Key takeaways

• The Court of Appeals for the D.C. Circuit affirms the District Court’s holding that 1% U.S. federal excise tax does not apply to a retrocession contract between two foreign reinsurers.
• The D.C. Circuit’s ruling is on narrower grounds than the District Court’s: unlike the District Court, the D.C. Circuit indicates that U.S.-to-foreign retrocessions are subject to the excise tax.
• Absent further review by the full D.C. Circuit in an en banc proceeding or by the United States Supreme Court or a case arising in another Circuit Court, the decision appears to resolve favorably for taxpayers the question of whether the excise tax can be applied on a “cascading” basis to an entirely foreign-to-foreign reinsurance or retrocession transaction.