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16th October 2011

CEA opposes US bills relating to taxing of foreign insurers

The CEA strongly opposes bills that were introduced on 12th October in the US House of Representatives by Congressman Richard Neal and the US Senate by Senator Robert Menendez.
Both bills would increase the tax burden on foreign insurance providers in the US, leading to their possible withdrawal from US markets and therefore reduced US insurance capacity and ultimately increased prices for US businesses and consumers.
“The proposals are discriminatory, would have a negative impact on the US insurance market and would violate US double-tax treaties,” said Michaela Koller, CEA director general.
The proposals would disallow tax deductions on reinsurance ceded by non-US companies to offshore affiliates. This would create an unlevel playing field with US (re)insurers, as it fails to take into account the tax treatment in the country in which the affiliate is domiciled. EU insurers already pay substantial rates of tax.
The CEA is also concerned about the impact of the proposal on the status of US commitments regarding insurance services under the WTO General Agreement on Trade in Services (GATS), which stipulates that (re)insurers of any other WTO member must be treated no less favourably than US suppliers of such services.
An economic impact study by economic consultants the Brattle Group estimates that the tax proposed by the Neal bill would cost consumers more than $10bn a year and would reduce US reinsurance capacity by 20%.
“Non-US insurers and reinsurers provide a significant proportion of the cover for US natural catastrophes. At a time when many US states face difficulties obtaining sufficient, affordable cover, enacting such legislation would be against consumers’ interests,” said Koller.
The CEA is co-signatory to a letter sent by the Coalition for Competitive Insurance Rates to members of the US House of Representatives Committee on Ways and Means opposing the tax proposals.