The recent US plans for a dividend tax, particularly the so-called “revenge tax” under Section 899, could have significant impacts on the profits of major reinsurers like Allianz and Munich Re. These plans propose a withholding tax of initially five percent on dividends and interest, royalties, and certain other income, which is set to rise over a period of four years to 20 percent – in addition to taxes already due.
Impacts of the Tax Plans
- Increased Tax Burden: The proposed tax increase would directly affect the profits of the US units of foreign corporations, including reinsurers. This could lead to a reduction in the dividends paid to the parent companies.
- Investment Decisions: The increased tax burden could influence investment decisions. Companies might choose to reduce investments in the US or consider alternative locations to avoid tax disadvantages.
- Economic Uncertainty: The uncertainty brought about by such tax plans has already been noticeable in the bond markets. Risk premiums have risen, and investors are seeking alternatives outside of the US.
Company Reactions
- Munich Re: Munich Re’s CFO, Christoph Jurecka, has expressed criticism of the plans, emphasizing that it would be difficult to find mitigations without the EU changing the global minimum tax framework.
- Allianz: Allianz could also be affected by these plans, although no specific statements from the company have been mentioned in recent reports.
Further Developments
- ESG Initiatives: In addition to tax challenges, companies like Munich Re are also facing issues in the area of ESG initiatives (Environmental, Social, Governance). Munich Re recently withdrew from significant climate initiatives, leading to discussions in the capital markets.
- Investor Reactions: The tax changes could impact the attractiveness of these companies to investors. While some investors are betting on high dividend yields, DAX stocks currently only offer a small yield premium over bonds.
Overall, the US tax plans could have substantial effects on the profits and investment strategies of major reinsurers like Allianz and Munich Re. The responses from companies and investors will be crucial in mitigating the impacts of these plans.