Foreign Insurer Tax Discriminatory, Consultant Argues

NU Online News Service, June 1, 12:30 p.m. EDT

WASHINGTON–Despite U.S. insurer arguments to the contrary, proposed taxes on offshore insurers, through new legislation, are discriminatory, a lawyer and consultant working for an international think tank contended.

The bill in question, H.R. 3424 (http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h3424ih.txt.pdf), introduced by Rep. Richard E. Neal, D-Mass., is designed to limit deductions "paid by a foreign-owned insurance company based in the U.S. to its foreign affiliates."

The Obama administration supported the legislation through similar provisions in its 2011 budget proposal.

In refuting claims that the proposal is not discriminatory, Gary Hufbauer, a senior at the Washington-based Peterson Institute of International Economics, said, "To be sure, nowhere does the bill contain a title headed, 'Discrimination Against Foreign-Owned Insurance Companies.'"

But, Mr. Hufbauer continued, "The terms of the bill clearly apply to foreign-owned insurance companies, not their U.S.-owned competitors."

The European Commission last month also issued a letter expressing concerns with any effort to impose new taxes on insurance premiums ceded to foreign affiliates of domestic insurers (http://www..property-casualty.com/News/2010/5/Pages/EU-Officials-Object-To-Proposed-Tax-On-Premiums-Ceded-Offshore.aspx).

But William Berkley, the chairman of Greenwich, Conn.-based W.R. Berkley Corp., said at a press luncheon last week the proposal is in line with U.S. tax treaties, stating that the "cornerstone of the [tax] treaties" is that you can't tax offshore insurers in such a way that they are adversely impacted when compared to U.S. counterparts (http://www.property-casualty.com/News/2010/5/Pages/Berkley-Proposed-Tax-Wont-Cause-Foreigners-US-Market-Exodus-.aspx?k=berkley).

"They have the option of having their U.S.-based company be taxed as we are taxed," Mr. Berkley said. Therefore, "in no way does it put them in a position of having an adverse tax [position] versus the U.S." companies.

Mr. Berkley, a spokesman for the Coalition For A Domestic Insurance Industry, which is lobbying strongly for enactment of the Neal bill, also refuted comments by European Union representatives that the bill's impact would be higher premiums or even "the withdrawal of non-U.S. operators from the U.S. reinsurance business."

"They can't afford to walk away from half the world's market," Mr. Berkley said, noting that the U.S. makes up 48 percent of the global property and casualty premiums.

Mr. Hufbauer argued that the bill's limitations on tax deductions applies only to payments made to foreign-based reinsurers, and not to payments made to U.S.-owned or U.S-based reinsurers."

He said it accomplishes this by defining the term "affiliated non-taxes insurance premium" as any reinsurance premium paid directly or indirectly to an affiliated corporation if that premium is neither U.S.-owned nor subject to U.S. tax.