‘Bermuda Loophole’ Bill Might Resurface

November 27, 2010

1capitolwikiControversial US legislation intended to close the “Bermuda Loophole” which allows American insurers to avoid some US taxes by basing their operations in off-shore domiciles like Bermuda could re-emerge in the new session of Congress, the Association of Bermuda Insurers & Reinsurers (ABIR) has warned.

The so-called Neal Bill specifically targets the “Bermuda loophole” in the  US tax code. Introduced by Massachusetts Democtratic Congressman Richard Neal earlier this year, if enacted the legislation would change the US Internal Revenue Code to cap the deductibility of reinsurance premiums paid by insurers to their foreign affiliates.

“Congress is still revenue-hungry, so action on an amendment incorporating Neal’s draconian reinsurance amendment is still a risk to be managed,” ABIR president and executive director Bradley Kading told the industry journal Business Insurance in the aftermath of the recent US mid-term elections. “The Republican majority in the House will want to look at corporate tax policy generally. The Neal reinsurance tax would be an item they might consider, but the context will be tax policy rather than a revenue grab.”

The proposed Neal legislation has prompted a major lobbying battle between domestic and foreign-based insurers in Washington. Millions of dollars have been spent lobbying lawmakers by interests on both sides of the issue, even though House or Senate action remains far from certain. Domestic insurers have formed the Coalition for a Domestic Insurance Industry; opponents, mainly Bermuda based, have a competing Coalition for Competitive Insurance Rates. The bill’s opponents claim the tax would hurt the availability of insurance and reinsurance in the United States, particularly in areas that are prone to major natural disasters such as hurricanes.

The Neal Bill became an issue in the recent US Senate race in Florida, with Democratic candidate Kendrick Meek saying passage of the legislation would further damage the hurricane-ravaged state’s ability to purchase affordale insurance.

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