Earlier this month, the U.S. House and U.S. Senate introduced legislation that would defer tax deductions for insurers that cede large portions of their U.S. premiums to offshore affiliates.

According to a joint statement issued by Rep. Richard Neal, D-Mass., and Sen. Robert Menéndez, D-N.J., sponsors of the legislation, the change is necessary to ensure “that foreign-owned companies pay the same tax as American companies on their earnings from doing business here in the United States.” They claim that the change will reduce the federal deficit by nearly $12 billion over ten years.

The legislation permits foreign-based groups to avoid the deduction deferral rule by electing to be taxed similarly to a U.S. company on the income from affiliate reinsurance transactions. A foreign tax credit is provided for any foreign taxes paid on such income.Both versions of the legislation seek implementation for taxable years beginning after December 31, 2011.

A handful of industry groups have weighed in.  The Coalition for a Domestic Insurance Industry (which represents 13 U.S.-based insurance groups) would like to see the legislation incorporated in a deficit-reduction plan stating that “Congress never intended to give a preference to foreign-controlled insurers over domestic insurers.”

In contrast, the Coalition for Competitive Insurance Rates, which includes insurers as well as the Risk & Insurance Management Society Inc., consumer groups and free-market advocates, denounced the move stating “the legislation would raise taxes on foreign-based insurance and reinsurance companies operating within the United States, driving up consumer insurance rates by reducing competition and critical U.S. insurance capacity.”

For a complete copy of the Bills please click here and here.