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Financial Planning > Tax Planning

Groups Fight Foreign Premium Excise Tax

By Arthur D. Postal

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Insurance industry representatives will meet with a Treasury tax official Tuesday in an effort to block enforcement of an excise tax provision.

The industry reps will try to persuade Eric Solomon, assistant secretary for tax policy, to get the Treasury Department to delay or rescind an IRS guidance, given in March in Revenue Ruling 2008-15, that would require domestic insurers to pay a 1% excise tax every time a premium is ceded to a foreign insurer or reinsurer.

Insurers also would have to pay a 4% tax when they started the arrangement.

The combination of the 4% initial tax and the 1% tax on later cedings would create a cascading effect, according to industry lawyers and lobbyists.

The March revenue ruling sets out the IRS position that the federal excise tax on insurance and reinsurance premiums imposed by Section 4371 of the Internal Revenue Code really is a “cascading tax.”

Unless rescinded, the Treasury guidance will take effect Oct. 1.

Carriers that have not been paying the excise tax would have until Oct. 1 to start filing voluntarily.

The guidance represents a long-held IRS position, insurance industry lawyers report.

The groups participating in the meeting with Solomon will include the American Council of Life Insurers, Washington, and a number of property-casualty groups.

The groups contend in a memo sent to Solomon July 9 that the IRS guidance is “a strained construction of the statute,” and that it is “inconsistent with the statutory purpose, legislative history, and the canons of construction” of the law which the guidance interprets.

“The ruling contrasts sharply with the long-standing treatment of the federal excise tax as a tax imposed only once, when premiums are transferred from a U.S. party to a foreign insurer,” the groups argue.

“Application of the tax to independent, extraterritorial transactions constitutes overreaching that is unlikely to be approved by the courts,” the groups write.

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