Insurance Europe has advised the Organisation for Economic Co-operation and Development (OECD) to apply existing guidance to captive insurance, rather than introducing special guidance.
As the European insurance and reinsurance federation, Insurance Europe has issued its comment on the OECD’s public discussion draft on ‘Base Erosion and Profit Shifting (BEPS) Actions 8-10 Financial Transactions’, which deals with the relationship between transfer pricing and value creation.
Insurance Europe’s response, which was specifically focussed on Section E–Captive Insurance, suggested that special guidance should not be introduced because existing chapter one guidance already sets out the principles for the delineation and recognition of transactions.
Insurance Europe added: “In cases where the chapter one analysis leads to the conclusion that the captive insurer's business is other than that of insurance, chapter one also gives guidance on how to recharacterise the transaction.”
It suggested that if the OECD consider special guidance necessary for captives, then it should begin with a more detailed description of captive insurance and captive insurance transactions to properly differentiate these from other forms of reinsurance between members of a regulated insurance group.
According to Insurance Europe, the whole of section E refers to multinational entities (MNE) and their members, which it argues means the guidance would therefore also end up applying to intragroup reinsurance between members of a regulated insurance group or intra-group retrocession in a regulated reinsurance group—as Insurance Europe understands is the OECD’s intention.
Insurance Europe also disagrees with the statement made in the discussion draft that a captive insurance company does not provide insurance buy rather insurance-type services.
Additionally, it warned the OECD against prohibiting the legitimate use of captives even if the legitimate purpose lies in the future and not in the past.
