NU Online News Service, March 8, 2:24 p.m. — Washington
Insurance companies won a major legislative victory today when the Senate joined the House in passing an economic stimulus package that retroactively extends the 2001 treatment of investment income earned by foreign subsidiaries of U.S. financial services firms.
The legislation, which President Bush has said he will sign, extends the 2001 treatment of the affected income under Subpart F of the tax code for five years retroactive to Jan. 1, 2002.
The five-year extension was an added victory for the industry. In his fiscal year 2003 budget, the president proposed only a two-year extension.
The American Council of Life Insurers, Washington, has lobbied hard for the extension.
The American Insurance Association, Washington, is also very pleased with the extension, according to AIA representative Garry Karr.
The extension is an important item for the insurance industry, which helps assure a level-playing field for insurers that compete overseas, Karr says.
Once the legislation is signed, the affected income will be subject to U.S. taxation only after the parent company receives the income.
Without the extension, the income would have been immediately subject to U.S. tax as soon as it was earned by the subsidiary, even if the parent had not received it.
Financial services companies argued that this treatment differs from that afforded similar income earned by commercial companies. Moreover, they said, this treatment would have put U.S. financial service companies at a competitive disadvantage versus foreign companies.