Washington —
In a letter released today, Baucus detailed his proposed changes to the current code, which critics contend enables foreign-based insurance groups to lighten their tax obligations by reinsuring risks to affiliates located in tax havens, such as Bermuda.
“Foreign insurance companies may have a competitive advantage over U.S. firms because they can use related party reinsurance to reduce their tax liabilities on investment income,” the letter states. “This is accomplished when a U.S. subsidiary writes the initial insurance policy and then reinsures the policy to its foreign parent corporation, or “related party,” that is located in a low or no-tax jurisdiction such as Bermuda or Switzerland.”
The letter buoyed critics of the current law, which include the Coalition For a Domestic Insurance Industry, a group of 14 U.S.-based insurers who have lobbied for a rule change.
“The legislation is well-targeted to close the loophole because it simply levels the playing field for domestic and foreign-domiciled insurers without negatively impacting the insurance and reinsurance markets,” says William Berkley, chairman and CEO of W. R. Berkley Corp. and a spokesman for the Coalition. “It does not afford any special treatment or consideration to domestic insurers, but only reduces an unfair competitive tax advantage that favors foreign-controlled insurers doing business with their affiliates at the expense of the U.S. Treasury and to the detriment of fair competition with domestic insurers.”
Rep. Richard Neal (D-Mass.), a member of the House Ways and Means Committee, introduced a companion bill in the House in September.
Sources: Senate Finance Committee, Coalition For A Domestic Insurance Industry
