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On 24 January 2025, the Belgian Supreme Court (Hof Van Cassatie / Cour de Cassation) has rendered a decision in relation to the corporate tax treatment of the flashing light reserve (also called the additional provision for life insurance) typically booked by Belgian life insurers offering insurance products with a guaranteed return.
This (landmark) decision gives life insurers the opportunity to reassess their (historical) position taken on the tax treatment of the flashing light provision.
1. Introduction
Briefly speaking, the flashing light reserve is a technical reserve constituted by Belgian insurers offering life insurance products with a guaranteed return (typically branch 21 and branch 26 products).
This reserve must be constituted as soon as the guaranteed return on the relevant life insurance products offered exceeds 80% of the average return over the last five years on 10-year Belgian OLO’s by more than 0,1%.
At each year-end closing, the provision must be reassessed by the life insurance company. An exemption to constitute an increase of the flashing light reserve could however be granted by the regulatory authority (i.e., the National Bank of Belgium (“NBB”) provided that the insurance company has put in place an effective asset and liability management which demonstrates that the insurance company can meet all its liabilities in relation to the relevant contracts (for which normally the flashing light reserve should normally be constituted).
2. Tax treatment of the flashing light provision
The corporate tax treatment of the flashing light reserve has been subject to discussion in the Belgian tax landscape.
The Belgian tax authorities had taken the position1 that the flashing light reserve is a taxable reserve, mainly based on the alleged distinction that must be made between the ordinary provision for life insurance (for which the tax exemption is accepted by the tax authorities) and the flashing light provision (which according to the tax authorities would not qualify for tax exemption).
A number of Belgian insurance companies have challenged the position taken by the tax authorities before the courts. The Brussels Court of Appeal has confirmed in at least one case2 that the flashing light reserve can be considered as a tax-exempt provision.
The reasoning of the Court of Appeal is mainly based on the following arguments:
- The insurer has the legal obligation to constitute technical reserves in view of meeting its contractual obligations as well as its legal and regulatory obligations. This includes the constitution of the flashing light reserve when required.
- The BE GAAP accounting rules for insurance companies confirm that the flashing light reserve is part of the provision for life insurance for which the Belgian tax authorities accept the tax-exempt treatment (based on administrative guidance).
- Based on the primacy of Belgian accounting legislation (as applicable to Belgian insurance companies), the flashing light provision should therefore also be qualified as a tax-exempt provision
The tax authorities had appealed against the decision of the Brussels Court of Appeal before the Belgian Supreme Court. In its decision of 24 January 2025, the Belgian Supreme Court has rejected the appeal of the Belgian tax authorities.
The position taken by the Court of Appeal of Brussels is hence validated.
3. Possible actions to be taken
Insurers that have considered the flashing light reserve as a taxable reserve in the tax return may want to reassess their (initial) position taken and consider to undertake actions to challenge this position (e.g., by filing an administrative appeal against their corporate tax return filed).
Please get in touch with stijn.vanoppen@be.ey.com, dung.nguyen@be.ey.com, or erik.kengen@be.ey.com should you wish to discuss your needs and concerns in this matter.
Footnotes
1. Circular letter Ci RH 421/528.010
2. Decision of the Court of Appeal of Brussels dated 1 June 2021 (2016/AF/124) published on Taxwin