While regulations have yet to be issued, insurers should begin planning their Foreign Account Tax Compliance Act (FATCA) compliance efforts today, according to
In March of 2010, the Foreign Account Tax Compliance Act (FATCA) provisions became law with the enactment of the Hiring Incentives to Restore Employment (HIRE) Act. FATCA is a government effort to fight tax evasion that requires financial institutions to disclose U.S.-owned accounts to tax authorities or face a 30-percent withholding tax, has broad implications and presents significant challenges—including operational challenges—for many insurers.
"While working with those in the insurance industry who are trying to evaluate the impact of FATCA on their organizations, we have uncovered many of the complexities and other unique challenges that were not expected, including how to treat closed blocks of business, how domestic insurers will better understand the ownership of non-natural holders, and many other product-specific issues,” said Chris Joline, director, PwC US financial services advisory. “Given the uniqueness of each insurer's business structure, evaluating the impact of FATCA on all segments of their business is critical."
Proposed regulations are not expected until the latter half of 2011, and it could be almost a year or more before final regulations are issued. However, PwC says to achieve and maintain compliance with the new regulation, insurers will have to develop multidisciplinary support teams that include not only tax specialists but specialists from service and operations, IT and compliance. By planning the work needed for compliance, and completing as many preliminary steps as possible today, insurers can minimize the disruption to their business operations as the FATCA deadline approaches, the company says.
By July 1, 2013, non-U.S. insurers should have in place a process to review all information received from policyholders for indicators that the policyholder may be a U.S. person. U.S. insurers are already subject to a number of U.S. information reporting requirements on payments (e.g., Forms 1099-R, 1099-Misc, etc.) and have been feeling the pressure of the IRS stepping up its enforcement in this area. However, FATCA now requires U.S. insurers to also enhance their due diligence process to determine whether the foreign financial institutions and non-financial foreign entities who own policies are FATCA-compliant or withhold 30% on certain payments under these policies. Also, U.S. insurers will need to review the types of payments made to non-U.S. counterparties and whether the counterparty is FATCA compliant; otherwise the U.S. insurer becomes liable for the withholding tax.
PwC recommends the following steps to take to ensure they meet the compliance date:
1. Current State Analysis: Assess the current state of the organization and determine what processes and technology can be leveraged or modified to meet compliance.
2. Future State and Roadmap Development: Develop a target operating model and preliminary implementation road map.
3. Implementation: Execute on steps that can be taken now and educate customers and affected business units about the new data collection and reporting requirements.
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