Managing Agents should consider how a delegated authority, as an associated person, may facilitate tax evasion when performing services for or on its behalf and ensure that there are appropriate controls in place within the delegated authority to prevent or mitigate this to an acceptable level.
Potential red flags related to facilitation of tax evasion
- Global or multi-jurisdictional policies where tax may be payable in multiple jurisdictions. Managing agents should ensure that the coverholder is aware of what may create a tax location and use Lloyd’s tools wherever possible to ensure this is appropriately allocated.
- Policies where the primary insured is not the entity to be indemnified in the event of a loss e.g. a global policy for a multinational company based in the US, but all claims payments are to be made to an entity based in another jurisdiction and solely in the name of that entity.
- Policy administration services may be deemed to be part of the insurance premium in different jurisdictions, and managing agents should consider how any fees associated for these services are charged.
- Non-traditional insurance products such as where there is limited or no risk transfer or where there is no indemnity trigger within the policy. Coverholders should ensure that they are aware of how these deals are being treated by the policyholder and how they will be accounted for by the policyholder.
Managing agents should review the controls the delegated authority has in place at the due diligence stage to identify the appropriate regulatory risk and taxable locations, as well as considering how the use of peer review and audits may be used to review the approach being taken by the delegated authority.