Commentary

D7.540 Calculation of imputed investment return

Corporate tax
Corporate tax | Commentary

D7.540 Calculation of imputed investment return

Corporate tax | Commentary

D7.540 Calculation of imputed investment return

The rules in this division apply for accounting periods beginning before 1 January 2013. For accounting periods beginning on or after 1 January 2013 see Division D7.4.

Having established the contracts for which a notional investment return has to be calculated, the regulations provide a series of formulae for different circumstances. The underlying objective of the formulae is to attribute to the cedant, over the period of the reinsurance contract, a notional investment return cumulatively equal to the amount received by the cedant less the premiums paid.

This is achieved by providing for an investment return I equal to a specified percentage R of the excess of premiums paid P over sums received by the cedant C, giving a basic formula1

The definition of premiums is extended to include payments made to the reinsurer by a party connected to the cedant within the meaning of CTA 2010, s 1122 if that third party has received payment from the cedant and passed that payment on to the reinsurer under any arrangements2. However no investment return will be deemed to accrue to the cedant solely as a result of this amendment in an accounting period ending before 1 January 20043. This latter point reflects the fact that the regulations as originally laid were altered with retrospective effect.

The regulations allow for the possibility of a negative investment return and prescribe how it may be relieved (see below)4.

It should also be noted that to give a reasonable result certain premiums

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