81B Equalisation reserves for credit insurance and reinsurance business of companies.

(1) In this section—

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“credit insurance risks” means risks included in class 14 of Section A of the Annex to the First Council Directive 73/239/EEC of 24 July 1973¹;

“Principal Regulations” means the European Communities (Non-Life Insurance) Regulations 1976 (S.I. No. 115 of 1976) as amended from time to time;

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“Reinsurance Regulations” means the European Communities (Reinsurance) Regulations 2006 (S.I. No. 380 of 2006);

“relevant rules” means the rules as set out in point D, as inserted by Council Directive 87/343/EEC of 22 June 1987¹³, to the Annex to the First Council Directive 73/239/EEC of 24 July 1973¹⁴.

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(1A) This section applies to—

(a) an insurance company whose business has at any time been, or included, business in respect of which it was required, by virtue of Regulation 24 of the Reinsurance Regulations, to establish and maintain an equalisation reserve, or

(b) an insurance company which is underwriting credit insurance risks and which is required by Article 14(8) of the Principal Regulations to set up an equalisation reserve.

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(2) Subject to the following provisions of this section, full account shall be taken of all amounts in accordance with the rules in subsection (3) in making any computation, for the purposes of Case I of Schedule D, of the profits or losses for any accounting period of an insurance company whose business has at any time been or included business in respect of which it was required, by virtue of Regulation 24 of the Reinsurance Regulations, to establish and maintain an equalisation reserve.

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(2) Subject to the following provisions of this section, full account shall be taken of all amounts in accordance with the rules in subsection (3) in making any computation, for the purposes of Case I of Schedule D, of the profits or losses for any accounting period of an insurance company to which this section applies.

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(3) The rules specified in this subsection are—

(a) amounts which, in accordance with the relevant rules, are transferred into the equalisation reserve in respect of the company’s business in a period are to be deductible in that period,

(b) amounts which, in accordance with the relevant rules, are transferred out of the reserve in respect of the company’s business in a period are to be treated as receipts of that business in that period, and

(c) it shall be assumed that all such transfers as are required by the Reinsurance Regulations ^[5]>or the Principal Regulations^<[5]to be made into or out of the reserve in respect of the company’s business for any period are made as required.

(4) Where an insurance company having any business in respect of which it is required, by virtue of Regulation 24 of the Reinsurance Regulations ^[6]>or Article 14(8) of the Principal Regulations^<[6], to maintain an equalisation reserve ceases to trade—

(a) any balance which exists in the reserve at that time for the purposes of the Corporation Tax Acts shall be deemed to have been transferred out of the reserve immediately before the company ceases to trade, and

(b) that transfer out shall be deemed to be a transfer in respect of the company’s business for the accounting period in which the company ceases and to have been required by virtue of the Reinsurance Regulations ^[7]>or the Principal Regulations^<[7].

(5) To the extent that any actual or assumed transfer in accordance with the Reinsurance Regulations ^[8]>or the Principal Regulations^<[8]of any amount into an equalisation reserve is attributable to arrangements entered into wholly or mainly for tax purposes—

(a) subsection (2) shall not apply to that transfer, and

(b) the making of that transfer shall be disregarded in determining, for the purposes of the Tax Acts, whether and to what extent there is subsequently any requirement to make a transfer into or out of the reserve in accordance with the Reinsurance Regulations ^[8]>or the Principal Regulations^<[8],

and this subsection applies irrespective of whether the insurance company in question is a party to the arrangements.

(6) For the purposes of this section, the transfer of an amount into an equalisation reserve is attributable to arrangements entered into wholly or mainly for tax purposes to the extent that the arrangements to which it is attributable are arrangements—

(a) the sole or main purpose of which is, or

(b) the sole or main benefit accruing from which might, apart from subsection (7), be expected to be,

the reduction by virtue of this section of any liability to tax.

(7) Where—

(a) any transfer made into or out of an equalisation reserve maintained by an insurance company is made in accordance with the Reinsurance Regulations ^[9]>or the Principal Regulations^<[9]in respect of business carried on by that company over a period (in this subsection referred to as the “equalisation period”), and

(b) parts of the equalisation period are in different accounting periods,

then the amount transferred shall be apportioned for the purposes of this section between the different accounting periods in the proportions that correspond to the number of days in the equalisation period that are included in each of those accounting periods.