The Global federation of Insurance Associations (GFIA) recently wrote to the Organisation for Economic Co-operation and Development (OECD) to raise concerns about its revised discussion draft on action seven from the base erosion and profit shifting (BEPS) action plan, which looks at preventing the artificial avoidance of permanent establishment status for tax purposes.
GFIA welcomed the OECD's recognition that an insurance-specific option wouldn't be necessary, but also stressed that the some of the commentary provided must be further refined. It pointed out that with the current definition of "material elements" of contracts and "dependent agent" there may be a risk that permanent establishments would be created for tax purposes for some insurance business models.
However, because no or minimal additional profit would be attributed to those permanent establishments due to a lack of key entrepreneurial risk-taking activities, they would represent a disproportionate compliance burden for insurers.
The OECD will continue to work on issues related to BEPS action seven after September, "with a view to providing guidance before the end of 2016". GFIA recommended that the OECD should allow sufficient time for public consultation on such guidance before it is issued. For more information, click here.