Bill Bans Insurers' Bermuda Tax Ploy

By Steven Brostoff, Washington Editor

NU Online News Service, March 7, 11:39 a.m. EST,Washington?Rep. Richard E. Neal, D-Mass., appears poisedto introduce legislation that would deter U.S.-based corporationsfrom redomesticating to so-called tax havens, which could have animpact on insurers moving offshore.

The legislation would treat foreign corporations as U.S.corporations, subject to U.S tax, under either of two tests,according to a summary of the proposal obtained by the NationalUnderwriter.

Under the first test, a foreign corporation would be treated asa U.S. corporation when it acquires substantially all the propertyof a U.S. corporation and more than 80 percent of the stock of theforeign corporation is held by former shareholders of the U.S.corporation.

Under the second test, the 80 percent figure is reduced to 50percent in those cases where the foreign acquiring corporation doesnot have substantial business activity in the host foreign countryand its stock is publicly traded in the United States.

If the legislation is enacted, the changes would take effectimmediately for corporations expatriating after Sept. 11, 2001. Forother corporations, the changes would apply beginning in 2004.

In a "Dear Colleague" letter seeking co-sponsors, Rep. Neal saidthat corporate expatriates are renouncing their U.S. citizenship toreincorporate in tax havens and avoid U.S. income taxes.

"Aggressive tax practitioners are urging their corporate clientsto pack up and leave at a time when our nation is pulling togetherto fight the scourge of terrorism," Rep. Neal wrote.

He asked other members of Congress to help him stop this trend"before another major U.S. corporation decides to fly the Bermudaflag rather than our Stars and Stripes."

Along with Rep. Nancy Johnson, R-Conn., Rep. Neal is alsosponsoring legislation aimed specifically at U.S. subsidiaries ofcertain foreign-based insurers that reinsure risks with theirparent companies.

This legislation, H.R. 1755, would require the U.S. subsidiariesto defer the deduction for premiums paid for the reinsurance untilthe time of a loss recovery, unless the investment income from thepremiums is subject to current U.S. tax.

It was unclear at press time whether Rep. Neal's new proposal,which is aimed at all corporations, not just insurance companies,would nonetheless have a significant tax impact on insurancecompanies in Bermuda and other so-called tax havens.