14 October 2019Insurance

Pillar one OECD digital tax proposals 'not relevant' for insurance sector: Insurance Europe

The insurance industry has no need for the supplementary regulations proposed by the Organisation for Economic Co-operation and Development's (OECD) for the so-called “pillar one” of its programme of work to develop a consensus solution to the taxation challenges arising from the digitalisation of the economy, according to a position paper published today by Insurance Europe, the European insurance and reinsurance federation.

Pillar one deals with the allocation of taxing rights and will review profit allocation and nexus rules. A second pillar will focus on a global anti-base erosion (GloBE) proposal, which aims to ensure that multinationals pay a minimum amount of tax independent of how they organise their business geographically.

As part of its pillar one work, the OECD aims to define the scope of its proposals, including whether some sectors of the economy should be carved out. In this context, the OECD mentions financial services specifically.

In its response, Insurance Europe explained why the insurance business model means that pillar one proposals are not relevant for the sector and why insurers must be excluded from its scope. It added that the insurance industry will continue to assess the possible implications of pillar two proposals and will respond during the OECD consultation process.

“Insurers are subject to extensive supervisory regulations including the need for specific types of capital in each regulated entity outside the EU,” stated the paper. “Moreover, residual profits (and losses) are returned to the key entrepreneurial risk-taking (KERT) function, which is with the capital-providing insurance entity, usually located in the jurisdiction of the customer.

“Therefore, by design, the taxing rights in the insurance sector are already largely fine-tuned with the jurisdiction of the consumer, so there is no need for the supplementary regulations of Pillar 1.”

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