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HMRC internal manual

General Insurance Manual

HM Revenue & Customs
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Reinsurance and other forms of risk transfer: tax issues: transactions between connected persons: transfer pricing

Reinsurance transactions may need to be examined in the light of the transfer pricing rules under ICTA88/SCH28AA (previously ICTA88/S770 to ICTA88/S773). See the guidance at INTM460100 onwards for further information on transfer pricing. An important source of information will be a company’s regulatory returns which will show whether reinsurers or cedants are connected (GIM3180).

An example of the type of arrangement that may need scrutiny is the channelling of all reinsurance for a multinational group through a UK resident company in order to obtain for the group as a whole the advantages of a treaty covering the total business in a particular category. The reinsurer/retrocessionaire may quote a better premium rate because of the wider spread of risk - the insurance equivalent of bulk buying. If the UK company simply passes on the benefit of the lower premium to non-resident affiliates, without taking some sort of turn on the deal, it is not acting in an arm’s-length fashion.

ICTA88/SCH28AA does not apply to transactions between a UK proprietary company and a UK mutual insurer unless the conditions in paragraph 5(3) are not met.