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 poised to introduce legislation that would deter U.S.-based corporations from redomesticating to so-called tax havens, which could have an impact 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 National Underwriter.

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

Under the second test, the 80 percent figure is reduced to 50 percent in those cases where the foreign acquiring corporation does not have substantial business activity in the host foreign country and its stock is publicly traded in the United States.

If the legislation is enacted, the changes would take effect immediately for corporations expatriating after Sept. 11, 2001. For other corporations, the changes would apply beginning in 2004.

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

"Aggressive tax practitioners are urging their corporate clients to pack up and leave at a time when our nation is pulling together to 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 Bermuda flag rather than our Stars and Stripes."

Along with Rep. Nancy Johnson, R-Conn., Rep. Neal is also sponsoring legislation aimed specifically at U.S. subsidiaries of certain foreign-based insurers that reinsure risks with their parent companies.

This legislation, H.R. 1755, would require the U.S. subsidiaries to defer the deduction for premiums paid for the reinsurance until the time of a loss recovery, unless the investment income from the premiums 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 insurance companies in Bermuda and other so-called tax havens.

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Bill Bans Insurers' Bermuda Tax Ploy

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