The allocation of expenses between the Individual Policyholder Fund (“IPF”), Company Policyholder Fund (“CPF”), Untaxed Policyholder Fund (“UPF”), the Corporate Fund (“CF”) and the newly introduced Risk Policy Fund (“RPF”), has always been a contentious issue for long-term insurance companies.
The allocation of expenses between the Individual Policyholder Fund (“IPF”), Company Policy holder Fund (“CPF”), Untaxed Policy holder Fund (“UPF”), the Corporate Fund (“CF”) and the newly introduced Risk Policy Fund (“RPF”), has always been a contentious issue for long-term insurance companies.
The South African Revenue Service (“SARS”) issued Binding General Ruling 30 (“BGR 30”) on 7 January 2016 with the purpose to determine the allocation of direct and indirect operating expenses within and between the funds that are required to be established by insurers under section 29A and the subsequent deductibility of such operating expenses, and the deductibility of expenses against transfers under section 29A (7).
It follows that the allocation of expenses are crucially important as it impacts the following:
Discrepancies identified in the expense allocation method applied – not only ranged from one entity to another – but also within the same entity’s application from one year to another year and in some instance, within the same year. SARS also created doubt owing to revised assessments issued to companies attacking the tax deductibility of expenses allocated to the CF.
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