A lot of issues were on the table at the March World Federation of Insurance Intermediaries (WFII) meeting in Australia, but none grabbed the attention of the world brokerage community more than the looming U.S. tax evasion law known as the Foreign Account Tax Compliance Act (FATCA).
Visit www.w8bene.com and sign up to receive updates on The Council's FATCA Portal.
Notwithstanding my sometimes frantic note taking and my ability to crack some thick accents, I still believe the law was the most significant issue on the table. I know, I know—many of the international readers are rolling their eyes. (“Shocker! The American thinks HIS issue was the most compelling.”)
I totally get it. Raising FATCA does not mean other issues aren’t important, but the tax evasion law is in our face. It takes effect July 1—just two months from now.
WFII is our industry’s voice to global standard-setting bodies where political fallout from the worldwide financial crisis continues to demand the federation’s attention. The issues discussed in Sydney included transparency on remuneration, international standards governing intermediaries, the emergence of global financial literacy requirements, regulatory concerns around contingent commissions and talent recruitment. I was struck by how similar several of the issues around the globe were to our regulatory conversations in the United States, but FATCA is the most imminent among them.
The law will require brokers to document that every non-U.S. financial institution they do business with is FATCA-compliant or at least exempt. Compliance requires the broker to withhold 30% of its premium payment to the institution (although we don’t think that will happen). Demonstrating compliance will require a certificate to be collected and stored from every non-U.S. financial institution involved with a policy with even the slightest exposure to U.S. risk.
Final regulations implementing the tax were released last month, but like all things coming out of the IRS, there is confusion about how some transactions will be treated. Will business with Lloyd’s require one certificate, 25 or 25,000? Will transactions from one foreign company to another on a policy with U.S. exposure be treated the same as those involving a U.S. company? We’re working for clarity on this from the IRS but simultaneously working to ease the burden on you regardless of the outcome.
We understand it makes absolutely no sense to include non-cash value insurance premiums in a tax evasion law. We’ve been working with the House Ways and Means Committee to clarify for the IRS that property-casualty insurance simply cannot be used for tax evasion. The committee sent the IRS a letter signed by 11 members underscoring this point. Members also made numerous phone calls to the IRS seeking relief on its impact on p-c policies.
But since final regulations still include p-c policies, we’re moving on a two-pronged approach to help:
- A legislative fix to exclude p-c policies from FATCA and ease the reporting requirements, and
- A simpler certificate-collection process for Council members.
The immediate reality of the situation requires an immediate solution. The Council is building an online one-stop shop for your certification requirements. This is a website where you can obtain the necessary certificates with just a few mouse clicks. We expect it to be fully functional July 1.
The long-term solution is to rewrite the law so it makes more sense. We’re working on that with Congress, but as you know, Congress isn’t passing much these days. So stay tuned for guidance from Ken Crerar’s email box and our tax experts at Steptoe & Johnson. The fog around FATCA is slowly beginning to clear. Even though it might not look pretty at the moment, we’re working to ease the burden as much as possible.