US tax lawyers are urging the Internal Revenue Service (IRS) to water down some of the more costly elements of new tax enforcement laws for insurance companies.
The controversial the Foreign Account Tax Compliance Act (FATCA) requires foreign financial institutions (FFIs), like banks, insurance companies and investment funds outside the US to pass details of any earnings by US taxpayers to the IRS.
FFIs may also have to keep a 30% withholding tax for the IRS on some transactions.
Organisations across the world have complained about the cost of setting up FATCA compliance – estimating the global cost at $10 billion to collect around $1 billion in extra tax every year.
Now, the American Bar Association (ABA) Section of Taxation is pleading with the IRS to consider changes to cut the costs – especially for insurance firms.
The ABA wants “to strike an appropriate balance between meeting the policy objectives of the government and mitigating burdens for insurance businesses and customers”.
Their main recommendation is for the IRS to concede insurance companies have different reporting timetables to banks and investment funds, and changing their schedule is unduly costly.
“Insurance companies contact customers almost exclusively at policy inception, change of circumstances, and at payment of benefits, withdrawals or termination amounts, so would seem that it would make sense for insurance company reporting to be matched to these contact points,” said the ABA.
The ABA feels that adopting reporting at these points falls in to line with insurance company returns in many European countries while adequately allowing the IRS to track any qualifying payments under FATCA without making compliance with the law too costly.
Other recommendations by the ABA include not treating a non-US insurance company as a FFI if cash value insurance, annuities or financial accounts are not issued.
FATCA reporting is due to start from January 01, 2013. Read some basic FATCA advice in our earlier article