30/06/17

FERMA Calls For Consistent BEPS Rules For Captives

The Federation of European Risk Management Associations has released detailed guidance, aimed at supporting countries to develop consistent and appropriate base erosion and profit shifting responses with respective to captive reinsurance arrangements, reports Tax News. 

FERMA said the aim of the report is to allow OECD members to assess, in a consistent manner, the compliance of captive (re)insurance arrangements with the BEPS recommendations.

Drawing on contributions from its 22 member associations, the guidance presents compiled data on premiums, profitability, and taxation levels from a sample of 462 captives owned by European-resident multinational companies.

It explains why and how risk management practitioners are using captives in their daily activities as risk management tools; and explains in detail the role of the risk manager in an EU-based multinational group and the importance of using a captive reinsurance vehicle.

The guidance provides statistics about captives to demonstrate that the main financial ratios of the captive insurance industry are in line with the traditional insurance market.

It includes practical examples and explains the application of captive arrangements in multinational groups. It emphasizes that captives are not primarily used for tax avoidance purposes. An earlier statement from FERMA said many aspects of captive operations, such as the payment of insurance premium tax in source countries, demonstrate their genuine, non-tax functions.

FERMA President Jo Willaert said: "The objective of such guidelines is mainly to avoid creating a patchwork of diverging national legislations inspired by BEPS. Captives serve an important Enterprise Risk Management role with true business purposes for European businesses and other organizations. Although captives are only a very small portion of BEPS, FERMA believes that national authorities should be guided in how to assess captive arrangements according to BEPS recommendations."

Carl Leeman, leader of the captive project group and a FERMA Board member, stressed: "Our document demonstrates that the main financial ratios of the captive insurance industry are in line with the traditional insurance market. The paper, enriched and approved by our 22 national associations, represents a strong consensus within the European risk management community on how captives are supporting the operations of their parent organizations."