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HMRC internal manual

General Insurance Manual

Technical provisions: periods of account beginning on or after 1 January 2000 and ending before 19 July 2007: General Insurance Reserves (Tax) Regulations: transfers of business

Regulation 4: business transfers

Regulation 4 dealt with transfers of business in general and disapplied 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 worked on a ‘stand in shoes’ principle under which the transferee company took over the FA00/S107 position from the transferor.

Regulation 4 dealt with all 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) dealt with FSMA transfers or their equivalent under the law of another EEA state, and transfers of non-EEA business. They applied only where the transfer of business occurred after the date on which the Regulations came into force, and applied whether or not the transferor and the transferee were connected. Regulation 4(2) was a ’stand in shoes’ provision, that is, it caused 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 had been done by the transferee. ‘Anything’ included 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 carried over the effect of a FA00/S107 (4) election to the transferee. The result was that FA00/S107 calculations proceeded after the transfer in just the same way as they would have done if the transfer had not happened. In particular the transfer did not restart the clock by changing the period for which the provisions are treated as first made.

Regulation 4(2A) catered for the case where transfers of business did not take place at the end of the period of account of the transferor. Where this occurred there were no technical provisions made and taken into account at the date of the transfer, and at the end of the period there were no provisions in respect of the transferred business. So this regulation deemed 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) could then be made in respect of these deemed amounts. A calculation was therefore carried out at the date of the transfer. The transferee inherited 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) would 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 applied, like Rule 4, to a reinsurance of business and to novations. It disapplied the Rule 4 principle that the qualifying contract or relevant transaction was ignored when the transferor and transferee were connected, provided the transferee was either within the charge to corporation tax, or subject to a CFC apportionment under ICTA88/S747 (3), or operated an acceptable distribution policy (ADP) in accordance with ICTA88/S748 (1)(a). In these circumstances, the reinsurer (or retrocessionaire, or person to whom the novation is made) stood in the shoes of the transferor and anything done by the transferor was deemed to have been done by the transferee.