The United States Federal Court's decision to fine United Parcels Ltd for illegally using an offshore reinsurance company in Bermuda as a tax shelter will not affect business on the Island.

This is the claim made by the monthly magazine International Risk Management in their most recent issue.

The article states the decision is: "Unlikely to have a major impact on other US operators of Bermuda captives.'' But the article's author Adrian Leonard said that it does, however, mark a new aggressive stance by the US tax authorities which could lead to other attempts to stop the flow of cash to tax havens like Bermuda.

Federal Judge Robert Ruwe decided this year that UPS is liable for tax on many years' income of Overseas Partners Ltd, a Bermudian reinsurer.

Since 1984 Overseas Partners has accepted ceded premiums for excess value package insurance purchased by UPS customers at UPS counters.

In his judgment of 9 August, Judge Ruwe described the cessions as a "sham transaction'' which was "motivated by the reduction of federal income tax''.

UPS, which initially retained the insurance risk against its own account, has continued to deny the charge, despite the ruling.

It says Overseas Partners is not a captive and claims that the sole reason for moving the premium from UPS counters through another company to Overseas Partners (which it admits it launched for this purpose) was to simply get out of the insurance business.

And in the November issue of International Risk Management a spokesman for UPS is quoted as saying: "Increasingly, state governments were beginning to assert regulatory jurisdiction over companies that were involved in the insurance business in only an ancillary way.'' He went on to say in the article that it started when regulators began to supervise car rental companies which offered insurance to customers in the same way UPS did.

He said: "Because of what we saw happening, we wanted nothing to do with being regulated in 50 states and Washington DC, so we decided to get out of the business.'' UPS, which is an employee-owned company, then set up Overseas Partners and gave all the shares in the new company to its employees, so UPS and Overseas Partners were owned by the same company.

Despite this, UPS and Overseas Partners insist there is no relationship between the companies.

"To this day it is separate and independent,'' the UPS spokesman is reported as saying in the article. "UPS is not even a customer of Overseas Partners.'' UPS now owes an estimated $1.786 billion in taxes.

BUSINESS BUC