The Organisation for Economic Co-operation and Development (OECD) has set a proposed minimum bound rate of 15 percent, as an attempt to prevent tax avoidance and guarantee that large multinationals firms pay reasonable levels of tax beneath the countries where they operate. This is expected to have important consequences for insurers especially those with global arm.

 

The global tax system has been implemented through what is referred to as Pillar One and Pillar Two. Pillar One shifts taxing rights to market jurisdictions and due to this, insurers may have variation in their taxes. Pillar Two on the other hand introduces the global minimum corporate tax rate. There are going to be some corporate tax and compliance implications that will require insurers to reconsider their current options.

 

The global tax could also create more expense and challenges to insurers. This may result in an increased tax burden that would unlock the insurance industry’s profitability as well as its competitiveness. However, the shift of taxing rights under Pillar One is also likely to include additional administrative complexities, as insurers deal with different tax jurisdictions.

 

Reinsurance companies are likely to be susceptible to these challenges due to their international locales. That the activities spread across different jurisdictions mean that they must ensure compliance with tax regulations appropriately. In addition to this, the global tax may also have an impact in the way that insurers invest funds as the tax impacts the insurers’ investments in various territories.

 

The OECD’s proposed global tax is an attempt to provide equal rights and clear rules for imposing taxes worldwide, but it will have different effects on insurers depending on many aspects, where reference is made to the business model, the geographical reach, and various kinds of tax optimization. This a clear indication that insurers will need to interact with the regulatory authorities, establish an understanding of their tax liability, and begin making the appropriate changes in order to operate and minimize these impacts.

 

The insurance industry is paying keen attention to these changes and waiting for finer details on how the changes will be affected. Thus, the original insurance plan and strategy should be flexibly adjusted with respect to the global changes of tax systems because at present, the insurance companies have the risks and opportunities to develop their business. Managing tax issues will be important when dealing with this new structure.

 

References:

https://www.theactuary.com/2024/09/05/border-control-how-oecds-global-tax-could-impact-insurers