The presence of the Organisation for Economic Co-operation and Development’s base erosion and profit shifting (BEPS) framework is going to be felt in the US market with the full implementation a year away, according to Ciaran Healy, director of consulting at Willis Towers Watson’s global captive practice.
Speaking at the World Captive Forum, Healy said that the BEPS framework had already been a gamechanger in the European captive market and with tax sensitivity at the highest it has ever been similar impacts will soon be felt in the US captive market.
The BEPS framework is an initiative that brings together over 100 countries aimed at harmonising tax regulations internationally and giving tax authorities more power.
Healy suggested that the impact of BEPS in the US had been underestimated slightly, but that with the full implementation a year away the presence will begun to be felt as soon as local tax authorities start using the powers BEPS will bring.
He commented: “Potentially it has been misinterpreted, the interpretation was that it is a European phenomenon and it is a European problem, but it’s not its a global taxation framework renovation and that includes the US.”
“A lot of captives were probably set up in a period of time when tax sensitivity wasn’t quite as high. For a lot of those captives the owners may need to reassess the captive footprint where it is and what it is doing and for companies looking to set up captives in the US the whole substance thing is going to be more on the agenda than it was previously.”
According to Healy, captives that are set up for the right reasons and properly conducting business need not be worried.
He explained: “As an industry BEPS isn’t something to be fearful of. If you’re doing your risk management and risk financing arrangements for the right reasons and if a captive is set up for legitimate economic and risk management reasons there’s nothing to be fearful of.”
He added: “Those captives that have been utilising tax arbitrage, they probably should be a little bit afraid of what BEPS and the anti-tax avoidance measures are bringing in.”