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US Base Erosion and Anti-abuse Tax discriminates against non-US affiliate reinsurers

In response to the recently-published US Treasury/Internal Revenue Service’s proposed Base Erosion and Anti-abuse Tax BEAT regulations, Insurance Europe has reiterated it warning that the BEAT is discriminatory towards non-US affiliate reinsurers because it applies to gross premiums paid to foreign affiliate reinsurers, but not to premiums paid to US-based affiliate reinsurers for the same type of transaction. The proposed regulations do nothing to change this fact.

While Insurance Europe understands and supports the policy objective behind the BEAT (ie, to prevent base erosion), the fact is that the BEAT attaches to a far greater amount than could be attributed to any base erosion behaviour on the part of foreign affiliate reinsurers. It is therefore extremely punitive and disproportionate. In addition, the BEAT results in double taxation for foreign affiliate reinsurers and the proposed regulations do not provide any relief in this respect.

Furthermore, applying the BEAT to gross, rather than net reinsurance payments, does not reflect the economic substance of a reinsurance contract and goes against the long-established practice of levying taxes on net rather than on gross transactions.   

Finally, Insurance Europe’s views on this matter are also consistent with the conclusions of the Organisation for Economic Co-operation and Development’s (OECD) base erosion and profit shifting (BEPS) action plan: namely that foreign affiliate reinsurance cannot be considered a tax avoidance scheme, as long as it respects a number of criteria, which are detailed in this paper.

In addition to the broader policy concerns expressed above, Insurance Europe also made comments relating to two technical issues that arise under the proposed Treasury/IRS regulations.

Published 20 February 2019