Get ahead by preparing for the unknown
As companies ramp up their IFRS 17 projects, a discussion of the impact on tax reporting still raises more questions than answers. However, this should not stop companies from taking steps to start mapping out their IFRS 17 tax strategy. The very process of determining the key questions and open issues is what will help insurers to clarify priorities, assemble teams with the necessary expertise and ensure that the necessary tax reporting systems will be in place by implementation day.
It is natural and necessary that most insurance companies' IFRS 17 efforts are focused on understanding the accounting models and requirements, while we wait for tax legislative guidance to be released. However, tax reporting does not exist as a separate and distinct process from accounting; it is deeply integrated within the entire financial reporting process and should be considered along every step of the IFRS 17 implementation journey.
Tax teams should be taking the following steps to keep up with IFRS 17 developments and ensure tax priorities are considered:
Develop IFRS 17 expertise
As tax professionals, it is key that we understand how the accounting works to evaluate how the transactions should be treated for tax purposes. Now is the time for the finance and tax teams to learn the complexities and nuances of the new standard. Now updated to reflect the revised version of IFRS 17, KPMG International's First Impressions: 2020 edition provides detailed analysis and insight on the amended standard, and considers how it may affect insurers' financial statements.
Understand the changes being made to the IT and Data systems
Insurers are implementing significant updates to their IT systems to provide the level of granularity required for financial reporting under IFRS 17. Although there is no certainty at this point regarding what the tax data would need to look like, it's important to keep tax involved in the IT development. It would be a difficult, if not impossible, undertaking for a tax team to get up to speed and ensure that the tax data requirements are met if they wait to get involved until all legislative and reporting unknowns are resolved. Instead, the tax team should invest the time to understand what data changes are being made and develop an open communication channel to IT to ensure that any tax requirements can be swiftly implemented once known.
Consider a range of possible tax impacts on transition
As companies prepare comparative statements and begin estimating quantitative impacts of various IFRS 17 requirements, the impact on current and deferred taxes should be modelled under various assumptions. Once the impact of IFRS 17 on tax legislation is known it will be important for companies to review their provisions and tax filings carefully to determine whether any tax adjustments should be made. KPMG's tax professionals can help model IFRS 17 impact on your financial statements and, once the impact on the legislation is known, work with you to quantify the tax impacts on the financial statements and disclosures.
KPMG can help
Despite the uncertainties around how the tax pieces will fall there are steps companies can take today to start planning for the transition, including building knowledgeable teams, planning for reporting system changes and understanding the range of possibilities in terms of tax reporting under IFRS 17.
Contact one of our advisors today to help you map your route to implementation.
Senior Manager, Tax, Financial Services
KPMG in Canada
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