06/09/2018

FERMA urges OECD to take advantage of existing regulations governing captives in its upcoming guidelines on financial transactions

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Following a detailed review, FERMA has submitted its response to the captive insurance aspects of the OECD public discussion draft document entitled “BEPS Actions 8-10 Financial Transactions”, which deals with the relationship between transfer pricing and value creation.

Capture cover FERMA response to BEPS discussion draftMore specifically, FERMA calls on the OECD to refer to the IFRS 17 and the International Association of Insurance Supervisors (IAIS) definition of “genuine insurance transaction” and “insurable risks” as part of the guidelines. It also says that current insurance regulations are extremely stringent about the control of various functions of a captive such as direction, underwriting, actuarial and accounting expertise. Further indicators are not needed, FERMA argues.

“FERMA wishes for OECD to produce final guidance that is clear and robust enough to provide multinationals with some legal certainty in terms of their captives. A further layer of regulations to be applied by national authorities could create a risk of confusion, uncertainty and ultimately more administration for multinationals and tax authorities without providing the desired outcome for tax authorities,” said Laurent Nihoul, FERMA board member with responsibility for captives.

In this paper and its previous submission to OECD in June 2017, FERMA has argued strongly that for European multinationals, captive insurance is a risk management tool used to reduce the company’s total cost of risk and improve its loss experience through better understanding of claims.

FERMA is, therefore, pleased that captive insurance companies are now more generally perceived as a way for multinational groups to manage risks within the group and that they are a component of a risk and insurance management strategy. It says that the OECD discussion draft offers also a better understanding of captives as small insurance enterprises, especially by suggesting that they are regulated entities and by recognising there are various types of captive, with an improved understanding of reinsurance captives.

 FERMA urges the OECD to continue its dialogue with European multinationals and their risk managers in order to:

  • Further develop understanding about the use of captive (re)insurance companies by multinational enterprises;
  • Promote consistency in the way BEPS principles are applied to captives by national authorities;
  • Encourage practicality and proportionality in future OECD guidance on captives in the context of the efficiency of multinationals risk management strategy.

Contacts

Lee Coppack, Media coordinator, FERMA

+44 (0)7843 089904 and +44 (0)208 318 0330

lee@coppack.co.uk

Typhaine Beaupérin, CEO FERMA

+32 (2) 761 94 31

typhaine.beauperin@ferma.eu