By Marina Mello Royal Gazette

Bermuda’s Validus Re is suing the US Government for failing to refund some $435,380 in tax and interest payments.

The reinsurer, whose parent has a market cap of $3.3 billion, claims tax was wrongly assessed on reinsurance transactions conducted outside the US.

It claims premiums on the underlying US risks were already paid on the initial transactions with the US insureds.

In the complaint, Validus Reinsurance v USA, filed at the US District Court for the District of Columbia on January 23, Validus Re stated: “The IRS publication entitled Foreign Insurance Excise Tax — Audit Techniques Guide (April 2008) takes the position that the Excise Tax is a so-called ‘cascading’ tax that may be imposed on an unlimited number of reinsurance transactions in a chain of transactions, as long as each transaction in the chain is deemed by the IRS to relate in whole or in part to an initial transaction involving United States insurance risks.

“During 2006, Validus paid reinsurance premiums to other foreign reinsurers in retrocessions. It is Validus’ understanding that its counterparties in such retrocessions were, like Validus, foreign reinsurers not conducting business in the United States. The retrocessions were executed outside the United States.”

Validus continued: “The IRS determined the amount of retrocession premiums paid by Validus that were deemed by the IRS to relate to United States insurance risks. The IRS determined such an amount for each calendar quarter during 2006 because the Excise Tax is assessed and otherwise administered on the basis of calendar quarters. The IRS then multiplied each quarterly amount by one percent to compute an amount of Excise Tax for each quarter.”

Validus Re was assessed $326,340 in excise tax amounts, plus an additional $109,040 in interest, which the reinsurer paid in full, according to the complaint.

On July 16, 2012, Validus Re applied for a refund, arguing that “the tax was erroneously assessed and collected with respect to reinsurance retroceded by Validus, a foreign reinsurer, to other foreign reinsurers in transactions executed outside the United States. Premiums on the subject business were already subject to excise tax in transactions between United States parties and Validus.”

“The IRS has taken no action on Validus’ refund claims”,” it was stated in the complaint. “Six months or more has elapsed since the claims were filed.”

When asked about the legal action yesterday, a Validus spokesman said: “Validus company policy is that we cannot comment on any pending litigation matters.”

The complaint was first reported in the OffshoreAlert newsletter.

For more on this story go to:

http://www.royalgazette.com/article/20130130/BUSINESS04/701309961