GIM7320 - Equalisation reserves: the tax rules: insurers not regulated in the UK: UK branches of non-EEA insurers

Where a non-EEA insurer has a branch (or agency) in the UK the regulator will require the creation of equalisation reserves in relation to branch business. Regulation 9 of the Tax regulations allows tax relief to be given on the reserves maintained under the supervisory regulations only if

• the company submits branch accounts including a balance sheet showing the regulatory reserve, and
• the company’s main balance sheet contains a world-wide equalisation reserve at least equal to the UK branch reserve, or, if the UK reserve exceeds the world-wide figure, if any excess is shown as funds not available for distribution. (This requirement should be interpreted in the same way as for an EEA company ( GIM7290).

If either of these criteria is not met in any year no tax deduction may be given for transfers into the reserve in that year. Further, if there is an existing equalisation reserve the whole of the balance of the reserve must be brought back into charge for tax purposes at the end of that year. If in a later year the branch wished to claim tax relief, it would be treated in the same way as a new UK branch, and reserves must be built up from scratch. Submissions are required where it appears that the requirement to write back the whole of the reserve operates unfairly.

Switzerland is in a unique position, not being a member of the European Economic Area but having a treaty agreement with the EC covering insurance business.

In practice this means that the regulator is not concerned with the overall solvency of a Swiss company, but does otherwise have its normal regulatory powers over a Swiss company operating through a branch in the UK, including the power to require the maintenance of equalisation reserves.

The treatment of UK branches of Swiss companies will, therefore, follow that for other overseas, non-EEA insurers.