GIM8262 | Reinsurance and other forms of risk transfer: financial reinsurance and alternative risk transfer (ART): insurance linked securities: Risk Transformation (Tax) Regulations 2017

On 15 December 2017, the Risk Transformation (Tax) Regulations 2017 (SI 2017/1271) came into force. These accompanied the Risk Transformation Regulations 2017 (SI 2017/1212) which set out the regulatory and supervisory framework for vehicles issuing ILS in the United Kingdom.

The Risk Transformation (Tax) Regulations 2017 have effect,

• For corporation tax, for accounting periods beginning on or after the date regulations came into force

• For income tax, for payments made after that date.

The regulations provide a tax framework for qualifying transformer vehicles (QTVs). QTVs are,

• Companies limited by shares (including protected cell companies),

• That carry out the activity of insurance risk transformation which is not related to basic life assurance and general annuity business (BLAGAB) unless BLAGAB risk transformation is an insubstantial part of that activity, and

• Authorised under Part 4A of the Financial Services and Markets Act 2000 to carry out insurance risk transformation.

For a protected cell company (PCC) the company itself is the QTV. Creation of new cells by the PCC will not affect its QTV status as long as the cells are created only to carry out insurance risk transformation.