Foreign Account Tax Compliance Act (FATCA)
Ian Woodruff of Grant Thornton has provided the following words attached update form the FATCA working group together with form W-81MY and the guidance notes.
It has become difficult to ignore the effects of the Foreign Account Tax Compliance Act ("FATCA") which has recently been implemented by the IRS. Even those not involved in the financial sector are being bombarded with information requests and since the UK has entered into an Intergovernmental agreement ("IGA") with the IRS, it means that compliance with FATCA is now part of domestic legislation.
In essence, the FATCA rules are a global information gathering exercise by the IRS to ensure that certain non-US companies provide data on their US customers to enable them to confirm that this is being properly declared in the US.
For MGAs it is most likely that they would be considered non-financial intermediaries as they are regarded as falling into being part of the payment process of an insurance company. However, this will always be dependent on the specific circumstances of the MGAs contract with the insurance company.
As an intermediary non-financial foreign entity (“NFFE”) an MGA will be required to determine, based on its income and balance sheet, whether it is “Active” or “Passive”. Active NFFEs, will have no registration or HMRC reporting requirements under FATCA. They will however be required to provide a W-8IMY form to financial counterparties confirming this status. Those NFFEs considered Passive will have the same requirements of an Active NFFE, being the provision of a W-8IMY confirming its status, but will have an additional requirement to report, either directly to HMRC or indirectly through their correspondence with counterparties, on any US owners with a shareholding greater than 10%.
A subsequent point of note is the fact that there are further consequences as a result of being considered an intermediary, which effectively requires the MGA to act as a conduit for the provision of information to counterparties down the insurance chain.
It is clear that an entity’s obligation under FATCA is not always clear cut and would be well worth seeking professional advice when considering your businesses FATCA obligations.
The LMWG update (attached) contains a useful diagram on page 2 and it appears that MGAs are in a similar position to UK wholesale brokers – see the guidance below provided to UK wholesale brokers on page 2.
UK wholesale broker
- The UK wholesale insurance broker will continue to be regarded as an intermediary. As such, it will need to complete a Form W-8IMY, however the frequency of which, ie per transaction or per insured or contract, is unclear whilst we await the final form and instructions.
- Reporting and withholding responsibilities rest with the surplus/excess lines broker and not with the UK wholesale broker, ie the last person to touch the premium as it leaves the US will be the person responsible for reporting it to the IRS.
- However the UK wholesale broker will likely be required to provide an allocation statement to assist the surplus/excess lines broker with their reporting responsibilities.
- The UK (re)insurance broker will also have responsibility for communicating that it has received documentation to verify the FATCA compliance status of the insurers it is placing business with, to its US counterparty. The method and frequency of such communications and checks is to be determined.
It appears that UK MGAs will need to complete Q4 Chapter 3 status as non-qualified intermediary and then complete part IV.
Part IV - you will need to tick 15a and possibly some of you may need to tick 15b if you are passing on information.
Q5 Chapter 4 status: UK MGAs are Active NNFE (non-financial institution. Active means trading not earning more than 50% from investment income).
If you have not had a request for the form yet you complete it and keep hold of it and give copies to those who request it – who are likely to be US Surplus Lines brokers.
The surplus lines broker may also request a copy of the Lloyd’s form if you underwrite on behalf of Lloyd’s and this is available on the Lloyd’s web site
If you require more detailed guidance please contact the Grant Thornton Insurance Tax team.
If your question is specifically about Lloyd’s then the person to talk to at Lloyd’s is Helen.Halliwell@lloyds.com