Insurers prepare to comply with tax rules for offshore accountsReprints
Even as the insurance industry moves to meet the first reporting deadlines under the Foreign Account Tax Compliance Act, the law and compliance remain works in progress.
In fact, some experts still question the logic in applying the law to insurers. FATCA was passed in 2010 to combat tax evasion via the offshore transfer of funds and became effective July 1, with initial reporting set to start the first quarter of 2015.
“We feel quite confident that we're ready to respond to what we need to do,” said Craig Coit, Chicago-based deputy chief financial officer for Aon Risk Solutions.
As part of the effort to ramp up for FATCA compliance, the company added five people to its market security team, which is split between the United States and the United Kingdom. Aon also hired an outside firm to perform the validation of the required Internal Revenue Service forms.
Other brokers and insurance companies are also adding FATCA staff, according to Colleen Waddell, New York-based director, tax, for accounting and consulting firm WeiserMazars L.L.P. A daily alert showing jobs available in the FATCA arena includes insurance companies looking to hire, she said.
What began as an internal effort at Aon to characterize all of its entities grew into a full-fledged FATCA compliance team of 12 with a project leader and in-country experts and contacts overseas.
“We quickly realized that there was a very large operational component to the FATCA changes we would be required to make,” said Mr. Coit, who added that Aon had collected over 2,800 forms and contacted over 600 insurer groups that need to provide it with forms with respect to FATCA status.
All of these efforts, while arduous, have yielded some additional benefits, said Mr. Coit. These included positive changes to the company's market security platform and learning more about its own carriers and data, he said.
Much of the compliance burden has to do with the huge amount of paperwork associated with the FATCA regime.
“The burden is really with the due diligence; the collecting of tax documentation and the validation to identify counterparties,” said Tim Evans, New York-based senior, tax, with WeiserMazars.
“These forms are so complicated and they're difficult to understand,” said Denise Hintzke, New York-based tax director and global FATCA tax leader for Deloitte Tax L.L.P., who adds that she spends a great deal of time walking clients through the myriad forms.
The Washington-based Council of Insurance Agents & Brokers established an online web portal on July 1. The portal is accessed through the council's website and is designed to aid insurers and brokers in complying with FATCA.
“That's where we hope our portal will be helpful. It is a bit of a chicken/egg game, in that until the enforcement begins in January, we have yet to see carriers flocking to the site,” said Joel Wood, the council's senior vice president, government affairs.
“We're working on that and do hope that it'll be a helpful tool for our members,” he said.
To alleviate some of the pressure on parties working to comply with FATCA, the IRS has designated 2014 and 2015 as a “transition period” during which time it will look for entities including insurers to make a good faith effort to meet certain compliance requirements, according to its notice 2014-33.
Those making such good faith efforts will likely not be subject to IRS enforcement for minor non-compliance, said Mr. Evans.
According to the IRS notice, however, “an entity that has not made good faith efforts to comply with the new requirements will not be given any relief from IRS enforcement during the transition period.”
While the insurance sector moves to comply with the requirements of the legislation, there are some who still believe that while well-intended, the law is being misapplied to the property/casualty insurance industry.
“We continue to assert that non-cash-value commercial insurance transactions aren't a mechanism for international tax avoidance and shouldn't be covered under FATCA,” said the Council's Mr. Wood.
“I think that FATCA had a purpose of rooting out those payments that were being made to offshore banks out of the U.S. ultimately to U.S. account holders. Does that fit the property/casualty insurance industry all that well? Not really,” said William Pauls, Washington-based partner with law firm Sutherland Asbill & Brennan L.L.P.
“We don't necessarily feel like property and casualty insurance fits within the goals of the FATCA compliance regime,” said Dwaune Dupree, Washington.-based counsel for financial policy for the Property Casualty Insurers Association of America.
“You're not buying a property/casualty policy to transfer or hide funds. You're buying it to mitigate a risk that you have, a real risk,” said Mr. Dupree.