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Non-EU Captives with EU Tax Exposures Stuart King FCCA Managing Director, FR Global Advisors Joseph Finbow Senior Client Manager – Captive Practice, FiscalReps

Market Overview Captive Domiciles Europe Guernsey Luxembourg Isle of Man Ireland Sweden Gibraltar Malta

Asia-Pacific 336 242 133 101 35 16 11

Singapore Labuan New Zealand

Caribbean 60 34 24

Bermuda Cayman Islands BVI Anguilla Barbados

North America 862 705 174 268 270

Vermont Utah Hawaii S. Carolina District of Columbia Kentucky

Source: Aon Captive Benchmarking Oct 2012

590 239 172 159 157 137

Market Overview Captive Classes of Business • Practically every risk underwritten by a commercial insurer • Most common are Property and General Liability • Excess layers • DIC/DIL

1. Accident

10. Motor vehicle liability

2. Sickness

11. Aircraft liability

3. Land Vehicles

12. Liability of ships

4. Railway rolling stock

13. General liability

5. Aircraft

14. Credit

6. Ships

15. Suretyship

7. Goods in transit

16. Miscellaneous financial

8. Fire and natural forces

17. Legal expenses

9. Damage to property

18. Assistance

When do EU Tax Liabilities Arise? Article 2 (d), 2nd Non-life Directive Member State where the risk is situated means: - the Member State in which the property is situated, […] - the Member State of registration, where the insurance relates to vehicles of any type, - the Member State where the policy-holder took out the policy in the case of policies of a duration of four months or less covering travel or holiday risks, […] - the Member State where the policy-holder has his habitual residence or, if the policy-holder is a legal person, the Member State where the latter's establishment, to which the contract relates, is situated, in all cases not explicitly covered by the foregoing indents;

When do EU Tax Liabilities Arise?

• Kvaerner principles • Conflict with practice outside EU

• ECJ Case C 243/11 – Tax on Life premiums

When Does the Issue Arise? •

New programmes

New countries added into existing programmes

Internal audit/review

Tax authority audit

International Tax Enforcement Arrangements?

Where can we file?

Essentially a regulatory question – authorised insurers will be able to submit taxes

non-admitted not permitted (potential regulatory fines)

Exceptions to this rule

FiscalReps’ experience • Belgium & Netherlands – Global liability policy with risks in Belgium and Netherlands – Co-insurance arrangement - Bermuda insurer and London Market – Premium taxes collected with premium but not settled

– €150k in taxes due in Belgium; €400k due in Netherlands – Policyholder settled the taxes under a voluntary disclosure – Penalties not imposed

FiscalReps’ experience • Ireland – Excess layer on a liability policy written by Bermudan insurer – Only covering Irish risks – One year policy; no on-going cover – €20k of taxes charged and collected with premium but not paid – Approach made to the Irish regulator on no names basis – Voluntary Disclosure made to Irish Revenue • 5% penalty + interest • Unprompted disclosure would have resulted in 40%

Global PDBI Policy • Guernsey domiciled captive • Writing a global PDBI policy, renewing annually • Fronted in a number of EU territories • Writing direct and paying taxes in Belgium, Germany, Netherlands and UK

Settling Liabilities • Systems in place to report and pay future liabilities – Registration / appoint a fiscal representative – Calculate the tax – Invoicing

– FX policy – Deadlines

Settling Liabilities • How to deal with late or legacy taxes –

Voluntary disclosures

Penalties and interest

Unable to Settle? • What if the tax authorities won’t accept payment? • Possible Solutions – Review policy and structure • Exemptions available • What is the Location of Risk? – Fronting arrangement/re-issue policy – Financial interest cover – Policyholder/broker settle taxes