Captives should not be overly concerned by BEPS initiative

The Base Erosion and Profit Shifting (BEPS) report, published by the OECD last year, should be closely monitored by the captives industry but participants should not be overly worried.

This is according to Richard Irvine, managing director and tax leader at PwC Bermuda.

It has been suggested that companies using captives could come under scrutiny as a result of the report designed to counter tax planning strategies that exploit gaps and mismatches in tax rules to shift profits.

But, speaking at the Bermuda Captive Conference, Irvine said that in his view captives have a lot more substance than other types of structures targeted by the initiative and should not have to consider extensive changes as a result.

“Captives use a lot of advisers including underwriters, investment managers, captive managers and other professionals usually based in the domicile of the captive,” he said. “That is very different to so-called IP holdco companies, which simply own intellectual property rights and do little else.

“So in my view captives are very different and should fall outside the type of problematic arrangements the OECD is targeting. The whole point of BEPS is to target structures that are tax motivated and the reality is that most captives are not set up for that reason.”