MTT45410 - Particular entities and adjustments: Insurance: Meaning of 'revenue' for revenue threshold test
Section 129 of Finance (No.2) Act 2023 sets out conditions for group to be a qualifying group for MTT purposes. One of those is that the group’s members must have revenue exceeding 750 million euros in at least two of the previous four accounting periods. For the purposes of this condition, the revenue of members is determined by reference to the consolidated financial statements of the ultimate parent for the period.
The December 2023 Administrative Guidance provides further details on what constitutes revenue.
Unit-linked investment policyholder returns should be excluded from the revenue calculation to the extent that they are matched by an expense arising from a contractual obligation to pay income over to the policyholder. The amount that should be included in revenue is the net of the unit-linked investment policyholder returns and the corresponding expense.
This is consistent with the adjustments set out in Sections 138 and 152 whereby if a member of a life assurance business recognises returns that are contractually paid over to policyholders within its financial statements as income and there is a corresponding increase in liability to reflect the obligation to pay this income back to policyholders, both the income and expense (which usually nets to nil) should be included in the adjusted profits. This is to ensure that the adjusted profits reflect only the profits made by the insurer (and not those that are contractually due to policyholders).
Example
MNE Group A is a life insurance business providing unit-linked policies. It makes an investment return on unit-linked policies of €2000m and charges a management fee of €400m.
The accounts recognise a management fee of €400m, investment income of €2000m and an expense due to the policyholder of €2000m.
Revenue for the purposes of Section 129 is €400m (400 + 2000 - 2000).
If the accounts reflected the management fee as a reduction to the amount due to the policyholder, revenue for the purposes of the revenue threshold test would still be €400m (2000 investment income – 1600 due to the policyholder).