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HMRC internal manual

General Insurance Manual

Repeal of equalisation reserves tax legislation for accounting periods ending on or after 1 January 2016: Interaction with Double Taxation Relief

Where a UK insurer also carries on business through a permanent establishment (PE) in another country, the equalisation reserve will refer to both the business written in the UK and in the other country. GIM7330 provides some background and gives examples of how the equalisation reserves are apportioned between the UK company and the branch for the purposes of double taxation relief.

FA12/S28(1) ensures that DTR is offset correctly in the 6 year transition period by apportioning the appropriate part of the FA12/S26(4) receipt to the PE.

If the PE is one to which the DTR regulations at GIM7330 previously applied to for transfers into an equalisation reserve and the UK company receives double taxation relief in respect of income or gains from the PE, only part of the FA12/S26(4) receipt (see GIM7410) is taken into account when calculating the profits or losses against which DTR is allowed.

The part of the receipt that is taken into account is the “appropriate proportion” as defined by FA12/S28(3), and is either:

  • The mean of each proportion found for each relevant period




  • The proportion determined on a just and reasonable basis by the company.


For each relevant period the proportion is

                                                   the PE’s premium income

                                             the company’s premium income


“The PE’s premium income” is so much of the company’s premium income for the period attributable to the PE.

“The company’s premium income” is the amount of net premiums which formed the basis of the calculation of amounts transferred into or out of the equalisation reserves under ICTA88/S444BA(2)(a) or (b) for the period.

Definitions for this section are found at FA12/S28(5) and (6).