What is the investor control doctrine in PPLI?
Investor control is a US rule. Where the holder of a variable life insurance contract controls the assets behind it, the IRS treats the holder as owning them and taxes the income and gains each year as if held directly. Revenue Ruling 2003-91 sets a safe harbour: the holder may allocate between broad investment strategies but cannot select or recommend particular investments, or discuss them with the investment manager. In Webber v Commissioner (2015), the US Tax Court treated the investor, whose grantor trust held the policies, as owning the assets behind private placement variable life insurance from a Cayman Islands insurer, because the manager acted on his recommendations as directives.
Tax authorities in other jurisdictions can take a similar view, so in a PPLI structure the investment manager is approved by the insurer and holds genuine discretion; the policyholder sets objectives and risk appetite. UK law reaches a similar point through the personal portfolio bond rules, which ask who can select the assets.
Investor control is a US tax doctrine: if the holder of a variable life insurance contract controls the underlying investments, the holder is taxed as if it owned them. It shapes how PPLI structures are run.
