INTM208330 - Controlled Foreign Companies: exemptions - the motive test

Application of motive test: examples - captive Insurance companies

Example 10

A captive insurance company resident in a low tax territory carries out transactions to insure the risks of United Kingdom and non-United Kingdom associates. The facts show that:

• transactions between the captive and the United Kingdom group (in the form of premiums paid to the captive) have achieved a more than minimal reduction in United Kingdom tax;
• the existence of the captive achieves a significant reduction in United Kingdom tax by a diversion of profits from the United Kingdom;
• one main purpose of the transactions was to provide insurance cover for the United Kingdom group members but the reduction in United Kingdom tax is substantial enough to indicate that its achievement was another main purpose of the transactions;
• one main reason for the existence of the captive is that the regulatory requirements are less onerous in the territory in which it is resident than if it was a United Kingdom insurance company but the reduction in United Kingdom tax by a diversion of profits from the United Kingdom is similarly substantial enough to indicate that its achievement was another main reason for the captive’s existence.

Neither leg of the motive test is passed.