1. Technical Tax Masterclass: Global Risk – Premium Allocations Karen Jenner Client Director - Captive Practice, FiscalReps Joseph Finbow Senior Client Manager - Captive Practice, FiscalReps

2. Global Risk – Premium Allocations Quiz

3. Who is responsible for premium allocations on a global insurance programme? Quiz Question 1

4. Broker Insured Insurer Responsibility for premium allocations?

5. Name the general considerations in implementing a global insurance programme which will be taken into account in any premium allocation? Quiz Question 2

6. Ability to write non admitted business / regulatory requirements o Under Master Policy EU Freedom of Services o Included under Master Policy Difference in Conditions / Difference in Limits o Included under Master Policy Location of Risk rules Lines of Business Global insurance programmes – Key considerations

7. What is the basis of premium allocation methodology for the following lines of business: Property Damage? Directors and Officers? Quiz Question 3

8. Property values EMLs/PMLs Premium allocation methodology Property Values EML or PML Turnover Wageroll Employee numbers Local statutory requirements Unlimited liability e.g. UK

9. Quiz Question 3 Employee numbers Premium allocation methodology Wageroll Employee numbers

10. When allocating premiums globally what additional considerations are required, i.e.: What rules must be considered? Are there any additional costs to be considered beyond technical premiums? Quiz Question 4

11. Market practice HMRC - a ‘just and reasonable’ method of premium allocation Minimum premiums Cover cost of local policy issuance and premium invoicing OECD transfer pricing Local compulsory retentions and cessions Terrorism pools Local insurer and insured taxes Premium allocation

12. Quiz Question 4 OECD transfer pricing guidelines: “Transfer prices are significant for both taxpayers and tax administrations because they determine in large part the income and expenses, and therefore taxable profits, of associated enterprises in different tax jurisdictions.” Allocation of costs within a group (e.g. premiums) Subject to much tax authority scrutiny Basis for premium allocations? Transfer pricing

13. Quiz Question 5 What is the tax point in Spain and why is it relevant to premium allocation?

14. Quiz Question 5 Consorcio – inception IPT – cash received Tax points – Relevance to premium allocation Premium allocation to be finalised in advance of the policy inception date

15. Quiz Question 6 What are common pitfalls of premium allocations?

16. Quiz Question 6 Lack of evidence Lack of review Frequent methodology changes Common pitfalls of premium allocation

17. Quiz Question 6 Implications of incorrect premium allocations Fines and penalties Reputation Criminal charges Corporation tax in the event of a claim

18. Quiz Question 6 Review allocations to ensure accuracy Ensure insurer/brokers have adequate controls and can demonstrate ability to settle premium taxes and parafiscal charges accurately and in line with local regulations Keep an audit trail Develop and maintain expertise Compliance checklist

19. Quiz Question 6 Economic environment – additional revenue raised from: New forms of taxation Closing tax loop holes Stricter enforcement of rules Independence of each tax authority – no requirement to harmonise procedures towards premium allocation Tax authority views

20. Quiz Question 7 - Working Example A company purchases a contract of PDBI insurance to cover its property damage risks in the UK, Luxembourg, France & Austria. The cost of the premium is EUR100,000 and the premium is allocated based on property values. COUNTRYEUR PROPERTY VALUES UK10,000,000 Luxembourg7,750,000 France12,500,000 Austria5,750,000

21. Quiz Question 7 Working Answer – Allocation Methodology COUNTRYPROPORTION OF RISK EUR PROPERTY VALUES UK27.78%10,000,000 Luxembourg21.53%7,750,000 France34.72%12,500,000 Netherlands15.97%5,750,000 Total Value100%36,000,000 A company purchases a contract of PDBI insurance to cover its property damage risks in the UK, Luxembourg, France & Austria. The cost of the premium is EUR100,000 and the premium is allocated based on property values.

22. Quiz Question 7 Working Answer – Base Premiums COUNTRYPROPORTION OF RISK EUR BASE PREMIUM UK27.78%27,780 Luxembourg21.53%21,530 France34.72%34,720 Netherlands15.97%15,970 Total Value100%100,000 A company purchases a contract of PDBI insurance to cover its property damage risks in the UK, Luxembourg, France & Austria. The cost of the premium is EUR100,000 and the premium is allocated based on property values.

23. Quiz Question 7 Working Answer – Full Premium Considerations COUNTRYTYPE OF ADDITIONAL CHARGES APPLICATION OF CHARGES UK (€2.5m London SI)LFBC£ 35 per £1m SI Luxembourg-- FranceGAREAT CATNAT N/A* 12% Base Premium* Netherlands-- A company purchases a contract of PDBI insurance to cover its property damage risks in the UK, Luxembourg, France & Austria. The cost of the premium is EUR100,000 and the premium is allocated based on property values.

24. Quiz Question 7 Working Answer – Final Premium Allocation COUNTRYADDITIONAL CHARGES TOTAL PREMIUM EUR UK (€2.5m London SI)LFBC27,889 Luxembourg-21,530 FranceCATNAT38,886 Netherlands-15,970 Total104,275 A company purchases a contract of PDBI insurance to cover its property damage risks in the UK, Luxembourg, France & Austria. The cost of the premium is EUR100,000 and the premium is allocated based on property values.

25. Questions