07 November 2007

CEA position on US offshore tax issues on reinsurance

In a letter to the US Senate Finance Committee the CEA expressed its concern about proposals being advocated by a group of United States (“US”) Insurers that would tax certain affiliated reinsurance transactions. The CEA urges to be wary of proposed “amendments” that promise the US government more tax revenue but will ultimately have the effect of increasing insurance costs for US policyholders.

CEA’s argues that the measures defended to prevent the alleged unfair competitive advantage to foreign-based reinsurance groups should be instantaneously classified as disproportionate.

The natural target of Mr. Berkley’s testimony is reinsurance with related companies established in no-tax or low-tax jurisdictions, CEA notes. It is technically inaccurate to qualify tax jurisdictions of the EU and EEA Member States as low or no tax countries, the CEA says. 

“Mr. Berkley alleges that the envisaged legislative amendment is required so that US based reinsurers can compete with foreign reinsurers”, CEA says. “Nevertheless, this justification is contradicted by the record profits of the US domestic industry over the last three years. In CEA’s perspective, it is not correct for US companies who are particularly lucrative to ask for help from Congress proposing a legislative amendment which will reduce competition, harm consumers and generate increased profits for these ambitious companies.”

“Mr. Berkley is actually worried about foreign competition in lines of business his company writes”, CEA finally notes.

Background

The testimony of William R. Berkley (Chairman of the board and CEO, W.R. Berkley Corporation) before the Senate Finance Committee Washington, DC states:

• The current US tax system would provide an unfair competitive advantage to foreign-based reinsurance groups which could threaten the US-based insurance industry.

• Whereas US-based insurers pay US taxes on all the income they generate from their activity in the US, the foreign-based reinsurers with US affiliates can use related-party reinsurance transactions to strip their profits out of the US tax base to more favorable tax jurisdictions and avoid US taxes.

• In order to preserve the US capital and associated tax base, legislation should be changed to correct this unfair competitive tax advantage available to foreign based-groups, with a focus on related party transactions.

CEA position paper

© Graham Bishop