Tax authorities around the world could take a “cowboy” attitude towards captive tax rights when following guidance from the Base Erosion and Profit Shifting (BEPS) papers, according to Dr Pierre Olivier Gehriger, partner and certified tax expert at Pestalozzi Attorneys at Law.

Speaking on a Captive Review webinar hosted by Zurich, Dr Gehriger and Dr Paul Wohrmann, head of captive services in Europe, Middle East, Africa, Latam and Asia Pacific at Zurich Insurance Company discussed a number of key tax issues facing captives.

Perhaps unsurprisingly, the Organisation for Economic Co‑operation and Development (OECD)’s October papers on BEPS were high on the agenda and Dr Gehriger said it was a significant concern.

“Under the new OECD guidelines the tax authorities have the potential to re-characterize a transaction so they can disallow the tax deduction for premiums,” he said.

“The guidelines suggest if there is no commercial cover available writing it through the captive is not commercially rational, which is particularly worrying.  There is a big concern that this could lead to a ‘wild west’ or cowboy allocation of taxing rights.

“It is clear that captives are firmly on the tax radar screen of the OECD. It is important to be prepared for these fundamental changes and develop a comprehensive impact assessment.”

Captive Review has reported extensively on the potential implications for captives contained in the BEPS papers, but there does appear to be gap opening up between concern held among European-headquartered companies and their American counterparts.

Dr Gehriger agreed with that assessment.

“The USA is more reluctant to introduce the BEPS recommendations,” he added.  “The US is a powerful nation and it is different from Europe where the countries are closer together and have less power.  BEPS seems to be more important in Europe than in the United States.”