RIMS "Legislative Review": Base Erosion and Anti-Abuse Tax (BEAT)
January 24, 2018
In response to H.R. 1, the Tax Cuts and Jobs Act signed into law by President Donald Trump, RIMS, the risk management society™, has published a Legislative Review titled "Overseas Reinsurance Implications of the Base Erosion and Anti-Abuse Tax (BEAT) Provisions of H.R. 1—The Tax Cuts and Job Act" to address certain international tax provisions included in the final bill. RIMS anticipates that the BEAT provisions, which will levy a 10 percent tax on transactions with foreign affiliates, will negatively impact some insurance and reinsurance programs.
Issued by the RIMS External Affairs Committee, the RIMS Legislative Review addresses the following questions regarding BEAT.
- How does BEAT change the taxation rules for non-domestic insurers and reinsurers?
- How are the modified taxable income and base erosion minimum amount generally defined in this provision?
- What is a "foreign person" under the Act, and how are relationships between the "foreign person" and the taxpayer defined?
- What is an "applicable taxpayer" under this provision?
- Is there any uncertainty or ambiguity as to whether the BEAT provision affects reinsurance premiums?
- What is the reasoning behind BEAT?
- What are the main concerns with BEAT as it applies to the insurance industry?
According to the RIMS review, the Congressional Joint Committee on Taxation estimates that, within the first 10 years of its implementation, revenues of more than $100 billion would be raised because of BEAT. Republican tax staff members of the House Ways and Means Committee also determined that the expiring tax law has led to erosion of the US tax base and put US companies at a competitive disadvantage.
The review also highlights the key insurance community concerns with BEAT, including concerns about the possibility of a dramatic decrease in overseas-based insurance assets investment as well as the possible reduction of catastrophic coverages capacity (heavily reliant on overseas-based reinsurance) or, at minimum, dramatic premium level increases. An additional fear exists that a "trade war" could result with overseas trading partners.
A complimentary PDF of the report may be downloaded from RIMS with creation of a (or with an existing) RIMS login ID and password. Once logged in, you may find the report in the Resources tab under Risk Knowledge.
Captive.com readers should note that the RIMS annual conference has historically been a good place for companies looking into captive formation to shop and make initial contact with a large variety of domicile representatives from around the world. It is also one place where a large number of captive owners congregate. (Source: Captive Insurance Company Reports, "Captive Domiciles at RIMS," by Barbara Casanova, July 2012.) The RIMS Annual Conference and Exhibition takes place this year in San Antonio from April 15–18.
January 24, 2018