Transcript U.S. Federal Excise Tax on Insurance Premiums: Current

Tax Considerations in the Global Environment:
United States Federal Excise Tax
Mike Stalley FCA
Chief Executive of FiscalReps
Agenda
•
US Federal Excise Tax ( US FET)
o The Basics
o Working Example
o Validus Case
o What Next …. ?
•
Other Global Tax Regimes
o FET type premium taxes
o VAT/GST on premium taxes
o Other notable taxes
United States Federal Excise Tax (US FET)
The Basics
•
Federal Excise Tax (FET) is a tax is imposed on insurance policies
issued by foreign insurers
•
Insured, insurer & broker can all be held liable for payment of FET
•
Rates of tax:
o Property & casualty – 4%
o Life, sickness & accident – 1%
o Reinsurance of above classes – 1%
•
Insurers domiciled in countries which have appropriate double tax
treaties with the USA can apply for a ‘closing agreement’
•
UK is one such country – exemption from FET possible
Working Example: Part 1
Insurance premium paid
to foreign insurer covering
a US risk is subject to FET
FET typically settled by the
local US insured
With a Closing Agreement in
place transaction is exempt
from FET
Working Example: Part 2
Insurance premium paid
to foreign insurer covering
a US risk is subject to FET
FET typically settled by the
local US insured
With a Closing Agreement in
place transaction is exempt
from FET
Reinsurance premium could be subject to FET if the reinsurer
does not have an exemption from FET. If reinsurance
taxable then premium for primary policy is taxable (1% + 4%)
Premium ceded to non-US
reinsurance company
Working Example: Part 3
Insurance premium paid
to foreign insurer covering
a US risk is subject to FET
FET typically settled by the
local US insured
With a Closing Agreement in
place transaction is exempt
from FET
Reinsurance premium could be subject to FET if the reinsurer
does not have an exemption from FET. If reinsurance
taxable then premium for primary policy is taxable (1% + 4%)
Premium ceded to non-US
reinsurance company
Cascading Rules: Every subsequent retrocession subject to FET
Working Example: Part 3
US Risk
Premium paid to UK
Insurance Company
Premium Ceded to
Bermuda Reinsurer
•
Premium paid to UK company potentially taxable but exemption
available through double tax treaty & closing agreement
•
Reinsurance premium taxable as no double tax treaty between USA
and Bermuda – making primary premium taxable
•
Further retrocessions between reinsurers anywhere in the world
potentially subject to FET under cascading rules
Validus Case
•
Validus Reinsurance Limited, a Bermudan reinsurer brought a case against
IRS claiming cascading rules unfair
•
Federal District Court found in their favour
•
Basis of argument used:
o Tax violates international law
o Due process clause of US constitution
•
Court actually took simpler route – statute as written applied to reinsurance
contracts only and not retrocessions
•
IRS had until 06 April 2014 to appeal verdict
•
IRS did appeal – but no further news on appeal date yet
Working Example: Part 3 Revisited
US Based Risk
Premium paid to UK
Insurance Company
Premium Ceded to
Bermuda Reinsurer
•
Premium paid to UK company potentially taxable but exemption
available through double tax treaty & closing agreement
•
Reinsurance premium taxable as no double tax treaty between USA
and Bermuda – making primary premium taxable
•
No further retrocessions are subject to FET
What Next … ?
•
Any FET paid under cascading rules potentially reclaimable
•
Statute of limitations is 3 years or 2 years from the date of payment, if
claiming a refund of FET previously paid
•
FiscalReps via US associate Asher Harris can assist with:
o
o
o
o
Any potential reclaim of FET
General FET advice
Obtaining a closing agreement
Ongoing FET compliance
Other Global Tax Regimes
Other FET type taxes
Canada
Australia
New Zealand
•
Canada – Federal Excise Tax
o Tax levied when insureds purchase insurance from unlicensed insurers
o Rate = 10% of premium payable by local insured
o Exempt: personal accident, life, sickness and marine plus insurance not
able to be purchased in Canada
•
Australia – Income Tax with effective rate of 3%
o Tax levied when premiums paid to non-resident insurers
o Rate = deemed profit of 10% x local corporation tax rate of 30% = 3%
o Exempt: life insurance
•
New Zealand – income tax with effective rate of 2.8%
VAT / GST on premium taxes
South Africa
•
South Africa – VAT
o
o
o
o
•
VAT is payable on premiums at standard rate of 14%
Reclaimable subject to business recovery rates
Reverse chargeable if premiums paid to non-domestic insurer
Claims payments possibly subject to VAT
Peru – VAT
o
o
•
Peru
VAT is payable in premiums at standard rate of 19%
Reverse chargeable when insurer is non resident
Singapore – GST
o
o
o
o
Insurance sold by GST registered insurer subject to tax at 7%, but
Zero rated when policyholder not resident in Singapore
Exempt when life insurance or certain international classes
No reverse charge mechanism in local tax law
Singapore
Conclusions
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Its not just about premium taxes
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The taxes are often the responsibility of the local insured
•
Payments of claims may have tax implications
•
As an insurer only collect taxes that you are responsible for settling
Need to access IPT & VAT expertise to be covered globally
Questions