Treasury targets hedge fund tax avoidance

The Treasury Department moved Thursday to limit hedge funds’ ability to slash their tax bills by funneling investments through insurance companies in offshore tax havens.

U.S. tax law generally seeks to make sure that hedge funds can’t use offshore corporations to delay paying taxes. 

{mosads}But Sen. Ron Wyden (D-Ore.) has been complaining for months that there’s a loophole in those rules — specifically, that income from offshore insurance companies get taxed at a far lower rate.

For that reason, hedge funds have invested in offshore reinsurance companies. Those insurers can then reinvest back in the hedge fund, causing a far lower tax hit.  

On Thursday, Wyden praised Treasury for releasing “an important first step” in closing what he calls a “glaring tax loophole.”

In its new rules, Treasury said it was essentially seeking to make rules that clarify when an insurance company is legitimate. The department wants the public to weigh in over the next 90 days.