Captive insurances may be self-managed from within the MNE group, or managed by an unrelated service provider (often a division of a large insurance broker). Typically this management would include ensuring compliance with local law, issuing policy documents, collecting premiums, paying claims, preparing reports and providing local directors. If the captive insurance is managed from within the MNE group it is necessary to determine which entity manages it (if such management is not exercised by employees of the captive insurance) and to appropriately reward that management.
TPG2022 Chapter X paragraph 10.198
Category: E. Captive insurance, TPG2022 Chapter X: Transfer pricing aspects of financial transactions | Tag: Accurate delineation, Assumption of risk / Risk assumption, Captive insurance, Financial transactions, Group insurance, Management of captive insurance, Risk mitigation
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- TPG2022 Chapter X paragraph 10.201Insurance requires the assumption of insurance risk by the insurer. In the event of a claim, the insured does not suffer the financial impact of a potential economic loss to the extent that insurance risk has been assumed by the insurer, because the...
- TPG2022 Chapter X paragraph 10.197The insurer is carrying out a risk mitigation function in respect of the insured party’s risk but not actually assuming that risk. It is assuming the risk of insuring (i.e. mitigating) the insured party’s risk. That risk will be controlled by either the...
- 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,...
- TPG2022 Chapter X paragraph 10.195The principles of accurate delineation of the actual transactions and allocation of risk detailed in Chapter I of these Guidelines apply to captive insurance and reinsurance in the same manner that they apply to any other intra-group transactions. However, this section addresses mainly...
- TPG2022 Chapter X paragraph 10.200In order to consider the transfer pricing implications of a transaction with a captive insurance, it is first necessary to identify the commercial or financial relations between the associated enterprises and the conditions and economically relevant circumstances attaching to those relations in order...
- TPG2022 Chapter X paragraph 10.210The accurate delineation of the actual transaction in scenarios involving captive insurance requires identifying whether the captive insurance is performing control functions regarding the economically significant risks associated to the underwriting function – in particular the insurance risk – to determine whether those...
Related Case Law
- Denmark vs. Codan Forsikring A/S, August 2022, Eastern High Court, Case no BS-11370/2020In case concerns the tax implications of four reinsurance agreements concluded between Codan Forsikring (Codan Insurance) and a controlled Irish company, RSA Reinsurance Ireland Ltd. for FY 2010-2013. The tax authorities had increased Codan Insurance’s taxable income for FY 2010, 2011 and 2012...