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Insurance Company 'Losses Incurred' Aren't Base Erosion Payments, Chubb Says

AUG. 17, 2018

Insurance Company 'Losses Incurred' Aren't Base Erosion Payments, Chubb Says

DATED AUG. 17, 2018
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From: Bond, Jodi H <Jodi.Bond@Chubb.com>
Sent: Friday, August 17, 2018 11:45 AM
To: Harter, Chip <LafayetteChip.Harter@treasury.gov>
Cc: Boyle, Timothy C <Timothy.Boyle@Chubb.com>; WPayne@mayerbrown.com
Subject: BEAT Follow‐up

Chip,

Thank you again for the swift engagement conversation on Monday. Aa promised, below should address the follow up requested. In this, am introducing our new head of Tax, Tim Boyle, who has been in discussions with the domestic insurance tax counsels, and Warren Payne, so we all are in touch in the case you or your team need them to come in for a meeting, or jump onto a call for specific clarifications. You and I can be in touch regarding the senior leadership discussions that may take place in the coming weeks, and how to ensure those are effective. With deep appreciation, Jodi

Jodi — as discussed, I am attaching a quick summary of the clarification we (and many in our industry) are seeking on inbound reinsurance, followed by proposed regulatory language and why we believe Treasury has the authority to promulgate such regulations. Let me know if you have any questions. Regards, Tim

Executive Summary

We urge Treasury to adopt regulations which make clear that “losses incurred” by a US insurance company cannot be “base erosion payments.” Such regulations would carry out the intent of Congress not to subject reductions in gross income to the BEAT and preclude the logical contradiction of treating as base eroding both outbound reinsurance transactions (explicitly covered by Section 59A(d)(3)) and inbound reinsurance transactions.

Proposed Regulatory Language

a) Base Erosion Payments —

1) For purposes of section 59A(d)(1), base erosion payments do not include any amounts that constitute reductions in gross receipts in arriving at gross income under Section 61 and in the case of an insurance company sections 803 or 832(b)(1).

a. In the case of an non‐life insurance company, reductions in arriving at gross income under 832(b)(1) include amounts provided in section 832(b)(2) through (8) and section 832(c)(4), except for amounts for reinsurance paid under section 832(b)(4)(A).

(i) Amounts described in section 832(b)(5) shall be treated as reductions in gross income for purposes of this section even if those amounts are also described in section 832(c)(4).

b. In the case of a life insurance company, reductions in arriving at gross income under section 803 include amounts provided in section 803(a), except for amounts for reinsurance paid under section 803(a)(1)(B).

Authority to Promulgate Regulations

Section 59A(i) grants the Treasury explicit authority to “prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions” of the BEAT legislation. We urge Treasury to use this grant of authority to adopt regulations which clarify that payments by US domestic reinsurers to related foreign insureds are not “base erosion payments.”

Even if Section 59A(i) did not cover this point, Section 7805(a) directs that “the Secretary shall prescribe all needful rules and regulations for the enforcement of this title.” The Supreme Court stated its most recent review of Treasury's Authority under Section 7805(a), describing that section as an “express congressional authorization to engage in the process of rulemaking.” Mayo Foundation for Medical Education & Research v. U.S., 562 U.S. 44 (2011), at 57 (2011), quoting U.S. v. Mead Corp., 533 U.S. 218 (1971), at 229. We suggest that a regulation that eliminates the illogical result that both outbound and inbound reinsurance are “base erosion payments” is a “needful” regulation. Because the regulation is “needful,” Treasury is directed by Section 7805(a) to prescribe it.

Timothy C. Boyle
Senior Vice President
Head of Global Tax
CHUBB
510 Walnut Street WB12A, Philadelphia, PA 19106, USA
O 215-640-1622 M 267-251-1300
E timothy.boyle@chubb.com

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