The Neal bill has come under fire from the German ambassador to the United States, who says it could violate the US-Germany tax treaty.

Ambassador Klaus Scharioth expressed the views of the German government a letter to Sander Levin, chairman of the Ways and Means Committee of the US House of Representatives.

The bill seeks to raise US taxes on Bermudian and all other non-US groups, who reinsure insurance business written by their US subsidiaries.

Some of the world's biggest reinsurers, including Munich Re and Hannover Re, are based in Germany.

The proposal by Representative Richard Neal seeks to remove the tax-deductibility of reinsurance premiums paid to a foreign affiliate if the amount exceeds the industry average for third-party reinsurance.

US President Barack Obama put forward an alternative in his Budget proposal which would limit deductions for affiliate reinsurance to 50 percent of written premiums.

Mr. Scharioth wrote that "the proposals are intended to address concerns that foreign reinsurers are avoiding paying their fair share of US tax by imposing excessive premiums on their US affiliates.

"It goes without saying that the German government recognises the US government's right to combat tax avoidance and evasion. But it is our view that the proposed legislation goes well beyond this objective and, as a result, will be in conflict with provisions of the German-US tax treaty."

While he shares the opposition of the Association of Bermuda Insurers and Reinsurers (ABIR) to the bill, Mr. Scharioth was not standing up for the Island.

He accepted that the Neal Bill was designed to stem the flow of premiums to low-tax jurisdictions like Bermuda. But he added that such legislation would also affect companies reinsuring themselves with parents in non-tax havens such as Germany, thus putting German reinsurers at a competitive disadvantage.

He argued that the Neal bill might clash with World Trade Organisation principles on free trade.

"[The] German Government has concerns about the legislation's compatibility with WTO principles, particularly with a view to the obligations related to the General Agreement on Trade in Services," the letter states. "Specifically, the German Government would like to refer to the relevant obligations concerning national treatment."