Global tax risks bring increased challenges for the insurance industry

Global tax risks bring increased challenges for...

The rate of change is accelerating in this digital age and presenting new tax risk management challenges across all industries, including insurance.

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With the backdrop of requirements for greater controls and disclosures, insurance companies face increasing challenges to manage their global tax and reporting requirements. Some of the tax risks include: failing to comply with tax laws, transactions generating unintended tax consequences, inaccurate financial reporting and related disclosures, and tax authorities changing their approach with increased risks for multiple taxation of items from various jurisdictions. Furthermore, with increased regulatory requirements, insurance companies need to accurately model their taxes under a variety of scenarios.

In this chapter of the ‘Evolving Insurance Risk and Regulation’ publication, we consider the latest tax risks facing the industry in light of the recent reports published by the Organization for Economic Cooperation and Development’s (OECD) on Base Erosion and Profit Shifting (BEPS). Areas covered include: 

  1. permanent establishment considerations
  2. transfer pricing
  3. country-by-country reporting, and
  4. controlled foreign company (CFC) risks such as overcapitalization, reinsurance assumed from a cedant outside the CFC’s jurisdiction, and related party insurance income.

KPMG perspectives

  • The OECD BEPS project is one of the most significant developments in international tax in the last 50 years.
  • The adverse publicity directed at taxpayers perceived to have been engaged in tax avoidance (for example, in connection with the release of the so-called Panama Papers) suggests that the trend to more complex and restrictive tax rules is likely to continue.
  • The changes proposed as part of the BEPS project have been mirrored in local country legislation, such as the UK’s diverted profits tax, the European Union’s draft Anti-Tax Avoidance Package and the US’s recent sweeping proposed regulations re-characterizing debt as equity in certain cases.
  • The insurance industry is likely to find unique challenges in coping with the new global tax environment to be especially demanding. Insurance company boards, not just the Chief Financial Officers and global tax directors, may need to devote greater time to discussing tax issues than they have in the past. Failure to properly prepare could result in unexpected tax assessments, reputational risk, and a competitive disadvantage.

For more information or to discuss the best approach for your organization in meeting these challenges, and turning them into an opportunity, please contact your local KPMG contact.

For further reading from the Evolving Insurance Risk and Regulation report

  

Evolving insurance risk and regulation: Preparing for the future

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