French General Tax Code
In forceI. - Insurance companies, supplementary occupational retirement funds mentioned in Article L. 381-1 of the Insurance Code, mutual insurance companies or supplementary occupational retirement unions mentioned in Article L. 214-1 du code de la mutualité or the institutions for supplementary professional retirement mentioned in article L. 942-1 of the Social Security Code may set up a tax-free provision to deal with the overall management loss relating to all life, nuptial, natal and capitalisation insurance policies.
II. - For each set of contracts stipulating an identical profit-sharing clause and guaranteed rate, and in respect of each of the financial years closed during the duration of these contracts, a forecast balance sheet is drawn up of the discounted future management income and expenses relating to this set of contracts. This period takes into account future redemptions and reductions, up to a limit of 80% of the average of those occurring during the financial year in question and the two previous financial years.
To establish these balance sheets, the following are taken into account:
a) income corresponding to contractually agreed management expenses, reinsurance commissions received to cover such expenses, and residual investment income after deduction of sums deducted from this income to cover management expenses and technical and financial charges resulting from contractual clauses. Investment income is calculated by applying the weighted rate of return on these investments to the average annual mathematical provisions relating to the contracts referred to in I, calculated in respect of the financial years concerned. For bonds and similar securities, the weighted rate of return is calculated on the basis of their yield excluding capital gains up to the redemption date, and for the reinvestment of sums corresponding to the amount of their coupons and the redemption price of these securities, 75% of the average half-yearly rate for government bonds. However, this percentage is set at 60% for re-investments taking place from the sixth year following the end of the financial year in question. For other assets, this rate is calculated on the basis of 70% of the average weighted rate of return, excluding capital gains, on bonds and similar securities recorded in respect of the financial year under review and the two previous financial years;
b) expenses corresponding to administration costs, claims management costs and internal and external investment management costs used to assess income, up to the average amount of the same expenses incurred in respect of the financial year under review and the two previous financial years.
The discount rate for future management income and expenses is the rate defined in a.
III. - The amount of the provision is equal to the sum of the debit balances of the forecast balance sheets referred to in II.
IV. - The provision made at the end of the financial year in question is compared, at the end of the following financial year, with the provision that would have been made at the end of the financial year in question if the investment income had been calculated using the actual rate of return on these investments calculated for the latter financial year. Where the allocation actually made is higher, a sum equal to the product of a fraction of the overall difference between the two allocations multiplied by the rate mentioned in the first paragraph of 3 of II of article 238 septies E established at the close of the financial year in question is then included in the taxable income for that financial year. This fraction is equal to the sum of the excess provisions recorded in respect of each of the financial years covered by the allocation in question, reduced by one fifth of their amount per financial year ended between the first day of the second financial year following that in respect of which the allocation was made and the closing date of these financial years, up to a limit of four fifths of these excess provisions. For the application of the preceding sentence, the overall difference is allocated in priority to the surpluses recorded in respect of the closest financial years (1).
(1) The provisions of this article apply to the determination of income for financial years ending on or after 31 December 1998.
