U.S. District Court issues taxpayer-favorable opinion in Validus Reinsurance, Ltd. v. United States

On February 5, 2014, the U.S. District Court in Washington, D.C. issued the much anticipated opinion in Validus, holding that the so-called “cascading” federal excise tax (FET) of 1 percent of premiums paid in connection with reinsurance covering US risks does not apply to retrocession agreements between a non-U.S. reinsurer and a non-U.S. retrocessionaire. The court’s reasoning suggests that reinsurance agreements between a non-U.S. insurer and a non-U.S. reinsurer that cover U.S. risks are subject to the cascading FET, but the opinion does not specifically address this issue.

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