Some large American insurance companies are seeking clarity from regulators on a vaguely worded tax provision that threatens to pinch their bottom line, The Wall Street Journal reports.
The provision is known as the Base Erosion and Anti-Abuse Tax, or BEAT, and was added into last year’s comprehensive Republican tax law.
It broadly aims to keep companies from skirting taxes by shifting profits to overseas affiliates with lower tax rates. Within the provision, lawmakers tacked on about 40 words aimed specifically at the insurance industry in hopes of evening the playing field between U.S.-based companies and foreign competitors.
But in a series of guidelines defining possible tax-avoiding payments abroad, BEAT lumped in “any premium or other consideration paid…for any reinsurance payments.”
The imprecise wording created a scenario where a U.S. insurer laden with losses after a catastrophe like a hurricane gets hit with higher taxes, lawyers and insurance executives say. The sector fears that BEAT threatens to impact the finances of insurance companies when they are at their most vulnerable—when paying out claims.
The Wall Street Journal spoke with executives at several U.S. insurance companies who say they and other firms are lobbying in hopes that the U.S. Treasury Department will issue regulations to prevent this consequence. Any hit to an insurance company’s profits could ripple down to the price customers pay for all types of insurance.
One industry advocacy group, the Coalition for American Insurance—a 10-member group that includes familiar names such as Allstate Corp. and Berkshire Hathaway Inc.—is a supporter of BEAT because it addresses what they say was an unfair advantage for foreign-based parent companies.
Lawmakers have promised to revisit the BEAT provision to address any previously unforeseen impacts.
