Foreign reinsurers win US tax victory

Bermuda-based Validus has won an important battle over US taxation laws, which will ultimately benefit all non-US reinsurers.

The DC Circuit affirmed that a US federal excise tax does not apply to reinsurance policies between two foreign reinsurers.

The government’s claim that the tax should apply not only when a foreign company reinsurers US-based risks but to all subsequent reinsurance contracts as long as the policies can be shown to ‘relate’ in some way to original risk, was rejected.

Tracy Williams, a lawyer at Sidley Austin, the firm which represented Validus, said: “The decision confirms the industry's view that the IRS ‘cascading tax’ theory was a tremendous overreach.

Joe Guerra, a co-chair of Sidley’s appellate practice who argued the case, said: “The DC Circuit made clear today that federal tax statutes are governed by the same rules and principles as other federal laws, and one of those principles is that federal laws should not apply to wholly foreign activities unless Congress has expressed a clear intent to reach those activities.”