GIM8263 | Reinsurance and other forms of risk transfer: financial reinsurance and alternative risk transfer (ART): insurance linked securities: corporation tax

Regulation 4 of the Risk Transformation (Tax) Regulations 2017 ensures that no liability to corporation tax arises on the QTV’s profits if they arise from the activity of insurance risk transformation. This will ordinarily be all of the profits arising from the QTV’s activities. However a corporation tax liability can arise on,

• Profits from administrative or management activities which are not intrinsically linked to the insurance risk transformation activity.

• Profits from the holding of investments in excess of what is reasonably required to satisfy the fully funded requirement of a company or cell. At all times the QTV must ensure that its assets are equal to or greater than its liabilities. This condition will therefore only apply in exceptional circumstances such as when investments held by the QTV (or cell of a QTV) are unrelated to the QTV’s current or past liabilities. The only profits chargeable to corporation tax will be those attributable to this excess.

• Profits from the holding of investments which were reasonably required to satisfy the fully funded requirement of a company or cell that continues to be held more than 90 days after the date on which all liabilities under the risk transformation contract have been satisfied.