1. Tax Considerations in the Global Environment: United States Federal Excise Tax Mike Stalley FCA Chief Executive of FiscalReps

2. 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 Agenda

3. United States Federal Excise Tax (US FET)

4. 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

5. 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

6. 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 Premium ceded to non-US reinsurance company 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%)

7. 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 Premium ceded to non-US reinsurance company 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%) Cascading Rules: Every subsequent retrocession subject to FET

8. Working Example: Part 3 US RiskPremium 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

9. 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

10. Working Example: Part 3 Revisited US Based RiskPremium 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

11. 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 Any potential reclaim of FET o General FET advice o Obtaining a closing agreement o Ongoing FET compliance

12. Other Global Tax Regimes

13. Other FET type taxes CanadaAustraliaNew 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%

14. VAT / GST on premium taxes South AfricaPeruSingapore South Africa – VAT o VAT is payable on premiums at standard rate of 14% o Reclaimable subject to business recovery rates o Reverse chargeable if premiums paid to non-domestic insurer o Claims payments possibly subject to VAT Peru – VAT o VAT is payable in premiums at standard rate of 19% o Reverse chargeable when insurer is non resident Singapore – GST o Insurance sold by GST registered insurer subject to tax at 7%, but o Zero rated when policyholder not resident in Singapore o Exempt when life insurance or certain international classes o No reverse charge mechanism in local tax law

15. Conclusions Its not just about premium taxes 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

16. Questions