NU Online News Service, May 20, 1:35 p.m. EDT

The European Commission voiced strong opposition to a proposal that would impose new taxes on insurance premiums ceded to foreign affiliates of domestic insurers.

In a letter to the U.S. Treasury Department, Angelos Pangratis, acting head of the European Union U.S. delegation, expressed concern about a provision in U.S. President Barack Obama's administration's proposed budget for 2011 that would deny U.S. tax deductions on reinsurance cessions to affiliated reinsurance companies located outside the U.S.

The letter states: "We believe the proposal is at odds with the principle of a level playing field for all U.S. insurers and reinsurers" because it would introduce "a tax regime that would penalize foreign-owned U.S. insurance companies that reinsure their risks with affiliated foreign companies."

Further, Mr. Pangratis said, "This penal tax regime would only apply to foreign-owned insurers; thus it would not result in protecting the U.S. tax base, but in creating a disadvantageous tax environment for foreign insurance providers."

"This could result in higher premiums for U.S. policyholders or even in the withdrawal of non-U.S. operators from the U.S. reinsurance business, leading to job losses for many U.S. citizens employed by those companies."

The letter also argues that the provision, as currently drafted, would "clearly capture affiliated reinsurance premium ceded to a foreign affiliate regardless of the tax jurisdiction in which the affiliated foreign company operates."

"It would thus clearly capture premium ceded to reinsurers incorporated in the European Union, where the average tax burden is approximately 25 percent. In fact, in the largest EU reinsurance markets, the rate is even higher."

The letter continues, "Therefore, we have doubts whether the primary aim is tax evasion."

Special Reports /

EU Officials Object To Proposed Tax On Premiums Ceded Offshore

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