§ 34AAA — Change of basis for computing profits from financial instruments for insurers

34AAA.—(1) Despite the provisions of this Act but subject to section 34G(3), (4) and (5), the amount of any profit, loss or expense in respect of any financial instrument of a company licensed under the Insurance Act 1966 to carry on insurance business in Singapore (called in this section an insurer), to be brought into account for the basis period for a year of assessment (being a basis period beginning on or after 1 January 2023, or such earlier basis period as may be approved by the Comptroller in a particular case) for the purposes of sections 10, 14 and 37, is that which —(a)

is recognised and valued in accordance with the Insurance Act regulations; and

(b)

is reflected in the statement of profit and loss that is part of the insurer’s MAS return for that basis period.

(2) Subsection (1) does not apply to anything recognised and valued in accordance with the Insurance Act regulations that is capital in nature.

(3) Without limiting subsection (1), that subsection applies to any financial instrument of —(a)

the shareholders’ fund established in Singapore of an insurer; or

(b)

the surplus account of a participating fund of an insurer that is a life insurer.

(4) Subsection (1) does not apply to any financial instrument of a participating fund (other than the surplus account of the participating fund) of an insurer that is a life insurer.

(5) Despite subsection (1), for the purposes of sections 10, 14 and 37, the profit, loss or expense of an insurer in respect of a financial instrument mentioned in each of the following paragraphs must be dealt with or computed (as the case may be) in accordance with that paragraph:(a)

where the insurer derives interest from debt securities or loans, the interest that is chargeable to tax under section 10(1)(d) is the amount computed at the contractual interest rate and not at the effective interest rate;

(b)

any amount of profit or expense in respect of a loan for which no interest is payable must be disregarded;

(c)

where the creditor and debtor of a loan did not deal with each other at arm’s length, the interest income chargeable to tax, and the interest expense allowable as a deduction, are the amounts of such income and expense that are computed at the contractual interest rate and not at the effective interest rate;

(d)

where the insurer incurs interest expense on loans or debt securities to which section 14(1)(a) would otherwise apply, only such part of the interest expense that is incurred in respect of the moneys borrowed and computed at the contractual interest rate is allowed as a deduction under that provision;

(e)

any amount of profit or loss in respect of a hedging instrument acquired under a bona fide commercial arrangement for the sole purpose of hedging against any risk associated with the underlying asset or liability must be disregarded, if the underlying asset or liability is employed or intended to be employed as capital;

(f)

where a loan (whether on revenue or capital account) is not reflected as a credit-impaired financial asset in the insurer’s audited financial statements for the accounting period the last day of which falls within the basis period concerned, any amount of impairment losses in respect of that loan, being losses that are recognised and valued in accordance with the Insurance Act regulations and reflected in the statement of profit and loss that is part of an MAS return, must be disregarded;

(g)

where a loan (being one on capital account) is reflected as a credit-impaired financial asset in the insurer’s audited financial statements for the accounting period the last day of which falls within the basis period concerned, any amount of impairment losses in respect of that loan, being losses that are recognised and valued in accordance with the Insurance Act regulations and reflected in the statement of profit and loss that is part of an MAS return, must be disregarded;

(h)

where a loan (whether on revenue or capital account) and interest receivable on that loan are not reflected as a credit‑impaired financial asset in the insurer’s audited financial statements for the accounting period the last day of which falls within the basis period concerned, any amount of impairment losses in respect of the interest receivable on that loan, being losses that are recognised and valued in accordance with the Insurance Act regulations and reflected in the statement of profit and loss that is part of an MAS return, must be disregarded;

(i)

where a receivable (other than interest receivable on a loan) is not reflected as a credit-impaired financial asset in the insurer’s audited financial statements for the accounting period the last day of which falls within the basis period concerned, any amount of impairment losses in respect of that receivable, being losses that are recognised and valued in accordance with the Insurance Act regulations and reflected in the statement of profit and loss that is part of an MAS return, must be disregarded;

(j)

a gain from discounts or premiums on debt securities, being a gain chargeable to tax under section 10(1)(d) —(i)

is treated as accruing only on the maturity or redemption of the debt securities; and

(ii)

is treated as equal to the difference between the amount received on the maturity or redemption of the debt securities and the amount for which the debt securities were first issued;

(k)

in a case where the insurer issues debt securities at a discount or redeems issued debt securities at a premium, and section 14(1)(a) applies in respect of the outgoing represented by such discount or premium, such outgoing is treated —(i)

to be incurred and deductible only when it is paid on the maturity or redemption of the debt securities; and

(ii)

as equal to the difference between the amount paid on the maturity or redemption of the debt securities and the amount for which the debt securities were first issued;

(l)

in a case where —(i)

the insurer issues debt securities at a discount or redeems issued debt securities at a premium;

(ii)

the debt securities were issued with an embedded derivative to acquire shares or units in the insurer; and

(iii)

the outgoing represented by such discount or premium is deductible under section 14(1),

such part of the outgoing that is attributable to the embedded derivative, must be disregarded.

(6) To avoid doubt, subsection (5)(c) does not affect the operation of section 34D.

(6A) In a case where —(a)

a loan on revenue account is transferred by an insurer (called in this subsection the transferor) to another person (called in this subsection the transferee);

(b)

the transfer is not pursuant to a transfer of businesses by the transferor to the transferee in relation to which section 34CA applies;

(c)

a provision for an impairment loss arising from that loan, being a loss that is recognised and valued in accordance with the Insurance Act regulations in determining the profit or loss of such loan and reflected in the transferor’s statement of profit and loss that is part of an MAS return, is also transferred by the transferor to the transferee; and

(d)

a deduction of an amount in respect of the provision mentioned in paragraph (c) was previously allowed under section 14 (read with this section) to the transferor,

then, despite any provision of this Act —

(e)

in a case where both the transferor and transferee are on the date of the transfer in the business of lending money, the deduction previously allowed to the transferor is treated, for the purposes of section 14, as having been allowed to the transferee under that section; and

(f)

in any other case, the provision for the impairment loss mentioned in paragraph (c) that is transferred by the transferor and allowed a deduction under paragraph (d) is treated as a trading receipt of the transferor for the basis period in which the date of transfer falls.[Act 30 of 2023 wef 30/10/2023]

(7) If —(a)

any gain, loss or expense in respect of a financial instrument of an insurer was (by reason of subsection (1)) that which was recognised and valued in accordance with the Insurance Act regulations and reflected in the statement of profit and loss that was part of an MAS return on a certain date;

(b)

it was not possible to determine, on the date the Comptroller made an assessment of the amount of chargeable income of that insurer for the year of assessment of the basis period in which the date mentioned in paragraph (a) fell, whether that gain, loss or expense was capital or revenue in nature;

(c)

because of this, the gain was not charged with tax or a deduction was allowed for that loss or expense, as the case may be; and

(d)

the Comptroller later discovers (called in this subsection the discovery time) that the gain ought to have been charged with tax as it was revenue in nature, or a deduction ought not to have been allowed for the loss or expense as it was capital in nature, as the case may be,

then, and despite anything in this Act but subject to subsection (9), the amount of the gain, loss or expense, together with the additional amount mentioned in subsection (8), is treated as the insurer’s income for the year of assessment within which the discovery time falls.

(8) The additional amount in subsection (7) is the amount of any other gain, loss or expense in respect of the same financial instrument —(a)

that was not charged with tax, or for which a deduction was allowed, for one or more past years of assessment, for the same reason as that in subsection (7)(b); and

(b)

that is ascertained in accordance with the regulations made under subsection (13).

(9) No assessment may be made in respect of the income mentioned in subsection (7) more than 4 years immediately after the end of the year of assessment of the basis period in which the financial instrument is disposed of by the insurer.

(10) If —(a)

any gain, loss or expense in respect of a financial instrument of an insurer was (by reason of subsection (1)) that which was recognised and valued in accordance with the Insurance Act regulations and reflected in the statement of profit and loss that was part of an MAS return on a certain date;

(b)

it was not possible to determine, on the date the Comptroller made an assessment of the amount of chargeable income of that insurer for the year of assessment of the basis period in which the date mentioned in paragraph (a) fell, whether that gain, loss or expense was capital or revenue in nature;

(c)

because of this, the gain was charged with tax or a deduction was not allowed for that loss or expense, as the case may be; and

(d)

the Comptroller later discovers (called in this subsection the discovery time), with or without a claim made by the insurer, that the gain ought not to have been charged with tax as it was capital in nature, or a deduction ought to have been allowed for the loss or expense as it was revenue in nature, as the case may be,

then, and despite anything in this Act but subject to subsection (12), the amount of the gain, loss or expense, together with the additional amount mentioned in subsection (11), is to be allowed as a deduction against the insurer’s income for the year of assessment within which the discovery time falls.

(11) The additional amount in subsection (10) is the amount of any other gain, loss or expense in respect of the same financial instrument —(a)

that was charged with tax, or for which a deduction was not made, for one or more past years of assessment, for the same reason as that in subsection (10)(b); and

(b)

that is ascertained in accordance with the regulations made under subsection (13).

(12) No claim mentioned in subsection (10)(d) may be made more than 4 years immediately after the end of the year of assessment of the basis period in which the financial instrument is disposed of by the insurer.

(13) For the purposes of this section, the Minister may make regulations to give effect to this section, including —(a)

providing for the computation of the additional amounts mentioned in subsections (8) and (11); and

(b)

providing for any transitional, supplementary or consequential matter, including —(i)

treating a specified amount of any profit in respect of a financial instrument of a specified insurer, being an amount recognised and valued in accordance with the Insurance Act regulations and reflected in the statement of profit and loss that is part of an MAS return as such profit as of the day immediately before the first day of the basis period in relation to which this section first applies to the insurer, as the insurer’s income for a specified year of assessment; and

(ii)

allowing a specified amount of any loss or expense in respect of a financial instrument of a specified insurer, being an amount recognised and valued in accordance with the Insurance Act regulations and reflected in the statement of profit and loss that is part of an MAS return as such loss or expense as of the day immediately before the first day of the basis period in relation to which this section first applies to the insurer, as a deduction against the insurer’s income for a specified year of assessment.

(14) In this section —“contractual interest rate”, in relation to any financial instrument, means the applicable interest rate specified in the financial instrument;

“credit-impaired financial asset” has the meaning given by FRS 109 or SFRS(I) 9, as the case may be;

“debt securities” has the meaning given by section 43H(4);

“FRS 109” and “SFRS(I) 9” have the meanings given by section 34AA(15);

“Insurance Act regulations” means regulations made for the purposes of section 16(5) of the Insurance Act 1966;

“MAS return”, in relation to an insurer, means the statements of account and other statements relating to the insurer’s business prepared and lodged with the Monetary Authority of Singapore under section 94(3) of the Insurance Act 1966;

“Monetary Authority of Singapore” means the Monetary Authority of Singapore established under section 3 of the Monetary Authority of Singapore Act 1970;

“participating fund” and “surplus account” have the meanings given by section 26(12).[Act 33 of 2022 wef 04/11/2022]

—(1) Despite the provisions of this Act but subject to section 34G(3), (4) and (5), the amount of any profit, loss or expense in respect of any financial instrument of a company licensed under the Insurance Act 1966 to carry on insurance business in Singapore (called in this section an insurer), to be brought into account for the basis period for a year of assessment (being a basis period beginning on or after 1 January 2023, or such earlier basis period as may be approved by the Comptroller in a particular case) for the purposes of sections 10, 14 and 37, is that which —(a)

is recognised and valued in accordance with the Insurance Act regulations; and

(b)

is reflected in the statement of profit and loss that is part of the insurer’s MAS return for that basis period.

(2) Subsection (1) does not apply to anything recognised and valued in accordance with the Insurance Act regulations that is capital in nature.

(3) Without limiting subsection (1), that subsection applies to any financial instrument of —(a)

the shareholders’ fund established in Singapore of an insurer; or

(b)

the surplus account of a participating fund of an insurer that is a life insurer.

(4) Subsection (1) does not apply to any financial instrument of a participating fund (other than the surplus account of the participating fund) of an insurer that is a life insurer.

(5) Despite subsection (1), for the purposes of sections 10, 14 and 37, the profit, loss or expense of an insurer in respect of a financial instrument mentioned in each of the following paragraphs must be dealt with or computed (as the case may be) in accordance with that paragraph:(a)

where the insurer derives interest from debt securities or loans, the interest that is chargeable to tax under section 10(1)(d) is the amount computed at the contractual interest rate and not at the effective interest rate;

(b)

any amount of profit or expense in respect of a loan for which no interest is payable must be disregarded;

(c)

where the creditor and debtor of a loan did not deal with each other at arm’s length, the interest income chargeable to tax, and the interest expense allowable as a deduction, are the amounts of such income and expense that are computed at the contractual interest rate and not at the effective interest rate;

(d)

where the insurer incurs interest expense on loans or debt securities to which section 14(1)(a) would otherwise apply, only such part of the interest expense that is incurred in respect of the moneys borrowed and computed at the contractual interest rate is allowed as a deduction under that provision;

(e)

any amount of profit or loss in respect of a hedging instrument acquired under a bona fide commercial arrangement for the sole purpose of hedging against any risk associated with the underlying asset or liability must be disregarded, if the underlying asset or liability is employed or intended to be employed as capital;

(f)

where a loan (whether on revenue or capital account) is not reflected as a credit-impaired financial asset in the insurer’s audited financial statements for the accounting period the last day of which falls within the basis period concerned, any amount of impairment losses in respect of that loan, being losses that are recognised and valued in accordance with the Insurance Act regulations and reflected in the statement of profit and loss that is part of an MAS return, must be disregarded;

(g)

where a loan (being one on capital account) is reflected as a credit-impaired financial asset in the insurer’s audited financial statements for the accounting period the last day of which falls within the basis period concerned, any amount of impairment losses in respect of that loan, being losses that are recognised and valued in accordance with the Insurance Act regulations and reflected in the statement of profit and loss that is part of an MAS return, must be disregarded;

(h)

where a loan (whether on revenue or capital account) and interest receivable on that loan are not reflected as a credit‑impaired financial asset in the insurer’s audited financial statements for the accounting period the last day of which falls within the basis period concerned, any amount of impairment losses in respect of the interest receivable on that loan, being losses that are recognised and valued in accordance with the Insurance Act regulations and reflected in the statement of profit and loss that is part of an MAS return, must be disregarded;

(i)

where a receivable (other than interest receivable on a loan) is not reflected as a credit-impaired financial asset in the insurer’s audited financial statements for the accounting period the last day of which falls within the basis period concerned, any amount of impairment losses in respect of that receivable, being losses that are recognised and valued in accordance with the Insurance Act regulations and reflected in the statement of profit and loss that is part of an MAS return, must be disregarded;

(j)

a gain from discounts or premiums on debt securities, being a gain chargeable to tax under section 10(1)(d) —(i)

is treated as accruing only on the maturity or redemption of the debt securities; and

(ii)

is treated as equal to the difference between the amount received on the maturity or redemption of the debt securities and the amount for which the debt securities were first issued;

(k)

in a case where the insurer issues debt securities at a discount or redeems issued debt securities at a premium, and section 14(1)(a) applies in respect of the outgoing represented by such discount or premium, such outgoing is treated —(i)

to be incurred and deductible only when it is paid on the maturity or redemption of the debt securities; and

(ii)

as equal to the difference between the amount paid on the maturity or redemption of the debt securities and the amount for which the debt securities were first issued;

(l)

in a case where —(i)

the insurer issues debt securities at a discount or redeems issued debt securities at a premium;

(ii)

the debt securities were issued with an embedded derivative to acquire shares or units in the insurer; and

(iii)

the outgoing represented by such discount or premium is deductible under section 14(1),

such part of the outgoing that is attributable to the embedded derivative, must be disregarded.

(6) To avoid doubt, subsection (5)(c) does not affect the operation of section 34D.

(6A) In a case where —(a)

a loan on revenue account is transferred by an insurer (called in this subsection the transferor) to another person (called in this subsection the transferee);

(b)

the transfer is not pursuant to a transfer of businesses by the transferor to the transferee in relation to which section 34CA applies;

(c)

a provision for an impairment loss arising from that loan, being a loss that is recognised and valued in accordance with the Insurance Act regulations in determining the profit or loss of such loan and reflected in the transferor’s statement of profit and loss that is part of an MAS return, is also transferred by the transferor to the transferee; and

(d)

a deduction of an amount in respect of the provision mentioned in paragraph (c) was previously allowed under section 14 (read with this section) to the transferor,

then, despite any provision of this Act —

(e)

in a case where both the transferor and transferee are on the date of the transfer in the business of lending money, the deduction previously allowed to the transferor is treated, for the purposes of section 14, as having been allowed to the transferee under that section; and

(f)

in any other case, the provision for the impairment loss mentioned in paragraph (c) that is transferred by the transferor and allowed a deduction under paragraph (d) is treated as a trading receipt of the transferor for the basis period in which the date of transfer falls.[Act 30 of 2023 wef 30/10/2023]

(7) If —(a)

any gain, loss or expense in respect of a financial instrument of an insurer was (by reason of subsection (1)) that which was recognised and valued in accordance with the Insurance Act regulations and reflected in the statement of profit and loss that was part of an MAS return on a certain date;

(b)

it was not possible to determine, on the date the Comptroller made an assessment of the amount of chargeable income of that insurer for the year of assessment of the basis period in which the date mentioned in paragraph (a) fell, whether that gain, loss or expense was capital or revenue in nature;

(c)

because of this, the gain was not charged with tax or a deduction was allowed for that loss or expense, as the case may be; and

(d)

the Comptroller later discovers (called in this subsection the discovery time) that the gain ought to have been charged with tax as it was revenue in nature, or a deduction ought not to have been allowed for the loss or expense as it was capital in nature, as the case may be,

then, and despite anything in this Act but subject to subsection (9), the amount of the gain, loss or expense, together with the additional amount mentioned in subsection (8), is treated as the insurer’s income for the year of assessment within which the discovery time falls.

(8) The additional amount in subsection (7) is the amount of any other gain, loss or expense in respect of the same financial instrument —(a)

that was not charged with tax, or for which a deduction was allowed, for one or more past years of assessment, for the same reason as that in subsection (7)(b); and

(b)

that is ascertained in accordance with the regulations made under subsection (13).

(9) No assessment may be made in respect of the income mentioned in subsection (7) more than 4 years immediately after the end of the year of assessment of the basis period in which the financial instrument is disposed of by the insurer.

(10) If —(a)

any gain, loss or expense in respect of a financial instrument of an insurer was (by reason of subsection (1)) that which was recognised and valued in accordance with the Insurance Act regulations and reflected in the statement of profit and loss that was part of an MAS return on a certain date;

(b)

it was not possible to determine, on the date the Comptroller made an assessment of the amount of chargeable income of that insurer for the year of assessment of the basis period in which the date mentioned in paragraph (a) fell, whether that gain, loss or expense was capital or revenue in nature;

(c)

because of this, the gain was charged with tax or a deduction was not allowed for that loss or expense, as the case may be; and

(d)

the Comptroller later discovers (called in this subsection the discovery time), with or without a claim made by the insurer, that the gain ought not to have been charged with tax as it was capital in nature, or a deduction ought to have been allowed for the loss or expense as it was revenue in nature, as the case may be,

then, and despite anything in this Act but subject to subsection (12), the amount of the gain, loss or expense, together with the additional amount mentioned in subsection (11), is to be allowed as a deduction against the insurer’s income for the year of assessment within which the discovery time falls.

(11) The additional amount in subsection (10) is the amount of any other gain, loss or expense in respect of the same financial instrument —(a)

that was charged with tax, or for which a deduction was not made, for one or more past years of assessment, for the same reason as that in subsection (10)(b); and

(b)

that is ascertained in accordance with the regulations made under subsection (13).

(12) No claim mentioned in subsection (10)(d) may be made more than 4 years immediately after the end of the year of assessment of the basis period in which the financial instrument is disposed of by the insurer.

(13) For the purposes of this section, the Minister may make regulations to give effect to this section, including —(a)

providing for the computation of the additional amounts mentioned in subsections (8) and (11); and

(b)

providing for any transitional, supplementary or consequential matter, including —(i)

treating a specified amount of any profit in respect of a financial instrument of a specified insurer, being an amount recognised and valued in accordance with the Insurance Act regulations and reflected in the statement of profit and loss that is part of an MAS return as such profit as of the day immediately before the first day of the basis period in relation to which this section first applies to the insurer, as the insurer’s income for a specified year of assessment; and

(ii)

allowing a specified amount of any loss or expense in respect of a financial instrument of a specified insurer, being an amount recognised and valued in accordance with the Insurance Act regulations and reflected in the statement of profit and loss that is part of an MAS return as such loss or expense as of the day immediately before the first day of the basis period in relation to which this section first applies to the insurer, as a deduction against the insurer’s income for a specified year of assessment.

(14) In this section —“contractual interest rate”, in relation to any financial instrument, means the applicable interest rate specified in the financial instrument;

“credit-impaired financial asset” has the meaning given by FRS 109 or SFRS(I) 9, as the case may be;

“debt securities” has the meaning given by section 43H(4);

“FRS 109” and “SFRS(I) 9” have the meanings given by section 34AA(15);

“Insurance Act regulations” means regulations made for the purposes of section 16(5) of the Insurance Act 1966;

“MAS return”, in relation to an insurer, means the statements of account and other statements relating to the insurer’s business prepared and lodged with the Monetary Authority of Singapore under section 94(3) of the Insurance Act 1966;

“Monetary Authority of Singapore” means the Monetary Authority of Singapore established under section 3 of the Monetary Authority of Singapore Act 1970;

“participating fund” and “surplus account” have the meanings given by section 26(12).[Act 33 of 2022 wef 04/11/2022]