IMPLEMENTATION LEVEL

National

AFFECTED FLOW

Inflow

ANNOUNCED AS TEMPORARY

No

NON-TRADE-RELATED RATIONALE

No

ELIGIBLE FIRMS

all

JUMBO

No

TARIFF PEAK

No
← back to the state act
Inception date: No inception date

Local operations

Congress may take up legislation that could substantially increase taxes on offshore-affiliated reinsurance coverage, a step that the European Commission believes would violate U.S. commitments under several international agreements. The bill would deny a tax deduction for excess reinsurance premiums with respect to U.S. risks paid to affiliated insurance companies offshore that are not subject to U.S. taxation. See the technical explanation of the bill for a fuller description of the complex tax issues involved.
Representative Richard Neal (Democrat of Massachusetts) had originally sponsored an untitled bill (designated H.R.6969) to deal with this issue in the waning days of the 110th Congress (2007-2008), and he reintroduced this bill (now H.R.3424; click here for a technical explanation of the bill) on July 30, 2009. Representative Neal is Chairman of the Ways and Means Committee's Subcommittee on Select Revenue Measures in the House of Representatives. In introducing the bill, Representative Neal stated that -
 
Since 1996, the amount of reinsurance sent to offshore affiliates has grown dramatically, from a total of $4 billion ceded in 1996 to $33 billion in 2008, including nearly $21 billion to Bermuda affiliates and over $7 billion to Swiss affiliates. Use of this affiliate reinsurance provides foreign insurance groups a significant market advantage over U.S. companies in writing direct insurance here in the U.S. We have seen in the last decade a doubling in the growth of market share of direct premiums written by groups domiciled outside the US, from 5.1% to 10.9%, representing $54 billion in direct premiums written in 2006. Again, Bermuda-based companies represent the bulk of this growth, rising from 0.1% to 4%. And it should be noted that during this time, the percentage of premiums ceded to affiliates of non-U.S. based companies has grown from 13% to 67%. Bermuda is not the only jurisdiction favorable for reinsurance. In fact last year, one company moved from the Cayman Islands to Switzerland citing 'the security of a network of tax treaties,' among other benefits.

 
The bill currently exists as a discussion draft in the Senate, where the Finance Committee has solicited comments on the draft. Numerous insurance firms, embassies, and other interested parties submitted comments. In a comment dated February 27, 2009, the delegation of the European Commission expressed 'great concerns' about a proposal that would, it believes, 'introduce'e' a punitive tax regime on US insurance companies that reinsure their risks with affiliated foreign companies.' The comment further argued that the bill would violate U.S. commitments under the General Agreement on Trade in Services, double taxation treaties between the United States and some European countries, and the 'standstill' commitment of the G-20.
The Coalition for a Domestic Insurance Industry argued instead in its June 16, 2009 comment that 'this legislation will not harm insurance capacity, increase prices to consumers, contravene treaties, or interfere with free trade,' but would instead 'merely preven't' foreign insurers from stripping their U.S. income to tax havens and restor'e' a level competitive playing field.' 
Opponents of the bill believe that it would lead to an increase in insurance rates and reduced coverage by insurers, who would have to raise premiums to help rebuild the financial cushion lost by the disappearance of offshore-affiliated reinsurance.
 

AFFECTED COUNTRIES

MAP
TABLE
EXPORT

Please report this page in case you detect an inaccuracy in its content.