India’s Reinsurance: Hidden tax or treaty? Best way to expand tax base is to redraw map of where business is done

You buy a life insurance policy from an Indian insurer. Your premium is paid in rupees, and is governed by Indian law. Your claim will be settled in India. Everything appears reassuringly Indian except one thing. There is a good chance that part of your risk has quietly travelled to Munich, Zurich, Singapore or London. Welcome to the little-known world of reinsurance, where insurance companies buy insurance for themselves.

Every time an Indian family buys life insurance, or a company insures an airport, factory, refinery, ship or satellite, the insurer often transfers part of that risk to specialist global reinsurers. The customer never sees this second contract. Yet, it forms the backbone of modern insurance. According to the latest IRDAI annual report, India's reinsurance market crossed ₹1,12,305 cr in FY25.

Indian reinsurers and foreign reinsurance branches (FRBs) together wrote about ₹69,229 cr of business. The difference of some ₹43,000 cr likely represents business ceded to cross-border reinsurers (CBRs) writing from overseas financial centres.


Is that tax avoidance? Not at all. It's simply how international tax treaties work. Most of India's double taxation avoidance agreements (DTAA) allocate business profits under Article 7. It can't tax business profits minus a permanent establishment (PE) in India. If a foreign reinsurer:

• Has an Indian branch that's a PE, the country can tax profits attributable to the Indian operation. The controversy then shifts to allocation: premiums, claims, reserves, head-office expenses and retrocession payments.
• Writes Indian risk entirely from abroad under a DTAA, reinsurance premiums are normally treated as business profits. India generally cannot tax them unless it establishes a PE.
• Is in a non-treaty jurisdiction such as Bermuda, it cannot rely on Article 7, or the treaty PE threshold. Indian domestic law exposure and withholding become more important.
• Under Swiss treaty has a special carveout that can deem an insurance enterprise to have a PE through collection of premiums, or insurance of local risks 'except in regard to reinsurance'. Reinsurance is, thus, intentionally left within the ordinary PE framework.
• Under India-Singapore DTAA, it's a favourable treaty platform for regional reinsurance operations, because business profits belong to Singapore minus a PE.

When these treaties were negotiated, the logic was straightforward: profits should follow people, capital and management, not customers. But in a post-BEPS world that emphasises substance and value creation, does Article 7 adequately reflect the source country's economic contribution in the insurance context?

In digital taxation, India has argued that Indian users contribute to value creation even if the platform is operated from abroad. Tech companies responded that the entrepreneurial functions, capital and IP were located elsewhere. Reinsurance presents a similar puzzle.

Clearly, IRDAI policy has encouraged many foreign insurers to establish branches in India. That means they have a PE with underwriting teams, actuarial personnel, regulatory supervision and, importantly, taxable profits in India. But even after the branch accepts risk in India, it may retrocede part of that risk to Singapore, Zurich, Bermuda, or to another group company.

Now, the treaty question is: who really earned the underwriting profit? Indian branch? Singapore regional hub? Swiss parent? That's where transfer pricing and treaty interpretation become important.

Let's also not forget the 291 CBRs IRDAI reports as writing Indian risks with no physical presence in India. How much of their premium is included in the ₹43,000 cr difference that ultimately leaves India without becoming taxable business profits here, because the relevant treaty allocates taxing rights to the residence country minus a PE?

Global risks require global capital. Without access to international reinsurance markets, insurance would become more expensive, less available and far more volatile. At the same time, India is pursuing another strategy. Rather than debating where reinsurance profits should be taxed, it's trying to bring those profits home.

The IRDAI regulatory framework gives placement preference to domestic reinsurers, followed by IFSC insurance offices in GIFT City, before permitting placements with CBRs. That may prove to be the more durable solution. The future debate may not be about taxing underwriting profits, but about creating enough underwriting expertise, capital and capacity in GIFT City, so that those profits are increasingly earned and, therefore, taxed in India.

Sometimes, the best way to expand the tax base is not to redraw a treaty but to redraw the map of where business is done.