TPG2022 Chapter X paragraph 10.194

Category: E. Captive insurance, TPG2022 Chapter X: Transfer pricing aspects of financial transactions | Tag: , , ,
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Another possible reason for the use of a captive insurance by an MNE group in addition to those listed is the difficulty or impossibility of getting insurance coverage for certain risks. Where such risks are insured by a captive insurance this may raise questions as to whether an arm’s length price can be determined and the commercial rationality of such an arrangement (see Section D.2 of Chapter I).






Related Guidelines

  1. TPG2022 Chapter X paragraph 10.215In accurately delineating fronting arrangements, the same principles stated for captive insurance apply. It is important to note, however, that fronting arrangements represent particularly complex controlled transactions to price as they involve the participation of a third party that is indifferent to the...
  2. TPG2022 Chapter X paragraph 10.203Insurance also requires risk diversification. Risk diversification is the pooling of a portfolio of risks by which the insurer achieves an efficient use of capital. Large commercial insurers rely on having sufficiently large numbers of policies with similar probabilities of loss to allow...
  3. TPG2022 Chapter X paragraph 10.223For example, a manufacturing MNE group has 50 subsidiaries in different locations around the world, all in locations with substantial risk of earthquake, each insures against earthquake damage at its manufacturing plant, with each plant in a different location, assessed on its individual...
  4. TPG2022 Chapter X paragraph 10.221It is important to recognise that the capital adequacy requirements of a captive insurance are likely to be significantly lower than an insurer writing policies for unrelated parties. This factor should be considered and, if necessary, adjusted for in order to determine the...
  5. TPG2022 Chapter X paragraph 10.196Although the quantum of the risk reward for the insured party and the insurer might be dependent upon exactly the same events in both cases, that quantum could be significantly different (for example, if the insured risk materialises and a claim is made,...
  6. TPG2022 Chapter X paragraph 10.211Part IV of the Report on the Attribution of Profits to Permanent Establishments describes the activities that form part of the underwriting function such as setting the underwriting policies, classifying and selecting the insured risk, setting the premiums (pricing), the analysis of risk...
  7. TPG2022 Chapter X paragraph 10.224Where an insurance contract is not sold directly from insurer to insured, recompense will usually be due to the party who arranges the original sale. In certain circumstances a higher rate of profit might be earned on the third party sale than would...
  8. TPG2022 Chapter X paragraph 10.219Alternatively, actuarial analysis may be an appropriate method to independently determine the premium likely to be required at arm’s length for insurance of a particular risk. In setting prices for an insurance premium, an insurer will seek to cover its expected losses on...
  1. OECD releases text of the new MLC to Implement Amount A of Pillar One11 October 2023 the OECD/G20 Inclusive Framework has released the text of a new multilateral convention that updates the international tax framework to co-ordinate a reallocation of taxing rights to market jurisdictions, improve tax certainty, and remove digital service taxes.  The Multilateral Convention to...
  2. EU JTPF, March 2017, Report on the Use of Comparables in the EUIn March 2017 the JTPF agreed the Report on the Use of Comparables in the EU. The report establishes best practices and pragmatic solutions by issuing various recommendations for both taxpayers and tax administrations in the EU and aims at increasing in practice...

Related Case Law

  1. Nederlands vs. Corp, July 2011, Lower Court AWB 08/9105X 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...
  2. France, Public Statement related to deduction of interest payments to a Belgian group company, BOI-RES-000041-20190904In a public statement the French General Directorate of Public Finance clarified that tax treatment of interest deductions taken by a French company on interest payments to a related Belgian company that benefits from the Belgian notional interest rate scheme. According to French...
  3. Switzerland vs. Corp, Juli 2012, Federal Supreme Court, Case No. 2C_834-2011, 2C_836-2011In this ruling, the Swiss Federal Supreme Court comments on the application of the arm’s length principel and the burden of proff in Switzerland. “Services, which have their legal basis in the investment relationship, are to be offset against the taxable income of...
  4. Italy vs GI Group S.p.A., May 2021, Supreme Court, Case No 13850/2021A non-interest-bearing loan had been granted by GI Group S.p.A., to a related company – Goldfinger Limited – in Hong Kong, in order to acquire a 56% shareholding in the Chinese company Ningbo Gi Human Resources Co. Limited. The Italien tax authorities had...