US insurers urged to monitor tax reform proposals

Insurance companies in the US could face increased taxation and should closely monitor the debate over tax reform proposals and model their potential effects, according to Ernst & Young. In a report looking at US tax reform for financial services, and in particular the potential tax implications for the insurance industry, Ernst & Young examines various proposals in the US including the House Republican Blueprint on comprehensive tax reform released last year. Ernst & Young notes that the Senate is expected to follow with its own bill, which might be quite different from the House bill, and a final bill is likely to be hammered out later this year in a House Senate conference committee. The report states that tax legislation will certainly evolve as it moves through the House, to the Senate and then to the White House this year or in 2018. It notes that Trump administration officials have been examining the Blueprint, which contains some new and controversial tax reform ideas, while borrowing from prior tax reform legislative efforts. According to Ernst & Young: “The Blueprint outlines a revenue-neutral approach to tax reform that is intended to spur economic growth. Not surprisingly, the most significant aspect of the Blueprint is a broad-based reduction in tax rates. The Blueprint raises significant revenue by moving the US business tax regime toward a cashflow destination-based tax, in part by implementing a border tax adjustment mechanism in which revenues from exports are not subject to the business income tax while revenues and expenses relating to imports are subject to tax.” It notes that many believe a precursor of the Blueprint was the Camp Plan, a comprehensive proposal for tax reform released in 2014. Ernst & Young believes it may be a ready source of potential tax reform proposals and legislative language. In terms of the impact on insurers, the report states: “In all, the Camp Plan insurance tax proposals would have increased taxes on insurers by more than $76bn over a ten-year period and are potentially at risk of being included in the comprehensive tax reform legislation. Although the legislation will evolve through compromise as it moves through the House to the Senate and then to the White House, insurance companies should take time now to identify and consider how tax reform proposals could affect their industry.” It says some of the insurance-specific issues to consider include: - Cashflow tax on business activity - Border adjustments - Insurance as a service or as a financial instrument - Issues around import and export views - Rate reduction impact on insurance company investments - Insurance tax base broadeners - Potential surplus and income statement impacts - Life insurance inside build-up - Impact of territorial tax regime and Subpart F insurance rules - Elimination of net interest deduction. “Ambitious tax rate reduction combined with broadening the tax base is the common objective of the Blueprint, the Camp Plan and the Trump Plan, but the devil is in the details and those details remain quite fluid as the administration develops its tax reform proposals and asserts more control over the design of tax reform legislation,” adds the report. It concludes: “Tax reform appears to be next on the legislative agenda. Companies that understand the concepts behind the Blueprint and other approaches to tax reform, and that engage with policymakers now, will be better positioned as the final product takes shape.”

US insurers urged to monitor tax reform proposals

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