thank you good afternoon thank you for staying for the last session we're going to be talking about base erosion and profit shifting or beps has everybody heard of BEPS indication oh there's one over there on there okay this is kind of potentially a really heavy tax topic but we're hopefully going to try and make it interesting and also focus not so much on the detail around these changes but broadly what they are and what the business impact is going to be you know what the impact is going to be so in terms of from the panel perhaps before we get started maybe I could just get each to say a little bit about themselves and and their involvement with captives but importantly also you know just a little bit about their company in themselves and maybe starting with with Kelvin hi I gotta run my name is Kelvin so I'm the group risk and insurance manager for a company called International SOS so international SOS is a company that provides medical and security assistance to corporates inaudible and in that capacity I manage the corporate insurance programs and also the risk management for the company itself then obviously the I guess the only reason why I'm on this panel because I'm not an expert of depth at all is the fact that I am a captive owner so international SOS has a captive and and as part of my responsibility I I have responsibility for a captive as well for international SOS thanks : Araki son yes my name is now Yoshiaki with representative of japan risk specialists we are the regions broker in Japan and also insurance consultant in Japan so when we offer the proposed Asian scheme to the Japanese company so times we offered including the captive scheme so therefore that sometimes we act as a captain manager in Japan my name is Goga I'm and you would know that I'm not mister but missed and I'm the head of the tax and revenue practice group of SH and Alamo and Coe we are obviously one of the oldest law firms in Malaysia and one of the first law firms to actually have a dedicated tax and revenue Practice Group that goes back over 40 years and we advise and we take up litigation matters on all aspects of tax and revenue law and that's probably why I'm here to talk about maps and back to Michael thanks very much before we start talking about bits and the bits changes and what they mean I think it's important to note that you know tax considerations have always been a factor insofar as captives have been concerned but but maybe just kind of to set the scene a little bit before we talk about the verbs changes I mean Kelvin just may be worthwhile just recapping a little bit on the sorts of considerations that would lead to in your case it is yet for your group the establishment of a captive because I do think it becomes relevant to some of the other points we're going to talk about as we go through the session right so for International SOS so as yes it's a privately owned company the owners of French but the company was founded I think what the auto Singapore so actually the company came about the captive sort of inherited it right it came about in a budget and acquisition the the owners bought a company and a captive came along with it so so it's probably not the traditional model of why a company was set up a captive but obviously what you then choose to do with it it's totally different and and now it's very much used as a risk retention GE Co for historical reasons when the captive was inherited it was actually domicile in Switzerland and and there was a business decision to then relocate the captive from Switzerland to Singapore and obviously has nothing to do with tax considerations but but very conscious business case was built around a spec of why we wanted to move the captive for seasonable Rockets on anything you read in terms of particularly for Japanese corporate perspective we talked to the client or potential client as to the cap tip I have impressions at three major points the client considered the one is the final result I mean the profitability and the second one is easy to access I mean the time zone and also for example a the banking issue or something and the last one is credibility or sustainability of the domicile so for example the regulation of the domicile is stable or not is a warm turkey issued and separate from the three-point and you might know that in Japan the power of the major Japanese insurance company is so powerful so therefore the discussion with insurance company is also very challenging issue to set up the captive okay thank you in terms of the background of bibs taxation has really been front page news for five years or more than five years now and that's not usually the case but it very much has been the case and I just wanted to take a little bit a little bit of a step back and almost as far back to the to the GFC because one of the responses to the GFC in a number of countries was austerity policies and that then led to a focus around where money was being spent particularly when you had governments kind of cutting benefits and at the same time there was a lot of increased public focus and focus in the press around well we're cutting people's benefits yet all these kind of people and other company companies are not paying as much tax as they should so it really came into focus and perhaps most starkly in the UK particularly around 2012 and led to a parliamentary committee led by chaired by Margaret Hodge but the tax practices of a number of multinationals very much came into focus Amazon Google and in particular in the UK Starbucks and and that led to really looking to understand why it was that a number of companies might have quite big businesses in places like the UK but weren't paying a lot of corporate tax and and that kind of led to people realizing well the existing international tax rules were being used in such a way that you could produce a result that you had you know quite little tax being paid in a location like the UK and in the case of Starbucks that result came about through an application of existing transfer pricing rules accepted existing transfer pricing rules developed by the OECD and transfer pricing just to you know explain that is when you've got two companies within a group when you've got related parties dealing with each other the expectation is the requirement is that they will deal with each other as if they would third parties if they're dealing with each other in an arm's-length basis so there's rules to ensure that that result occurs and that was happening yet it was still leading to the result that you had for instance in small amounts of tax being paid you know by Starbucks in the UK that public pressure led to political action both at a domestic level but what then happened was a number of countries then elevated that through the g20 and the OECD was asked to review the international tax rules and that was that led to a project called the base erosion and profit shifting project or the beps project and we'll see in a moment you know what the focus there was but this has been very much you know focus where there's bends a strong public pressure political pressure and that international pressure to address these issues has risen and has continued to exist to the point that the BAPS project came into existence the OECD reported and now you have countries working to implement these measures working to - you know almost kind of rewrite international tax rules accepted international tax rules and they are increasingly being implemented locally including as we'll see in a moment here in Malaysia so this has been a very very important development as we see in terms of that last quotation which is actually one of my local colleagues you know BEPS has even come to town in Malaysia so it's something we all have to deal with it's something we all have to understand what it is and importantly what does it mean for our business and obviously today we're talking about that in the context of a captive but it's got broader application so you do need to understand what is the impact on business models multinational business models when you're dealing across border because these changes touch most aspects of cross-border business and the tax issues that that can arise and do need to be addressed so BEPS does have the potential to significantly impact captives and some of the areas just quickly and we'll kind of get more into this as we get into the conversation increased risk of double taxation so you know captive being taxed in those same profits being taxed elsewhere certainly there will be an increase in documentation requirement and reporting obligations and I think the expectation is that we'll see increased tax scrutiny if nothing else tax authorities are going to have far greater business visibility of multinational operations multinational financial results in other countries that will lead to more information leading to more tax audits and I think potentially more tax disputes which I'm sure car M is very much looking forward to so that what we want to do today is to talk about the 15 action items introduced those very broadly and then what I want to do is pick out the ones that I think are most relevant to a captive operation and then talk about well where are people at with that what are they thinking how are they thinking about it what are the reactions today what people what should people be thinking about and that's where Kelvin and Iraqi Sun are going to become very important in terms of you know their perspectives you know for instance as a captive owner and what is that focus and where should that be what are the things that people should take away from today in terms of thinking about you know the the implications of these developments and then finally you know how should we think to manage the risks that might arise you know from these developments so that's kind of what we want to do but before getting into the conversation I do just want to spend a little bit of time setting out some detail around bibs so these next couple of slides I'll go through very quickly but basically it's focused on addressing the sort of gaps and mismatches that could arise between different countries tax systems that were being taken advantage of were being perceived to be taken advantage of by multinationals to reduce the taxes they pay in the countries where they do business as opposed to the headquarter company and that's seen to be have greatest impact on developing countries funnily enough into in terms of not funnily enough but it seemed to have the the greatest impact on developing countries and there's some statistics there so this was developed this project was initiated by the g20 led by the OECD took place over a couple of years in 2015 the OECD issued a number of reports which are now in the process of being implemented but this is designed to protect domestic tax bases this is designed to ensure that that profits are not unduly shifted from the country where the operations are conducted to other locations and that's the sole focus dealing with mismatches ensuring that profits are taxed where the activity is undertaken for instance so we now have more than 85 countries have signed up to this including Malaysia including Singapore where I'm based Calvin's based Japan obviously as an OECD member has been very involved in driving the beps project and has been very early adopter of the BEPS action items so that is the sort of some broad background but in terms of these 15 action items that that we talked about these are the action items and then broadly they're designed to deal with three issues that were seen to exist in terms of the Internet existing international tax environment so gaps which allowed profits not to be taxed as they should be and then the second sort of set of action items were focused on dealing with with frictions and then finally the third set was focused on enhanced transparency ensuring tax authorities have much more visibility of over to operations and and and where it is that that taxes you know where tax might not have been sort of properly accounted for in terms of you know these changes are not going to go through these in detail but you can see just you know immediately that they're very kind of broadly focused so dealing with you know specifics like hybrid mismatches where one instrument is treated differently in two locations recommendations around enhancing control for incorporation rules which is not something in Singapore and Malaysia that we have as territorial tax systems but countries like Japan which is a worldwide tax system have these controlled foreign corporation rules to ensure that tax haven profits are taxed back in the home country so there's recommendations around enhancing those there's a set of recommendations around excessive leverage because interest deductions can reduce taxes that are paid so recommendations around limiting that action five is focused on countering harmful tax practices so jurisdictions that might have a preferential tax regime recommendations around how that should be dealt with in terms of the frictions and substance importantly action six is focused on tax treating abuse so not allowing tax trees to be abused and used in a way that's improper and they do that by recommending either the introduction of a limitations of benefit clause or what they call the principal purpose test Action 7 is focused on permanent establishments and actually reducing the standard the requirements before a permanent establishment will have to be recognized in another location and a lot of the planning that was seen to be unhelpful and led to base erosion and profit shifting was around avoiding a permanent establishment via you know in terms of how the rules had been kind of currently structured there's a lot of focus in these reports around transfer pricing so actions 8 to 10 are essentially focused around transfer pricing and ensuring that profits are taxed where the value is created but going a bit further and allowing for transactions to be recharacterized and we'll see that in a little bit and then finally transparency and perhaps the one the action item here that is most in focus and has been adopted most quickly is around transfer pricing documentation transfer pricing disclosures and the introduction of something that's called country by country reporting so for instance a malaysian headquarter company will now have to provide a report to the malaysian tax authority with information on their worldwide operations and all the countries they do business in terms of revenue and whatnot and then the malaysian tax authority will exchange that with all the other countries so they're going to have visibility over the total group operations in terms of you know people and revenue and taxes paid it's designed to give people much more information so they can risk assess where it is that they might focus in terms of reviews and in particular transfer pricing reviews so you've got these 15 action items and each was subject to a report by the OECD what thenns happen is that this has to be implemented in terms of a number of the action items that will be implemented through domestic law changes so the local law will have to change and that's how that will be implemented so things like control for incorporation rules enhance CFC rules that will be through changes to domestic legislation we won't see that in Malaysia for instance because we don't have those you know limiting tax deductions that will be through you know the limiting interest to duck interest expense deductibility that will be through domestic tax changes the transfer pricing changes in actions eight to ten will be introduced via the adoption via their introduction into the OECD transfer pricing guidance and then that will be implemented accepted built into local guidance some of the changes will be implemented via a multilateral treaty which will kind of then effectively import all of these changes into existing tax treaties so for instance Action six and action seven that those changes will be introduced via changes to tax treaties and then finally the monitoring you know will be through exchange of information and monitoring by the OECD and the Global Forum so they're the they're broadly the fifteen action items so you know the OECD has prepared these reports they deal with a bunch of different things all designed to deal with what was perceived you know tax practices which led to tax bases being eroded local tax country's domestic tax systems tax base is being eroded this is how they will be introduced and perhaps as an example Corrine what's Malaysia doing well going back to January of this year the second finance minister dato Johari Abdul Gani the meeting in Paris actually announced Malaysia would enter into the Maps framework and following that you can see now that for instance the transfer pricing guidelines have been updated just last month we've had them since 2012 but in the amendments that came in last month there have been substantial changes to various chapters including chapters 1 8 Levin dealing with the armed slang principle intangibles and documentation there's also been a new chapter added which is chapter 10 on commodity transactions and the country took my country reporting that Michael referred to earlier that actually came in at the end of last year so moving forward Malaysian companies will have to be aware that they need to prepare these reports and these reports will then be shared with tax authorities in other countries in the world where they have either subsidiaries or affiliates so that that's the position at the moment in Malaysia but it's it's going to keep changing because there are still more and and the revenue has said as such as much that there are still more adaptation and updates that they will be introducing to the transfer pricing guidelines to bring it in line with you know actions eight to ten particularly in regards to initiatives that are that will be taken to comply with the bats report hmm and I think that's I think that's a key point I mean we now are in the stage where these action items are being implemented the rate of implementation you know is not you can very I mean you have had some countries particularly in the region which have been very fast adopters so Japan and Australia and South Korea as OECD members you have seen a much faster adoption particularly in terms of the domestic law reforms but other countries you know Singapore and Malaysia elsewhere in the region Indonesia consistent with having adopted the minimum framework you know these these changes are being implemented and the set of changes that have been most quickly implemented do relate to transfer pricing documentation and country by country reporting that has certainly been something we've seen implemented kind of consistently across the region the updating of guidelines to reflect these you transfer pricing principles around actions 8 to 10 have been implemented but there are other changes that that are and will be implemented so it is a very dynamic environment that we're in in terms of all of these new rules you know the new international tax order being adopted you know globally and and our firm at least refers to this as the global tax reset this is really quite a fundamental set of changes but like anything it is a set of changes yeah and we have to then understand what they are we then have to understand what they mean in a given context in a given business context and then determine what changes might need to be made to adapt to it so we shouldn't be frightened by it we shouldn't be in denial about it we shouldn't ignore it we should just look to understand it look to understand what the local implementation is look to understand where it impacts us but importantly then look to understand how it impacts in a given business context and I think that's hopefully convenient one of the key messages for today but in terms of when we think about that question of impact for a captive when we look at those 15 action items what are the ones that perhaps have the most impact for a captive what are the ones that we need to most understand the detail around and I think you know we can break this down to two three or four or five of the action items and then once we do that we'll have we'll have a discussion around it but I think you know the first point to note is that when you read over all the beb's reports there are references to captives so you know it has been framed you know not not specifically with him in mind and addressing them but it is kind of referenced they are referenced and obviously you know going back you know many years you know from a tax authority perspective there has been a focus in any event and different countries have had you know different sets of requirements around these and looked at them differently but you know that has been in focus and and clearly there's been a response and those requirements have been met to date so potentially we have some new requirements we have to understand and look to adapt in terms of the CFC rules action 3 if you headquartered in a jurisdiction that has CFC rules and the the rules are enhanced in line with the recommendations potentially will have an impact if you do have a captive within the group so that's one action item where there might be an impact not so much relevant for a Singapore group Malaysian group it's certainly potentially relevant for a Japanese group depending on the changes that get made to those rules interest deduction limitations are obviously going to be very relevant for groups including groups with with captives and it's important to note that you know there are going to be special deduction rules developed for banks and insurance companies but we know that captives will be excluded from that so I think that's that's important to know action 7 which deals with permanent establishments I guess that can have an impact it is the key impact there is that the what's required to create a permanent establishment in a jurisdiction that standard is is reduced it's not just a question of have I concluded a contract for somebody else but have I done a lot of a lot of the stuff that will lead to that so that it's really kind of a more mechanical action that's going to need to be taken elsewhere the definition of an independent agent has been narrowed so basically you know the ability to create a permanent establishment if somebody's doing something for you in another location needs to be relooked at because these definitions have been changed on this one the important thing this is not going to be introduced by a domestic changes but by changes to tax treaties and how that's being done is via the entry into what they call multilateral instrument which will then have the effect of it's a one engine one instrument then but then that has the effect of changing tax treaties between any two countries but a number of countries have reserved out of this so you've really got to kind of look at you know depending on what how the multilateral instrument you know who's agreed to what what impact does that actually have on tax treaties so will it actually have the effect of making these definitional changes you know the one that I think is most relevant is going to be very very relevant in a captive context as these changes to the transfer pricing guidelines there's action 8 to 10 chain which at a broad level is designed to ensure that transfer pricing outcomes which is really allocation of revenue to one or more info so two or more entities involved in you know in a related party transaction in a related party situation better align with value creation but within that there's some very specific changes so there's one focus for instance in action line around risk and allocation of risk and responsibility for risk to date the party the entity that has responsibility for the risk got the profit you know got a return that was commensurate with being the risk-taking entity now with these changes the focus is on not just who has the risk but the entity that has it is it really in a position to meaningfully exercise management and control over that risk and does it have the financial capacity to assume that risk if it doesn't at least from a transfer pricing perspective the return that it gets will go from being more of the profit to a more risk-free type return so these changes are looking to really change how transfer pricing operates to allocate the return to an entity particularly those where you've had the risk assumption the other thing that it can do is recharacterize transactions which are not viewed to be commercially commercially rational so if you've got a expense premium being paid to a captive and it's not viewed to be a rational commercially rational transaction the deduction you know the transaction could be recharacterized in the deduction disallowed so that's important you know I guess in terms of the other actions potentially action 5 might be relevant so a jurisdiction might have a specific preferential tax regime for captives that will be reviewed as against the the requirements for an acceptable tax regime preferential tax regime action six potentially is also relevant I mean if I'm claiming to deduction so if I'm making a premium payment and there's withholding tax and I claim a tax treaty reduction on that you know the whole principal purpose test will come into play and that's fundamentally focused on the substance of the arrangements and the parties to whom that payment is being made I mean km is anything else in terms of like of the action items do you think they're probably the ones that that are most relevant I think currently they are and I think in terms of captives definitely seven eight to ten and thirteen I think the ones that immediately come to mind as something that should be focused upon and I'm sure Kevin and Araki son can give us examples of you know where their respective companies are concerned how they've approached the introduction of that maybe this before quickly before doing them this just one I guess one other final action item which I think is relevant to note is action 13 which is this country-by-country reporting so tax authorities are going to have greater visibility over a groups entire operations globally so they're going to know for instance if you've got an entity potentially going to know that an entity in a tax haven which has lots of profit or not many employees for instance and then they're going to use that in terms of risk assessment and saying should I do a tax audit there so I think that's that's a very important development and Malaysia and Singapore and Indonesia and a whole bunch of countries have now implemented this and this has been one of the best measures is that that has been adopted earliest and that's where we've seen you know the greatest change the other is increasingly as Kareem noticed and noted in Malaysia the adoption of the new transfer pricing guidelines around action 10 into a domestic guideline so they're they're the areas where perhaps seeing it most and just in terms of actually 8 to 10 I've included a couple of slides which just kind of get into a little bit more detail around what these changes are without kind of getting so there's super detailed and super technical but just because this is important and just trying to kind of summarize what really the essence of those changes is about and again it's about allowing for the non wreck mission of a transaction that's viewed to be commercially irrational so that unrelated parties under comparable economic circumstances would not enter into that transaction so that's something that authorities will would be focused on and the BEPS report itself on action 9 gives an example a captive example so that's I've just included that up on the screen so a manufacturing company located in an area prone to flooding takes out insurance from an Associated company in respective inventory and plant in exchange for a premium of 80 percent of the value of the inventory property and contents given the substantial likelihood of claims there's no active market for that risk action eight to ten states that the captive insurance arrangement is commercially irrational and there's no market for insurance given the substantial likelihood of claims as such the transaction should not be recognized an insurance premium would not be tax deductible for the manufacturing company so the the report actually gives that as an example so the question you know non-recognition if it's commercially rational is one example of actions 8 to 10 and what we now have to take into account the other is and I mentioned this earlier this increased emphasis on demonstrating control over risk in the entity so it control over the risk in the entity taking on that risk so within the entity there and this is just coming straight from the report itself within the entity itself there has to be decision-makers who are competent and experienced who have access to the information and can take that decision so you have to have control over the risk and people who can take you know who can sensibly take those decisions within the entity itself so and again and that's getting into a little bit of detail but hopefully not hopefully not too much detail so I guess I guess the key point is that we have these action items a number of those are potentially relevant to captives these are in the process of being implemented through domestic law changes like country by country reporting which we've seen in Malaysia or through in the case of Action 8 to 10 transfer pricing local for pricing guidelines incorporating this osed guidance so there's a lot that seems relevant a lot of BAPS seems relevant to captain so I guess now the question yep starting with with Kelvin is people aware of this I mean the the other owners that you talk to here in the region or in Europe I mean are people aware of this and how are they how are they reacting I mean what are their reactions to this at least a kind of first instance you know right yeah like I said speaking to peers like particularly risk manager peers of European based companies there's definitely a very strong awareness of deaths that's for sure you have even seen the Association for risk managers in Europe so afirma they are issuing guidance papers around it and and I think one of the most obvious thing when you look at the example that the OECD will I propose outlining when they make references to the captive is how little they understand about the captive cause the nature of the risk that they're describing out there in in the example that you gave it's very loosely water I mean the likelihood is gonna happen what's the likelihood yeah and how do you actually price the risk and it shows how how little they actually understand about what sort of risk is supposed to go into a cactus to begin with and I think that is the challenge that a lot of risk managers are facing with that that the walls was because of the way that captive has been mentioned I mean are the best regulation it seems like it's a target but there's a lack of understanding from the regulator's of what a captive is meant to be useful to begin with and and so I would say as a risk manager if you were to step back and and you would go through the proper process of ascertaining why you would want to set up a captive in the first place and and broadly speaking you should be looking at the three main areas of I say the commercial viability of it this is substance and governance of it and obviously the transfer pricing so how is the risk being priced and I guess in all these areas there'll be a lot of experts here sitting in the audience a concern consultants who are dying to offer you the proper way to structure that business case to evidence it and and and if you were to go through with that process you would find that the regulations that Baptist is talking about it shouldn't be that far of a stretch for for a captive owner to fulfill and to evidence and and while a lot of the conversation has been focused around the transfer pricing aspect already the risk transfer pricing aspect I I think from a captive owner point of view that is actually not that much of a concern you can quite easily evidence the the market rate for a risk to be placed out in the market and how you are pressing it comparatively in the captive what I think it is is of a greater concern for captive owners is in terms of evidencing the substance of the captive domicile of where the location is and and also what is the economic activity being generated in that country so so from my point of view for international SOS I I have a slight advantage because my captive is domiciled in Singapore and the parent company is headquartered out of Singapore so so that obviously takes a strong box for me in terms of have evidence in economic activity but if you for example a Japanese or uk-based company and your choice of a captive domicile is elsewhere to our of mine Guernsey and so on where you might not have any operations that that could be a bigger stretch I'm not saying that's impossible but obviously then you have to build up a business case of where's that economic activity coming from and I want to come to a rocky Sun in the six and understand the reactions in Japan but in terms of the the current understanding is that sort of still ahead Babs without too much finer understanding of the detail or is it has it gotten down to these sort of things yeah okay I know that I know that I've got to focus on my transfer pricing I know that there's a risk of transactions being recharacterized I know that there's a need to focus on really look really look at you know the control over the risk in the entity for instance is it down to that level at the moment or is it still kind of a bit broader kind of beps and well I can't speak for the market but never before for for my captive that's something we have been looking at already like in terms of making sure that how are we doing if we ever were required to evidence station I live best but when we went through that process we did not find too onerous to show that yeah we are we actually taking the boxes in terms of the transfer pricing in terms of the substance of activity in the sort of commercial rush in here yeah and I'd and just came back to a point I made earlier I mean transfer pricing has been very much the earliest aspect of BEPS that we have been focused on in country by country reporting was introduced and these guidelines are changing Iraqis on I mean in terms of Japanese groups and Japan was obviously an early adopter has has really taken a lead with a lot of these initiatives at the OECD level I mean what's the what's the reaction in Japan what sort of things are clients saying to you I mean how is your own group responding to these type of changes yeah okay Japanese government has investigated and discussed this issue for a few years however I have impressions of in general the big Japanese company especially a conservative company had negative image of the tax planning and tax saving issue so especially the company doing b2c business it's very keen to the corporate image for the to the market and however the Japanese government investigated that issue she showed in the last year the ring party Japanese ruling party released the proposal of a new tax regime focusing on the tax haven issue so in this connection we have discussed the client and potential client how to consider this issue however at this stage as far as I know no concrete statement has been released of the Japanese tax authority so that's why we are struggling how to deal with it but your Japanese clients are are now aware of these developments and what they mean indeed and are they are they making changes or looking to review operations or are they slower to think about setting up a cap different I don't think so and I mentioned that the conservative companies had a negative image of the tax planning issue however in the contrary the big international company like Amazon and Starbucks save a lot of tax so the Japanese company not key to the tax a being issue so the how to compete the big company in international companies so they start to consider how to manage that efficiently the financial issue Malaysian multinationals they this kind of really coming into focus now and particularly rethinking things around transfer pricing and whatnot I think of all the companies multinationals will definitely be the ones that are most aware of the impact of the amendments to the transfer pricing guidelines and of course the introduction of the country by country reporting for action 13 that's you know completely new and completely radical so they'll they'll realize by now that with when when that's comes actually into force in the sense that they start preparing these reports that in a sense there's nowhere left to hide because you know all your activities in other countries where you have subsidiaries and affiliates your profits how much tax you pay you know all that's going to be in there and it's going to be open for the tax authorities to see and they'll be completely aware so I I think that this is cause a lot of em and cease to really rethink relook their preparations their documentation and I think they definitely start the head of other types of companies and I think we're captives our concern the revenue is because it's so new I mean the the guidelines the amendments the guidelines were only introduced in July country-by-country reporting rules will me gazetted in December of last year the revenue themselves are still grappling with this this new scene and the their focus I would imagine will not immediately be on captives but would probably be with the larger companies the MNCs the listed companies but there is now kind of an appreciation that this new environment is here to stay and we have to understand what it means and the impacts and adjust accordingly whatever those adjustments might be yes and prepare accordingly yes okay I mean just kind of the this is kind of summarizing kind of a couple of the points have been made but also just you know what sort of questions would flow from these action items and the sort of you know issues that are in focus but and and and Calvin mentioned this I mean you know so some of the questions that you know you would stop and and start to think about in response to these changes that we've described would be you know you do have substance you know performing substantive activities you know going to this point around rationale versus your rational transactions I mean would the transactions of the captive have been agreed between unrelated parties under comparable economic circumstances so yeah so broader focus on the entity looking at the transactions you to extent the decision-making and people around taking on risk is important to prevent recharacterization from a transfer pricing perspective and allocation of the profit elsewhere you know where is the decision-making and is that in the right location is the Kapiti of controlling the risks of the transaction you know going back to the to the action 9 requirement it's very focused on it does that entity control the risks does it have the financial capability is the transfer pricing correct in view of these new requirements particularly these this ability for tax authorities now to recharacterize transactions and I think you know the point is that if there is an adjustment to transfer pricing that will lead to double taxation and and I think the transparency that's going to come from things like country by country reporting enhanced transfer pricing documentation will lead to greater visibility will lead to greater tax audits will lead to greater adjustments will lead to greater disputes and that's where you know tax authorities then there's a mechanism where they'll come together and say actually were you right in making that adjustment because if they make an adjustment there is double tax there's mechanism in the treaties to make sure that that doesn't happen and that's called the MEP process so we will see tax authorities increasingly engaging themselves around these type issues and that will increase the understanding and again importantly you know to point again to reiterate that Calvin inmate is there supporting documentation because obviously when it comes to explaining these things to tax authorities it's always so much easier when you've got the right supporting documentation so these are and this is just a few of them but these are sort of some of the questions that you know people would start starting to ask in response to these new requirements and Calvin for instance as a captive owner mentioned a number of these but McElveen I mean in terms of the process that you've gone through were there other kind of issues or questions that you started to consider there are others that you would recommend that people focus on in terms of you know thinking about the impact of these changes in a given situation yeah like I suppose it's also recognized the uniqueness of a captive said I just for example one of the question up up there is the captive effectively controlling the risk of the transaction like what are you referring when you say the risk like there is is the financial exposure off of what you are underwriting when the captive say for for Adam if we retain some parts of a property exposure captive the captive in essence does not control the property in question it doesn't so so it depends on to what level are you drilling down when you say the control of the risk the captive is controlling the financial exposure that arises from this arrangement because you must recognize that the captive is a insurance company at the end of day the risk associated is financial exposure so so but then when you look at how they are applying best concept to subsidiaries in offshore Tom ourselves and they say risk they talk about business risk and economic activity which is a bit different when I talk about insurance transaction in that sense right so so like I guess is to be very cognizant of the fact that that when you set up a captive what is this use for it's not your normal operating business subsidiary is there to underwrite the business of insurance and so the risk and exposure associated with it is entirely different from what you will say for a normal of course subsidiary of the core business and I think that is key so once you get that sauce sorted then the business case and everything should flow from there around building a captive and not for subsidy we doing something else altogether and I think that and I think that's a really good point in that particularly when we talk about these action 8 to 10 requirements like risk in the focus on risk I mean these are written as transfer pricing guidance which will be reflected locally but at first instance they're going to be applied by tax people and tax authorities and they're not necessarily going to have that deep business understanding right so I think I think there's two aspects to one one you mentioned earlier was then really the importance of at an industry level engaging with tax authorities so that they do understand the business and I think you gave the example earlier of the firma paper that had been written for the OECD and a number of a number of countries and I think I think that's an important point you know the other then comes back to the documentation you know transfer pricing documentation other documentation that explains this because you know you know not having an unnecessary adjustment will be a function of the authorities understanding that and then the documentation and being very thoughtful about that becomes very important and you had mentioned that earlier okay I'm just in terms of like a local Malaysian context I guess you know that's also important right in terms of you know mitigating the risk of tax authorities looking at a transaction incorrectly how well your document that becomes even more important now I would imagine yeah definitely so because you know the first thing they will see would be the documents and if you don't have your documents accurately reflecting the position or if their mistakes in your documents that's that's what they're going to see first off and trying to sort of amend that or correct that thereafter would be a lot more difficult and I think the other point which in Kelvin without stating it explicitly is kind of it's like you just can't leave this to the text guys right you've got to make sure that that the tax and risk and other relevant people are coming together to make sure this is fully understood and that you know it's the extent that these new guidelines you know there's an as an element of having to interpret it as you've mentioned that that's done very holistically and then that that's appropriately explained in documentation and an engagement and in terms of really you know reviewing and understanding you know the transfer pricing but also ensuring that the characterization of transactions and and of an entity and if a contribution for transfer pricing purposes are correctly understood Iraqis on any in terms of the sorts of questions that in Japan people are looking at it was anything you would add to the conversation I think this trend is the positive issue because in Japanese market I think the cap tip has not been introduced broadly and however the if we came to the tax minimization or tax planning issue so then the company realized the captive scheme so therefore we'll be able to introduce easily to the captive to the market so that's why also a lot of discussion between the government or tax Authority however overall I think the trend is very positive so I think what where that leads us is what should people be doing and this is not just true of captives this is true in the context of any business company multinational company that's conducting business across borders were you dealing with the tax systems of more than one country you're dealing then with the interaction of those tax systems which is where BEPS really starts to have an impact and and some of the recommendations that are made and this is free obviously this is specific to captives but you know some of the recommendations that are made in terms of understanding these impacts and what people should be doing is you know reviewing you know the business operating models and guidelines you know so for instance if decisions have been making for being taken for the captive in another location does that create a permanent establishment risk is the captive have the right sort of substance in terms of action six do you have the right level of control decision-making with respect to risk within the entity in terms of action 9 is there the right sort of commercial rationale is the substance there is that documented are the transactions entered by the entity rational as opposed to irrational and agreeing as I do with kelvins observation as to the example itself that was given I think a number of people have been similarly critical of that of the example and what it means and you know ensuring that their control over the risks being taken by the entity each of these kind of flows back to those slides around the relevant action items so you know you've got an action item it has certain set of requirements instead of implement implications they need to be understood as against the particular business that's been undertaken or that's been so there there are a number of the steps that are recommended before getting to the next one in terms of engaging with tax authorities but I mean Calvin it sounds like you went through this type of process I mean would is there anything you would add to those or within those kind of steps are there any kind of comments that you would make like I think it would be to go back to first principles right so one of the over parking aims of Deb's I mean not the only one but the one one of the main aims of best was really to make sure that companies do not end up in the what they call it double non taxation and to put it very bluntly is to make sure companies are not avoiding text right so so if you go back to first principles and you make sure you set up capital for the right reasons and if your reason number one starts with text am sorry is wrong so so so that's always been wrong if you go back to first principles and you have the right right rationale when you set up a captive and and the tax assessor one of the considerations for for sure for for the captive to do business in the right domicile but it's not a primary reason of why you set up a captive in the first place so if you go out the first principle I think you should be fine with the best record regulations in whatever shape or form they are being implemented in the country yeah and I think to that point I mean the visibility the monitoring you know looking at the you know looking at the entity the results the number of people you know the level of profit versus you know I mean all of those type metrics are going to be picked up increasingly by tax authorities in terms of assessing assessing risk and and to your point you know it's not like these these entities have not historically been subject to review so all the the best practice around sort of substance etc has already existed you know this is an additional kind of set of requirements we need to think about and then potentially do an additional set of implications so you know really understanding those understand the impact as against the business we have the transactions we have the substance within the entities and just you know very deliberately undertaking that sort of reviews that that a suggestion and not to be alarmist and just keep it in context I think I'm never going to be prescriptive right yeah I'm gonna say it's okay if you have two employees and the revenue is x per employee and so and so forth they they are never gonna go down that rabbit rabbit hole of being so prescriptive to say this then you'll be safe cuz they know that people game the system again so so then you have to start from the principle and foundations of what you want to cap to to set on the suspect sir Rocky's on any other points around how people should take these changes and and and and think about them and address them in terms of this panel discussion is focusing on tax issue however I think it's we need to focus on a basic concept of capital so I mean I think in the future tax scheme might be changed so therefore the we need to more consider and focus on risk management or how to manage the grow a broad way of the risk itself so I think it's more important to set up captive okay I guess the final recommendation that is made around mitigating beps risk is a point that Calvin made earlier on in this session which is if there is a lack of understanding of captives ensuring that there's a right level of engagement with bodies like the OECD or with local tax authorities in terms of you know helping them understand that as a way of managing risk I mean obviously you would otherwise do that through your own documentation etc in terms of addressing these requirements Calvin you did mention the the thermo report which was written for the OECD which kind of described things like the commercial rationale for captives and substance etc but do you want to quickly do mine did you just quickly kind of recap a little bit on that report and just some of the kind of the key points that you took away well so so the report by farmers also so Pharma I guess all of you heard the introduction by Steve just out of a prima soso pharma is the Prima for Europe where the risk managers part of a professional association and what they have done was really to come together to put together paper that outlined the rationale for what a captive is being useful and what they feel that the best regulation the guidance should focus on when it comes to captives and they have steered the focus of osed towards three main areas of offer captive which is basically ensuring the daily commercial rationale so basically the business case for setting about captive in the first place the second part of it is about substance and governance and they provides some details around it but but those are around the the control of the risk-taking of the captive so so stuff like having a underwriting committee at a captive that makes the decision and the involvement of of the employees within the captive management itself and then of obviously the third aspect of it is the risk transfer pricing so what is the premium that a captive is charging is entities and and and they they have put forth a number of ways that a captive can evidence those so what is clear as well is that there isn't just one way there isn't just a fixed way that a captive can evidence all of this so there are several ways there's several different ways and it's up to you to make sure that the captive has one of those ways to do it so there isn't a fixed ABC way and I guess what the takeaway from debt as well is I guess for risk manager associations in the region like like Miriam in Malaysia and parama for Asia there's a avenue for us as risk managers to come together so to make sure we are promoting there and educating the regulators in our region as well like what makes sense for us yes because obviously for that you have been kept captives they have the benefit or rather the misfortune or solvency to so they have been through their experience and there are certain benchmarks around there that we can use to fulfill the best for Asia is brand new and also means that we are we have the leeway to craft what we feel is appropriate for captives in Asia as well thanks Calvin that's great observations we've got a couple minutes left and I just thought maybe to finish off you know in terms of your takeaways from the discussion your reflections on verbs mean is there any kind of final observation or comment maybe starting with came I was just gonna say that I'm sure most companies would really have transfer pricing documentation in place but now with the changes that have come about since last month the important thing to do is actually to take a look at those documentation that you already have review them compare them to the new requirements that have come out with the introduction of the amendments and a new chapter in the transfer pricing guidelines as well as the totally new requirement of country-by-country reporting so it's important to to take a review of your existing documentation to make sure that you are in compliance with the new requirements and to keep in mind that you know scrutiny from the Inland Revenue will come and other tax authorities and others like stories because they're gonna have the visibility that otherwise have a final comment yes the end of last year the Japanese tax authority came to our clients office to investigate the captive scheming Suzanne they made a lot of question to the client however the finally the authority confirmed the captive scheme is the actual company not paper company so this means and in Japan I had impressions that captive as being introduced as a sort of black box however it's not true the captive is licensed insurance company in respected domicile so so I I'd like to persuade and introduce this issue to the client and the potential client Japanese market Kelvin any final points to add well if you are not a captive owner you are thinking of a captive don't let is pull you off this is no different from how you should have thinking about setting a cap in the first place if you are already a captive or owner don't be scared just revisit your business case and make sure that among your top three reasons texture than be up there so high I'm not sure I can add 20 those comments since I think I think all kind of really great takeaways from the discussion clearly a lot of tax change a lot of change to digest but taking it in your stride understanding the impacts reviewing is appropriate making the changes as needed as Karen mentioned the importance of documentation as kelvin's mentioned you know the importance of really making sure that you've got the right input into that process you know the risk perspective the other perspectives and that ability to explain to tax authorities on an individual company basis but perhaps the importance of industry level engagement and education as we've seen in Europe so with that with that I panel and I thank you and please join I guess with with me and thanking them for their contributions it's been been a great discussion thank you [Applause]