Like in many other European countries, Belgian companies have recently been setting up captive reinsurance companies in Luxembourg or Ireland to avoid or reduce taxes.
In a few cases, the tax authorities have challenged these structures, arguing that no real insurance contract was concluded between the policyholder and the fronting insurance company. In some cases, companies didn't hesitate to conclude insurance contracts with retroactive effect.
The tax authorities were recently helped by an unexpected ally: the Insurance Regulator (the Office de Contrôle des Assurance).
Indeed, in its communication D, the Insurance Regulator expressly states the following example of an illicit particular mechanism to avoid taxes:
"To cooperate as fronting insurer in a 100% reinsurance contract, whereas there exist no economic or financial reasons, in case the reassurance contract was concluded with a reinsurer situated in a country with an obviously better tax regime."
Insurance companies are expressly forbidden to simulate the conclusion of an insurance contract for mere tax purposes and should take all necessary preventive measures to avoid their cooperation with illicit tax structures.
The insurance industry will have to take these strict guidelines into consideration. This may hinder the setting up of captives by Belgian companies, even if there are sound alternative risk transfer reasons to justify this.