Ferma and Ifrima step up campaign to defend captives to OECD

The European and international risk management community has invited Pascal Saint-Amans, director of the centre for tax policy and administration at the OECD, to a meeting at the RIMS conference in April to further explain why captive insurance companies are not corporate tax-dodging vehicles and should therefore not get dragged into the Base Erosion and Profit Shifting (BEPS) initiative. BEPS refers to tax avoidance strategies that exploit gaps and mismatches in rules to artificially shift profits to low or no-tax locations. The OECD obtained a mandate to tackle BEPS at the G20 Leaders Summit in November 2013. It was instructed to produce a BEPS report, which was published in February 2013. The report listed several “pressure areas” and included captives as a potential “vehicle for abuse”. More than 100 countries and jurisdictions are collaborating to implement the BEPS measures put forward by the OECD. Mr Saint-Amans oversees the effort. He summed up the effort neatly, as he said: “BEPS is about rewriting the international tax rules to realign the location of the profits with the location of the real activities. Currently, tax planning results in locating profits in tax havens where nothing is happening.” The EU also has its own anti-tax avoidance package underway, which forms part of the European Commission's (EC) agenda for a fairer, simpler and more effective corporate taxation. The package, which includes an anti-tax avoidance Directive passed in July, contains concrete measures to prevent aggressive tax planning, boost tax transparency and create a level playing field for all businesses in the EU. The European and international risk and insurance management community has been working hard to convince the OECD and EC that captives are genuine risk management transfer tools. The US Captive Insurance Companies Association and the European Captive Insurance and Reinsurance Owners’ Association responded to initial suggestions from the OECD that captives are potentially tools for abuse. The two groups pointed out that: 6,000 captives worldwide operate in the same way as traditional insurance companies Captives are an integral part of enterprise-wide risk management Captives are the only tool available for multinationals to manage otherwise uninsured exposures Captives give direct access to reinsurance to help solve risk transfer problems Captives allow their parents/owners to insure risks for which cover is not available in the traditional market. In September, Ferma published a position paper on captives that it submitted to the OECD. Ferma urged its 22 member associations across Europe to use the position paper to approach their national tax authorities, which will be responsible for implementation of the BEPS measures, to explain captives’ real risk management value. The federation said it would also reach out to the EC and European parliament to increase their understanding of the role captives play in the European economy. Ferma also committed to raising the matter at the European Insurance and Occupational Pensions Authority stakeholder group, through its representative Marie-Gemma Dequae. In interview with Commercial Risk Europe at the Amrae conference in Deauville yesterday, Ferma’s president Jo Willaert said the federation held its first meeting with Mr Saint-Amans in October, to present its report and position. Mr Saint-Amans has been invited to the annual meeting of the International Federation of Risk and Insurance Management Associations (Ifrima) at the RIMS conference in Philadelphia, to hold further talks about the validity of captives, added Mr Willaert. “We fully agree with the BEPS goals but there need to be clearer rules that are appropriate to captives. The wrongful use of captives should be banned and we are happy to work with the OECD on this matter. We had the first meeting with Mr Saint-Amans in October and have now invited him to the Ifrima meeting at RIMS,” explained Mr Willaert. “We are explaining this as users of captives not owners. The message is that we need captives, because they are a strong tool to cover ungovernable risks. It is a valid risk management and transfer tool that we need to help manage corporate risk,” added Mr Willaert.

Ferma and Ifrima step up campaign to defend captives to OECD

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