Industry to voice concerns to IRS
–01 February 2008
The US Internal Revenue Service has scheduled a hearing for the 29th February to listen to concerns from the US captive insurance industry that new tax rules will drive captive insurers offshore.
Regulation proposed by the IRS last year would end the allowance of deductions for loss reserves by single-parent captive insurance companies that file income tax returns on a consolidated basis with their parent corporation.
But various state captive associations including Vermont’s VCIA argue this proposal would have a negative impact on tax revenues for the US government, and would simply tempt captive insurance companies to move to established offshore domiciles such as Bermuda and the Cayman Islands.
They argue the use of administrative procedures for consolidated tax returns to eliminate this ability to deduct losses on an accrual basis circumvents the legislative and judicial intent.
The government relations team of the Self-Insurance Institute of America (SIIA) have presented their case to members of Congress, congressional staff and high level officials from the Department of Treasury and Internal Revenue Service.
While Bermuda and the Cayman Islands remain the leading captive insurance domiciles, with around 1600 registered companies between them,; captive insurance holdings have more than doubled over the last five years and over half of the Fortune 1,500 companies in the US utilize a captive, according to Active Captive Management (ACM), which specializes in the formation and management of captive insurance companies for small and medium size companies.
The industry fears that this trend will be reversed if the IRS succeeds in forcing through its proposed regulation on deductions.
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