Yelena Tsvaygenbaum

Abstract

This casenote examines the history and potential problems of the 1986 U.S.–Bermuda Tax Treaty, which focuses narrowly on the taxation of insurance premiums. Because Bermuda has no income tax, the treaty gives the island a competitive advantage over the United States. The original reasons for entering into the treaty have since disappeared, and concerns about limited tax transparency and potential tax evasion by non-Bermuda residents present challenges for future U.S.–Bermuda relations. Renegotiating the treaty may be advisable to address these issues and increase taxable income. Although Bermuda’s flexible regulatory environment for insurance and reinsurance is attractive globally—and benefits the United States—American reinsurers face higher taxes than their Bermuda-based counterparts. Domestic concerns about Bermuda’s insurance industry also include tax loopholes involving acquisitions and corporate inversions, potential IRS actions under § 845(b), and overcharging. Various federal bills have been introduced to “level the playing field,” but this casenote suggests that appealing for changes in state reinsurance legislation may be the most effective way to promote domestic economic growth.

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