- Most significantly, it appears that back book due diligence is limited to certain products sold by insurance companies registered in the US to sell to US residents.
Other achievements include:
- A de minimis of $50,000 for new Cash Value Insurance Contracts has been introduced - although any company adopting this will have to introduce additional monitoring to determine when the threshold is breached.
- There are strong hints that pension products and associated annuities will be out of scope which should be confirmed when Annexe II is released.
- On-boarding changes must be effective on 1 January 2014, a year later than originally proposed.
- Entity identification may rely on current UK AML/KYC procedures
Despite the significant changes, some important areas still need to be addressed.
- What about policies written in trust?
The definition of Account Holder for Cash Value Insurance Contracts or Annuity Contracts could still be the trustees of a discretionary trust. It seems that IGA doesn’t solve this issue, which was raised in numerous representations.
- If the insurance company doesn’t write Cash Value, Annuity or Financial Reinsurance contracts or offer interest bearing accounts (so isn’t a Financial Institution), what is it?
Hopefully, it will be a Non-Reporting Entity and detailed as such in Annexe II (when available). Otherwise it is likely to be a Passive NFFE and will have to complete a W8-BEN form.
- Interaction with outsourcers, e.g. IFAs and Brokers.
The IGA clarifies that although on-boarding can be out-sourced, the responsibility for on-boarding remains with the insurer. Agreements may need to be revised for this.
There are some changes here, e.g. substituting date of birth for the US TIN until 2017. However, insurers will need to report the annual increase in the policy value, e.g. reversionary bonus. Do you currently report this information for in-scope products?
A key question therefore is whether the pension contract is with an Exempt Beneficial Owner (EBO). Is the owner of the contract eligible for treaty benefits under the Income Tax Treaty with the US, exempt from income tax in the UK and does the owner operate principally to administer or provide pension or retirement benefits? A trust based pension scheme, such as a SIPP, should meet this definition. The challenge is then what treaty rate is your pension fund receiving? Perhaps it is time to benchmark the performance of your custodian?
UK insurers now need to:
- Focus on any required on-boarding system changes for new products.
- Match current annual policyholder reporting with the FATCA requirements.
- Decide whether it is simply easier to report all new Cash Value Insurance Contracts or to use the new de minimis.
- Review the relationship with the IFA and whether current agreements need to be updated for FATCA.
- Consider, if there are only a few US Reportable Accounts, whether any of the on-boarding changes take these Accounts out of scope.
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 one of our subject matter experts.
IN COMPLIANCE WITH US STANDARDS OF TAX PRACTICE PRESCRIBED BY THE US TREASURY THAT APPLY TO ALL US TAX ADVISERS, PLEASE BE ADVISED THAT ANY US TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY KPMG TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.