District court finds that insurance premium excise tax does not apply to retrocession transactions

By Bruce J Wein, Gerald Rokoff, David D Luce and Michael Greenberg

On 5 February 2014, the US District Court for the District of Columbia held that the federal excise tax (FET) on insurance and reinsurance premiums does not apply to retrocession insurance transactions.

Under a plain reading of the statute, the court reasoned, premiums with respect to such retrocession policies are not subject to the FET. Of note, the court specifically declined to rule on whether the FET could be applied with respect to foreign-to-foreign reinsurance transactions (as opposed to retrocession transactions) for US-situs risks.

Retrocession agreements are essentially reinsurance agreements between reinsurers. Clients who have paid such amounts on (or had such amounts deducted or withheld from) retrocession premiums are urged to file refund claims in order to preserve their right to such refunds…

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