Actuarial Notes

IFRS 17: Tax and the Contractual Service Margin

By Thomas Brotzer · KPMG · 2022 · ILA201-608-25

Study guide: Exam ILA-201I

A KPMG tax article, dated 28 July 2022, on how the contractual service margin (CSM) under IFRS 17 defers profit recognition, which may affect the timing of tax payments and give rise to deferred tax consideration. It sets out the CSM's accounting treatment, how the tax consequences of creating and releasing it vary with local tax rules, and the next steps for insurers and tax authorities.

On the syllabus

CSM – Accounting treatment

  • The CSM is the liability that offsets day 1 profits under IFRS 17; it is released gradually over the term of the contract as services are provided.
  • Insurers generally calculate the CSM at the transition date, applying the new rules retrospectively with adjustments to retained earnings.

CSM – Variation in tax treatments

  • Tax follows IFRS Standards
  • Tax does not follow IFRS Standards
    • Recording the CSM results in a deductible temporary difference, and under IAS 12 a deferred tax asset is recognised to the extent that taxable profit will be available against which it can be realised.

Next Steps

Sources