A new law requires foreign insurers receiving U.S.-source premiums to submit a form to the IRS.
The new law is the Foreign Account Tax Compliance Act (FATCA). It went into effect July 1. The Treasury Department implemented it despite a strong lobbying effort by the property and casualty insurance industry earlier this year to delay its implementation and reduce its impact through clarifications of the rule implementing it.
The law generally requires that foreign insurers receiving U.S.-source premiums provide W-8BEN-E forms to their U.S. insurance brokers to demonstrate that they are either FATCA-compliant or FATCA-exempt in order to avoid otherwise mandatory 30% withholding.
Because the issue is of particular importance to agents and brokers, the Council of Insurance Agents and Brokers (CIAB) has created a web portal, W8BENE, which allows global carriers to upload their W-8 forms to a database which U.S. brokers can then search and download.
CIAB’s justification for the decision to create the web portal: “Our members are going to bear the brunt of this,” according to Scott Sinder, CIAB’s legal counsel and a partner at Steptoe & Johnson in Washington, D.C.
FATCA targets tax non-compliance by U.S. taxpayers with foreign accounts. Its objective is the reporting of foreign financial assets by U.S. taxpayers and the withhold “stick” is the cost of not reporting, according to the Internal Revenue Service.
“There will be no withholding,” Sinder said. “If a foreign carrier does not submit the IRS form documenting that it either is FATCA compliant or exempt from such compliance, then the U..S broker will not be able to purchase any coverage from them,” Sinder said.
CIAB officials said the portal is an easy-to-use solution for brokers and insurers to obtain the W-8BEN-E forms they need to meet the new IRS reporting requirements.
“We’ve worked hard over the past few months to develop this portal in a way that would make this massive change in business process as easy and seamless as possible,” said Ken A. Crerar, CIAB president/CEO. “Insurers and brokers who sign up for the website will be able to exchange forms quickly with minimal impact to their normal business process.”
There will be nominal cost associated with the portal, but the CIAB is allowing users a free trial period until Jan. 1, 2015, Crerar said. There is a $10 processing fee, but usage for the duration of 2014 is free of charge. After that, the cost will be between $200 and $500 annually, depending on the brokers’ affiliation with the CIAB. The U.S. Congress passed FATCA in 2010.
According to Sinder, the industry believes FATCA is burdensome because, among other reasons, the reporting mandate includes premiums on property and casualty policies even though such policies have no cash value and provide no financial investment income, and even though the foreign carriers that provide such coverage almost never offer cash value policies that would be subject to the FATCA reporting requirements.
“We believe that FATCA was not intended to cover such payments, and unnecessarily burdens insurance brokers and their clients with costly compliance obligations.”
However, as FATCA went into effect, Sen. Carl Levin, D-Mich., a key sponsor of the measure issued a statement indicating that it is a breakthrough.
“Today marks a new era for tax fairness. Starting today, American tax dodgers will find it harder to cheat Uncle Sam by opening secret bank accounts in offshore tax havens. While the battle to tighten FATCA and close its disclosure loopholes will continue, today marks a big win for hard-working, honest Americans who are sick and tired of picking up the tab for tax dodgers hiding money offshore.”
Correction: An earlier headline identified the act as “FACTA” rather than “FATCA.”