- FATCA still to impact UK insurers, however some good news in last week’s draft IRS rules
- Latest proposals could reduce FATCA costs for the global insurance industry by $3bn
UK insurers’ hopes that they may have been excluded from the Foreign Account Tax Compliance Act (FATCA) regime have been dashed by last week’s release of proposed regulations from the IRS.
Rob Lant, insurance tax partner at KPMG, commented: “The FATCA challenge will remain a significant and complex one for the insurance industry with many products still within scope, however there are nevertheless reasons to be positive. Buried within the 389 pages of draft rules is some good news for insurers which will translate into cost savings for the industry. We estimate the global insurance industry has saved close to $3bn due to the IRS tightening the scope of FATCA and making the proposals more proportionate.”
KPMG identified both good news and potential bad news for UK insurers in the latest proposed regulations.
Rob Lant continued: “The good news includes that UK insurers should be deemed compliant foreign financial institutions (FFIs) if an agreement is reached between the UK and US governments as indicated in their joint statement. Also, writing certain policies will be excluded from triggering FFI status, including property and casualty insurance, regular premium term assurance, personal pensions and PHI products.
“For new accounts, it should be possible to place more reliance on existing know your customer (KYC) and anti-money laundering (AML) procedures. And the required due diligence for in-force policies, which needs to be completed within one year or two years of 1 July 2013, will be less onerous for policies with lower cash values. For those policies worth $250,000 or less there is a complete exception, while cash values from $250,001 to $1,000,000 will only require an electronic search for US indicia; and ‘passthru’ payments will only be within the regime from 1 January 2017.
“However, with the good news comes some bad news. Firstly there is no specific exclusion for smaller UK industry players, such as friendly societies, although the exclusions for back book due diligence should help. Secondly, for any legal entity that writes cash value insurance products FFI withholding and reporting potentially applies to all other policies written including any property and casualty insurance, regular premium term assurance, personal pensions and PHI products.
“The bottom line is FATCA has not gone away for insurance groups and the focus should now shift to preparing for the commencement of the regime. Preparing means determining which entities in your group are FFIs and having suitable procedures in place to identify US account holders for policies written on or after 1 July 2013. It also means performing a due diligence exercise on policies in-force over the two year period after the effective date of your FFI agreement, although the graduated requirements (and exclusions) based on the cash values of policies should make this significantly less burdensome.”
Notes to editors:
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