Proposed Legislation To Close Affiliate Reinsurance Loophole Would Recapture Lost Revenue For U.S. Treasury Companion bills restore competitive balance for U.S. insurers
WASHINGTON, May 21, 2013 /PRNewswire/ -- The Coalition for a Domestic Insurance Industry today affirmed its strong support for H.R. 2054 and S. 991, important bicameral legislation re-introduced today by Congressman Richard E. Neal, ranking member of the House Ways and Means Select Revenue Subcommittee, and Senator Robert Menendez, a member of the Senate Finance Committee.
For decades, foreign-controlled property and casualty insurers operating in the United States have been able to legally avoid U.S. tax by stripping their U.S. income into tax havens through reinsurance transactions with their foreign affiliates. The proposed legislation would close this current tax loophole and capture over $12 billion in revenue for the U.S. Treasury over a ten-year period.
"We urge Congress to swiftly adopt the proposed legislation. Congress never intended to give a preference to foreign-controlled insurers over their domestic competitors," said William R. Berkley, chairman and CEO of W. R. Berkley Corporation. "Closing unintended loopholes to recover lost revenue is one of the best ways to offset the cost of needed tax reform. Closing this loophole, staunching the flow of capital overseas, and restoring competitiveness for this important domestic industry is a win for all."
The Coalition commends Congressman Neal and Senator Menendez for working with the tax experts at the Treasury Department and the Joint Tax Committee to develop a balanced and effective approach to close this loophole and provide a level-playing field for U.S. insurers.
Under the bill, the loophole would be closed by deferring the deduction for reinsurance premiums paid to a foreign affiliate, if the premiums are not subject to U.S. tax. Also, in lieu of deferral, foreign-based insurers may elect to be taxed similarly to a U.S. company on the income associated with these transactions. The legislation allows for a tax credit to offset any foreign taxes paid on such income to prevent double taxation. Thus, in either case, foreign insurers will be treated similarly to their U.S. counterparts and the legislation is consistent with tax treaty and trade obligations.
Over the past several years, opponents have used scare tactics to block the legislation, claiming that it will adversely affect pricing and capacity in the U.S. market. However, the proposed legislation expressly does not affect third-party reinsurance -- those arrangements that add overall capacity to the market by shifting risk to unrelated parties. According to the LECG group, this fact alone causes opponents' claims regarding potential adverse effects on capacity and pricing to be untrue. Moreover, it is highly unlikely that foreign groups will stop providing coverage in the U.S. market if they are required to pay tax like U.S. companies and compete on a level playing field. Even if they did, the rest of the market would quickly replace any capacity.
"At a time of burgeoning deficits and possible tax increases on U.S. workers and businesses, it's unfathomable that we would continue this unintended loophole allowing foreign-based insurers to avoid U.S. tax on their U.S.-based business," concluded Mr. Berkley.
For additional information, please visit the Coalition website at http://www.coalitionfordomesticinsurance.com/home/home.html
The Coalition for a Domestic Insurance Industry represents thirteen U.S.-based insurance groups with more than 150,000 employees in offices located throughout the United States. Collectively, we pay billions of dollars in taxes, invest significantly in the municipal bond market, and offer millions of U.S. individuals and businesses financial protection from unpredictable risks. For more information, please visit: www.coalitionfordomesticinsurance.com
Contact: Karen Horvath
SOURCE The Coalition for a Domestic Insurance Industry