Monday, 6 February 2012

Dutch tax court finds for Dutch tax administration in captive insurance company case

Last year a Dutch lower court has issued a ruling relating to the transfer pricing arrangements between a Dutch holiday resort and its Irish captive insurance company. The holiday resort operates a large number of holiday houses. At the time of reservation, tourists can buy cancellation insurance which the resort subcontracts to its captive insurance company in Ireland.
The court followed the argument of the tax administration that in Ireland only administrative services have been rendered with no insurance or re-insurance activities. It ruled that those services can be rewarded at cost plus a modest mark up. The insurance risk does not require a separate remuneration. The remainder of the Irish insurance profit must be taxed at the Dutch resort.
The court also held that the investment income (i.e. the interest on the group loan) can be allocated to the Irish captive insurance company. The court came to this conclusion mainly because the Dutch tax administration had not separately argued why it should have been allocated to The Netherlands.
Source: PKN