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BEAT provisions to hit insurance, reinsurance programs: RIMS

Posted On: Jan. 17, 2018 10:39 AM CST

BEAT provisions to hit insurance, reinsurance programs: RIMS

The Base Erosion and Anti-Abuse Tax provisions in the recently passed U.S. tax bill will negatively affect risk managers organizations’ insurance and reinsurance programs, according to an analysis by the Risk & Insurance Management Society Inc.

The BEAT provisions, which will levy a 10% tax on transactions with foreign affiliates, is one of the most controversial provisions for RIMS members, according to the analysis conducted by RIMS’ external affairs committee.

The Tax Cuts and Jobs Act amended the Internal Revenue Code of 1986 by providing tax cuts to businesses and individuals while streamlining and/or otherwise addressing provisions of the federal tax system the GOP has long promised to change, according to the analysis.

Prior to the legislation’s passage, U.S. tax law allowed the investment of reinsurance premiums raised overseas without tax ramifications. Under the BEAT provisions, such investments would be taxed in an amount equal to the base erosion minimum tax amount for the taxable year. An applicable taxpayer as defined by the legislation would pay the excess of a certain percentage – 5% in 2018, 10% from 2019 through 2025 and 12.5% thereafter – of modified taxable income for a taxable year over a base erosion minimum tax amount, according to the analysis.

The RIMS’ analysis outlined key concerns about the BEAT provisions, including that investment in overseas-based insurance assets may decrease dramatically and that capacity for catastrophic coverages such as wind, flood and earthquake relies heavily on overseas-based reinsurance, which could have the effect of reducing such capacity or, at minimum, raise premium levels dramatically.

“Reaction from overseas trading partners to this tax is uncertain; many opponents of the provision fear a ‘trade war’ could result,” RIMS also noted in the analysis.

The analysis answers key questions for risk managers, including if there is any uncertainty or ambiguity as to whether the BEAT provisions affect reinsurance premiums.

“No ambiguity whatsoever,” RIMS said.