Marsh has commended the Federation of European Risk Management Associations’s (FERMA) efforts to create a constructive dialogue with the Organisation for Economic Co-operation and Development (OECD) about the role of captives in base erosion and profit shifting (BEPS).
This comes after FERMA launched a campaign to change tax authorities and other public bodies’ misperceptions about captive insurance companies.
The campaign included a position paper that was submitted to the OECD so that the views of European risk managers are considered when discussing the implementation of its BEPS initiative.
Praveen Sharma, global leader of insurance regulatory and tax practice of Marsh, said: “Ultimately it is about educating the OECD and the various tax authorities on the role that a captive plays in the current uncertain economic climate facing multinational companies.”
“It is important to emphasise that captives are not and are no longer being, formed for tax avoidance purposes. They are there for genuine commercial reasons.”
He explained that the action plan from the OECD will require captives and their owners to change and restructure their current operating models, including substance, corporate governance, control of risks, decision making and insurance contract pricing.
Birte Fehse, Senior Vice President of Marsh Risk Consulting, added: “It’s a good time to start preparing because whatever happens in terms of legislation the general trend towards more transparency in tax matters means there will be more scrutiny of captives.”
“The advice is to get ready have the correct documentation in place, even though there are still questions on how exactly BEPS will impact captives.”