Court rejects cascading excise tax theory

In a major victory for international reinsurers, a Federal District Court in the United States rejected the cascading excise tax theory, holding that any such excise tax paid by reinsurers must be refunded. This decision is particularly significant for international groups that include reinsurers that are located in offshore financial centers, such as Bermuda.

The Internal Revenue Service has not yet indicated whether it intends to appeal the decision, so it is not yet entirely clear whether this is the last word on the subject.  Any reinsurers who have paid excise tax on retrocessions should carefully review whether they should file claims for refund of the tax, and should be aware that the statute of limitations may preclude them from filing a refund claim if they fail to do so on a timely basis.