The captive insurance industry is under direct attack from the Organisation for Economic Co-operation and Development (OECD)’s base erosion and profit shifting (BEPS) framework, according to Paul Owens, CEO of global captive practice at Willis Towers Watson.
The BEPS framework is an initiative that brings together over 100 countries and is aimed at harmonising tax regulations internationally and giving tax authorities more power in order to stop tax avoidance strategies.
Speaking on the ‘political climate and the future of captives’ panel at the Captive Insurance Companies Association (CICA) 2019 conference, Owens warned delegates: “This isn't scaremongering, this is coming.”
“The captive industry is under a direct attack through this.”
“It is a challenge and as an industry we have to stand up and say these vehicles we have are pure risk transfer vehicles, they’re not there to avoid tax, they’re there for a specific purpose and we need to be very strong and we need to be very cooperative globally with our regulators to push this back.”
He stated what the BEPS framework may mean for the captive industry: “There will have to be substance, real transfer pricing, and there will need to be an economic rationale.”
“Every captive has a reason, everyone in this room, everyone in this conference, everyone in the industry is using a captive for a real reason. Everyone knows the strategic reasons for them, so we need to push back.”
Owens highlighted that BEPS posed issues for captives in domiciles around the globe.
He said: “OECD BEPS applies to the US as much as any European country.”
“We have to get proportionality into this industry. I was introduced to look about this outside of North America, but this applies to North America as well, this is global.”
