20 August 2018Accounting & tax analysis

Captive owners should contact tax consultants after Microsoft case

Clients that have parent companies with headquarters or operating units in Washington state should consult their tax professionals following the settlement of the case involving Microsoft’s Arizona-based captive being issued a cease & desist letter, warns JLT Insurance Management (JLT IM).

Cypress Insurance Company, the Phoenix-based wholly owned pure captive of Microsoft Corporation and its subsidiaries, has since agreed to pay the state of Washington almost $900,000 in unpaid premium taxes, interest and penalties for not obtaining an insurance license in the state.

This decision comes after the state had ordered the captive to stop all unlicensed (in Washington) insurance transactions.

The Washington State Office of the Insurance Commissioner had issued a cease & desist order against Microsoft to stop using Cypress Insurance, to directly insure its parent.

On May 9, the Insurance Commissioner alleged that Microsoft had been writing direct insurance policies through its captive without the use of a fronting company and without holding a certificate of authority. The order also states Cypress Insurance Company has been noncompliant with surplus lines laws.

There are no self-procurement laws in Washington, and all captives covering insurable interests in the state need fronting in order to not break the law.

Order 18-0220 stated that Cypress Insurance Company had placed unauthorised insurance with a Washington-domiciled insured without holding a Washington State surplus line broker license, and failing to timely remit a 2 percent premium tax to the state of Washington on premiums earned.