Bill Would Exempt P-C Premiums from FATCA

Legislation is now pending in the U.S. House of Representatives—with support from the Big “I” and both sides of the aisle—that would help alleviate complex compliance burdens for property-casualty insurance agents and brokers who place international risks.

Late last week, Reps. Ed Royce (R-California) and John Larson (D-Connecticut) introduced H.R. 6159, which would exempt non-financial insurance premiums from the Foreign Account Tax Compliance Act (FATCA).

FATCA took effect in 2015 and requires that any U.S. entity conducting business with a foreign financial institution (FFI) gather certification forms to prove that the FFI does not hold untaxed U.S. monies. If the U.S. entity cannot obtain certification, FATCA requires it to withhold 30% of payment.

Although the goal of FATCA is to crack down on companies that exploit international cash value accounts to avoid U.S. taxes, the Internal Revenue Service has deemed non-cash value p-c insurance premiums as “financial” transactions that fall under FATCA. H.R. 6159 would ensure that such premiums are properly classified as non-financial. FATCA would still cover cash value insurance policies, such as a life insurance policy with an investment component.

FATCA has created compliance issues for those that place complex U.S. risks with international components. Following the international path of these premiums related to U.S. risks and complying with the FATCA certification process is cumbersome and costly. Also, little to no benefit derives from such requirements, because insurance with no investment component—like p-c insurance—is not used to evade U.S. taxes.

Big “I” members can find more information about FATCA by logging in to the Big “I” website to view this FAQ document.

Jennifer Webb is Big “I” federal government affairs counsel.