On 6 May, the OECD launched a consultation on the Regulated Financial Services (RFS) Exclusion under Amount A of Pillar One. The deadline to respond is 20 May.
The public consultation document can be found here and is looking to gather comments with respect to the rules described therein.
The OECD is seeking comments on any aspect of the rules, but in particular on:
– areas where the definitions of Regulated Financial Institutions (RFI) are unclear or insufficient (including the reasonableness of the thresholds proposed);
– the practical challenges in applying the rules for identifying excluded and in-scope revenues and profits; and
– the additional guidance or compliance simplifications that would be needed to effectively apply the RFS Exclusion.
The first section of the document provides an overview of the seven steps that a group that qualifies for the RFS Exclusion would follow to apply Amount A as a whole.
Par. 23 of Title 9 provides the definition of “Insurance Institution”, which means a Group Entity:
a. That is licensed to carry on the activities listed in paragraph (c) as a business under the laws or regulations of the jurisdiction in which the Group Entity does that business or, in the case of a Group Entity that does such business in an EEA Member State, is licensed by a competent authority to carry on such business in an EEA Member State; and
b. That is subject to solvency standards incorporating a risk-based capital measure; and
c. The gross income of which arising from Insurance Contracts and Annuity Contracts (including investment income from assets associated with such contracts) for the Period exceeds [75] per cent of total gross income for such Period; or the aggregate value of the assets held to manage risk associated with Insurance Contracts and Annuity Contracts exceeds [75] per cent of total assets as at the balance sheet data for the Period;
but does not include a Group Entity a substantial portion of whose insurance business is to provide Insurance Contracts to Group Entities of the same Group or to reinsure policies covering risks of Group Entities of the same Group, that are not Regulated Financial Institutions.
The Commentary would explain that the effect of this sub-paragraph is to ensure that Entities such as captive insurers do not qualify for the Regulated Financial Service exclusion.
Insurance Europe response – draft