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Transfer Pricing and Captive Insurance: The Importance of Substance

Transfer pricing is the number one international tax issue facing multinational enterprises. For tax purposes, transfer prices should be determined in accordance with the arm's-length principle. The arm's-length principle also applies to captive insurance and whether insurance premiums paid to a captive insurance company are arm's length or not.
August 22, 2018 Read More
  Tax Laws 2-SF

Microsoft Settles, Washington Asks Captives To "Pay Their Fair Share"

Microsoft Corporation's Arizona captive insurance company will pay more than $875,000 for unpaid premium taxes and interest and penalties, ending a cease-and- desist order issued in May by State of Washington Insurance Commissioner Mike Kreidler.
August 15, 2018 Read More
  Bruce Wright Featured Video-SF

An Explanation of Captive Insurance and Direct Placement Taxes

Bruce Wright of Eversheds Sutherland explains the Dodd-Frank legislation and direct placement taxes. Direct placement taxes (direct procurement taxes) apply to surplus lines placements as well as placements with any nonadmitted company, such as a captive insurer. The "home state" controls where the payment of this tax is concerned.
August 15, 2018 Read More
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Update from Vermont on the Microsoft Captive Cease and Desist Order

Read about what was said at the recent Vermont Captive Insurance Association Annual Conference surrounding the order from the Washington State Office of the Insurance Commissioner, which told Microsoft's wholly owned Arizona captive insurer to cease and desist transacting insurance business in the state and stop soliciting and writing insurance coverage for Washington insureds.
August 10, 2018 Read More
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953(d) Elections—The Basics

An article from Saren Goldner and P. Bruce Wright, partners in the tax department of Eversheds Sutherland (US) LLP, provides a basic overview of requirements, procedures, and compliance aspects surrounding the 953(d) election.
July 31, 2018 Read More
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Capstone Part 2: Commentary on "Reserve Mechanical" Policy Pricing

Capstone Associated Services, Ltd., focuses on policy pricing in its second follow-up commentary about the "Reserve Mech. Corp. v. Commissioner" case.
July 11, 2018 Read More
  Stewart Feldman

Tax Challenges for Captive Insurers

Stewart Feldman, CEO of Capstone Associated Services, says that captive insurance taxation issues concern three areas: 1) risk transfer, 2) risk distribution, and 3) common notions of insurance. For a captive, the focus should be on the insurance aspects of the transaction with the financial and tax aspects being secondary.
July 11, 2018 Read More
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A.M. Best Revisits Tax Law Impacts on Captive Insurer Ratings

A.M. Best said that the impact of tax reform is generally a positive for US-domiciled captives and a mixed bag for offshore captive insurance companies, though in some cases, it is a positive for offshore captives that have made the section 953(d) election under the Internal Revenue Code.
June 29, 2018 Read More
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Capstone: "Does Captive Insurance Exist after the 'Reserve' Decision?"

Capstone Associated Services, Ltd., provides additional commentary about the Reserve Mech. Corp. v. Commissioner case in a piece titled, "Does Captive Insurance Exist after the 'Reserve' Decision?"
June 28, 2018 Read More
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Captive Insurance Industry Insights into the "Reserve Mechanical" Case

As a follow-up to our previous posts on "Reserve Mech. Corp. v. Commissioner," recently touched base with a number of captive insurance industry professionals to share their insights on the Tax Court's decision. Here are their thoughts.
June 26, 2018 Read More
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Direct Placement Tax Decision from the Tax Court of New Jersey

The Tax Court of New Jersey recently rendered an interesting decision regarding direct placement taxes. Eversheds Sutherland discusses Johnson & Johnson v. Director, Division of Taxation and Commissioner, Department of Banking and Insurance.
June 22, 2018 Read More
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Tax Court Issues Second Small Insurance Company Case

On June 18, 2018, the US Tax Court issued its opinion in Reserve Mechanical Corp. v. Commissioner, holding for the IRS. Eversheds Sutherland says that the facts of the case appear substantially similar to LTR 201609008, issued by the IRS in 2016.
June 21, 2018 Read More
  Bruce Wright

Captive Insurance Risk Pooling 101

According to Bruce Wright of Eversheds Sutherland, risk pools in captives allow organizations to spread risk and provide for a tax benefit. Risk pools provide unrelated risk to a captive insurer so the parent corporation can take a deduction for premium paid to the captive using insurance accounting.
June 20, 2018 Read More
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Microsoft Captive Insurer Ordered To Cease and Desist

The Washington State Office of the Insurance Commissioner has ordered an Arizona captive owned by Microsoft that provides coverage to the Microsoft group of companies to cease and desist transacting insurance business in the state and soliciting and writing insurance coverage for Washington insureds.
May 16, 2018 Read More
  Bruce Wright

The Avrahami and Feedback Decision Observations

On August 21, 2017, the US Tax Court decided two companion cases, Avrahami v. Commissioner and Feedback Insurance Company v. Commissioner, involving various issues surrounding the formation and operation of a captive insurance company in Saint Kitts. Bruce Wright of Eversheds Sutherland reviews the federal analysis by the Tax Court.
April 30, 2018 Read More
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Small Captive Insurance Company Rules Updated for Technical Corrections

The Consolidated Appropriations Act of 2018 was enacted on March 23, 2018, and included amendments to IRC section 831(b). Most importantly, the Act clarifies that for purposes of the first diversification test of section 831(b), the term "policyholder" refers to the direct insured under a policy and not to a reinsured.
April 13, 2018 Read More
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For the Fourth Consecutive Year, Captives Make IRS "Dirty Dozen" List

For the fourth consecutive year, "abusive micro-captives" make an appearance on the Internal Revenue Service (IRS) annual "Dirty Dozen" list of tax scams, reflected in IR-2018-62. In the 2018 version, the IRS warns taxpayers about the abuse of micro-captives and includes commentary on the IRS victory in Avrahami v. Commissioner.
April 02, 2018 Read More
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Avrahami Panel: "A Captive Is Not a Piggy Bank"

In the wake of the Avrahami decision, micro-captives have found themselves on the Internal Revenue Service 2018 "Dirty Dozen" tax scam list for the fourth year in a row. An Avrahami panel at the Captive Insurance Companies Association conference provided beneficial insights for small captive insurers.
March 26, 2018 Read More
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Will the Tax Cuts and Jobs Act Affect Small Captive Insurance Companies?

The end of 2017 delivered uncertain tidings concerning what effect the Tax Cuts and Jobs Act would have on the captive insurance industry. While the law affects larger captive insurers, changes are less significant for smaller captives. Management Services International provides its view on the tax law and small captive insurance companies.
February 16, 2018 Read More
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Captive Insurers and the Base Erosion Anti-Abuse Tax

The Base Erosion Anti-Abuse Tax imposes a 10 percent minimum tax on corporate US taxpayers. Premium payments made by US taxpayers to their non-US captive insurers and loss payments made by US captive insurers to their non-US insureds are among the amounts characterized as base erosion payments.
January 26, 2018 Read More