Abstract

After the adoption of IFRS 4 Phase Ⅱ, insurance companies should modify their ways in which they have measured and recognised their insurance contract revenue, incurred claims and expenses, and insurance liability. In addition, the current tax law is expected to be influenced by this change because it includes regulations or contents which are similar to the current accounting standards. This study will consider the effect of the adoption of IFRS 4 Phase Ⅱ on corporate tax law applied in insurance business and suggest how it can be altered. Firstly, the current corporate tax law specifies that the liability reserve fund (under the provision of the insurance business Act and other Acts) shall be included in deductible expenses in the calculation of the income amount for the concerned business year. However, according to the IFRS 4 Phase Ⅱ, the liability reserve fund is not recognised as expenses. This study will present measures to maintain the same effect of current tax implementation even after the introduction of the IFRS 4 Phase Ⅱ. Secondly, this study suggests adjusting the period during which gross income and deductible expenses accrue. In contrast to the current tax law which includes premiums in the gross amount for the calculation of the income amount at the time of their receipt, this study proposes that insurers include their premiums in the gross amount at the time when they recognize their insurance contract revenue on the accrual basis. The reasons are as follows. The insurance contract revenue under the IFRS Phase Ⅱ would be the same as the total premiums received for the whole insurance period. Other businesses include their sales under financial accounting for the gross figure in the calculation of the income amount under the tax law and the insurance contract revenue under IFRS 4 Phase Ⅱ is corresponding to those amounts. Including the insurance contract revenue in the gross figure in the calculation of the income amount would be stable for collecting taxes period by period. Requiring insurers to persist with the current liability reserve fund would cause tax compliance cost. Finally, the necessity of changes in tax regulations related to contingency reserve funds and deferred acquisition costs will be discussed. This study suggests that the tax regulation related to the contingency reserve funds should remain the same as the current tax regulation under IFRS 4 Phase Ⅱ. Furthermore, the related tax law on acquisition costs will have to be removed. This study would be the first of its kind to consider the change in corporate tax law by comparing and analyzing the main contents of the current K－IFRS 1104 and the IFRS 4 Phase Ⅱ. Facing the introduction of new insurance accounting standards, this study will play a key role in initializing the various discussions about how to improve and modify the related tax laws.

Keywords

• IFRS 4 Phase Ⅱ
• Insurance business
• Insurance contract revenue
• liability reserve fund

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