By DAN REYNOLDS, senior editor with Risk & Insurance®
When Willis Group Holdings announced on Sept. 21 that it planned to redomesticate its place of incorporation from Bermuda to Ireland, it said it expects to realize "certain economic benefits" from having its headquarters in Dublin as opposed to Hamilton.
Further down in the release, however, the insurance brokerage said it expected that it "does not expect the redomestication will have any material change on its financial results and day-to-day operations, and that the company will continue to conduct its current business operations after the redomestication."
The company will continue to be bound by SEC and Sarbanes-Oxley Act reporting requirements, Willis also said.
In a filing with the Securities and Exchange Commission, the company said that it plans to file a proxy statement that will provide more detail on the benefits and risks of the move to Dublin.
But based on the status of tax treaties between the United States and the domiciles of Ireland and Bermuda, one of the areas that Willis may see a benefit is in the area of the United States' branch profits tax.
Born in 1986, the U.S. branch profits tax imposes a levy on dividends paid to a foreign-based company from subsidiaries based in the United States. Under the U.S. tax treaties with Bermuda, a U.S.-based subsidiary pays a 30 percent tax on such a dividend.
Under the U.S.'s tax treaties with Ireland, the tax bite on a dividend paid from a subsidiary to a Dublin-based parent is only 5 percent, according to Micah Bloomfield, a New York-based attorney with Stroock & Stroock & Lavan LLP.
It's not just in its tax treaty with the U.S. that Dublin may have benefits for Willis. Ireland also has agreements with a number of countries in which Willis does business that may provide benefits to the company; benefits the company can't realize if it stays in Bermuda.
"I would say there is a general trend toward moving people away from Bermuda to treaty countries so they can take advantage of the treaties," Bloomfield said.
The treaty tax requirements don't apply to hedge funds and securities trading, said Bloomfield.
"That's why a lot of these hedge funds can be in Bermuda and not have a problem in what they do in the United States. They can even be managed in the United States.
"But when it comes to other activities that do not involve trading stocks in securities and commodities then you really need a treaty," Bloomfield said.
Willis gives a nod to this notion in its Sept. 21 release.
"A member of the European Union, Ireland offers a long history of international investment and long-established commercial relationships, trade agreements and tax treaties with European Union member states, the United States and other countries around the world where Willis does business," the release stated.
"In addition to providing a more stable environment with the financial and legal infrastructure to meet Willis' needs, it also improves Willis' ability to maintain a competitive worldwide effective corporate tax rate. Most importantly, Willis has had ongoing operations serving a wide range of clients in Ireland since 1903 and currently is the largest insurance broker in Ireland."
Based on its 2009 second-quarter filing, Willis, through its Delaware-incorporated subsidiary Willis North America, has much to gain in getting a break on the revenue it generates in its North American operations. Six-month revenues for Willis North America were $713 million, compared with $487 million in the country's global operations and $514 in its international operations.
Interestingly, Bermuda and the United States do have a tax treaty that reduces the branch profits tax as it relates to insurers themselves, but not brokerages, Bloomfield said.
September 28, 2009
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