Foreign Reinsurance Tax Becomes Lucrative Political Football

Desperation for acceptable forms of tax revenue is reigniting the debate over the foreign reinsurance deduction.

According to an article in Inside U.S. Trade, negotiations to find a revenue “offset” for an expiring trade program called Trade Adjustment Assistance included the proposal to end the foreign reinsurance deduction.

Under current U.S. tax law, direct insurers are allowed to deduct a portion of the business they cede to offshore reinsurers.

Although the idea cut into the deduction was “ultimately dismissed,” Congressional sources told the publication that killing the reinsurance provision could have generated $14 billion in revenues that would have been “more than sufficient” to offset the cost of the trade bill.

At the same time, President Obama’s recent push to for foreign direct investment in the United States is giving the reinsurance community hope that the administration will give up its budgetary plans to impose a punitive reinsurance tax.

“In a global economy, the United States faces increasing competition for the jobs and industries of the future,” President Obama said in a statement late last month. “Taking steps to ensure that we remain the destination of choice for investors around the world will help us win that competition and bring prosperity to our people.”

A source told the Congressional daily The Hill that the statement gave business leaders hope that the administration would move away from a proposed insurance tax that only hits non-US reinsurance companies.

Under the Obama budget proposal, a U.S. insurance company would be denied a deduction for “certain” reinsurance premiums that are paid to affiliated foreign reinsurance companies.

The foreign reinsurance deduction has been a political football for a number of years, including several legislative attempts kill it.

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