(Bloomberg) — The owners of hedge fund-backed reinsurers, including one tied to John Paulson, could have to pay more taxes or shift their focus under a bill introduced by Senator Ron Wyden to counter what he called abuses by offshore companies.
“For over 10 years now this loophole has allowed some hedge fund investors to avoid paying hundreds of millions of tax dollars,” Wyden, the top Democrat on the Senate Finance Committee, said in a statement Thursday. “It’s time we shut it down for good.”
Hedge-fund managers can lower the rate they pay on profits and postpone the bills indefinitely by routing investments through reinsurers in offshore locations like Bermuda. David Einhorn and Dan Loeb are among hedge fund managers who set up reinsurers outside the U.S., and the companies have said they are legitimate businesses taking on risks from primary insurers, and not tax dodges.
Under the Oregon senator’s bill, a company couldn’t qualify as an insurer for tax purposes if insurance liabilities are less than 10 percent of assets. When the ratio is 10 percent to 25 percent, the determination would be based on “facts and circumstances,” according to an overview of the bill.
“Legitimate insurance companies will be able to meet the 25 percent test,” according to the overview.