The Organization for Economic Cooperation and Development’s (OECD) plan for base erosion and profit shifting (BEPS) is already affecting corporations, according to speakers participating in a Captive Insurance Companies Association (CICA) transfer pricing webinar.
Polling results during the webinar revealed attendees’ opinions were in line with tax industry surveys indicating that even though audits are already raising more issues related to BEPS, few companies expected to make any changes in the next two years.
Panelist Ian Kilpatrick, founder and director of Advantage Insurance Holdings and chair of the CICA Transfer Pricing Task Force, reminded the audience not to underestimate the OECD, which has already made a significant impact on the industry in the early 2000s with its efforts to drive increased transparency.
“If you go to an off-shore domicile today, it is a very different place than it was 10 years ago and the reason is because of OECD,” Kilpatrick explained.
Panelist Joel Chansky, consulting actuary at Milliman, stressed the need to: clearly document why your captive chose its domicile; demonstrate the risk management and substantial business purpose of your captive; know where the rest of the company’s business is or is not transacted; and show decisions are made by key personnel who understand all aspects of each corporation’s risks.
Kilpatrick stated that companies are likely to see the most impact in the area of decision-making authority.
“We’re going to see the OECD forcing issues, particularly regarding substance and realigning the profit to where the people are,” Kilpatrick explained.
“It’s essential to make certain you can demonstrate that appropriate decisions are being made in the domicile, there are people with the capability of binding the corporation in the domicile, and that the real decisions are not made at the home office,” he added.
Panelist Matt Gravelin, senior manager, Johnson Lambert, emphasised establishing a formal documentation process that demonstrates use of industry standards.
He also noted that many foreign captives insuring US risks have considered or should consider the 953(d) election to avoid complexity and costly expense to comply with the Controlled Foreign Corporation rules, which were designed to help prevent some of the same concerns raised by the OECD.
