Statements on Introduced Bills and Joint Resolutions

Floor Speech

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Mr. President, I rise today to introduce the Offshore Reinsurance Tax Fairness Act. This bill closes a tax loophole that is being used by some U.S.-based hedge funds that set up insurance companies in places like Bermuda and the Cayman Islands where they aren't taxed and where their earnings are sheltered from U.S. taxes. Offshore businesses that reinsure risks and that invest in U.S. hedge funds create the potential for tax avoidance of hundreds of millions of dollars.

Under these arrangements, a hedge fund or hedge fund investors make a capital investment in an offshore reinsurance company. The offshore reinsurance company then reinvests that capital, as well as premiums it receives, in the hedge fund. The owners of the reinsurer take the position that they are not taxed on corporate earnings until either those earnings are distributed, or the investors sell the corporation's stock at a gain reflecting those earnings.

However, the hedge fund ``reinsurers'' are taking advantage of an exception to the passive foreign investment company--or PFIC--rules of U.S. tax law. The PFIC rules are designed to prevent U.S. taxpayers from delaying U.S. tax on investment income by holding investments through offshore corporations. However, the PFIC rules provide an exception for income derived from the active conduct of an insurance business. The exception applies to income derived from the active conduct of an insurance business by a corporation which is predominantly engaged in an insurance business and which would be subject to tax under Subchapter L if it were a domestic corporation.

Current law does not prescribe how much insurance or reinsurance business the company must do to be considered predominantly engaged in an insurance business. Our investigative efforts show that some companies that are not legitimate insurance companies are taking advantage of this favorable tax treatment.

About a year ago I asked the Treasury Department and IRS to issue guidance to shut down this abuse. And in April, Treasury and IRS issued regulations that take a first step at addressing this issue. However, while the guidance offers clarity in this area, a legislative fix is required to fully close this loophole.

Therefore, today I am introducing the Offshore Reinsurance Tax Fairness Act to shut down this abuse once and for all. My bill would provide a bright-line test for determining whether a company is truly an insurance company for purposes of the exception to the PFIC rules.

Under the new rule, to be considered an insurance company, the company's insurance liabilities must exceed 25 percent of its assets. If the company fails to qualify because it has 25 percent or less--but not less than 10 percent--in insurance liability assets, the company may still be predominantly engaged in the insurance business based on facts and circumstances. A company with less than 10 percent of insurance liability assets will not be considered an insurance company and, therefore, would be ineligible for the PFIC exception and subject to current taxation.

The Offshore Reinsurance Tax Fairness Act will disqualify most of the hedge fund reinsurance companies that are taking advantage of the current law loophole, making them ineligible for the PFIC exception and stopping this abuse. I look forward to working with my colleagues to enact this important reform.

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Mr. President, today I am introducing the Oregon Wildlands Act to designate hundreds of miles of Oregon Rivers as Wild and Scenic, to protect thousands of acres of beautiful Oregon lands as National Recreation Areas, and to expand Wilderness for some of Oregon's most treasured areas.

Oregon is a unique State and Oregonians take pride in the many natural treasures throughout our diverse landscape. From the Oregon Coast to the high desert of Eastern Oregon, our State boasts some of the most beautiful scenery, varied ecosystems, and unmatched outdoor recreation opportunities in the nation. Protecting these lands and rivers ensures that they will be treasured for generations to come. Oregon's rivers and landscapes are also home to threatened and endangered species, old-growth trees, and delicate ecosystems that deserve the highest protections.

Enjoying the outdoors is in Oregonians' DNA--across the State, opportunities to get outside and enjoy Oregon's treasures bring in visitors from all over the world and make residents proud to call Oregon home. Protecting the lands and waters that support recreation is also an investment in our rural economies. In Oregon alone, the tourism industry employed more than 100,000 Oregonians during 2014 and generated $10.3 billion for the State's economy. Nationwide, outdoor recreation supports a $646 billion industry. Ensuring that visitors have pristine rivers to fish and float on, wilderness areas to hike in, and recreation areas to explore is a guaranteed way to make certain that visitors will return year after year.

All told, the bill designates approximately 118,000 acres of Recreation Areas, approximately 250 miles of Wild and Scenic Rivers, and over 86,600 acres of Wilderness. Each area offers significant opportunities for recreation and ecosystem protections.

The protections in this bill highlight some of Oregon's most environmentally significant areas, such as Devil's Staircase near the Oregon Coast. Devil's Staircase is the epitome of Wilderness in Oregon--it is rugged, pristine, and remote, with hikers following elk and deer trails to navigate the rugged terrain. My bill would protect approximately 30,540 acres as wilderness and 14.6 miles of Wasson Creek and Franklin Creek, which run through the Devil's Staircase area as Wild and Scenic Rivers. Devil's Staircase is home to the most remarkable old-growth forest on Oregon's Coast Range, where giant Douglas-fir, cedar, and hemlock support threatened and endangered species habitat, such as marbled murrelets and Northern Spotted Owls.

My proposal would expand the Wild Rogue Wilderness by approximately 56,100 acres and include an additional 125 miles to the incomparable Wild and Scenic Rogue River. The Rogue is world-renowned as a premier recreation destination for rafting and fishing, with its free flowing waters starting at Oregon's Crater Lake National Park and emptying into the Pacific Ocean. Along the way, the Rogue River flows through a diverse landscape and its cold waters are the perfect habitat for salmon--the river is home to runs of Coho, spring and fall Chinook, and winter and summer Steelhead. By protecting the Rogue River and its tributaries we are protecting the fish and wildlife that depend on clean, healthy water. Additionally, the Wilderness expansion would protect the habitat for bald eagles, osprey, spotted owls, bear, elk, and cougars.

In addition, my proposal designates approximately 35.2 miles of the Elk River and 21.3 miles of the Molalla River as a new recreational, scenic, and wild rivers, and withdraws 19 miles of the Chetco River, one of the most endangered rivers in the country, from mineral development. By protecting hundreds of miles of Wild and Scenic Rivers, as well as the lands that surround those rivers, my proposal ensures that important wildlife habitat can thrive, that Oregon's treasured recreation destinations remain scenic and pristine, and that Oregonians continue to have clean sources of drinking water.

I am pleased to be joined on this bill by my colleague from Oregon Senator JEFF MERKLEY who has worked closely with me over the years to protect Oregon's natural treasures.

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