Over the past period, we have observed an increase in the number of disputes between taxpayers and the Dutch Tax Authorities within the insurance industry. Existing rulings are being reconsidered or terminated, sector-wide audits are being performed and information request letters feature substantially more critical questions quickly sifting to the level of detail of a tax audit.

While the tax authorities’ have a more critical stance applies across the Dutch financial services market, we see a couple of marketwide discussion topics that frequently arise for insurers.

What is under scrutiny

Across the insurance market, current disputes commonly concern the deductibility and valuation of non‑life claim provisions, recognition of administrative expense reserve (“AKR”) for life insurers, intragroup reinsurance (mainly larger quota share arrangements), interest deduction limitations and CFC discussions. In this update we share some insights in the insurance market specific discussions around (i) claims provisions, (ii) intragroup reinsurance and (iii) administrative expense reserves.

Case focus: three key controversy areas

Claim provision valuation (non‑life):

• In 2019, the Dutch tax authorities initiated an in-depth review of claims provisions in the tax balance sheet. This developed into a market-wide discussion, with the tax authorities challenging the use of a prudency margin for tax purposes. In other words, the tax authorities question whether insurers may recognise a prudency margin in addition to the best‑estimate liability (BEL).
• In the view of the tax authorities, the BEL already reflects a realistic, probability‑weighted estimate that aligns with the 50% certainty threshold for provisions as laid down in a Dutch Decree about provisions. Furthermore, the tax authorities note - based on its internal portfolio analyses (which have not been disclosed) - that the BEL is in nearly all cases sufficient to settle claims, thereby undermining the need for prudency margins on the tax balance sheet.
• The insurance industry emphasises that, once a provision is permissible, its measurement should not be reduced by the probability that claim payments are ultimately not be made. Profits should be measured with realism and prudency, especially since claims reserves rely on actuarial estimates that are subject to material uncertainty. Because the BEL reflects only the 50th percentile, it can be insufficient in many cases. In that reality, sound business principles support including a small buffer to account for estimation risk and normal volatility, ensuring that profits are not overstated. Such prudency margin should be supported by actuarial analysis and evidenced by run‑off results.

Intragroup reinsurance (quota share)

• In parallel with the claims provision discussion, we have observed an increase in transfer pricing questions about internal reinsurance contracts, in particular quota share agreements with a cession level of around 70% or higher. The Dutch Tax Authorities are conducting detailed reviews to assess whether the functions, risks and assets across the value chain are consistent with the contractual risk transfer and the resulting profit allocation between the cedent and the group reinsurer.
• The tax authorities systematically test whether, and where, key functions are performed. These questions focus on areas such as strategy, risk acceptance frameworks, pricing, exposure management, claims policy and reserving governance. A recurring theme in these inquiries is that tax authorities argue that (part of) the reinsurance related functions and risks are, in reality, performed by the cedent (i.e. primary insurer) instead of the reinsurer. This would suggest that a portion of the economic return should accrue to the cedent rather than the group reinsurer. Particular attention should therefore be paid to situations where the reinsurer contractually absorbs significant risk but shows limited visible substance, decision-making or capital levels.
• For insurers with comparable quota share structures, we expect this intensive information gathering to broaden across the market in the near term. It is therefore important to expand and deepen transfer pricing documentation on this point, tailored to the actual operating model. As the Dutch Tax Authorities adopt a highly fact specific approach, standard templates or high-level references to group policies are usually insufficient. A coherent, audit-ready set of underlying materials (including minutes, mandates, model governance and scenario analyses) significantly improves defensibility and reduces the risk that profit adjustments or reallocations will be imposed.

Administrative Expense Reserve of life insurers

• The Dutch Tax Authorities are actively challenging the recognition and measurement of the administrative expense reserve (AKR) for life insurers. Based on case law, an AKR may be formed for ongoing costs expected to be incurred in future years for non-premium paying policies, provided these costs are plausible and based on a reasonable estimate of the actual expenses of managing existing portfolios. The principles of matching and prudency stemming from Dutch Tax law also support forming an AKR.
• However, the Tax Authorities seems to interpret this much more narrowly. In recent statements, the tax authorities argue that the AKR is limited to administration and collection costs embedded in premiums. Subsequent cost increases, indirect or fixed costs, and valuation approaches derived from IFRS 17 or Solvency II are being challenged.
• This divergence - between the clear permissibility established in the case law and the restrictive administrative practice - drives the current discussion between taxpayers and tax authorities.

What does this mean for the market?

The common theme in these discussions is that the Dutch Tax Authorities are imposing higher demands on transparency, consistency and verifiability of underlying data on which positions taken in the tax return are based. Where a general explanation often sufficed in the past, they now expect substantiation at file and transaction level that withstands detailed scrutiny. Companies that invest in the quality of substantiation and documentation in a timely manner will be better positioned.

Outlook: taxation interest as pressure point

With the taxation interest set at 9% in 2025, taxation interest is widely perceived as a negotiating lever in audits and settlement discussions. There is currently a mass objection procedure pending with the Dutch Court against the high level of taxation interest. In a recent opinion the Advocate General was very critical on the legal basis and proportionality of the taxation interest rates. This might be an indication for a positive outcome of the taxation interest cases.