What is a Controlled Company?

The so-called controlled insurance company, according to the entry in the "Encyclopedia of Multinational Enterprise Concepts Glossary" entry, refers to "an insurance company established by an industrial and commercial enterprise group that covers all or part of the risk of the company group. A company is limited to the scope of a company's business. It is called a purely controlled insurance company. If it also takes risks outside the corporate group, it is called a broadly controlled insurance company. "A controlled insurance company is formed by a multinational company. (Or more characteristic is that several multinational companies participating in the joint establishment of a controlled insurance company are generally peers in the same business area, such as business and international transportation), which replaces the international insurance market with a special identity General insurance company.

Controlled insurance company

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The so-called controlled insurance company, according to the entry in the "Encyclopedia of Multinational Enterprise Concepts Glossary" entry, refers to "an insurance company established by an industrial and commercial enterprise group that covers all or part of the risk of the company group. A company is limited to the scope of a company's business. It is called a purely controlled insurance company. If it also takes risks outside the corporate group, it is called a broadly controlled insurance company. "A controlled insurance company is formed by a multinational company. (Or more characteristic is that several multinational companies participating in the joint establishment of a controlled insurance company are generally peers in the same business area, such as business and international transportation), which replaces the international insurance market with a special identity General insurance company.

Chinese name

Controlled insurance company

According to

"Encyclopedia of Multinational Corporation Concepts"

Definition

Insurance subsidiary is limited to a certain company's business

Purpose

Business and tax purposes

An onshore controlled insurance company means that the parent company of the enterprise group and the subsidiary undertaking the insurance are set up in the same country or region. Because they are under the same tax jurisdiction, the parent company and the subsidiary company enjoy the same tax treatment. But this does not mean that the establishment of a controlled insurance company is not beneficial in terms of taxation. First of all, the insurance premiums paid by the parent company to the subsidiaries can be deducted as expenses when calculating corporate income tax. If the country has a reserve policy for insurance companies, a significant portion of insurance premium income can be deferred for income tax purposes.

An offshore controlled insurance company, also known as an overseas controlled insurance company, refers to a subsidiary established by an enterprise group in a country or region other than the parent company's location, mainly engaged in internal group insurance. Tax havens are now the preferred location for multinational companies to set up internationally controlled insurance companies. The reason is simple: first, most tax havens do not levy corporate income tax, even if they are levied, the tax rate is very low, or there are many preferential treatments; second, profits accumulate in the tax havens and deferred payment of the parent company's income tax; Withholding taxes are usually not distributed as dividends.

For example, in tax havens such as Bermuda, Cayman Islands, and the Isle of Man, not only do insurance companies pay no income tax on their insurance premiums, they even use the income from insurance premiums as dividends and interest on indirect investments by companies. tax. In this way, under the conditions of fierce international competition in the insurance industry, controlled insurance companies often have more advantages than ordinary insurance companies.

(1) After the establishment of a controlled insurance company, a multinational company can directly enter the international insurance market, otherwise the annual insurance expenses of an enterprise group can only be paid to insurance companies outside the group, which is equivalent to adding a cost and expense to the benefit outflow.

(2) The controlled insurance company handles the initial insurance or reinsurance business within the group. Compared with external insurance, it can generally save expenses including market costs, management costs, and insurance gross profit.

(3) In the case that the risk claim rate of the enterprise group is low and the external insurance company's fees are high, the insurance business is assumed by the controlled insurance company, and the insurance expense of the enterprise group can be converted into the benefit of the controlled insurance company. Can increase the economic benefits of the entire enterprise group.

In addition to the business purpose of setting up a controlled insurance company, the purpose of taxation is also an important goal to pursue.

First, the insurance premiums paid by the majority of countries in the world to a parent company or group member company to a controlled insurance company are generally allowed to be deducted as a charge in the calculation of corporate income tax, unless it is a transfer pricing that clearly violates normal transaction standards. Assume that member companies are located in countries with high tax burdens. Excessive payment of insurance premiums means a reduction in the taxable income of the enterprise and an increase in the earnings of controlled insurance companies. You can get an extra tax benefit by calculating the ledger.

Second, if the controlled insurance company is located in a country with a low tax burden or in a country or region that does not levy income tax, in addition to the income tax may be reduced or exempted, if its income after tax is not repatriated to the company in a timely manner, Generally, the income tax of the parent company can also be deferred.

When the parent company encounters insurance cost issues caused by the insurance rates of independent insurance companies, it may establish a controlled insurance company in a low-tax jurisdiction. After that, the parent company purchases an insurance policy from an independent insurance company, and the controlled insurance company signs a reinsurance contract with the independent company for the parent company's insurance policy, the terms of which define the proportional subcontracting relationship between the two parties' liability. Independent insurance companies are controlled insurance companies, which pay a small amount of subcontracting commissions to the former according to the contract. The contract enables the parent company to deduct insurance premiums paid to independent insurance companies from its own income, and enables controlled insurance companies to accumulate insurance income in tax-free jurisdictions, thereby reducing the tax burden on multinational groups.

In this way, the famous Dutch Philips company transferred part of the group's profits to Kingston Captive Insurance in Jamaica, thereby avoiding high Dutch taxes. It is reported that in the mid-1980s, Philips reduced its annual tax by 8 million guilders. The company benefits far more than that. It obtains loans from controlled insurance companies, invests in certain necessary projects, and reduces its own tax burden in the process. Interest payments on loans can be taxed by the company. Deductions earned. Controlled insurance companies located in tax-free jurisdictions conduct offshore insurance and credit operations to avoid paying high taxes.