When no tax deductions are allowed if risks are not transferred, whereas premiums paid to insurers are tax deductible, this leads to the formation of:

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Quizplus · Accepted Answer

The situation described in the question is a common scenario for the formation of a captive insurance company. Captives are established by a parent company to provide coverage for its own risks, with premiums paid to the captive being tax deductible. Captives are often used to retain risk within the company rather than transferring it to an external insurer, which can be more expensive and offer less control over claims handling. The lack of tax deductions for external insurance premiums can make captives an attractive option for companies looking to manage their risks in a tax-efficient manner.

When No Tax Deductions Are Allowed If Risks Are Not