US tax reform plan clears final hurdle
US tax reform legislation has today cleared its final political hurdle and will next go to President Donald Trump’s desk to be signed into law.
The Tax Cuts and Jobs Act was today approved by the House of Representatives for a second time after the US Senate passed it in the early hours of this morning.
Some provisions had to be removed from the Bill approved by the House yesterday after technical flaws were pointed out before its passage in the Senate. And so the amended version was returned to the House today for a final vote.
Enactment of the new tax rules will mean a busy end to the year for executives at many Bermudian-based insurance groups.
Some of the provisions in the Act that will affect them will take effect on January 1, 2018.
The changes will slash the rate of US corporate tax to 21 per cent from 35 per cent.
Perhaps the biggest direct impact for the island will come from the Base Erosion and Anti-Abuse Tax, known as Beat. It will hit Bermudian insurance groups with US subsidiaries, which cede premiums to their affiliated reinsurers in Bermuda, by effectively levying a 10 per cent tax on the transaction, rising to 12.5 per cent from 2026.
This will impact several major groups including XL Catlin, Arch Capital and Axis Capital.
Many Bermudian companies have already been working on restructuring in response to the new rules.
Will McCallum, head of tax with KPMG in Bermuda, told a Bermuda Chamber of Commerce event last week that the industry will see its cost of doing business going up when the reform takes effect. Some companies will opt to be treated as a US taxpayer for their affiliated business emanating from the US and they will likely have to shift hundreds of millions of dollars of capital to the US.
However, judging from conversations with clients, he views a mass exodus of jobs from the island as unlikely.