Congressman Richard Neal has reintroduced a controversial bill that would deny tax deductions for reinsurance premiums paid to foreign affiliates by domestic insurers.
The bill is widely opposed by the offshore reinsurance industry, but is supported by some US insurers and reinsurers who believe that the current system favours companies with offshore subsidiaries.
The bill echoes suggestions outlined in the most recent budget released by the Obama administration, which stated that “the tax system is...subject to gaming, as corporations manipulate complex tax rules to minimize their taxes and, in some cases, shift profits earned in the United States to low-tax jurisdictions."
Commenting on the new bill, Bill Newton, executive director of the Florida Consumer Action Network said “the legislation introduced closely mirrors thinking we have seen time and again from the Obama Administration and Congress. Our concerns remain the same: instituting a tax on foreign affiliate reinsurance would only result in a more limited US domestic insurance capacity and more expensive insurance coverage.”
The Coalition for Competitive Insurance Rates argues has consistently argued that due to the US’s critical reliance on foreign reinsurance—particularly to protect it from significant catastrophe exposures—any move that would reduce the provision of reinsurance by foreign subsidiaries would prove costly to US consumers. The Coalition is backed by a number of leading reinsurers as well as insurance and business associations in the US and globally.
However The Coalition for a Domestic Insurance Industry argues that foreign reinsurance affiliates are being used to “legally avoid US tax by stripping their US income into tax havens through reinsurance transactions with their foreign affiliates.” The Coalition said that the “proposed legislation would close this current tax loophole and capture over $12 billion in revenue for the US Treasury over a ten-year period.”
The Neal Bill has failed to pass into law on previous occasions. It remains to be seen whether it will this time round. Pressure to change US and international tax law appears to have increased, but the resolve of organisations such as the Coalition for Competitive Insurance Rates to oppose any change appears to be firm.
Neal Bill, US, reinsurance, budget, offshore