US Democrats on Wednesday introduced a bill designed to prevent foreign insurance groups from avoiding US tax by paying reinsurance premiums to affiliates located in tax havens.
A change in the tax law is needed to level the playing field between US and foreign insurers, said its co-sponsors, Senate Finance Committee member, Senator Mark R. Warner (D-VA) and House Ways and Means Committee member, Richard E. Neal (D-MA).
Under the bill, deductions for reinsurance premiums paid to offshore affiliates would be deferred until the insured event occurs. Foreign groups can avoid the disallowance by electing to become subject to US tax with respect to the premiums and net investment income from affiliate reinsurance of US risk. Special rules are provided also to allow for foreign tax credits to avoid double taxation.
“It is illogical that we continue to allow many foreign-based insurance companies to shift their US income into tax havens to avoiding paying US taxes. By closing this loophole, we not only preserve our US tax base, we will stop an unfair competitive advantage for our US-based companies,” said Neal.
Congressman Neal has introduced legislation in the House to close the reinsurance loophole as far back as 2008. The loophole has also been a target in President Obama’s budget proposals, including his FY 2017 budget.
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