From: Captive Insurance Times

ECIROA’s Guenter Droese suggests that without the OECD providing industry support, their own target goals cannot be achieved

What is the overall aim of the OECD’s BEPS? And why are captives under greater scrutiny?

The main target of the Organization for Economic Co-operation and Development’s (OECD) base erosion and profit shifting (BEPS) has been to avoid or prohibit “to artificially separate the allocation of multinational enterprises taxable profits from jurisdictions in which these profits arise and, to secure the profits will be taxed in the jurisdiction the multinational enterprises operate because BEPS distorts competition, investment decisions and creates an issue of fairness” and to achieve “an improved coherence of tax rules at the international level and the reinforcement of substance requirements which shall enhance transparency and certainty to ensure a level playing field in the 123 member countries”.

OECD started with the BEPS papers based on the request of the G20 and complaints have been raised against multinationals which allegedly are offending taxation rules shifting profits to low/zero tax rates. Captives are just some legal entities which are part of these allegations being subsidiaries of multinationals.

What are the main concerns around BEPS and captives?

When the OECD first introduced BEPS captive owners initially recognised that the business plans and structures of captives as part of the risk management concept of a big corporation or a multinational in its complexity and in the details had not been understood.

Three main concerns which are also substantial for some captives include Controlled Foreign Company rules, the permanent establishment (PE) status and the Transfer Pricing Principle.