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Insurance Breakfast Briefing 28 November 2019

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Page 1: Insurance Breakfast Briefing - ClickDimensionsfiles-eu.clickdimensions.com/kpmgie-a168b/files/... · Insurance Breakfast Briefing 28 November 2019 . Welcome & Introduction Brian Morrissey

Insurance Breakfast Briefing

28 November 2019

Page 2: Insurance Breakfast Briefing - ClickDimensionsfiles-eu.clickdimensions.com/kpmgie-a168b/files/... · Insurance Breakfast Briefing 28 November 2019 . Welcome & Introduction Brian Morrissey

Welcome & Introduction

Brian Morrissey Head of Insurance, KPMG Ireland

Page 3: Insurance Breakfast Briefing - ClickDimensionsfiles-eu.clickdimensions.com/kpmgie-a168b/files/... · Insurance Breakfast Briefing 28 November 2019 . Welcome & Introduction Brian Morrissey

3Document Classification: KPMG Confidential/Internal Source Material

© 2018 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.

2019 at a glance ……………. 2020 more of the same?

2018

■ Global Capital Standards■ Culture, Diversity and Conduct■ “SEAR” regime■ Enforcement■ Outsourcing/ Service companies■ Recovery and Resolution

■ Convergence■ SCR Review■ Cross Border models■ Sustainability/Climate change■ Recovery and Resolution

Brexit

■ Political process■ Hard Brexit scenarios

■ IFRS17 focus

■ Capital efficiency

■ Cost & transformation

■ M&A activity■ Portfolio consolidation

■ One year delay■ Implementation challenge

■ Transparency■ EU Directives/ BEPS■ Legislative change

■ Operational resilience■ Process improvement & automation■ Distribution opportunities/ threat■ Transformation?

■ Transparency■ PRIIPs/ IDD■ Consumer risk agenda■ Cost of insurance

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Central Bank of Ireland Update

Andrew CandlandHead of Actuarial, Advisory and Major International Insurance Firms, Central Bank of Ireland

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Financial reporting update

Brian MedjaouPrincipal, Financial Services Audit, KPMG Ireland

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6© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

• Current consultation is being supported by impact assessments:• Number of firms have been asked to provide quantitative impacts of proposed changes.• Expected that same firms will be asked to engage in another such study in Q1 2020.

• Current consultation covers number of issues EIOPA are considering:• Q1 2020 impact study may be more reflective of expected final advice to Commission

• Number of areas where no change proposed• Consultation presents results of EIOPA investigations supporting this view

• Some areas where significant changes set out:• Extrapolation of Risk-free Rates:

• Last liquid point of Euro swap curve & potential extensions to this• Potential additional regulatory disclosures

• Interest Rate Shocks:• Move to relative shift approach.• Downward interest rate shock to become more onerous

• Volatility Adjustment Redesign• Number of options considered to redesign structure and operation

2020 Solvency II Review - EIOPA Consultations

IFRS update

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7© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

What’s new under IFRS for 2019

Description IASB effective date

EU Effective date

IFRS 16: Leases 1/1/2019 1/1/2019

IFRIC 23: Uncertainty over Income Tax Treatments 1/1/2019 1/1/2019

Amendments to IAS 19: Plan Amendment, Curtailment or Settlement 1/1/2019 1/1/2019

Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures 1/1/2019 1/1/2019

Annual Improvements 2015-2017 Cycle: IFRS 3, IFRS 11, IAS 12, IAS 23 1/1/2019 1/1/2019

Amendments to IFRS 9: Prepayment Features with Negative Compensation 1/1/2019 1/1/2019

Page 8: Insurance Breakfast Briefing - ClickDimensionsfiles-eu.clickdimensions.com/kpmgie-a168b/files/... · Insurance Breakfast Briefing 28 November 2019 . Welcome & Introduction Brian Morrissey

8© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

• Current consultation is being supported by impact assessments:• Number of firms have been asked to provide quantitative impacts of proposed changes.• Expected that same firms will be asked to engage in another such study in Q1 2020.

• Current consultation covers number of issues EIOPA are considering:• Q1 2020 impact study may be more reflective of expected final advice to Commission

• Number of areas where no change proposed• Consultation presents results of EIOPA investigations supporting this view

• Some areas where significant changes set out:• Extrapolation of Risk-free Rates:

• Last liquid point of Euro swap curve & potential extensions to this• Potential additional regulatory disclosures

• Interest Rate Shocks:• Move to relative shift approach.• Downward interest rate shock to become more onerous

• Volatility Adjustment Redesign• Number of options considered to redesign structure and operation

2020 Solvency II Review - EIOPA Consultations

IFRS 16 Leases

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9© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

Recognition and measurementMeasure your lease liability

Measure your ROU asset

The lease liability is the present value of all future

lease payments.

The Day 1 Right-of-Use asset is measured as the

lease liability.

Identify your leases

Think of all supplier arrangements where they are using a specific asset

to deliver the service

Account for subsequent changes

Reassessments, modifications, revised

payments

Lease term Purchase options Termination penalties Variable payments Rent reviews Discount rate

Pre-commencement payments

Lease incentives Initial direct costs Dismantling and

restoration costs

Outsourcing arrangements

Significant supply arrangements

Supplier equipment provided at no cost

Revisions to discount rates on remeasurement?

Liability changes through the ROU asset or P/L

Modifications may/may not result in separate leases

ROU asset impairment

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10© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

Disclosure requirementsTransition to IFRS 16

Transition method and impact

Explanations of exemptions and practical expedients applied

Qualitative and quantitative impact on the primary statements (including the cash flow statement)

New lease accounting policy (and old accounting policy under modified retrospective approach)

Key judgements and estimates

Separate presentation of liability and asset either on face of statements or in notes

Reconciliation to operating lease commitment

Lessee disclosures

Qualitative and quantitative information about leasing activities

Total cash outflows, and potential future cash outflows not captured in lease liability

Additions to, and depreciation of, and closing carrying amount of ROU assets (by class)

A maturity analysis of lease liabilities

Interest on lease liability

Expense relating to short-term and low-value leases, and variable lease payments not included within the lease liability.

Lessor disclosures

Qualitative and quantitative information about leasing activities

Management of risks associated with ownership of underlying assets

Finance leases: selling profit/loss, finance income and income from variable lease payments

Lessors must separately analyse lease and non-lease components, e.g. common area maintenance for Property lessors

Operating lease income

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11© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

• Current consultation is being supported by impact assessments:• Number of firms have been asked to provide quantitative impacts of proposed changes.• Expected that same firms will be asked to engage in another such study in Q1 2020.

• Current consultation covers number of issues EIOPA are considering:• Q1 2020 impact study may be more reflective of expected final advice to Commission

• Number of areas where no change proposed• Consultation presents results of EIOPA investigations supporting this view

• Some areas where significant changes set out:• Extrapolation of Risk-free Rates:

• Last liquid point of Euro swap curve & potential extensions to this• Potential additional regulatory disclosures

• Interest Rate Shocks:• Move to relative shift approach.• Downward interest rate shock to become more onerous

• Volatility Adjustment Redesign• Number of options considered to redesign structure and operation

2020 Solvency II Review - EIOPA Consultations

IFRIC 23 Uncertain tax treatments

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12© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

What is an uncertain tax treatment?Tax

Means tax in scope of IAS 12.

Tax authority

All bodies that decide whether tax treatments are acceptable under tax law, including the courts.

Uncertain tax treatment

A tax treatment (used or planned to be used in tax filings) for which there is uncertainty over whether it would be accepted by the relevant tax authority under tax law – may relate to:

Past and future tax filings

Taxable income and tax deductions

Tax bases

Tax losses

Entities subject / not subject to tax

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13© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

Is it probable the tax authorities will accept the treatment?

Probable means greater than 50% chance

Assume that the tax authority would have full knowledge of all relevant information – no detection risk assumed in the assessment

Consider need for contingent liabilitydisclosures in accordance with IAS 12.88

If yes, then…

Financial statements

Tax return

=… no provision for tax uncertainty

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14© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

How to measure the uncertainty?If it’s not probable that the tax authority would accept the treatment…

Not an option - depends on whether outcome is binary or has multiple values

… whichever provides a better prediction

The most likely amount

The expected valueor

Reflect the uncertainty using…

How to measure uncertainty

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15© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

01 Amendment of accounting policies

02 Consider need to disclose additional management judgements and estimates

03 Increased disclosures on contingent liabilities

04 Increase/decrease of amount of current/deferred taxDepending on current accounting and jurisdiction:

What are the potential issues for 2019?

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16© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

• Current consultation is being supported by impact assessments:• Number of firms have been asked to provide quantitative impacts of proposed changes.• Expected that same firms will be asked to engage in another such study in Q1 2020.

• Current consultation covers number of issues EIOPA are considering:• Q1 2020 impact study may be more reflective of expected final advice to Commission

• Number of areas where no change proposed• Consultation presents results of EIOPA investigations supporting this view

• Some areas where significant changes set out:• Extrapolation of Risk-free Rates:

• Last liquid point of Euro swap curve & potential extensions to this• Potential additional regulatory disclosures

• Interest Rate Shocks:• Move to relative shift approach.• Downward interest rate shock to become more onerous

• Volatility Adjustment Redesign• Number of options considered to redesign structure and operation

2020 Solvency II Review - EIOPA Consultations

FRS 102 – Triennial amendmentsEffective accounting periods commencing on or after 1 January 2019

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17© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

Principal amendments

Financial instruments – conditions for classification as basic

Financial instruments – investments in other group entities

Definition of ‘financial institution’

Investment properties rented to other group entities

Intangible assets acquired in a business combination

Small companies regime

1

2

3

4

5

6

7

Document Classification: KPMG Confidential

Loans from directors to small entities

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18© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

Financial instruments – Investments in other group entities

Financial instruments – conditions for classification as basic

Insert text Insert text

Over-riding principle for classification of a debt instrument as basic

‘Cash flows on specified dates that constitute repayment of the principal advanced together with reasonable compensation for the time value of money, credit risk and other basic lending risks and costs’

In some cases, this will allow for debt instruments that breach the rules based conditions to still be classified as basic

Amendment also made to allow debt instruments that include reasonable compensation on early termination be consistent with basic classification (FRS 102.11.9(c))

Accounting policy choice to allow investments in another group entity that are not subsidiaries, associates or joint ventures to be measured at either:• cost less impairment• FVTPL, or• FVOCI

Principal amendments

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19© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

• Current consultation is being supported by impact assessments:• Number of firms have been asked to provide quantitative impacts of proposed changes.• Expected that same firms will be asked to engage in another such study in Q1 2020.

• Current consultation covers number of issues EIOPA are considering:• Q1 2020 impact study may be more reflective of expected final advice to Commission

• Number of areas where no change proposed• Consultation presents results of EIOPA investigations supporting this view

• Some areas where significant changes set out:• Extrapolation of Risk-free Rates:

• Last liquid point of Euro swap curve & potential extensions to this• Potential additional regulatory disclosures

• Interest Rate Shocks:• Move to relative shift approach.• Downward interest rate shock to become more onerous

• Volatility Adjustment Redesign• Number of options considered to redesign structure and operation

2020 Solvency II Review - EIOPA Consultations

IFRS 17 update

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20© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

What is coming?

June 2019Exposure draft of IFRS 17amendments issued

25 September2019Due date for comment letter to IASB

2 September2019Due date for commenting on EFRAG’s draft comment letter

Mid-2020Expected final standard

1 Jan 2021Opening balance sheet

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1 January2021

1 January2022

IFRS 17

IFRS 9for insurers

The IASB proposed to…

Document Classification: KPMG Confidential

— defer IFRS 17’s effective date by a year, and

— extend the temporary exemption from applying IFRS 9, granted to insurers meeting certain criteria

Effective date for IFRS 17

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22© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

Proposed amendments to seven areas of IFRS 17

Accounting for certain types of credit cards and loans

Accounting for investment services in an insurance contract

Allocating insurance acquisition cash flows

Mitigating the financial risk of direct participating contracts

Presentation of insurance contract assets and liabilities

Reinsurance of onerous contracts

Accounting for acquired claims liabilities on transition

1

2

3

4

5

6

7

Document Classification: KPMG Confidential

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7%15% 10%

20% 9%10%

25%19%

13%

33%

30%

21%

14%

23%

35%

1% 4%10%

2018(n = 159)

2019(n = 193)

Current IFRS 17 Project Phase% of respondents

Implementation phase

Design phase

Impact assessment phase

Project start-up phase

Following the developments

Haven’t started yet

Document Classification: KPMG Confidential

Note – results not directly comparable!

• While 45% of insurers arenow in Design and Implementation mode

• A third still have not meaningfully started

Where are insurers in their preparations?Results of KPMG benchmarking survey earlier in 2019

2017(n = 81)

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24© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

% of respondentsDrilling into the current results

• The middle ground appear to have accelerated significantly

• Small insurers still need to accelerate –includes subsidiaries of major groups

Where are insurers in their preparations?Smaller insurers need to accelerate

Page 25: Insurance Breakfast Briefing - ClickDimensionsfiles-eu.clickdimensions.com/kpmgie-a168b/files/... · Insurance Breakfast Briefing 28 November 2019 . Welcome & Introduction Brian Morrissey

25© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

• Current consultation is being supported by impact assessments:• Number of firms have been asked to provide quantitative impacts of proposed changes.• Expected that same firms will be asked to engage in another such study in Q1 2020.

• Current consultation covers number of issues EIOPA are considering:• Q1 2020 impact study may be more reflective of expected final advice to Commission

• Number of areas where no change proposed• Consultation presents results of EIOPA investigations supporting this view

• Some areas where significant changes set out:• Extrapolation of Risk-free Rates:

• Last liquid point of Euro swap curve & potential extensions to this• Potential additional regulatory disclosures

• Interest Rate Shocks:• Move to relative shift approach.• Downward interest rate shock to become more onerous

• Volatility Adjustment Redesign• Number of options considered to redesign structure and operation

2020 Solvency II Review - EIOPA Consultations

Solvency II review

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26© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland. 6

2020 Solvency II review - EIOPA consultations

First consultation closed in October and considered:

• Reporting and Disclosure: General Issues, QRTs, SFCR, Financial Stability Reporting

• Insurance Guarantee Schemes

Second consultation is ongoing and considers more technical issues:

• Large consultation – core paper >700 pages.• Covers, amongst other items:• Long-term guarantee measures and measures

on equity risk• Technical provisions• Own funds• SCR & MCR• Recovery & Resolution

Directive requires that, by 1 January 2021, the European Commission review certain aspects of Solvency II. Two EIOPA consultations over 2019 to facilitate EIOPA advice to the

Commission

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27© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

Some areas where significant changes are set out:

• Extrapolation of risk-free rates: • Last liquid point of Euro swap curve & potential extensions to this• Potential additional regulatory disclosures

• Interest rate shocks:• Move to relative shift approach.• Downward interest rate shock to become more onerous

• Volatility adjustment redesign• Number of options considered to redesign structure and operation

Current consultation is being supported by impact assessments

Number of areas where no change proposed

2020 Solvency II review - EIOPA consultations

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Tax Developments

Ciara WrafterDirector, Tax, KPMG Ireland

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29© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

EU Mandatory Disclosure (DAC 6)

The latest in a series of EU initiatives in the field of automatic exchange of information in tax matters (DAC 1-5) e.g. interest on financial products, EU Country-by-Country reports, etc.

DAC 6 introduces:

— an obligation on intermediaries (or taxpayers), to disclose potentially aggressive tax planning arrangements, and

— the means for tax administrations to exchange information on these structures.

Reporting of:

— cross-border arrangements.— that fall within a set of so-called “hallmarks” – some of which must be assessed in light of a main

benefit test,— within 30 days of the arrangement being made available to the taxpayer.

The scope of the Directive on Administrative Cooperation:

— all taxes of any kind with the exception of: VAT, customs duties, excise duties and compulsory social contributions, e.g. Pay Related Social Insurance (Ireland), National Insurance (UK);

— includes local financial transaction taxes, stamp duties and insurance taxes.

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Directive on Administrative Cooperation: DAC 6

Step 1

Is there a cross-border arrangement?(i.e. does it concern more than one EU Member State or a Member State and a third country?)

Step 2

Is that cross-border arrangement reportable?(i.e. does it have one of the hallmarks and, if applicable, meet the main benefit test?)

Step 3

Who has the obligation to report?

Step 4

What should be reported?

Reporting deadline: 30 days

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Entry into force: 25 June 2018

June 2017Commission proposal

13 March 2018Political agreement in ECOFIN

25 June 2018

31 December 2019Member States to adopt and publish

1 July 2020Becomes applicable with 30 day reporting deadline

31 August 2020File retroactive information

31 October 2020First information exchanged

Retroactive effect: information to be collected for reportable cross-border arrangements where the first step implemented on or after 25 June 2018: to be filed by 31 August 2020

Guidance expected from Irish Revenue end Q1/ in Q2 2020

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The hallmarksHallmark Overview – distinguishing between hallmarks linked to main benefit test and those NOT linked

Hallmarks NOT linked to the main benefit test

C.1(a) Cross-border transactions between 2 or more associated persons where deductible payment to recipient not resident anywhere

C.1(b)(ii) Cross-border transactions between 2 or more associated persons with deductible payments to recipient resident in EU Blacklist or OECD non-cooperative jurisdictions

C.2 Cross-border transactions where deductions for same depreciation on asset in more than one jurisdiction

C.3 Cross-border transactions where relief from double taxation in respect of the same item of income or capital is claimed in more than one jurisdiction

C.4 Cross-border asset transfers, material difference in the consideration amount treated as payable

D.1 Specific hallmarks concerning automatic exchange of information

D.2 Specific hallmarks concerning beneficial ownership where beneficial owner made unidentifiable

E.1-3 Specific hallmarks concerning transfer pricing: E.1 unilateral safe harbours, E.2 transfers of hard-to-value intangibles, and E.3 intra-group cross-border transfers of assets/risks/functions where significant projected reduction in EBIT for transferor/s

Hallmarks linked to the main benefit test

A.1 Condition of confidentiality

A.2 Fixed fee by reference to tax advantage

A.3 Substantially standardised documentation /available without need for substantial customisation

B.1 Contrived steps related to loss-making companies

B.2 Converting income into capital, gifts or other categories of lower taxed revenues

B.3 Circular transactions resulting in round-tripping of funds and offsetting/cancelling transactions

C.1(b)(i)(c)&(d)

Cross-border transactions where deductible payment made between 2 or more associated persons where (b)(i) the recipient jurisdiction has no tax or zero or almost zero tax rate, (c) receipt has full exemption from tax or (d) payment benefits frompreferential tax regime in the recipient’s residence jurisdiction

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The basics: when & what penalties?

— within 30 days beginning on the day after they provided, directly or by means of other persons, aid, assistance or advice.

Intermediaries under secondary definition

Intermediaries/ taxpayers: within 30 days, beginning on:

— the day after the reportable cross-border arrangement is made available for implementation to that relevant taxpayer, or

— is ready for implementation by the relevant taxpayer, or — when the first step in its implementation has been made in relation to the relevant taxpayer,

whichever occurs first.

Irish penalties:

— fixed penalties of up to €5,000 and — daily penalties of up to €500 for each day of failure to meet reporting requirements

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Transfer Pricing – Key provisions in Finance Bill 2019

Nunc nec justovel felis mollisvestibulum a ac■ In practice these

guidelines already apply to transfer pricing matters under Ireland’s network of double tax treaties which follow the OECD Model Tax Convention

■ Master file requirement where annual group revenue > €250m

■ Local file requirement where annual group revenue > €50m

■ 30 day timeframe from date of request

■ Exemption where both parties to the transaction are within the charge to Irish tax

2017 OECD Guidelines

Grandfathered arrangements

Transfer Pricing

Documentation

Extension to Non-Trading Transactions

Extension to SMEs

Extension to Capital

Transactions

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Transfer Pricing Documentation

Documentation

Master file

Impact of new requirements

Local file

Penalties

OECD transfer pricing documentation requirements (in accordance with Chapter V of 2017 Guidelines) have been introduced.

The requirement to prepare a ‘master file’ (in accordance with the 2017 OECD Guidelines) is introduced for groups with consolidated revenues in excess of €250m.

New rules introduced in Ireland could trigger a requirement for MNE’s that did not previously need to prepare transfer pricing documentation to now do so.

In effect, contemporaneous transfer pricing documentation requirement introduced that did not exist previously – must be prepared by tax return filing date.

The requirement to prepare a ‘local file’ (in accordance with the 2017 OECD Guidelines) is introduced for groups with consolidated revenues in excess of €50m.

For many other countries, the revenue threshold for both master file and local file is set at €750m (or equivalent in local currency) in line with the threshold for country-by country reporting.

Requirement to deliver within 30 days of request from Revenue.

Fixed penalties - €25,000 plus €100

“Tax-geared” penalties

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Are you in breach of the new Irish Master File/Local File thresholds?

Do you have any intra-group agreements, such as reinsurance or service contracts, which have been excluded from TP rules up to now because they pre-dated July 2010? If so, have you prepared TP documentation under the rules applicable to the counterparty’s jurisdiction?

Do you have a non-trading Irish FinCo within your group? Does it lend cross-border?

Do you provide parent company guarantees on a cross-border basis?

Do you have a Section 110 company in your group that lends to a non-trading Irish entity?

Do you engage in capital transactions within your group that are not tax relieved?

Points for consideration

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Anti-hybrid rules – Finance Bill 2019

Cross border arrangements between associated enterprises

Resulting in deduction without inclusion or double deduction

Mismatches arising due to unilateral transfer pricing adjustments or

notional interest deduction regimes not caught

Payments made on or after 1 January 2020

Also apply to mismatches arising from deemed payments and

profit allocations between head office and branches or between

branches

Payments subject to a nil tax outcome may not need

counteraction

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Anti-hybrid rules – types of mismatches

01

02

03

04

05

06

07

08

Hybrid entities Residency Imported mismatches

Structured arrangements

Permanent establishment

Withholding tax

Financial instruments

Double deduction

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Finance Bill 2019 – other measures

Insurance Premium

Tax

No deductions for taxes on

income

Broadening of exit tax

provisions

Accounting periods commencing after 9 October 2019

Changes to the taxation of property

investments

Pension contributions

Capital Gains Tax groups post Brexit

Dividend withholding tax

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Finance, Risk and Actuarial of the Future

Jean Rea FSAI, Director, Actuarial Services, KPMG Ireland

28 November 2019

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Timelines reducing

and increased reporting!

Cost pressures

Speed, accuracy &

confidence in reported numbers

Increased data volumes & in responsibility

for data quality

Trust by regulators,

customers & shareholders

New capabilities in financial risk & capital mgmt

Why we need to reimagine the future

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42

Agile & integrated capabilities, outcomes focused

Current core processes today will become 80%+ automated

Planning, forecasting, what-if analysis will be re-built using risk and driver based approach

Insurance metrics will be produced concurrently i.e. capital will not be later

Insurance Finance closing will be continuous and forecast will be updated real time

Controls will be closed off at source and 60-70% will be automated

Planning, forecasting, reporting, analysis will be designed and executed on an integrated basis

A much changed workforce….only 1/3 of the future Finance organisation will require today’s skills

Insurance data analytics and modelling capability will evolve significantly, moving to predictive & proactive

Finance will re-organise from a task based function to a capability and outcome based function

Technology will be agile, cloud based and modular…. incorporating emerging technology, incl. automation & AI

Finance will deliver change using a hypothesis and prototyping approach

What does Finance, Risk and Actuarial look and feel like in the future ?

Much stronger foundations & efficiency in place

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43

A typical ORSA process…

1. Base case business plan

1

2. Corresponding Solvency II projections

2

ORSA - FOCUS AREA 13. Development of the stress and scenario testing plan

3

6

4. Solvency II projections under the assumed stresses and scenarios including reverse stress testing

4

How ORSA’s are being performed has not changed materially since the introduction of the FLAOR as part of Solvency II preparations

6. Finalisation of reporting, presentation to key governance fora, ORSA opinion

55. Iterations of steps 3 and 4

All of this can take a long time!

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Digital developments further cause risks to be dynamic and interconnected

Risks are becoming even more interconnected

Risk exposures are moving more quickly,reflecting the faster pace of business

Risks have the potential tocrystallise more quickly

Incident frequency is becomingmore bulky as technology rootcauses are systemic

New technical risks are emerging

As risk management systems improve,better, more timely risk and control MIis becoming available

…In a digital world, higher emphasis will be placed on the management of connected risks

How will the tools and techniques used to assess and monitor risks change in a more connected world?

What capabilities are needed within insurers and within risk functions to manage and oversee a more connected world?

What can we learn from other parts of the business that are also impacted by changing landscapes?

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Looking beyond conventional depictions of risk based on likelihood and severity, KPMG’s Dynamic Risk Assessment (“DRA”) takes a four-dimensional (Likelihood, Impact, Velocity, and Connectivity) view of risk that allows for the contagion effect of risks — one of the most significant learnings of the Global Financial Crisis.

Next gen ORSA - risk identification

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IDENTIFY RISKS

KPMG works with key stakeholders to identify the key risks facing the organization.

Focusing on systematic business risks helps produce better strategic and risk information.

SURVEY

Key stakeholders complete an online survey, for the collection of data on the characteristics of the risks facing the organization.

ANALYSIS

KPMG applies advanced network theory to the aggregated survey responses to identify the organizations interconnected risk network, and its dynamics.

REPORT

KPMG report and discuss findings with organizational stakeholders. The DRA modelling organizations to see where risks can be expected to form critical clusters or trigger ‘contagion’ with other risks.

Risk identification - DRA process

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A typical ORSA process…

1. Base case business plan

1

2. Corresponding Solvency II projections

2

3. Development of the stress and scenario testing plan

3

6

4. Solvency II projections under the assumed stresses and scenarios including reverse stress testing

4

How ORSA’s are being performed has not changed materially since the introduction of the FLAOR as part of Solvency II preparations

6. Finalisation of reporting, presentation to key governance fora, ORSA opinion

55. Iterations of steps 3 and 4

All of this can take a long time!

ORSA - FOCUS AREA 2

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48

Document Classification: KPMG Confidential

© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

Live Demos:― Next gen ORSA - dynamic stress and scenario testing

― QRT Analysis App

Live Demos

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49

Document Classification: KPMG Confidential

© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

Live Demos:― Next gen ORSA - dynamic stress and scenario testing

― QRT Analysis App

Live Demos

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50

Agile & integrated capabilities, outcomes focused

Current core processes today will become 80%+ automated

Planning, forecasting, what-if analysis will be re-built using risk and driver based approach

Finance will produce Insurance metrics concurrently i.e. capital will not be later

Insurance Finance closing will be continuous and forecast will be updated real time

Controls will be closed off at source and 60-70% will be automated

Planning, forecasting, reporting, analysis will be designed and executed on an integrated basis

A much changed workforce….only 1/3 of the future Finance organisation will require today’s skills

Insurance data analytics and modelling capability will evolve significantly, moving to predictive & proactive

Finance will re-organise from a task based function to a capability and outcome based function

Technology will be agile, cloud based and modular…. incorporating emerging technology, incl. automation & AI

Finance will deliver change using a hypothesis and prototyping approach

What does Finance, Risk and Actuarial look and feel like in the future ?

Much stronger foundations & efficiency in place

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Key risk*:AI getting out of control: e.g. can we stay in control of decisions it makes?

Key risk*: AI getting decisions wrong: e.g. risk of approving/ rejecting the wrong mortgage applications

Key risk*:Lack of explainablity: e.g. how to explain this to the customer (or regulator)?

Key risk*:Gaps in corporate governance: e.g. is this in line with ethics & values?

New world… new risks

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AI in Control - management framework

KPMG’s AI In Control Management framework covering 17 categories for managing risks and controls for AI solutions.

This framework is tailored for AI solutions (i.e. solutions that include machine learning capabilities).

We have identified 75 potential risksacross 17 different areas, and have defined 106 typical controls that would help manage these risks

# of risks identified, 75 in total

# of controls identified, 106 in total

Al in Control

6

5

...

3

2

...

4

10

6

8

7

6

4

6

1

4

3

8

10

4

...

6

11

8

3

4

4

16

3

...

6

3

13

7

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…significant barriers remain presenting new risks

NEW WORLD

OLD WORLD

But some new Risks

Enablers — Availability of data— New data infrastructure— Parallel computing— IT Bandwidth and outsourcing— New Multidisciplinary teams— New ways of working

BarriersAnchoring to:— Old systems— Old processes & controls— Old teams— Old costs of change— Low Imagination— Silos

— Gaming customers— Ownership of data— Evolving regulation— Ever-increasing complexity

of uses poorly aligned to governance and control

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Questions?

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Thank you

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Contact us

Brian MorrisseyHead of InsuranceKPMG Ireland t: +353 1 410 1220e: [email protected]

Ciara Wrafter Director, TaxKPMG Ireland t: +353 1 700 4165e:[email protected]

Brian Medjaou Principal, Financial ServicesKPMG Ireland t: +353 1 700 4205e: [email protected]

Jean Rea Director, ActuarialKPMG Ireland t: +353 1 700 4288e: [email protected]

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kpmg.ie

© 2019 KPMG, an Irish partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Ireland.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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