Praveen Sharma, global practice leader of insurance regulatory and tax consulting at Marsh, pointed to BEPS Action 3 as likely to cause problems for multinational companies that own captives in the EU.
Action 3 sets out recommendations to strengthen the rules for the taxation of controlled foreign corporations (CFC).
He said: “As Ireland doesn’t have CFC legislation at the moment, and will be implementing one, it will be interesting to see how the EU will change the CFC legislation towards captives.”
Action 7, which contains changes to the definition of ‘permanent establishment’ to prevent artificial circumvention, is also likely to challenge captives.
Sharma suggested that the definition of ‘permanent establishment’ needs to be clarified for the insurance industry because of the way the service is sold and distributed.
He said: “There are a lot of grey areas here and there are a lot of key fundamental issues for the insurers that are going to impact on their infrastructure, performance, ratings, capital and pricing.”
Jefferson VanderWolk, head of the tax treaty, transfer pricing and financial transactions division at the OECD, insisted that the action was designed as an anti-avoidance measure.
He said: “Action 7 is not intended to cause a major change. It was designed to reverse the result of decisions made by commissionaires for sales in countries such as France and Norway. As an example, a seller of tangible goods will no longer be able to hide behind the commissionaire’s structure and pay no tax there.”