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Clarifying BEPS for Captives: Update


As discussed recently in our Base Erosion Profit Shifting (BEPS) and Solvency II Update, before proceeding with any changes, it is critical that the Organisation for Economic Co-operation and Development (OECD) has a deeper understanding of why multinational companies use captives. In an attempt by the OECD to clamp down on tax avoidance strategies and arrangements, captive insurance companies have found themselves under increased scrutiny from national tax authorities worldwide.

Marsh Captive Solutions are part of the Federation of European Risk Management Association’s (FERMA) working group tasked with responding to the OECD’s recent BEPS’s Public Consultation Paper. This paper represents the second phase of an initiative (a prior paper was submitted to the OECD in June 2017), aimed at educating the OECD on the true economic benefit of captives.

Prior to this, the view from within the OECD contained a distinct element of “captives exist primarily for tax reasons.” The working group’s focus is to clarify the use of captive (re)insurance companies by multinational groups from a risk management perspective. Our aim is to promote consistency in the way BEPS principles are applied to captives by both the OECD and tax authorities going forward and a practical, proportionate approach to future OECD guidance. This initial paper was well received by the OECD. The next goal is to make sure our clarifications, recommendations, and suggestions are incorporated into the OECD’s guidelines paper.

In addition to working with FERMA, Marsh Captive Solutions has also assisted the Captive Owners representative group — made up of the European Captive Insurance and Reinsurance Owners’ Association (ECIROA), Oliver Wyman, and NERA — which also submitted responses. Our consistent messaging and coordination with the OECD through our collaborations have enhanced the effectiveness of our discussions.

To make sure captive owners are best placed to manage an increased focus from tax authorities, we encourage them to:

  • Engage with their parent group’s tax department to understand their organization’s BEPS strategy and identify where areas of focus are required.
  • Engage with their captive manager to seek their latest position on BEPS and potential implications for captive owners.
  • Evaluate their current captive structure around the key areas of BEPS recommendations to identify where potential improvements and enhancements could be made.