Insurance Intermediary Group Warns Against Extending FATCA to Non-Life Insurance Products

WFII fully supports the objective of FATCA to prevent the evasion of US tax. Nevertheless, many of our members are concerned about the unintended consequences that FATCA could have on US-related non-life insurance and reinsurance business from July 2014.

We understand that with regard to insurance, this new legislation will focus primarily on life insurance investment products with cash value and annuity contracts placed with foreign (re) insurers that could be used to facilitate US tax avoidance.

However, it now appears that it is possible that FACTA will also affect the sale of non-life insurance products. If this is the case, it would put a heavy and unjustifiable burden on intermediaries, confronting them with high compliance costs and with no gain for the IRS. From the very start of the legislative drafting process, it was made explicitly clear that non-life insurance products, which provide pure insurance protection, are not included in the scope of FATCA. This is only logical as the purchases of non-cash value insurance and reinsurance products are not investments and are not used for evasion of US tax.

Products providing pure insurance protection are not even susceptible for use in facilitating US tax avoidance. Rather, they are contracts of indemnity designed to reimburse the insured should specified event(s) occur. There is no investment component in these products.

If the provisions in FATCA remain unchanged and insurance intermediaries are forced to demonstrate FATCA compliance on property/casualty insurance premiums paid for offshore, non-cash value insurance and reinsurance products, we fear that the costs of these transactions will increase. U.S. insurance intermediaries are considering building expensive record keeping processes to demonstrate that their global insurance and reinsurance trading partners are compliant with IRS regulations. However, these efforts will not generate U.S. tax revenue and only result in unduly expensive compliance efforts that threaten to increase transaction costs and decrease the availability of offshore insurer choice for U.S. businesses.

We urge you to carefully consider the above mentioned points and to come to the only conclusion, as we did, that non-cash value insurance and reinsurance products should be exempted from FATCA.

We thank you for your attention to this very important matter and look forward to your positive response.