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HMRC internal manual

International Manual

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HM Revenue & Customs
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Controlled Foreign Companies: The CFC charge gateway chapter 7 - captive insurance business: contracts of reinsurance - section 371GA(5)

TIOPA10/S371GA(5) limits the scope of TIOPA10/S371GA(2)(a) in its application to reinsurance contracts. They shall be included only to the extent that the “original contract of insurance” would fall within TIOPA10/S371GA(2)(a).

“Original contract of insurance” (defined at TIOPA10/S371GA(9)), for the purposes of a contract of reinsurance, means the contract of insurance which starts the flow of reinsurance, i.e. the original source of the reinsured risk.

TIOPA10/S371GA(5) therefore excludes contracts of reinsurance where the original insured party is neither a connected UK resident company, nor a UK PE of a connected non-UK resident company, of the CFC.

Example

A UK insurance company “A” writes contracts of insurance with UK resident persons. A CFC connected with A derives profits from the reinsurance of A’s business. These profits are excluded from Chapter 7 by TIOPA10/S371GA(5) because the original contracts of insurance were entered into with a person not connected with the CFC and are therefore outside the scope of TIOPA10/S371GA(2)(a).

Although both have a similar fact pattern the outcome of the above example and the first example in INTM210400 is different. The difference arises because in the above example the CFC is not connected to the UK resident persons who are the insured parties within the original contract of insurance.