Important US Tax Changes….
Published: 31 May 2017
Important information for brokers with clients in the US- FATCA update
If you have clients based in the US then you need to make sure you obtain a W-8IMY form us as proof that you do not have to withhold 30% tax on the premium. This is due to recent changes with the Foreign Account Tax Compliance Act (FATCA) which is a US law designed to combat tax evasion. Click here for more information and a link to the Aviva Health UK Limited W-8IMYE form.
What is FATCA and what does it mean for brokers?
• The Foreign Account Tax Compliance Act (FATCA) is US law designed to combat US tax evasion.
• Where risks are written that have US Source Premium, insurers and brokers need to be able to demonstrate compliance with FATCA to the Inland Revenue Service (IRS).
• US Source Premium relates to US property, liability arising out of an activity that take place in the US, or in connection with the lives or health of US residents.
• When a broker places a risk with Aviva and corresponding risk premium is passed to Aviva, the broker must obtain a W-8IMY document form us as proof that they do not have to withhold 30% tax on the premium.
• If this cannot be demonstrated, by obtaining the W-8IMY document, the US Source Premiums will face a 30% withholding tax. The last broker in the chain will become liable for the tax if they do not withhold the W-8IMY document.
• There are a number of other potential consequences of non-compliance of this process, including fines and penalties issued by the IRS, reputational risk and being blacklisted
• You will find the Aviva Health UK Limited W-8IMYE form here which demonstrates that risks have been placed with a FATCA compliant company.
What is FATCA?
The Foreign Account Tax Compliance Act (FATCA) is US law, effective from 2014 and designed to combat tax evasion by US citizens, US residents and companies holding investments in accounts outside the US (offshore accounts).
What is US source premium?
Effectively this means a premium that relates to US property, liability arising out of an activity that take place in the US, or in connection with the lives or health of US residents.
How are brokers impacted?
When a broker places a risk with us and corresponding risk premium is passed to Aviva, the broker must obtain a W-8IMY document form Aviva as proof that it does not have to withhold 30% tax on the premium. The broker will also need to provide a W- 8IMY to the person that is being insured as proof that they do not have to withhold 30% tax before paying the premium to the broker. Any other insurer or broker in the chain must also provide appropriate documentation. Without the documentation, the last broker in the premium chain has to deduct 30% withholding tax, and undertake all relevant US tax reporting requirements. If the broker fails to do this, they become liable for the tax.
In instances where Aviva are the reinsurer, Aviva must obtain a W-8IMY from the broker.
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, which refers to contracts made outside the US). This means that from 1 January 2017 withholding obligations have been extended to ‘foreign to foreign’ business.
Consequences of Non Compliance
The potential for reputational damage is significant. Failure to withhold can leave the broker liable for the tax it failed to withhold. The IRS can impose fines and penalties that can be significant depending on the severity of the failure. Insurance intermediaries and insurance companies that are already FATCA compliant will only deal with FATCA compliant entities in a bid to limit their own exposure.
What do we need to do?
In order to prove our compliance with FATCA, we need to provide you with the appropriate documentation. Aviva Health UK Limited have a W-8IMYE form in place - a link to this documentation can be found here.
If you have any further questions on this please contact your usual Aviva consultant.
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