The key question is: Does the insurer write Cash Value Insurance Contracts or any Annuity Contracts? If so this will render it a Financial Institution (FI) required to register with the IRS. Most P&C insurers will not write such business. Indeed, an insurer that writes only exempt products will be a Specified Insurance Company without any Financial Accounts.
It is worth checking the insurer does not satisfy the definition of any other type of FI or Foreign Financial Institution (FFI) under the IRS regulations.
As indemnity reinsurance is excluded from being a Cash Value Insurance Contract the one to watch is Financial Reinsurance, as writing this would cause the insurer to be an FI. Although it would only be a reportable account if the cedant were a non-participating FI and it is the reinsurer’s responsibility to establish the cedant’s FATCA/IGA status.
If the insurer is not an FI, it must be a Non-Financial Foreign Entity. But which one – Active or Passive? What difference does it make?
An active NFFE does not have to provide any self-certification if the FI it interacts with can determine from public information (used in the process of opening an account) that it is indeed an active NFFE, for example, if it is in a group with a listed company. In practice, some banks may, as part of their IGA compliant account opening procedures, request certification of the insurer’s IGA status.
Passive NFFEs are required to certify that there are no Controlling Persons that are US Persons. Controlling Person is to be interpreted in a manner consistent with UK Anti-Money Laundering legislation (i.e. 25% ownership). In contrast, the IRS requires that any interest in a non-US company that is more than 10% directly or indirectly owned by a US person is reported.
The form of the certification is still awaited, however, the HMRC guidance suggests that in the UK the completion of the IRS forms may not be required. Currently, it is down to each FI to decide on the exact form.
Although there could be minimal impact on these insurers, there are some next steps which have to be taken:
- Classify the organisation. Could it be another type of FI or FFI, such as a depositary FFI?
- Communicate the findings to the board or audit committee.
- Allocate responsibility for completing the certification requirements and maintenance of the records to an individual or department.
Should you have any questions on how your business might be affected, or require assistance with your FATCA project, please contact your usual KPMG contact or Jeanette Cook.
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