The introduction of the Reinsurance Tax Equity Act of 2001 gained praise from Dean R. O’Hare, chairman and CEO of The Chubb Corporation. Following introduction by Reps. Nancy Johnson (R-Conn.) and Richard Neal (D-Mass.), the bill will shut a loophole in the U.S. tax code which officials feel has had a negative impact on U.S. property/casualty insurance companies and favored U.S. operations of foreign businesses situated in offshore tax havens.
As laws state now, U.S. headquartered insurance companies are subject to a 35 percent corporate income tax every year on underwriting and investment income. In comparison, insurers located offshore which have U.S. operations are required to submit only a one-time 1 percent excise tax when the U.S. subsidiary reinsures to its tax haven affiliate, and therefore, does not have to pay federal income tax.
O’Hare noted that tax haven based companies take in all the benefits the U.S. makes available, so it should only be fair that when it comes time to pay for those benefits, all are treated fairly.
In 1999 and 2000, a number of tax haven based companies took on substantial U.S.-based operations to work the tax loophole to its favor. In response to this, an increasing number of companies moved their corporate base from the U.S. to a variety of tax havens.