IFRS 17: Tax considerations for insurers

IFRS 17 is fast approaching – many insurance companies will be required to report under IFRS Standards for accounting periods beginning on or after January 1, 2023 (in some jurisdictions adoption may be later). This accounting change represents a fundamental change to how the performance of insurance businesses are measured and presented.

From a tax perspective, the impacts will vary jurisdiction by jurisdiction. Current and deferred taxes may be materially impacted and tax assumptions affect the measurement of insurance contract liabilities. Tax impacts will vary from group to group and will be driven by the local tax base, the extent of cross-border reinsurance and the scale of transitional adjustments. In some cases, deferred tax asset recognition and the interaction with BEPS 2.0 adds an additional layer of complexity. Similarly, the impact of deferred tax changes on economic or Solvency II capital ratios may also need to be considered carefully. 

Additional tax-related considerations include the extent to which transaction-based taxes such as insurance premiums tax and unrecoverable VAT are to be included in cash flows. The presentation and disclosure of policyholder income tax and the mitigation of any related income statement volatility is of particular interest for life insurers in those jurisdictions (such as the UK and South Africa) where policyholder taxes are accounted for as income tax under IFRS Standards.

In our latest series of short articles, KPMG professionals explore some of these tax considerations and the implications for insurers.