Do your clients have risks in the US? New taxation law may affect you.

Article Publish Date: Tuesday 6 February 2018

The Foreign Account Tax Compliance Act (FATCA) is US law designed to combat US tax evasion. If you deal with any client risks that have US Source Premium, you need to be able to demonstrate compliance with FATCA to the Inland Revenue Service (IRS).

 

 

If you can’t, you'll need to withhold 30% of all US source premiums and complete a US tax return for this amount. The good news is that having appropriate documentation in place will mean that no withholding is required.

What is US source risk premium?

This means a premium that relates to US property or liability arising out of activity taking place in the US, or in connection with the lives or health of US residents. Examples are:

  • Insurance where any of the risk touches the US e.g. exports to the US or stock stored in the US.
  • Multinational placements made via an intermediary that include any US source risk
  • Risks that transit the US such as marine and aviation
  • Any Travel policies providing cover for travel to the US

What does that mean for you as a broker?

When you place a risk with us and pass us the corresponding risk premium, you must obtain a W-8BEN-E from us. This demonstrates risks have been placed with a compliant insurer. You only need to download this once from the Aviva Broker website then keep it on file. You'll need to update this every three years.

You’ll also need to provide a W-8IMY to the business being insured as proof that they themselves do not have to withhold 30% tax before paying the premium to you.

Without these documents on file, you could be liable for withholding 30% of the US Source premium and for filing a return and accounting for the tax directly to the IRS.

Why are we telling you about this now?

FATCA regulations currently include an exemption for US source risk on ‘offshore obligations’ made before 1 January 2017 (known as “foreign to foreign’ payments and generally meaning contracts made outside the US). This means from 1 January 2017, obligations have been extended to ‘foreign to foreign’ business such as:

  • A UK broker placing a risk for a UK client with a UK insurer will now be subject to FATCA if the risk covers an event in the US such as a concert in New York.
  • A UK broker selling a worldwide travel insurance to a UK based client is also subject to FATCA if the policy covers travel to the US. 

What if you don’t comply?

You as the broker would be liable for the 30% tax on the total premium. The IRS can impose fines and penalties that can be significant depending on the severity of the failure and the risk of reputational damage should not be underestimated.

What if you have questions?

For any further information around this please contact Wilf Gibbons at wilf.gibbons@aviva.com or call 07786 855591

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