IFRS 17: What it means for tax
12 March 2018
In my last blog on IFRS 17, I spoke about the importance of involving auditors early on. In this blog I want to address the importance of tax considerations during the implementation of IFRS 17; after all, it’s real money and in an environment where cash is king, that tends to get people’s attention.
A key concern should be the likelihood of one-off tax impacts during insurers’ transition to IFRS 17. The impact of transition will vary group to group depending on the jurisdictional spread of operations, whether IFRS 17 is adopted at the entity level or just on consolidation and the existing tax profile of the business.
Areas likely to be impacted by IFRS 17 include cash tax changes at transition, Deferred Tax Assets recognition (DTAs) resulting in changes in profit signatures thereby impacting the Effective Tax Rate (ETR) and the deferred tax components of solvency calculations. Between now and adoption, the tax impact of IFRS 17 will need to be factored into planned commercial transactions (e.g. M&A and reinsurance), as IFRS 17 could have an impact on the tax assumptions used in the business cases.
From a global tax perspective, impacts may differ across international jurisdictions – significant if your company operates on an international basis. So, what’s the best way to get to grips with this uncertainty? Important first steps for insurers include early identification of the territories where there is likely to be an impact, influencing the local tax debate and educating your local teams.
At a local jurisdiction level, I’d suggest engaging with tax authorities early on. This is new territory for the tax authorities as well, and ensuring they are fully educated on the local impact of the adoption of IFRS 17 should help in the long run. It won’t completely mitigate the uncertainty associated with IFRS 17, but it will give your company the chance to lobby effectively and minimise the negative impacts where possible. It’s also worth mentioning that IFRS 17 may also have secondary impacts on other tax calculations that I have not already listed, such as VAT, so keep this in mind too.
Look out for a more detailed tax analysis shortly from Lindsay Jafari-Pak, PwC’s global IFRS 17 tax leader. I’ve just returned from a trip to Asia with members of our leadership team, and was excited to hear first-hand about the state of readiness in Hong Kong, Japan and China. More to come in my next blog.