On 10 October 2017, the new Dutch government Rutte III of the VVD, CDA, D66 and ChristenUnie presented their Coalition Agreement. In 'Confidence in the future, Government Agreement 2017-2021,' the government provides an overview of the intended objectives including expected budget.Two proposals regarding the corporate tax will affect the solvency position of insurers under Solvency II. The first proposal is related to decreasing the corporate tax rate from 25% to 21%. The percentage decreases are in the table below:
| Year | Corporate tax rate |
| 2018 | 25.0% |
| 2019 | 24.0% |
| 2020 | 22.5% |
| 2021 | 21.0% |
Decreasing the corporate tax rate will have a decreasing effect on the level of Loss Absorbing Capacity of Deferred Tax (LAC DT), resulting in a higher Solvency Capital Requirement (SCR). In addition, the eligible own funds backing the SCR may decrease should an insurer have a Deferred Tax Asset (DTA) on the balance sheet.
The second proposal is related to mitigating the carryforward of taxable losses with future taxable profits. Currently, loss in corporate tax rules can be recovered by profit last year (carryback) and nine years into the future (carryforward). In the Coalition Agreement, the carryforward will be limited to six years. The government expects the first saving to be in 2028. The intended effective date of this rule is currently unknown. Given the first saving in 2028, our expectation is that the rule will commence between 2019 and 2022.
The second measure impacts the level of LAC DT as well. This is due to the opportunity of recovering tax receivables from the loss (SCR) as a result of the 1-in-200-year simultaneous shock with tax liabilities from future profits. Profits between the seventh and ninth years cannot be taken into account.
The same counts for the recovery of a DTA with tax liabilities from future profits. This will be more complicated.
Insurers need to realise these new corporate tax regulations when defining their capital policies and when managing stakeholder expectations on the level of the Solvency II ratio.