Congress and the Trump administration have placed a high priority on reforming the U.S. tax code in 2017. The debate over tax reform is important and Zurich believes that everyone should pay their fair share – a competitive tax code should not favor certain companies within an industry over others.
One of the ideas that surfaced in the 2016 House GOP “Better Way Forward” blueprint on tax reform is the idea of implementing a new border adjustment tax (BAT). While the idea hasn’t been fully fleshed out in legislative language, our understanding is that it would place a tax on imports while excluding exports. We do not oppose the concept, but we believe the BAT should not apply to cross-border reinsurance or insurance (re/insurance). The global best practice is to exempt re/insurance from taxation regimes that incorporate a Value Added Tax, (VAT), and a Goods and Services Tax, (GST). Accordingly, applying the border adjustment tax to re/insurance would be out of step with the majority of other jurisdictions around the globe and create an unlevel playing field.
Outside of the idea of a BAT, we strongly oppose any tax proposals that may look to impose a discriminatory tax targeting global insurers on the use of foreign affiliated reinsurance, a legitimate and well known risk transfer mechanism. Foreign affiliated reinsurance remains a critical tool that Zurich uses to manage risk globally. Tax law already provides significant penalties for improperly priced reinsurance or improper use of reinsurance. U.S. insurers are subject to regular IRS review of transactions and can demonstrate that such transactions are for legitimate business purposes.