Recently released instructions to the 2014 Form 1042-S clarify FATCA reporting requirements for US premiums.
According to the instructions, US premiums subject to the Federal Excise Tax are not reportable so long as FATCA withholding is not applied or required to be applied. However, a failure to properly document the payee’s status introduces both withholding and reporting risk to the payor who fails to obtain the appropriate documentation from payees. Download PwC: FATCA reporting of US source insurance premiums not required in certain circumstances.
Prior to the enactment of the Foreign Account Tax Compliance Act (FATCA or Chapter 4), US source insurance and reinsurance premiums (US premiums) paid to non-US carriers generally were not subject to US withholding tax or information reporting due to an exception that applies when the premiums are subject to the federal excise tax under Section 4371 (Federal Excise Tax) of the Internal Revenue Code (IRC).
Despite this long-standing exemption from reporting and withholding, it appeared that, beginning January 1, 2015, all US premiums paid to non-US carriers could be subject to withholding and would require year-end reporting on Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding.
Fortunately, recently released instructions to Form 1042-S clarify that Form 1042-S reporting is not required with respect to US premiums if they are subject to the Federal Excise Tax and FATCA withholding is not actually applied (or required to be applied).
Given this recent change, it will be critical for payors of US premiums to collect appropriate documentation in order to minimize or eliminate FATCA withholding and reporting. Appropriate documentation will include Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities) or Form W-9, Request for Taxpayer Identification Number (TIN) and Certification.
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