The Base Erosion and Profit Shifting (BEPS) programme could force captive owners to have to justify their insurers to poorly informed third parties, according to the Federation of European Risk Management Associations (FERMA).
Offshore domiciles are under scrutiny from international tax authorities, with the BEPS framework aiming to keep profits in the jurisdictions where they are earned.
FERMA explained in a new article that the Organisation for Economic Co-operation and Development released recommendations on BEPS in October last year to crack down on so-called profit shifting, which sees profits moved to jurisdictions with lower corporation and other taxes through certain arrangements and structures, prompting a focus on captives.
With more than 100 countries and jurisdictions collaborating to implement the 15 BEPS actions, according to FERMA, country-by-country financial and tax disclosure could be made public, giving access to a large amount of highly technical information.
“Tax authorities are competent to perform this analysis because of their expertise and training, but the same does not necessarily apply to members of the public,” according to FERMA.
“Risks of misunderstanding and misinterpretation, therefore, will be significant, forcing organisations to defend and justify their financial structures not only to tax authorities, but to less informed third parties.”
FERMA president Jo Willaert commented: “For risk managers, captive insurance is not a tax issue but an efficient risk management tool, especially for large corporations.”
“With nearly 7,000 captives worldwide, the risk management community is well aware of the reasons and benefits of captive insurance, which is used by non-profits and public organisations as well as corporations.”
“These are light structures which perform a genuine (re)insurance activity. They help us to maintain affordable and wide risk coverage, access to reinsurance markets and greater risk insight.”
