Captives Conference: U.S. election could impact captive “tax havens”

With the U.S. election one week away, presidential candidate John Kerry has touted his desire to deal with “tax havens”, a situation which could have implications for offshore captives.But speakers at the Strategy Institute’s “Captive Insurance Strategies” conference in Toronto Wednesday say Senator Kerry’s comments may prove more bark than bite. “I think it’s election posturing,” comments Kate Westover, vice president of Innovative Captive Strategies, on Kerry’s pledge to eliminate tax havens. She confirms that the Heinz company, of which Kerry’s wife is heir, itself has a captive. “He [Kerry] is tying to get the vote of people who have been displaced in labor intensive jobs [which have gone to offshore locations with better tax climates],” adds Richard Ince, senior consultant for UI Management Inc. It does not appear that captive insurance companies are at the root of this campaign issue. At the same time, Kerry and other legislators understand that the offshoring trend is a function of the increasingly global business, evidenced by NAFTA and other international trade agreements, Ince comments.However, Ince has seen a “tightening of the loopholes” in tax treaties. He represents the domicile of Barbados the largest domicile for Canadian-parent captives, with 55% of the country’s captive established there. Barbados operates as a domicile based on a number of tax treaties with different countries, and in the recent renegotiation of their treaty with the U.S., he says, there was a definite move to deal with tax loopholes. Westover adds this is part of a global push for tax harmonization. For example, the Organization for Economic Cooperation and Development (OECD) has put pressure on domiciles to put local taxes on par with those for offshore businesses. Ince says Barbados is currently deciding how to structure its taxation system to harmonize taxation between local and offshore entities.However, Ince notes, “tax should not be the primary reason for forming a captive. Tax benefits are only a day away in the legislature.” An example of the ever-changing nature of tax structures occurred with the removal of the U.S. federal excise tax in the mid-1980s, a move which sparked Barbados to significant growth as a domicile for U.S.-parent captives. With the reinstatement of the tax in 1987, “we shifted our gaze to Canada” in terms of growth opportunities, he says.