A TAX TREATY THAT DOESN'T TAX? THE UNIQUE HISTORY OF THE UNITED STATES-BERMUDA TAX TREATY AND THE SUBSEQUENT PROBLEMS FACING THE UNITED STATES INSURANCE INDUSTRY

This casenote addresses the history and potential problems of the 1986 US-Bermuda Tax Treaty, which narrowly focuses on the taxation of insurance premiums. Since Bermuda itself has no income tax, this unequal treaty gives the island state an advantage over the USA. The original reasons for entering into such a treaty have been eliminated, and the lack of tax information and possibility of tax evasion from non-Bermuda residents present problems for the future of US-Bermuda relations. Renegotiation of the treaty may be a prudent idea, in order to remedy these problems and increase taxable incomes. Since Bermuda's flexible environment for reinsurance and insurance is attractive globally, its market is a benefit to the United States, although US reinsurers are bound by higher taxes. However, domestic concern about Bermuda's insurance industry include concerns about tax loopholes in acquisition and corporate inversion, attack by the IRS under 845(b), and overcharging. Various federal bills have been proposed to "level the playing field," appealing for changes in state legislation on reinsurance may be the best idea to increase economic activity domestically.