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

The European Commission voiced strong opposition to a proposalthat would impose new taxes on insurance premiums ceded to foreignaffiliates of domestic insurers.

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

The letter states: "We believe the proposal is at odds with theprinciple of a level playing field for all U.S. insurers andreinsurers" because it would introduce "a tax regime that wouldpenalize foreign-owned U.S. insurance companies that reinsure theirrisks with affiliated foreign companies."

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

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

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

"It would thus clearly capture premium ceded to reinsurersincorporated in the European Union, where the average tax burden isapproximately 25 percent. In fact, in the largest EU reinsurancemarkets, the rate is even higher."

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