Document Type
Perspective
Publication Title
Emory Corp. Governance & Accountability Rev. Perspectives
Publication Date
1-1-2015
Abstract
A hedge fund that establishes itself in an offshore, tax-free jurisdiction receives harsh tax penalties, as § 1297 of the Tax Code designates this fund as a passive foreign investment company, or 'PFIC.' Insurance companies, however, enjoy a special carve-out from the rule, allowing them to escape PFIC classification long as they are predominately engaged in the business of insurance, rather than the business of investing. Hedge fund managers have utilized the carve-out to establish reinsurers, companies that provide insurance for insurance companies, in offshore jurisdictions. Some regulators have leapt to the conclusion that these offshore corporations are investment funds 'disguised' as legitimate reinsurers. A recent bill proposed by Senate Finance Committee Ranking Member Ron Wyden targets such hedge fund-backed reinsurers, but the bill's bright-line test is an unworkable solution, as it may extend PFIC status to valid insurance companies and undermine the public policy of policyholder protection.
First Page
2017
Volume
3
Recommended Citation
Ben Pierce,
The PFIC Carve-Out: Hedge Funds and the Tax-Free World of Offshore Reinsurance,
3
Emory Corp. Governance & Accountability Rev. Perspectives
2017
(2015).
Available at:
https://scholarlycommons.law.emory.edu/ecgar-perspectives/37