IRS targets hedge fund reinsurers
The US Internal Revenue Service (IRS) has proposed rules on a perceived tax loophole around hedge funds that form reinsurers.
The proposed regulations attempt to address situations in which a hedge fund establishes a purported foreign reinsurance company in order to reduce its tax exposure.
The regulations, which would affect the US shareholders of foreign companies, provide guidance regarding when a foreign company’s income is excluded from the definition of passive income.
“Treasury and the IRS are proposing regulations to clarify the circumstances under which investment income earned by a foreign insurance company is derived in the active conduct of an insurance business for purposes of determining whether the income is passive income,” said the document.
However, the IRS has asked for consideration and comments on all aspects of the proposed rules.
“Comments specifically are requested with regard to how to determine the portion of a foreign insurance company’s assets that are held to meet obligations under insurance contracts issued or reinsured by the company,” said the document.
