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Neal reignites offshore debate

US Congressman Richard Neal reignited the offshore reinsurance debate last week after he unveiled his more "balanced" plans to limit the tax benefits that occur when US insurers cede business offshore to their foreign affiliates.

He said he had listened to concerns over earlier attempts to axe such tax breaks and amended the bill based on advice from US Treasury officials and Congress's Joint Committee on Taxation.

The new bill, which was introduced to Congress by Neal and to the Senate by Robert Menendez, will defer any tax deductions on premiums until the insured event occurs.

Neal said this would end any tax benefit gained by shifting US capital - including investment income - to insurers' overseas affiliates.

The tax break deferral would have two parts, he explained, as the US government would deny insurers an upfront tax deduction for being reinsured by their foreign affiliates.

Any reinsurance recovered and ceding commission would then be excluded from income, where the deduction has been denied.

Foreign insurance groups could also elect to let their US reinsurance operations be subject to US tax, thereby avoiding the deduction deferral.

These insurers would not be subject to double taxation, said Neal, ensuring "a level playing field" between US and foreign-based insurers.

The Joint Committee on Taxation forecast that the bill would reduce government debt by $12.6bn between 2014 and 2023. The new proposals would come into force on 31 December 2013, if enacted.

However, all previous attempts to introduce such measures have failed.

Congress first recognised the alleged tax "loophole" in 1984, when it allowed the Treasury to intervene more in reinsurance transactions.

Congress granted the Treasury more leverage to crack down on tax avoidance in 2004 after the Bush administration admitted the year before that its current powers were not sufficient.

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