Abstract
Over the years, there has been a dramatic increase in new reporting and regulatory obligations worldwide, leading to substantial changes that have affected how insurance companies operate. The most recent change is the implementation of IFRS 17: Insurance Contracts, effective 1 January 2023. Many stakeholders may perceive that this significant change will only affect the accounting side of their company, but it has further-reaching effects on the tax calculations of insurance companies, as well. The recognition and measurement of policyholder assets and liabilities and the recognition of revenue together with the introduction of the contractual service margin for long-term insurance companies are complexities introduced by IFRS 17, which requires precise fine-tuning and consideration when computing current and deferred tax.
The objective of this research was to evaluate whether the five-fund taxation approach for long-term insurance companies based in South Africa remains appropriate with the implementation of IFRS 17. The research problem was addressed by applying a doctrinal technique that is grounded in a qualitative interpretive paradigm.
The study assessed how the tax profile of a long-term insurance company has evolved over time. The mechanisms behind IFRS 17 were evaluated in order to achieve an understanding as to the objectives it set out to achieve together with its complexities and benefits. As IFRS 17 is an internationally recognised standard, the influence it has had on the tax calculation of long-term insurance companies based in the United Kingdom (UK), Canada, Australia, and Nigeria were also considered as part of the literature review. This was done to assess whether any variations in the tax treatment as a result of IFRS 17 arose. The study also examined the changes IFRS 17 brought to section 29A of the Income Tax Act and evaluated whether South Africa’s five-fund taxation approach is still relevant and suitable.
The study found that although IFRS 17 signified a momentous shift within the insurance industry, the core principles outlined in section 29A of the Income Tax Act have largely remained unchanged, with only two key definitions being amended. Additionally, the mechanisms for the phasing-in amount and period were introduced. Furthermore, notwithstanding the increased complexity and nuances, IFRS 17 brought to the tax calculation of long-term insurance companies, the five-fund taxation approach remains fair and reasonable.
Key words
Long-term insurance; section 29A; IFRS 17; adjusted IFRS value; value of liabilities