The section covers

• Rule
• Background
• Non-allocated bonus reserves

Rule

If, in connection with the surrender of the policy, the person liable to taxation is entitled to a share of the non-allocated bonus reserves corresponding to these having been released during the term of the policy, an amount corresponding to the amount which would have been released to the policy during the term of the policy must be included annually in the policy's custody account at the end of the year of taxation.

Section 4(5) of PAL concerns the non-allocated bonus reserves which the pension plan holder is guaranteed in advance under the insurance plan in connection with surrender and on which no tax has been levied under Section 4(1)-(4) of PAL as they have not been added to the custody account during the term of the policy. 

The person liable to taxation is entitled to a share of the non-allocated bonus reserves, which means that the provision offsets an actual commitment towards the pension plan holder.

The taxation under Section 4(1) of PAL is based on the assumption that a share of the part of the life insurance company's or the pension fund's investment yield for which provisions are made on an ongoing basis for the pension plan holders is added to the pension custody account. Danish life insurance companies and lateral pension funds (nationwide occupational pension funds) are under an obligation to add yield on an ongoing basis unless another type of addition has been agreed upon.

Section 4(5) of PAL takes account of the fact that the international business law regulation of the life insurance and pension industry differs from the Danish regulation and that the funds are not added to the pension custody account.

The provisions set out in Section 4(1)-(4) of PAL thus do not cover a situation in which pension funds exist as non-allocated bonus reserves but where the pension plan holder, in accordance with the plan, is guaranteed a share of the non-allocated bonus reserves fixed in advance which reflects the surrender value notwithstanding the fact that the bonus reserves are not added on an ongoing basis during the term of the policy.

Non-allocated bonus reserves are non-allocated funds, including collective bonus potential and non-allocated collective special bonus provisions which have not been distributed to the policyholders. The non-distributed bonus reserves can, among other things, be utilised as bonus and to cover any losses.