Maria Jones was quoted regarding the recent decision in Validus Reinsurance Ltd. v. U.S., concerning the taxation of retrocessions -- reinsurance premiums paid to insure other reinsurance policies. The U.S. District Court for the District of Columbia decided to end the Internal Revenue Service's (IRS) policy of imposing a 1 percent excise tax on certain retrocessions. "This case has been closely watched by the industry, and it's likely that there are a lot of taxpayers with refund claims pending on this exact issue," Jones said. "The D.C. district court clearly came to the right decision on the taxation of retrocessions. This has been a controversial issue after the IRS released a revenue ruling in 2008 on the issue."
The push for the tax began in 2008 and since then, the U.S. has continuously fought for the taxation in each purchase of reinsurance. The Validus case is unique in comparison to typical retrocession cases as it involved only foreign-to-foreign purchases as opposed to dealing with the U.S. domestically. The result is a tangential connection that allows for taxation. "We're dealing with strictly foreign entities that have no real connection to the U.S., and that's why the industry was so upset over the IRS' policy on this issue," Jones said.