Democratic tax bill targets foreign reinsurance transactions

Greg Nash

Two Democratic taxwriters introduced legislation Wednesday targeting insurance companies that move certain earnings to affiliates based in countries with low tax rates. 

The bill would defer the insurance companies’ premiums paid to the foreign reinsurance affiliate until the insured transaction occurs.

{mosads}“By deferring this deduction, any tax benefit from shifting reserves and associated investment income overseas is effectively recaptured,” the release said. “This is another way of addressing inversions and base erosion, as several U.S. companies have ‘inverted’ into tax havens and numerous other companies have been formed — or been acquired and taken — offshore to take advantage of this tax-avoidance strategy.” 

The measure’s co-sponsors are Senate Finance Committee member Mark Warner (Va.) and House Ways and Means Committee member Richard E. Neal (Mass.). Both lawmakers said in a statement that their proposal is would close a tax “loophole” in the insurance industry. 

“As we continue to face a growing budget deficit, I am increasingly worried about the erosion of our U.S. tax base. The Congressional Budget Office estimates that over the next 10 years, corporate income tax receipts will fall by roughly 5 percent — with half of that difference attributable to the shifting of additional income out of the United States,” Warner said. 

Neal claimed that this measure would “stop an unfair competitive advantage” some companies. 

In nearly two decades, the amount of reinsurance money sent to offshore affiliates has increased “more than 10-fold from a total of $4 billion ceded in 1996 to nearly $42 billion in 2014,” according to a release, which cited that over 90 percent of those activities went to insurance affiliates based in Bermuda, Swiss and Cayman Islands. 

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