WASHINGTON — A new effort to discourage companies from setting up headquarters offshore to avoid U.S. income taxes could affect some insurers more than others.
President Obama and Treasury Secretary Timothy Geithner today unveiled a proposal that they say will curb use of foreign tax havens, by discouraging U.S. multinationals from keeping foreign earnings offshore indefinitely. A separate proposal would discourage multinationals from moving U.S. jobs overseas.
The section of the tax proposal that seems most likely to affect insurers concerns the rules for deferring payments of taxes on earnings from overseas investments.
“Currently,” officials write in a description of the tax proposal, “businesses that invest overseas can take immediate deductions on their U.S. tax returns for expenses supporting their overseas investments but nevertheless ‘defer’ paying U.S. taxes on the profits they make from those investments. As a result, U.S. taxpayer dollars are used to provide a significant tax advantage to companies [that] invest overseas relative to those [that] invest and create jobs at home. The Obama administration would reform the rules surrounding deferral so that – with the exception of research and experimentation expenses – companies cannot receive deductions on their U.S. tax returns supporting their offshore investments until they pay taxes on their offshore profits.”
Joe Sieverling, a senior vice president at the Reinsurance Association of America, Washington, and George Burke, a spokesman for the American Council of Life Insurers, Washington, say it looks as if the effects of the proposal could vary widely from company to company.
Some insurers with large overseas operations may have to wait until they repatriate offshore profits to the United States before they can deduct the costs associated with financing foreign operations, Sieverling and Burke say.
But the administration made it clear that more international proposals will be coming out later this month, and it is too early to tell whether any of those will be specific to the insurance industry, Sieverling says.