New clearinghouse open to try to ease way for commercial brokers

July 2, 2014 —
It’s July, and financial institutions, and U.S. insurance agents and brokers are now required, since yesterday, to comply with the 2010 Foreign Account Tax Compliance Act regulations, which means some groups have swung into gear to work with the law meant to report foreign financial assets.

According to the IRS, under FATCA, to avoid being withheld upon, foreign financial institutions (FFIs) may register with the IRS and agree to report to the IRS certain information about their U.S. accounts, including accounts of certain foreign entities with substantial U.S. owners.

Enforcement is supposed to start now but there may be delays in enforcement but only with good-faith efforts to comply.

The Council of Insurance Agents & Brokers (CIAB) has been hard at work on a new portal to simplify the IRS form exchange between U.S. insurance brokers and foreign insurers.

FATCA’s inclusion of non-cash value insurance premiums despite the lack of revenue and any connection to tax evasion could apparently not be avoided, even after attempts to draw attention to the issue in Congress and with the U.S. Treasury and try and get some change in place before July 1. That did not happen, as the issue was flagged for Treasury quite late.
About two months, during budget hearings, ago Treasury Secretary Jacob Lew was grilled before the House Appropriations Committee by Rep. Ander Crenshaw, R-Fla., on why non-cash value insurance premiums were included in the then-looming regulation.
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.
CIAB’s W-8BEN-E portal allows global carriers to upload their W-8 forms to a database which U.S. brokers can then search and download.
Demonstrating compliance requires a certificate to be collected and stored from every foreign entity involved with a policy with even the slightest exposure to U.S. risk, and the portal allows this through the exchange of W-8BEN-E forms.
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 Council.
Before the law went into effect, the Council worked to try and identify all the foreign carriers with which its member brokers do business, so that this online portal was the most comprehensive resource for W-8BEN-Es in the market. CIAB’s member firms have helped it identify hundreds of offshore insurers and it claims good communications with them and our colleagues abroad.
That doesn’t mean every company that does business with U.S. brokers has signed on yet, of course, to this new solution to an IRS conundrum for the industry.
But, according to Joel Wood of the Council, “We can’t imagine why any FATCA-compliant international carrier wouldn’t want to participate. FATCA is a burden, this can only relieve some of that burden.”
 But Wood did acknowledge that “we are in a bit of a transitional period; we have hundreds of carriers that we have contacted (and there is universal interest).  It will be an evolving product, but we have high confidence that it will be the go-to clearinghouse.”
The IRS website provides a web application that provides paperless FATCA registration.
The IRS has published a Foreign Financial Institution (FFI) list on IRS.gov. The list contains the names of financial institutions and other entities that have completed FACTA ) registration with the IRS and obtained a global intermediary identification number (GIIN).
CIAB says it is still working with the Treasury Department on the issues involved. It’s “not a total solution” – there are annual premium reporting requirements for brokers, but CIAB is keeping up the conversation on those, Wood says.
While many entities are required to register with the IRS and obtain a GIIN in order for payments to them to be free of FATCA withholding, many other entities are not required to and must meet different requirements, for payments to them to be free of FATCA withholding. The IRS advises one to get a tax advisor if uncertain.

“It has been a very frustrating process because we have never understood a good rationale for why non-cash value property casualty insurance transactions should considered financial or could be utilized as a mechanism for international tax avoidance,” Wood said in his address to members.

The  IRS concern CIAB evinced in is talk with Treasury officials were the possibility that hedge funds utilizing offshore captives for tax evasion and parking excessive premiums there.

We  surely don’t want to be part of any of that Wood said, but FATCA’s application on a $2.5 trillion industry  of non-cash value premiums  is “a matter of the tail wagging the dog,” he told CIAB members.

A response from Treasury’s IRS  was pending.

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