Tag: Captive insurance

Intra-group Insurance or reinsurance of the risks of companies that belong to the group. A captive insurance company is usually established in a low-tax country. Whether premiums paid to captive insurance companies are recognized as business expenses depends on the country in question.

New TPG Chapter X on Financial Transactions (and additions to TPG Chapter I) released by OECD

New TPG Chapter X on Financial Transactions (and additions to TPG Chapter I) released by OECD

Today, the OECD has released the report Transfer Pricing Guidance on Financial Transactions. The guidance in the report describes the transfer pricing aspects of financial transactions and includes a number of examples to illustrate the principles discussed in the report. Section B provides guidance on the application of the principles contained in Section D.1 of Chapter I of the OECD Transfer Pricing Guidelines to financial transactions. In particular, Section B.1 of this report elaborates on how the accurate delineation analysis under Chapter I applies to the capital structure of an MNE within an MNE group. It also clarifies that the guidance included in that section does not prevent countries from implementing approaches to address capital structure and interest deductibility under their domestic legislation. Section B.2 outlines the economically relevant characteristics that inform the analysis of the terms and conditions of financial transactions. Sections C, D and E address specific issues related to the pricing of financial transactions (e.g. treasury functions, ... Continue to full case
US vs Reserve Mechanical Corp, June 2018, US Tax Court, Case No. T.C. Memo 2018-86

US vs Reserve Mechanical Corp, June 2018, US Tax Court, Case No. T.C. Memo 2018-86

The issues were whether transactions executed by the company constituted insurance contracts for Federal income tax purposes and therefore, whether Reserve Mechanical Corp was exempt from tax as an “insurance company”. For that purpose the relevant factors for a captive insurance to exist was described by the court. According to the court in determining whether an entity is a bona fide insurance company a number of factors must be considered, including: (1) whether it was created for legitimate nontax reasons; (2) whether there was a circular flow of funds; (3) whether the entity faced actual and insurable risk; (4) whether the policies were arm’s-length contracts; (5) whether the entity charged actuarially determined premiums; (6) whether comparable coverage was more expensive or even available; (7) whether it was subject to regulatory control and met minimum statutory requirements; (8) whether it was adequately capitalized; and (9) whether it paid claims from a separately maintained account. US v Reserve Medical Corp TCMemo_2018-86 ... Continue to full case
Nederlands vs. Corp, January 2014, Lower Court, Case nr. AWB11/3717, 11/3718, 11/3719, 11/3720, 11/3721

Nederlands vs. Corp, January 2014, Lower Court, Case nr. AWB11/3717, 11/3718, 11/3719, 11/3720, 11/3721

The case involved a Dutch mutual insurance company, DutchCo, which paid surpluses from the insurance activity back to the participating members in the form of premium restitution. Prior to 2002, DutchCo reinsured the majority of its risks with external reinsurers via an external reinsurance broker. DutchCo kept a small part of the risks for its own account. In 2001, DutchCo established a subsidiary in Switzerland, Captive, to act as a captive reinsurance provider. DutchCo stated that the business rationale to establish Captive goes back to “9/11.” The resulting worldwide turmoil significantly impacted the reinsurance market. In an extremely nervous market, premiums increased and conditions were sharpened. From 2002 onward, all the reinsurance contracts of DutchCo were concluded with Captive (in exchange for payment of premiums), whereby Captive reinsured a vast majority of these risks with external reinsurers and kept a limited part of the risk for itself. As mentioned above, Captive did not employ any personnel, but made use of ... Continue to full case
Nederlands vs. Corp, July 2011, Lower Court AWB 08/9105

Nederlands vs. Corp, July 2011, Lower Court AWB 08/9105

X is the holding company of the so-called A-group, which is a recreation company driven. The activities in X was taking out cancellation insurance. Within the group an Irish company was established. Between X and an insurer, that insurer and a reinsurer and the reinsurer and the Irish company several contracts were concluded with regard to the cancellation activities. The court considers that the tax administration has proved that X has let on un-businesslike grounds earnings miss in favor of the Irish company. Click here for translation Nederlands-vs-Corp-July-2011-Lower-Court-Case-nr-AWB-08-9105 ... Continue to full case
Norway vs Amoco Norway, 2002, Supreme Court, Case No HR-2001-01156

Norway vs Amoco Norway, 2002, Supreme Court, Case No HR-2001-01156

Amoco Norway, a wholly owned US subsidiary of Amoco Corporation, performed oil extraction on the Norwegian Continental Shelf. The case concerns the validity of the taxable income for Amoco Norway Oil Company for the years 1992-95. For these years, the company signed insurance for its business first in the insurance company Riunione Adriatica Di Sicurta and then – from the second half of 1995 – in the insurance company American International Reinsurance Company Ltd. The insurances Amoco Norway subscribed to in these companies was fully reinsured in Northern Resources Assurance Inc., which is a group-owned captive insurance company in the Amoco Group. The question in the case was whether Amoco Norway in determining the taxable income was entitled to a deduction for that part of the insurance premium that relates to the risk that Northern has not reassured but has retained on its own account totaling an amount of NOK 176,759,645. The Tax authorities did not accept the total insurance ... Continue to full case