710 Profits of life business

Summary

This section provides for certain adjustments to the normal Case I of Schedule D computational rules in the case of the life business of an assurance company and that life assurance companies trading from the International Financial Services Centre (IFSC) are to be charged to tax under that Case of that Schedule i.e. the I–E basis applicable to domestic life companies, in respect of policies commenced prior to 1 January 2001, does not apply to IFSC companies. It also provides the taxation regime for policies of assurance and annuity contracts (commenced prior to 1 January 2001) of an IFSC life assurance company in situations where such policies or contracts mature or are encashed in the hands of an individual who is at that time resident or ordinarily resident in the State. (The profits from life business of both non-IFSC and IFSC companies, in respect of policies commenced on or after 1 January 2001, are taxed under Case I of Schedule D – see section 730A. The investment returns of policyholders are liable to an exit tax – see Chapter 5 of this Part).

Details

(1)(a) & (1)(b) When computing under Case I of Schedule D the profits of an assurance company in respect of its life business, a deduction can be claimed for the part of the profits allocated to or reserved for policyholders. However, if any part of the profits which have been reserved for policyholders cease to be so reserved without being allocated to the policyholders then it must be included in the profits for the period in which they cease to be so reserved.

(1)(c) A deduction or credit is not available in respect of any foreign tax suffered on income that forms part of its ‘policy holder business’ which is not chargeable to Corporation Tax in the hands of the life assurance company under subsection (1)(a).

(2)(a) Where a company’s business consisted solely of foreign life assurance business (as defined in section 451) on 31 December 2000, as is the case of life assurance companies trading from the IFSC with non-resident customers, then —

• the company’s profits are chargeable to tax under Case I of Schedule D; and
• a deduction is not allowed in respect of amounts reserved for policyholders.

(2)(b) Although the profits of life assurance companies trading from the IFSC are eligible for the 10 per cent rate of corporation tax only until 31 December 2005 or, in certain cases, 31 December, 2002 the provisions of subsection (2)(a) continue to apply after the expiry date of entitlement to the 10 per cent rate. The continuation of subsection (2)(a) is preserved by effectively ignoring the deletion of section 446 and the time limit set in that section. (This provision has been overtaken by the provisions of section 730A which set out the Case I rules for life companies from 1 January 2001).

(3)(b) Prior to 1 January 2001, an IFSC life company could only issue policies to persons who were not resident in the State. (To do so would have jeopardised its entitlement to the 10% corporation tax rate). However such a policyholder could subsequently become resident in the State while retaining the policy and encash it while being so resident. Where a policyholder, who is resident or ordinarily resident in the State, is to receive the proceeds of a policy (this includes a policy of assurance and a retirement benefits policy) issued by an IFSC company before 1 January 2001, the paying company is obliged to deduct tax from the proceeds and pay over the net proceeds to the policyholder. The tax to be deducted is an amount equal to the standard rate of income tax on the relevant amount. The relevant amount is defined in respect of a policy of assurance and an retirement benefits policy and in each case is related to the increase I value of the policy during the period or periods during which the policyholder was residing in the State. The company is obliged to pay over the tax deducted to Revenue under the procedure set out in section 239. Tax is not to be deducted if the payment of the proceeds of the policy arises from the death or disability of the policyholder. Authority is given for the company to deduct this tax from the proceeds of the policy. The tax deducted cannot be repaid nor is any credit given in respect of the tax. The net proceeds of the policy received by the policyholder are not to be treated as income in the hands of the policyholder.

(3)(a) For the purposes of subsection (3)(b) “a policy of assurance” is a policy of assurance issued by an IFSC life assurance company to a person who resides continuously outside the State for a period of not less than 6 months after the date of issue of the policy and includes a policy which would be a “retirement benefits policy” but for the fact that it was encashed before the holder reached the age of 60 or after the holder attained the age of 70. A “retirement benefits policy” is a policy which matures at a time after the policyholder attains the age of 60 and before he/she attains the age of 70. (For policies taken out within 6 months of taking up residence in the State, see section 594)

(4) Where a life assurance company carries on both ordinary life assurance business and industrial life assurance business the business of each class is treated for corporation tax purposes as a separate class and the management expenses provisions of section 707 apply separately to each such class of business.

(5)(a) However, if a company has amalgamated its industrial assurance and life assurance funds in accordance with section 25(1) of the Insurance Act, 1989 and that amalgamation has not ceased subsection (4) does not apply.

(5)(b) Pre-amalgamation industrial assurance management expenses must be set against post-amalgamation industrial assurance income. The pre-amalgamation trading losses of the industrial assurance can only be carried forward against industrial assurance trading income for the purposes of computing the restriction, if any, of the deduction of management expenses under section 707(4).

(6) Where an accounting period of a company straddles the day of amalgamation it is treated as 2 accounting periods for the purposes of subsection (5).

Relevant Date: Finance Act 2019