FATCA - Tax information reporting development | Brochure
For European insurers, 1 January 2013 is the date when the Solvency II regulatory regime is expected to take effect. However, it is also the start date for a new U.S. tax regime, which could yet have significant impact for European insurers.
The U.S. Foreign Account Tax Compliance Act (‘FATCA’) provisions were enacted1 in 2010. The goal of the FATCA provisions is to prevent tax evasion by U.S. persons holding assets offshore, by providing the authorities with sufficient information to identify U.S. account holders to ensure that U.S. tax is paid.
So why is FATCA of relevance to insurance companies?
The FATCA provisions seek to obtain information about investments held overseas by U.S. persons from the Foreign Financial Institutions (FFI) which administer those investments. The definition of an FFI includes all non-U.S. life and general insurance companies.
An FFI is required to undertake procedures to identify and report annually on all U.S. accounts, which term includes insurance policies. The scope of inquiry for every account across its group is still under consideration, however, it appears that the procedures are intended to uncover indicia of U.S. residency and not provoke additional inquiry when such indicia are not present under defined search criteria. These conditions are the focal point of current industry consultation. An FFI which does not agree to comply will be subject to a withholding tax of 30% on all the U.S. ‘withholdable payments’ it receives, including both interest and gross proceeds from dispositions that may otherwise constitute a repayment of capital.
Whilst any incremental withholding tax may ultimately be refundable, it is likely there will be a significant delay and thus a significant cash flow cost.
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