WIN Magazine - Winter 2013 - (Page 24)

FEATURE JUST THE FACTS- ON FATCA: FREQUENTLY ASKED QUESTIONS ON THE FOREIGN ASSETS TAX COMPLIANCE ACT T HE INSURANCE TRADE press has reported on numerous aspects of the Foreign Account Tax Compliance Act (FATCA). The respective provisions, compliance requirements, implementation date and enforcement penalties associated with the Act have, unfortunately, been less than clear. The following is a presentation of frequently asked questions about FATCA for the benefit of Wholesale Insurance Professionals. WHAT IS FATCA? The Foreign Account Tax Compliance Act (FATCA) became law in March 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act. FATCA is a law designed to prevent tax evasion by U.S. tax payers through the use of offshore accounts and companies. Both insurance and reinsurance premiums are subject to FATCA. WHAT IS ITS PURPOSE? FATCA is essentially designed to prevent tax fraud and more specifically, tax evasion, by U.S. taxpayers. FATCA targets U.S. taxpayers with foreign accounts and requires financial institutions to identify and report U.S. persons who have invested in either non U.S. financial accounts or non-U.S. entities. The goal is to prevent U.S. taxpayers from hiding income and assets overseas. HOW DOES IT WORK? FATCA requires FFIs (Foreign Financial Institutions) to identify U.S. persons that are their customers and provide certain information to the IRS about those U.S. persons. Under FACTA, unless the FFI agrees to provide information regarding certain of its financial accounts, the FFI will be subject to a 30% withholding tax on any U.S. payments it receives (deposits, interest, dividend or sales proceeds). WHY IS EVERYONE TALKING ABOUT IT? First, everyone is talking about it because it is new, relatively speaking. Reporting of foreign financial accounts and offshore assets is now part of the IRS' targeted enforcement strategy since the passage of the Patriot Act. Prior to FATCA, the United States relied upon the requirements set forth in the Report of Foreign Bank and Financial 2 4 | v i e w t h i s i s s u e a t | Accounts (31 CFR 103.24), or the "FBAR" rules. WHY ARE INSURANCE BROKERS TALKING ABOUT IT? * FATCA requires financial institutions to report information about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold an interest. * U.S. excess and surplus lines brokers will be considered "withholding agents" under the FATCA rules. As the last U.S. entity with custody of the money, U.S. brokers will need to identify their "withholdable payments," confirm the status of payees of these payments (including non-U.S. brokers and all non-U.S. insurance companies and entities used for each placement), and document why the 30% withholding is unnecessary. If unable to document the exception to withholding, the U.S. broker would need to withhold 30% of the gross written premium for the entire placement. * Withholdable payments are defined as including: ♦ Any payment of interest, dividends, annuities, licensing fees and other FDAP income, gains

Table of Contents for the Digital Edition of WIN Magazine - Winter 2013

Disappearing…and Reappearing Risk: What Lies Ahead
An Innovative Solution for Reducing the Debt of College RMI Students
Does Politics Influence Regulatory Forebearance?
Predictive Analytics: The “Black Box” Used by Savvy Insurance Professionals
Just the Facts—On FATCA: Frequently Asked Questions on the Foreign Assets Tax Compliance Act
Your Reputation Matters, Online and Off
New Wholesale Insurance Product Focus: Protection from Hacked Bank Accounts: Protecting Small Business Policyholders
In the WIN-ner’s Circle
Index to Advertisers/

WIN Magazine - Winter 2013