The Global Federation of Insurance Associations (GFIA) has identified five areas of concern for the insurance industry in its response to the OECD’s public consultation on the Implementation Framework of the global minimum tax.
The five areas outlined by the GFIA are:
- implementation timeline and complexity
- deferred tax recasting at the minimum rate
- additional Tier 1 Capital
- safe harbours
- Article 7.5/7.6 IE/IIE & Investment funds definition/treatments.
Regarding the implementation timeline and complexity, GFIA said: “Proposed implementation timelines do not appropriately account for the development, testing and rollout of the necessary IT systems that are required to collect, analyse, and compute what is needed for compliance with GloBE rules. General timelines for large IT system updates or changes require 18-36 months for comprehensive implementation and this process can only begin when IT teams have sight of full and complete rules with adequate and appropriate guidance.”
In reference to the deferred tax recasting at the minimum rate, GFIA said: “The mechanism to address temporary differences should not limit deferred tax assets and liabilities to the Minimum Rate. Limiting deferred tax amounts to the Minimum Rate while the reversals of those amounts are at the locally applicable current tax rate introduces complexity, volatility, and distortion into the computation of the GloBE effective tax rate (ETR) where none need exist.”
The GFIA also said it was concerned with the exclusion of insurance from Article Article 3.2.10, related to Additional Tier 1 Capital by way of the absence of RT1, or insurance restricted instruments qualifying as Tier 1 Capital.
It added: “Restricted Tier 1 (RT1) instruments are junior subordinated debt securities issued by insurance companies that can qualify as capital under current European insurance regulation (Solvency II). Depending on the terms of the RT1 instruments, the coupon is treated as tax deductible debt incurred by the issuer. As drafted, the Model rules will reduce the ETR for insurers with RT1 capital where the capital and interest form part of equity, but the tax relief on the interest forms part of the tax charge in the Income Statement. Covered Taxes are therefore reduced by the tax relief, but the GloBE profit is not reduced by the interest.”
The GFIA also came out in favour of simplification measures around intended outcome and in limiting incremental compliance processes and computations.
It added: “The use of a global calculation based on country-by-country reporting (CbCR) data as a safe harbour, identifying jurisdictions where it is reasonably expected that the effective tax rates do not fall below the minimum tax rate, or analysing jurisdictional taxation systems and designating compliant systems as ‘GloBE compliant’, could provide a welcome simplification and remove much of the costly compliance complexity for groups operating predominantly in higher tax jurisdictions.”
Even though the GFIA outlined five areas of concern, the body indicated that more would be forthcoming.
It said in its response: “[…] many areas of the Model Rules and Commentary still lack the appropriate clarity for GFIA members to be certain in their interpretation and therefore implementation of Pillar 2. This lack of certainty adversely affects businesses already subject to heavy administrative burdens and increases the risk of inadvertent non-compliance.”
