House moves US tax reform a step closer
The United States moved a step nearer to enacting a sweeping overhaul of its tax system yesterday, as the House of Representatives approved a Bill that could have repercussions for Bermuda’s international business sector.
The House voted 227 votes to 205 in favour of the Tax Cuts and Jobs Act, which would reduce the corporate tax rate for US corporations from 35 per cent to 20 per cent, and which includes provisions aimed at dissuading companies from moving business out of the US.
Attention now turns to the US Senate, where Republicans have put forward their own version of tax reform. If that passes — a vote is planned for the week of November 27 — then a committee made up of members of both chambers would have to thrash out a version of the Bill they could agree on before it can go to President Donald Trump’s desk to be signed into law.
The House’s Bill would levy a 20 per cent excise tax on certain payments that US companies make to their foreign affiliates — for example an insurer ceding premiums to its Bermudian parent company in a reinsurance transaction.
This provision was amended to include a clause that would let companies choose to pay tax on their foreign affiliates’ profits — not on the gross payments made to them — under certain conditions.
Shares of several Bermudian-based insurance groups with US subsidiaries fell yesterday, going against the grain of a broad-based market rally. XL Group fell 1.4 per cent, Validus 2 per cent, Axis Capital 1.8 per cent and Argo Group 1.4 per cent.
The Senate’s Bill includes a similar tax that could amount to between 10 per cent and 12.5 per cent. The Senate faces significant political hurdles with only 52 Republicans in the 100-seat chamber — and a provision targeting the Affordable Care Act that would virtually guarantee no Democratic Party support — leaving little room for dissent.
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