If the comparably high UK tax regime was not enough for London insurers to manage, now we expect the US Internal Revenue Service (IRS) to insist that further excise taxes are payable on reinsurance business written outside the US.
There has always been a possibility that IRS would look to recover 1% excise tax on reinsurance transactions between non-US carriers where the underlying business is US domiciled – irrespective of taxation treaties and closing agreements. This was a fear some years ago when IUA members, benefiting from a tax treaty, were strongly encouraged to enter into a closing agreement just to prove their exemption.
Now members are faced with this cascading effect on business retroceded by one non-US reinsurer to another. Is it enforceable? Can it be audited? Can such retrocession contracts specifically identify US business where they are protecting multi-risk / jurisdiction books of business? Taxing questions indeed – ones which our US tax advisors will be addressing on 16 June at one of our market briefings. We don’t know all the answers yet but if Internal Revenue Service maintains its line and won’t be swayed by our sensible lobbying, we will at least provide information to our members as they battle to comply.
The whole situation seems too draconian and impracticable, let's hope common sense will prevail.
