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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: section 774 ICTA 1988

ICTA88/S774 (see CTM36900 and GIM5260) may also be relevant to reinsurance issues. This applies to certain reinsurance transactions between a dealing company and associated company. As noted at GIM5150+ an insurance company is a dealing company as profits on disposal of securities, land and so on are brought into the computation of trading income.

ICTA88/S774 does not require a Commissioners’ order. It applies where a dealing company becomes entitled to a tax deduction, or makes a payment which is tax deductible to an associated company, in respect of the depreciation of the value of any right subsisting against an associated company, not being a dealing company. Where the depreciation or payment is not brought into account in computing the profits of the non-dealing company a charge can be raised on the non-dealing company equal to the amount of the deduction. A dealing company is defined in ICTA88/S774 one which deals in securities, land or buildings.

A mutual insurer will not be a dealing company within the meaning of ICTA88/S774. This is because it is clear from the context that in this definition ‘trading profits’ means trading profits as measured for tax purposes, and gains on the sale of investments are not treated as part of the trading profits of a mutual for tax purposes (see GIM9050).