Global Tax Structures for Companies with Multinational Insurance Operations

1. 37th Annual Insurance Tax Conference Global Tax Structures for Companies with Multinational Insurance Operations D. Timothy Tammany, CIGNA Theia A. Friestedt, Zurich Angela J. Walitt, Baker & McKenzie Richard J. Safranek, Deloitte Tax LLP

2. Inbound Insurance StructuresUse of Reinsurance Bermuda Holding Company Bermuda Operating Company Treaty-Eligible Holding Company Reinsurance US Holding Company Ceding Commission US Operating Company 37th Annual Insurance Tax Conference

3. Inbound Insurance Structures • Treaty Qualification • Bermuda Operating Company • Non-US Holding Company • Trade or Business/Permanent Establishment for Bermuda Operating Company • Transfer Pricing • Premium Excise Taxes • Dividend and Interest Flows • CFC/PFIC hurdles -- RPII 37th Annual Insurance Tax Conference

4. Inbound Insurance StructureUse of Debt Funding for Leverage Bermuda Holding Company Treaty Eligible Non-US Holding Company Treaty Eligible Company Loans Interest US Holding Company 37th Annual Insurance Tax Conference

5. Inbound Insurance StructuresUse of Debt Funding for Leverage • Code section 163(j) • Disallows a deduction for “disqualified interest” paid by a corporation to a related person if • The person paying the interest has a debt-equity ratio greater than 1.5 to 1 • The recipient of the interest is shielded from U.S. taxation; and • The corporation’s interest expense exceeds 50% of its pre-interest income (this is termed “excess interest expense”). • Section 163(j)(6) limits section’s reach to “net interest expense” calculated on a consolidated basis • Many insurance groups have net interest income • Treaty Qualification • Anti-Conduit Rules 37th Annual Insurance Tax Conference

6. Outbound Insurance Structures 37th Annual Insurance Tax Conference US Planning Priorities: • Minimization of global tax rate • Maximize deferral/minimize Subpart F income • Tax efficient repatriation. • Tax efficient offshore capital redeployment. • Compliance with local law regulatory requirements.

7. Outbound Insurance Structures Hong Kong Holdco US Insurance Parent Case Study: Bermuda Lifeco Non-EU Holdco 1 Taiwan Jordan Other ME Non-EU Holdco 2 Non-EU Opco(s) Solvency II Holding Co (EU) Asian Opco(s) Single Country Holdco(s) EU Life Opco(s) EU Nonlife Opco(s) Single Country Opco(s) Branches EU Branches 37th Annual Insurance Tax Conference

8. Outbound Insurance StructuresDeferral Planning US Insurance Parent Holding Co (EU) Non-EU Opco(s) EU Life Opco(s) EU Nonlife Opco(s) Branches EU Branches 37th Annual Insurance Tax Conference Each CFCs and branch has > 30% NWP from unrelated, same country risk; overall > 50% unrelated same country. Under Subpart F active financing rules, most premium and much investment income exempt from current tax. If active financing not extended, exemption only for CFC’s unrelated, same country risk NWP. Section 964(d) elections? Reinsurance? FTC management.

9. Outbound Insurance StructuresRepatriation/Capital Deployment Hong Kong Holdco US Parent Swiss Holdco 1 Swiss Holdco 2 $ $ Solvency II Holding Co (EU) Non-EU Opco(s) $ Opcos 37th Annual Insurance Tax Conference . With sec 954(c)(6) look-through, can redeploy cash through Holdco 2 with minimal withholding tax and preserving US deferral. Holdco 2 collects E&P and FTCs until repatriation. If look-through not extended, can redeploy PTI. Debt financing options? FTC management.

10. Outbound Insurance StructuresBranch Operations US Insurance Parent Bermuda Lifeco Taiwan Jordan Other ME 37th Annual Insurance Tax Conference Branches formerly operated directly by US parent. Parent still oversees branch operations. • Branch operations preferable in some jurisdictions, particularly if insufficient same country risk for deferral. • Under Rev Rul 2004-75, payments to branch phs = US source income, reporting/ withholding required. • US PE, branch profits tax risk for branches. • Mitigated by sec 864(c)(4)(d), foreign source income taxable under Subpart F will not be ECI.

11. Outbound Insurance StructuresForeign Regulatory Requirements Example: Solvency II Group Non-EU Holdco 1 Non-EU Holdco 2 Non-EU Opco(s) Solvency II Holding Co (EU) EU Life Opco(s) EU Nonlife Opco(s) EU Branches 37th Annual Insurance Tax Conference Solvency II regulatory regime effective for all EU insurance businesses 1-1-2014. Non-EU insurance operations held with EU group subject to Solvency II regulation. Scope of SII regulatory authority unclear, but some interpret as extending to any insurance company held by an EU company, even if not doing business in the EU.

12. About this presentation This presentation contains general information only and the respective speakers and their firms are not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. The respective speakers and their firms shall not be responsible for any loss sustained by any person who relies on this presentation. .