A.M. Best has reviewed the budget proposals relating to the anti-avoidance rule under the Foreign Accrual Property Income (FAPI) rules, and while it’s too premature for the ratings agency to state definitively how the regulatory and tax implications will affect the industry, its outlook isn’t promising.
The information provider, however, did issue a preliminary evaluation arguing that the budget proposal, if implemented, “could potentially have a negative impact to the business profile of the companies whose activities fall under this ruling.”
The 2015 proposal is intended to guarantee that “profits of a Canadian taxpayer from the insurance of Canadian risks remain taxable.” It takes into account many factors regarding foreign income and risk.
“The current tax proposal is specifically intended to impact a foreign affiliate’s income in respect of the ceding of Canadian risks to be included in computing the affiliate’s FAPI, and extend the activity to when an affiliate cedes Canadian risks and receives foreign risks as consideration,” A.M. Best explains.
The companies affected include:
- BMO Reinsurance Limited
- Scotia Insurance (Barbados) Limited
- CIBC Reinsurance Company Limited
- Royal Bank of Canada Insurance Company Ltd.
- TD Reinsurance (Barbados) Inc.
A.M. Best notes that the Canadian government will accept comments and feedback from any interested stakeholders until June 30.
