Base Erosion and Profit Shifting (BEPS)

Base Erosion and Profit Shifting (BEPS)

What is Base Erosion & Profit Shifting?

In June 2012, the Organisation for Economic Co-operation and Development (OECD) initiated a project to prevent and counter BEPS. BEPS refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, thus leveraging down the overall corporate tax paid. A first draft Action Plan was then produced by OECD in July 2013.

The OECD produced a Final Action Plan on BEPS. It encompasses 15 action items that cover topics such as the digital economy, treaty abuse, substance, transfer pricing, and transparency; calling for fundamental changes to prevent and counter BEPS.

Implications for Captives

We believe there are five critical dimensions for captive owners to address when considering the BEPS measures:

  1. The economic rationale of the risk transfer transaction
  2. The governance around decision making and risk control
  3. The appropriateness of risk pricing and capitalization
  4. The substance of the captive activity and establishment
  5. Proper documentation and audit trail on all the above

Base Erosion & Profit Shifting Report

These changes create a need for captive owners to take action pro-actively (in some cases, urgent action) to ensure there is alignment with the new requirements.

Download Aon’s White Paper on BEPS here

BEPS Initiative Award

Base Erosion & Profit Shifting (BEPS) - Exploring why captive insurance companies are legitimate risk management solutions adding value to their owners

BEPS report

Information Sheet