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HMRC internal manual

General Insurance Manual

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

Where a non-EEA insurer has a permanent establishment in the UK the regulator will require the creation of equalisation reserves in relation to UK 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, any excess is shown as funds not available for distribution, interpreted in the same way as for an EEA company (see GIM7290).

If either of these criteria is not met in any year no tax deduction is given for transfers into the reserve in that year. Further, if there is an existing equalisation reserve, the whole of the balance of that reserve must be brought back into charge for tax purposes at the end of that year. If in a later year the branch wishes to claim tax relief, it will be treated in the same way as a new UK branch, and reserves built up from scratch. HMRC staff should make a submission to CT&VAT (Technical) Insurance Group where it appears that the requirement to write back the whole of the reserve operates unfairly - see the ‘Technical Help’ link on left bar.

Switzerland is in a unique position, see GIM1230. In practice the arrangements mean that the Financial Services Authority 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 thus follows that for other overseas, non-EEA insurers.