Insurance Europe has said it is concerned by the potential impact of certain proposals put forward by the Organisation for Economic Cooperation and Development’s (OECD) discussion draft relating to the Base Erosion and Profit Shifting (BEPS) action plan.
The BEPS report refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity.
Paragraphs 19-20 of the final report on Action 7 of the BEPS Action Plan indicate that Action 7 requires additional guidance on how the rules would apply in particular for permanent establishments (PEs) outside of the financial sector.
Insurance Europe’s main concern with the proposed PE rules is that, for some insurance business models, PEs would be recognised for tax but not for regulatory purposes with nil or minimal additional profit being attributed to them.
According to Insurance Europe, this would represent a disproportionate compliance burden for insurers, as well as for tax authorities.
It suggests that although paragraph 104 of the discussion draft states that there will be situations in which the profits attributed to the PE will be nil, it fails to propose a solution which would avoid the disproportionate compliance burden that will be created for insurers in these cases.
Insurance Europe considers that this is a disappointing outcome and disagrees with the suggestion that these PEs may nevertheless be justified by the potential existence of ‘other tax liabilities’. At least in an insurance context, this would not be the case.
Insurance Europe maintains its view that only the presence of Key Entrepreneurial Risk-Taking (KERT) functions in a jurisdiction should create a PE for tax purposes and be relevant for the attribution of profits.
The main KERT function of insurers is the assumption and management of insurance risk/business, for example underwriting. This is recognised by the 2010 OECD Report on the Attribution of Profits to Permanent Establishments Part IV (Insurance).
Insurance Europe, OECD, BEPS, Insurance, Captives, Europe, Tax Evasion