A key senator requested feedback last week on proposed legislation that would close a loophole providing a tax advantage to some offshore insurers, setting the stage for a showdown in Congress next year between offshore insurers and their U.S. rivals.
The discussion draft was released by Sen. Max Baucus, D-Mont., chair of the Finance Committee.
The tax advantage exists because current tax law allows the U.S.-based affiliates of offshore insurers to cede a large share of their property-casualty premiums to the reinsurance units of their parents, which are based in low-tax or no-tax jurisdictions, such as Bermuda. The U.S. subsidiary deducts the premium and the foreign parent company does not pay U.S. or local tax on the premium, while earning investment income subject to low- or no taxes.
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