessionaire, or person to whom the novation is made) stands in the shoes of the transferor and anything done by the transferor is deemed to have been done by the transferee.