TAXATION
The Company and Greenlight Re are each domiciled in the Cayman Islands and under current Cayman Islands law, no corporate entity, including the Company and Greenlight Re, is obligated to pay taxes in the Cayman Islands on either income or capital gains. The Company and Greenlight Re each intend to conduct all of its operations in a manner that will not cause it to be treated as engaging in a trade or business within the United States and will not cause it to be subject to current U.S. federal income taxation on its net income. However, because there are no definitive standards provided by the Internal Revenue Code, regulations or court decisions as to the specific activities that constitute being engaged in the conduct of a trade or business within the United States, and as any such determination is essentially factual in nature, there can be no assurance that the IRS will not successfully assert that the Company or Greenlight Re is engaged in a trade or business within the U.S.
Verdant is incorporated in Delaware, and therefore is subject to taxes in accordance with the U.S. federal rates and regulations prescribed by the IRS. Verdant’s taxable income is taxed at a marginal tax rate of 21%. GRIL is incorporated in Ireland and, therefore, is subject to the Irish corporation tax. GRIL is taxed at a rate of 12.5% on its trading income.
At December 31, 2017, a deferred tax asset of $1.7 million, primarily relating to GRIL’s net operating losses carried forward (2016: $1.3 million). At December 31, 2017, GRIL had a net operating loss carry forward of $13.9 million which can be carried forward indefinitely. At December 31, 2017 and 2016, no taxes recoverable were included in the consolidated balance sheets. Based on the likelihood of GRIL generating sufficient taxable income to realize the future tax benefit, management believes it is more likely than not that the deferred tax asset and taxes recoverable will be fully realized in the future and therefore no valuation allowance has been recorded.
At December 31, 2017, Verdant had a net operating loss carry forward of $1.7 million which can be carried forward for a period of 20 years from the year the loss occurred and therefore will expire in 2033. The deferred tax asset associated with the net operating loss carried forward, has been offset by a valuation allowance as management does not anticipate that the carried forward amount will be realized.
The following table sets forth our current and deferred income tax benefit (expense) on a consolidated basis for the years ended December 31, 2017, 2016 and 2015:
|
| | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | ($ in thousands) |
Current tax (expense) benefit | | $ | 465 |
| | $ | (492 | ) | | $ | 15 |
|
Deferred tax (expense) benefit | | (14 | ) | | (17 | ) | | 1,740 |
|
Income tax (expense) benefit | | $ | 451 |
| | $ | (509 | ) | | $ | 1,755 |
|
The Company has not taken any tax positions that are subject to uncertainty or that are reasonably likely to have a material impact to the Company, Greenlight Re, GRIL or Verdant.
Federal Excise Taxes
The United States also imposes an excise tax on reinsurance premiums paid to non-U.S. insurers or reinsurers with respect to risks located in the United States. The rate of tax, unless exempted or reduced by an applicable U.S. tax treaty, is 1.0% for all reinsurance premiums. The Company incurs federal excise taxes on certain of its reinsurance transactions, including amounts ceded through intercompany transactions. For the years ended 2017, 2016 and 2015, the Company incurred approximately $5.0 million, $3.9 million and $3.3 million, respectively, of federal excise taxes, net of any refunds received. These amounts are reflected as acquisition costs in the Company’s consolidated statements of income.