The Organization for Economic Cooperation and Development’s (OECD) plan for base erosion and profit shifting (BEPS) is already affecting companies, despite the tough implementation process of such recommendations.
This is according to speakers at the Captive Insurance Companies Association’s (CICA) Wednesday transfer pricing webinar, who advised attendees not to underestimate the OECD, which has already made a significant impact on the industry in the early 2000s with its efforts to drive increased transparency.
Panellist Ian Kilpatrick, founder/director of Advantage Insurance Holdings, and chair of the CICA Transfer Pricing Task Force, explained: ”If you go to an off-shore domicile today, it is a very different place than it was 10 years ago and the reason is because of OECD.”
Polling results during the webinar revealed attendees’ opinions were in line with tax industry surveys indicating that even though audits are already raising more issues related to BEPS, few companies expected to make any changes in the next two years.
Furthermore, Kilpatrick estimated that companies will likely see the most impact in the area of decision making authority. “We’re going to see the OECD forcing issues, particularly regarding substance and realigning the profit to where the people are,” he said. “It’s essential to make certain you can demonstrate that appropriate decisions are being made in the domicile, there are people with the capability of binding the corporation in the domicile, and that the real decisions are not made at the home office.”
Panellist Matt Gravelin, senior manager, Johnson Lambert added: “Clearly outlining how your captive has considered the arm’s-length concept, use of qualified third-party service providers, sound actuarial techniques and significant federal and state regulatory oversight will prove the necessary due diligence to comply with IRS, OECD and other foreign regulatory regime requirements.”
Gravelin also noted that many foreign captives insuring US risks have considered or should consider the 953(d) election to avoid complexity and costly expense to comply with the Controlled Foreign Corporation rules, which were designed to help prevent some of the same concerns raised by the OECD.
CICA, OECD, BEPS, Ian Kilpatrick, Matt Gravelin