US Insurers Defend Neal Bill

by Glen Shapiro, Tax-News.com, New York

29 June 2010

Responding to an attack by offshore insurers on the proposed bill in the House of Representatives which would close an alleged loophole that enables them to avoid US taxes, the Coalition for a Domestic Insurance Industry (CDII), which represents US-based insurance groups, has released its own defence of the legislation.

The bill, introduced last year by Richard E. Neal, Chairman of the Subcommittee on Select Revenue Measures, is aimed at ending what he called “the use of excessive affiliate reinsurance by foreign insurance groups to strip their US income into tax havens, avoid tax, and gain a competitive advantage over American companies.”

“The benefits of being headquartered in a tax haven can be quite significant for a company with investment income over long periods of time,” he added. “Use of affiliate reinsurance allows foreign-based companies to shift their US reserves and their investment income overseas into tax havens, thereby avoiding US tax.”

Earlier this month, the Coalition for Competitive Insurance Rates sent a letter to members of the US Congress warning them of the dangers of Neal's "punitive" legislation. "This proposal solely targets non-US companies and is therefore discriminatory in nature and creates an anti-competitive environment for companies who wish to invest in the US insurance market," said Nancy McLernon, President and CEO of the Organization for International Investment.

However, the CDII, in its recent statements, has reiterated that reinsurance transactions with affiliates do not add additional capacity to the market, as had been claimed by the foreign insurers; “they simply allow foreign-owned insurers to strip profits overseas into tax havens to avoid paying their fair share of US taxes.”

It adds that the legislation will benefit consumers. “It will recapture an estimated USD17bn in revenue for the Treasury,” it said. “At a time of burgeoning federal deficits, and as American consumers and businesses face tax increases, it is wrong to allow foreign-owned insurers to avoid US taxes on their US-based business.”

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