Tax Related Developments

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On February 9, 2009, the Connecticut Legislature held a public hearing regarding on House Bill 6349, An Act Concerning Sales Tax on Services (the “Bill”).  The Bill would eliminate the current exemption from the sales tax for professional, insurance, and personal services transactions found in Conn. Gen. Stat. § 12-412(11) and would specifically add professional, insurance, occupational, and personal service transactions to those services that are subject to the state’s sales and use tax under Conn. Gen. Stat. § 12-407(a)(37). 

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On December 10, 2008, the Senate Finance Committee (the “Committee”) held a meeting to discuss proposed legislation (the “Proposal”) that would reduce the purported competitive advantage in tax treatment received by affiliated foreign reinsurers by altering the tax code to disallow deductions for a portion of reinsurance premiums ceded by insurance companies to affiliated foreign reinsurers who are not subject to U.S. taxation. …

Last month, Representative Richard Neal (D- Mass.) introduced H.R. 6969 in response to concerns voiced by the Coalition for Domestic Insurance Industry (the “Coalition”) alleging that favorable tax treatment for foreign insurance groups is making it increasingly difficult for U.S. insurers to compete.  H.R. 6969 attempts to reduce the purported competitive advantage by altering the tax code to disallow deductions for a portion of reinsurance premiums ceded to affiliated insurance companies not subject to U.S. taxation. …

The Chilean government recently announced that it will raise the capital gains tax rate applicable to foreign insurers, foundations and sovereign funds that operate in the country.  In a joint release, the Ministerios de Hacienda y Economia announced that the regulation will be sent to the Controlaria General this week. …

In a Technical Advice Memorandum (“TAM”) released by the IRS in July, the IRS determined that a large retailer’s purchase of warranty reimbursement policies from a related captive insurance subsidiary that reimburse the retailer for expenses incurred under its manufacturer’s warranty obligations did not constitute an insurable risk for federal tax purposes. …

The Internal Revenue Service announced on February 20, 2008 that it is withdrawing the proposed IRS Regulation §1.1502-13(e)(2)(ii)(C).  The withdrawn regulation would have disallowed as a current deduction for federal income tax purposes any premium payments to an affiliate captive insurer if the captive received as little as 5% of its total premiums from affiliates on the same consolidated tax return. …

In a recently released revenue ruling, the IRS has established procedures for determining if insurance written through protected cell companies constitutes insurance for federal income tax purposes.  This is a result of the previously issued Notice 2005-49, in which the IRS requested comments from the public on this issue.  Concurrently, the IRS issued Notice 2008-19, in which it is requesting comments from the public on guidance regarding the issues that arise if such arrangements actually do constitute insurance. …