The Foreign Account Tax Compliance Act and Foreign Insurance Companies: Better to Comply than to Opt Out
Mark Van Heukelom
University of Iowa - College of Law
March 1, 2013
The Journal of Corporation Law, Vol. 39:1, October 2013
As corporations continue to engage in international commerce, they must remain ever cognizant of the myriad tax laws with which they must comply. In response to the recession that was sparked by the global financial crisis of 2007–08, the United States implemented the HIRE Act of 2010. Included in this legislation is a new tax scheme to capture unpaid overseas tax. Known as the Foreign Account Tax Compliance Act (FATCA), this law requires foreign financial institutions to either provide extensive client documentation and reporting to the Internal Revenue Service (IRS) or withhold a large percentage of each payment these financial institutions make to clients covered by FATCA. While this law imposes new requirements on many foreign corporations, it poses particular issues for foreign insurance companies.
This Note examines the influence FATCA will have on foreign insurance companies. It introduces FATCA, reviews the ineffectiveness of prior U.S. laws to capture duly owed offshore taxes, and discusses how FATCA aims to overcome the shortcomings of prior laws. It also details clarifications to FATCA that the IRS has provided. Next, Part III analyzes the costs of FATCA to foreign corporations and provides various means by which foreign corporations can comply with the law. Part III continues by introducing how foreign insurance companies can satisfy FATCA’s requirements. It also examines Internal Revenue Code Section 953(d), a unique statutory alternative to FATCA compliance that is available solely to foreign insurance companies. Finally, Part IV recommends against this statutory alternative for most foreign insurance companies based on the limited scope of the alternative and the countless expenditures the alternative requires.
Number of Pages in PDF File: 17
Date posted: April 4, 2014