22 December 2017
On December 20, 2017, the U.S. Congress voted to enact the most sweeping tax reform bill in decades. Among other things, the Tax Cuts and Jobs Act (the "TCJA") will impose significant new restrictions on offshore reinsurers. This briefing discusses the most prominent of these restrictions, and provides some ideas for how they may be managed with careful tax planning.
Outbound Affiliate Reinsurance Payments
Offshore reinsurance companies with large U.S. operations could become subject to a new "base erosion and anti-abuse tax" (or "BEAT") under the TCJA. The BEAT generally imposes a minimum tax on a taxpayer's income calculated after adding back certain payments to non-U.S. affiliates that result in a deduction or other tax benefit. The rate of the minimum tax is generally 5% in 2018, 10% in 2019 through 2025, and 12.5% after 2025. The BEAT would generally tax reinsurance premiums paid by U.S. companies to non-U.S. affiliates to the extent those premium payments reduce the ceding company's taxable income beyond certain thresholds. The tax is effective for payments made in tax years ending after 2017, and appears to apply on top of the 1% reinsurance excise tax that applies under current law.