Best Says OECD Global Minimum Tax May Be Challenging for Some Insurers

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October 26, 2021

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Given the accounting differences for global insurance companies in different jurisdictions and compared with other industries, an anticipated global minimum tax on certain multinational companies creates the potential for double taxation on such insurers, according to A.M. Best.

In a new Best's Commentary, "OECD Announces Agreement Toward Global Minimum Tax," the rating agency notes that a proposal from the Organization for Economic Cooperation and Development (OECD) includes a global minimum tax rate of 15 percent that would apply to companies, including insurance companies, with more than €750 million in revenue.

The 15 percent global minimum tax rate would be established under Pillar Two of the OECD's Inclusive Framework on Base Erosion and Profit Shifting (BEPS).

While short-term insurance coverages might fit into the tax scheme, A.M. Best says the application of that minimum tax could prove challenging for insurers with longer-duration coverages, as profits from that business may not be realized at the point of sale, unlike in other industries.

The use of deferred tax balances by insurers allows for timing differences between accounting regimes, the commentary notes, and the insurance industry has forwarded comments to the OECD recommending that such deferred taxes be considered when setting the effective tax rate. "Without such consideration, insurers could see double taxation and would not be treated on par with other industries," an A.M. Best statement said.

A.M. Best's commentary notes that 136 out of 140 countries and jurisdictions have agreed that certain multinational enterprises should be subject to the 15 percent minimum tax rate beginning in 2023.

"The devil is in the details as accounting principles and standards are subject to guidance from accounting authorities," the A.M. Best commentary said. "The impact will depend on the final nature of the laws passed by the respective governments, exemptions that some protective governments may seek to sustain their competitive advantage, and accounting interpretations."

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October 26, 2021