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The consultation is on one of a series of discussion papers containing suggestions for overhauling the US corporate tax code
Foreign (re)insurers play an important role in the US market. A substantial part of US demand for insurance — more than 15 per cent of direct insurance and more than 50 per cent of the reinsurance accepted in 2011 — is provided by foreign insurers. For certain states and areas this figure is much higher; for example over 90 per cent of reinsurance for Florida property insurance is provided by reinsurance companies located in foreign countries .
Insurance Europe welcomes the opportunity to comment on the Senate Finance Committee international tax reform discussion draft and, in particular, the proposal to deny US tax deductions on reinsurance cessions to affiliated reinsurance companies located outside the US.
Insurance Europe believes that if this proposal were to be implemented it would severely affect the US insurance market and ultimately result in higher premiums and reduced availability of certain types of cover for US consumers. In addition, as a result of the proposal’s discriminatory nature, it would place the US in breach of its international commitments; both at the WTO and with respect to the Double Taxation Agreements concluded between the US and EU member states.
Insurance Europe understands that the rationale for the proposal is to reduce the incentive for non-US reinsurance companies to shift earnings from the US to jurisdictions where these earnings may be subject to very low or no income taxation. However, given that the proposal applies regardless of the tax jurisdiction in which the affiliated foreign company operates, it penalises EU reinsurers who are currently subject to statutory tax rate of on average 23 per cent.
In addition, European insurance companies already comply with transfer pricing rules designed to attain the same goal as the proposal at stake.
Finally, the domestic election method contained in the proposal continues to discriminate against non-US reinsurers and, as such, continues to leave the US in breach of its international commitments to the WTO and its tax treaty partners.
In addition, Insurance Europe believes the compliance costs associated with the election method will only serve to further discriminate against non-US (re)insurers.