In a position it shares with the European Chamber of Commerce and the Life Insurance Association of the ROC, AmCham is concerned that the TRC’s recommended course of action will undermine the interests of the insurance industry and disadvantage consumers by discouraging a useful option for funding their insurance needs.

The TRC’s view is that inclusion of the investment component in investment-linked policies means that they are not in fact insurance – and therefore do not qualify for the tax-exempt status long provided to life insurance under both the Income Tax Law and the Insurance Law. That exemption recognizes the crucial value of life insurance to society in assuring either immediate cash in case of premature death or security in old age.

The biggest issue with the TRC’s finding is that it misconstrues the purpose of the investment link. Rather than serving as a tax loophole for the very wealthy, the purpose of investment linked insurance is to provide policy-holders from all backgrounds with an alternative means of paying for the insurance coverage they receive. The independent account in which the investment portfolio resides is designed to provide even more consumer protection than with traditional insurance – ensuring that the policy-holder suffers no loss even if the insurance company should go out of business.

Tellingly, Taiwan would be out of step with most advanced economies if it denies the status of investment-linked products as insurance. Although Taiwan should not necessarily be obliged to always take its cues from other jurisdictions, being the odd man out should at least set off warning bells that extra caution is needed – and that international business may be heavily burdened by having to follow a separate standard in this market.   

Another problem with the TRC’s decision is procedural, as responsibility for determining what is or is not insurance should rest with the Financial Supervisory Commission. The FSC’s Insurance Bureau had already expressed its intent to deal with any perceived problem with investment-linked products by tightening the ratio between the investment portion and the insurance coverage.

Further, the TRC stated its judgment that implementing its decision could be done simply by administrative order without legislative approval. AmCham disputes that reasoning. Investment-linked policies have until now been consistently accorded tax-exempt treatment under the law; if that status is to be revised, it should be through formal action by the Legislative Yuan.

The TRC, composed of both academics and government officials, serves in an advisory capacity; the Ministry of Finance and the Executive Yuan may either accept or reject its recommendations. AmCham calls on the executive branch to reconsider this resolution, and if necessary the Legislative Yuan should act to maintain the provisions of existing law.