Facilitators Michael Miles Phil Ferrari

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1 Product Tax Seminar September 20 21, 2012 Washington, DC 1B: FATCA for Actuaries Chair Howard Stecker Facilitators Michael Miles Phil Ferrari

2 What Actuaries Need to Know About The Impact of FATCA on Insurance J. Howard Stecker and Philip Ferrari SOA Product Tax Seminar September 20, 2012 Disclaimer Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited located in the US. The views expressed by panelists in this webcast are not necessarily those of Ernst & Young LLP. Circular 230 disclaimer Any US tax advice contained herein was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice. This presentation is 2012 Ernst & Young LLP. All rights reserved. No part of this document may be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying or using any information storage and retrieval system, without written permission from Ernst & Young LLP. Any reproduction, transmission or distribution of this form or any of the material herein is prohibited and is in violation of US and international law. Ernst & Young and its member firms expressly disclaim any liability in connection with use of this presentation or its contents by any third party. Page 2

3 Why should the Actuary care about FATCA? FATCA is the first attempt by a sovereign government (US Treasury) to require foreign companies not subject to its oversight to provide financial information on assets held for US persons and US entities Withholding is the club if foreign financial institutions do not comply, US payors will have to withhold 30 percent from any financial service payment starting in 2014 Reciprocity of information is likely to be required by some countries, thus requiring US companies to supply information similar to what FATCA requires to be reported The sweeping nature of FATCA, will it cause: Change in development costs of cash value insurance products? Change in investment methodology for insurance products? Change in policyholder behaviors due to potential withholding on insurance payments? Change in nature of counterparty arrangements? Overall, FATCA has a major impact on the overall customer experience Page 3 Insurance terminology is broad AND based upon existing US tax law defined terms Proposed regulations rely heavily upon US tax law definitions Definitions for determining value of a contract, terms and features of product types, eligibility as a grandfathered obligation, reinsurance arrangements all are in need of further details Sample definitions - Insurance company More than half the business during the year is insurance/reinsurance Life insurance contract Contract treated as life insurance under local law Section 7702 applies, but excludes computational rules and limits Foreign insurance companies generally do not refer to US tax law when designing new products Annuity contract No definition of annuity contract in section 72 requires annuity payment Deferred and payout annuities covered very broad definition Term insurance Excluded from FATCA; must have periodic payments at least annually Page 4

4 Insurance terminology is broad AND based upon existing US tax law defined terms (cont.) Sample definitions (cont.) Reinsurance No definition or specific guidance provided in proposed regulations regarding treatment for Chapter 4 purposes Cash value Pre-existing cash value life and annuity contracts may be eligible for exclusion from due diligence procedures based upon value of the account; however, Appropriate value to use for de-minimis checks not so easily determined Grandfathered obligations Some contracts outstanding as of January 1, 2013 may be eligible to be grandfathered obligations, grandfathered from withholding on payments Includes some life insurance contract with fixed terms, most endowments and all term certain annuities Certain and some are important notes in the above implying complications in determining grandfathering status Contracts can lose grandfathered status on Material Modification which is not well defined in the regulations Page 5 Reinsurance Proposed regulations are silent on specific treatment of reinsurance; however, reinsurers of indemnity (coinsurance, quota share, loss portfolio, etc) treaties generally: Do not make payments directly to policyholders and therefore do not meet the definition iti of a withholding agent Do not accumulate or hold policyholder-level information sufficient to perform any of the information reporting obligations under Chapter 4 Accordingly, should not take on Chapter 4 obligations through reinsurance; however, the industry has requested that Treasury modify proposed regulations to provide explicit guidance Reinsurers taking on assumption reinsurance of cash value insurance contracts or administration rights under indemnity reinsurance of cash value insurance contract likely take on Chapter 4 obligations Periodic settlements of cash flows between ceding company and reinsurer may require Chapter 4 documentation of payee status to avoid withholding in certain cases Page 6

5 U.S. companies - considered withholding agents Proposed regulations did away with classification of USFI and treats all U.S. based financial institutions as withholding agents. Generally, any person, U.S. or foreign, that has control, receipt, custody, disposal or payment of a withholdable payment Must begin withholding on US source FDAP and gross proceeds paid after December 31, 2013 and December 31, 2014, respectively, phased in depending on various FATCA classifications of FFIs and NFFEs FDAP? The amount of a withholdable payment for Chapter 4 purposes is based on FDAP (fixed and determinable annual or periodic) income as defined by section 1441 Exclusions include death benefits (section 101) and return of premiums (section 72) Determining FDAP income from Life insurance contracts complicated for US Withholding Agents by Transfer for value arrangements For US companies, contracts consider Modified Endowment Contracts due to failure of IRC section 7702A Also, must consider any similar local foreign laws? Page 7 U.S. companies - considered withholding agents (cont.) US Source? US sourced income that is fixed or determinable annual or periodic (FDAP) is subject to withholding unless the payee Chapter 4 status is documented Payments from US companies (including section 953(d)) are generally considered US sourced so they need to implement procedures to document Chapter 4 status of payees Payments from non-us companies are either foreign-sourced which are not subject to FATCA or a mixture of US and foreign-sourced FDAP which is considered a pass thru payment and withholding is delayed until 2017 or later Gross Proceeds? Payments of gross proceeds to acquire obligations which generate US sourced interest and dividend income, whether or not actually paid, are subject to withholding starting in 2015 unless the payee is a participating FFI or the payee is an NFFE meeting one of the exemptions Payments to US companies are not subject to withholding Page 8

6 Other withholdable payments In addition to withholding on payments made under financial accounts, other types of payments may be subject to Chapter 4: Starting in 2014, payments of US sourced income that is fixed or determinable annual or periodic (FDAP) may be subject to withholding unless the payee Chapter 4 status t is documented d Payments in ordinary course of business are generally excluded from FATCA withholding; examples include payments for accounting and legal services, office equipment, rent, wages, software, etc. Payments from US companies to non-us companies for financial services performed in the US will be considered FDAP so they need to implement procedures to document Chapter 4 status of payees Examples include interest and dividends, payments under derivative contracts with foreign counterparties, insurance and reinsurance premiums That is even so presumed out of scope, non-life companies, may have a withholding impact due to financial services payments they make to foreign entity payees. Page 9 Data privacy and FATCA Intergovernmental Agreements Overview - Implementing FATCA may conflict with local law in many jurisdictions because of limitations to allowable documentation, restrictions on sending customer data across borders for analysis purposes, including US tax reporting In large part to alleviate data privacy concerns, statements t t have been issued by the United States, France, Germany, Italy, Spain, the United Kingdom, Switzerland and Japan announcing two different models for potential intergovernmental agreements to collaborate on FATCA. Model agreement for France, Germany, Italy, Spain and the United Kingdom was released July 26 and contained a number of beneficial provisions which lessen the burden of compliance. Objectives - Resolve legal impediments to compliance in the partner countries Find simpler, more practical implementation options Reduce cost of compliance for FFIs Page 10

7 Data privacy and FATCA Intergovernmental Agreements (cont.) Model 1 relies on FFIs reporting to their home jurisdiction which, in turn, would report the information to the IRS, while Model 2 relies on companies directly reporting to the IRS Would remove the most onerous aspects of FATCA for FFIs in partner countries, in particular the passthru payment regime Customer identification and documentation requirements would generally remain the same If this approach is pursued, it is likely other countries would look to follow, both in the EU and elsewhere. Challenges FFIs still must perform much of the same customer due diligence Doesn t relieve the challenges of FFIs from the partner countries transacting or making payments to nonparticipating FFIs or recalcitrant accounts in non-partner countries Reciprocal requirements on US financial institutions FFIs may have to develop solutions to be able to identify taxpayers from all partner countries The agreements are not definite, and legislation will likely take time to enact, which means continued uncertainty Page 11 Key implementation decisions that will drive solution design and implementation effort Who within the organization has responsibility for defining implementation activities, technical interpretation and ongoing compliance? How will you ensure consistent interpretation and documentation of FATCA decisions across divisions and business units? Do you have systems and business processes capable of adding activities to identify, track and monitor FATCA indicia; document FATCA classification and flag transactions requiring withholding? Do you have a process to understand and manage FATCA activities that will need to be performed by third parties such as transfer agents, custodians and third party service providers What is the cost/benefit of retaining limited numbers of US clients in your FFIs and limited numbers of foreign clients in your US operations, and will the organization choose to close, sell or discontinue those relationships? How will your FFIs deal with account thresholds requirements (e.g., de minimis rules, high value thresholds for account due diligence requirements) to reduce cost and effort? How will you change the multitude of customer, counterparty, distribution and third party agreements to address FATCA Page 12 12

8 What should financial institutions be focused on now? Key activities Governance and communications Comments due to IRS Final regulations expected Create governance structure Define workstreams and program timelines Identify responsible parties Execute internal education US withholding agent effective date External market and customer communication Foreign financial institution (FFI) effective date Earliest FATCA withholding First FFI pre-existing account due diligence complete First FFI certifications First FFI reporting IRS registration and compliance Analyze legal entities Determine IRS registration strategy Sign participating FFI agreements Certify high-value due diligence Certify management compliance New account onboarding Develop onboarding solutions Enhance documentation procedures External market /customer communication Deploy new solutions and procedures US tax documentation maintenance Pre-existing account due diligence Analyze existing customer populations Plan customer due diligence program (communication, redocumentation) Begin executing account due diligence Complete account due diligence Withholding Reporting Strategic planning considerations Page 13 Define withholding solution Develop 2014 withholding solutions in alignment with strategic footprint Begin withholding on US sourced income payments to nonparticipating FFIs and recalcitrant accounts Report on US accounts and beneficial owners (YE 2013 balances) Report on recalcitrant accounts Planning to expand withholding and reporting solutions to fulfill 2015 and 2016 FATCA requirements Define reporting solution Prepare data structures t for 2014 R t US t d b fi i l Develop 2014 reporting solutions in alignment with strategic footprint Finalize impact assessments Influence FATCA regulations Define centralization vs decentralization solution model Assess third-party legal agreements and amend and renegotiate as needed Address jurisdictional legal barriers Determine strategy regarding recalcitrant and NPFFI accounts Determine strategy for de minimis Monitor intergovernmental FATCA agreements and assess impact Internal training for key resources Controls over external and internal communications Appendix Page 14

9 Page 15 Overview of FATCA Requirements FATCA Dimension IRS REGISTRATION & COMPLIANCE By FATCA Effective Date for FFIs (01-Jul-2013) NEW CUSTOMER / COUNTERPARTY ONBOARDING AND ACCOUNT OPENING By FATCA Effective Date: 1-Jan-2013 for USWA 1-Jul-2013 for FFIs Page 16 Summary of Requirements Classifying corporate legal entities and funds in accordance with FATCA, particularly identifying Foreign Financial Institutions (FFIs) Registering FFI entities with the IRS and sign FFI Agreements Identifying Responsible Officers of FFI entities, who will certify FATCA compliance on an ongoing basis Determining products and payments which are in-scope / out-of scope. For in-scope product areas, ensure new customer and counterparty onboarding and account opening processes enable FATCA classification and documentation by the relevant FATCA effective date : For individual accounts: o Identifying US and Non-US accounts o Reviewing information and documentation collected for non-us customers, including KYC/AML files, for indicators of US status; address US indicators with acceptable documentation o Obtaining and validating US tax documentation and waivers to allow IRS reporting, as required For entity accounts ( non individuals ), whether customers (e.g., trusts, partnerships) or counterparties (e.g., distributors, intermediaries) o Identifying US vs non-us entities, financial vs non-financial institutions o Identifying the nature of non-financial institutions (e.g., publicly traded, engaged in trade or business vs. passive ) o Classifying each entity into one of over 20 FATCA entity types o Collecting and validating documentation required to support FATCA classification documentation may vary significantly from what is collected today o Obtaining and validating US tax documentation and waivers to allow IRS reporting o Reviewing information and documentation collected for non-us entities, including KYC/AML files, for indicators of US status; gather additional documentation if US indicia are found o Validating that foreign financial institutions ( FFIs ) are compliant with FATCA, including verification of IRS tax identification number (FFI EIN) o Identifying underlying US owners of passive foreign entity clients and counterparties (e.g., certain foreign partnerships, trusts, s-corps not primarily involved in an active trade or business) Not all products and payments are in-scope; products that don t generate income payments, and non financial payments made to service providers in the normal course of business (e.g., most vendor/ap payments) are generally not applicable. Flagging US account holders for IRS reporting and flagging undocumented or non-compliant customers and counterparties and undocumented accounts for withholding

10 Overview of FATCA Requirements FATCA Dimension PRE-EXISTING ACCOUNT DUE DILIGENCE Begins on FATCA Effective Date: 1-Jan-2013 for USWAs 1-Jul-2013 for FFIs Staggered due dates in 2014 and 2015 ONGOING ACCOUNT MONITORING AND MAINTENANCE By FATCA Effective Date: 1-Jan-2013 for USWA 1-Jul-2013 for FFIs WITHHOLDING Begins in 2014 REPORTING Begins in 2014 Summary of Requirements Review information and documentation for customer and counterparty accounts existing as of the FATCA effective date, perform FATCA classification, and ensure proper US tax documentation: Similar classification and documentation requirements as for new customers and counterparties Generally, firms can rely on existing information for identifying accounts Firms can filter out low-value accounts (less than US$50k for individual bank accounts; less than US$250k for individual insurance contracts and all entity accounts) Some key differences for individual accounts are: o US Withholding Agents need not perform due diligence on pre-existing individual accounts o Electronic search for indicators of US tax status for individual accounts over US$50K (or US$250K for insurance contracts) and entity accounts over US$250K, including aggregating accounts when such capabilities exist orelationship Manager inquiry and enhanced review for US indicators for high value individual accounts (>US$1m) Key differences for entity accounts: rules for presuming entities to be FFIs (called Prima Facie FFIs ) Monitor for changes in circumstances, re-classify and re-document customer accounts and counterparties as needed Store documents and maintain auditable record of information and validation steps Review and recertify accounts periodically Terminate non-compliant accounts if possible Paying agents must withhold 30% on US sourced payments made to non-compliant or undocumented accounts Withholding begins in 2014 for income payments (e.g., interest and dividends on US assets). Withholding begins in 2015 for gross proceeds of sale of assets that could produce US sourced income. Ability to grandfather certain products issued before 01Jan-2013; they are not subject to FATCA withholding Report balances of US accounts of FFI entities to the IRS starting in 2014; reporting income begins in 2016 Report on accounts of non-fatca-compliant clients and counterparties starting in 2014 Report on US sourced payments made to non-us accounts beginning in 2015 Report on income paid to US owners of certain foreign entities; potentially begins in 2014 Page 17

11 Michael R. Miles SOA Product Tax Seminar September 20, FATCA Foreign Account Tax Compliance Act Enacted as part of HIRE Act on March 18, 2010 Extremely broad expansion of disclosure/withholding rules in order to obtain information about foreign accounts maintained by U.S. persons 2

12 Overview of FATCA Statute 30% withholding required on payments of interest, dividends, and other specified amounts to foreign financial entities if the U.S. persons who hold accounts in such entities are not identified to the IRS New rules trump most statutory and treaty rules that provide for a lower withholding rate (e.g., the zero-rate portfolio interest exemption) 3 Overview of FATCA Statute (cont.) To avoid withholding, each foreign financial institution (FFI) must enter into an agreement with the IRS under which the FFI will identify and report on certain U.S. Accounts If no agreement, withholding applies to all withholdable payments made to the nonparticipating FFI (NPFFI), even if no U.S. Accounts or if made by a U.S. affiliate If an expanded affiliated group (EAG) has multiple FFIs with U.S. accounts, this agreement must be entered into by all such FFIs in order to be effective Statute unclear whether insurers are FFIs 4

13 Overview of FATCA Statute (cont.) Non-FFIs (non-financial foreign entities or NFFEs) receiving withholdable amounts also will be subject to 30% withholding unless they provide a certificate to payors NFFE must certify that it (as beneficial owner of payment) does not have any substantial U.S. owner (i.e., a 10% or greater (by value) owner) or identify any such owner Exceptions for publicly traded NFFEs (and affiliates), government-owned NFFEs, and other persons to be identified in regulations 5 Overview of FATCA Statute (cont.) Withholdable amounts are interest, dividends, and other FDAP payments, but also include sale proceeds from assets that produce such income (even though the gains from such sales generally are not subject to U.S. tax) Include gross payments from derivatives that produce U.S. source dividend equivalent payments Rules apply to payments in 2013 and later years Rules do not apply to payments made on obligations outstanding on March 18, 2012 IRS given regulatory authority to address material modification of such obligations 6

14 Overview of FATCA Statute (cont.) In FFI agreement with IRS, in order to avoid withholding, FFI must: Obtain information from all persons who hold accounts to determine if accounts are U.S. Accounts Adopt verification and due diligence procedures required by IRS Report annually to IRS names, addresses, and TINs of U.S. Account owners, account numbers and balances, and gross receipts of (and gross withdrawals from) account 7 Overview of FATCA Statute (cont.) Agree to withhold (at 30% rate) passthru payments made by the FFI to any recalcitrant account holder or another nonqualifying FFI (or close account) Comply with any additional information requests made by IRS If foreign law prohibits disclosure of information, obtain a waiver from U.S. Account owner or close account 8

15 Overview of FATCA Statute (cont.) FFI will be deemed to satisfy foregoing rules if it can satisfy IRS it does not maintain U.S. Accounts and meets IRS s requirements with respect to accounts maintained in FFI by other FFIs IRS also given regulatory authority to exempt entire classes of FFIs Election available to subject FFI to same reporting as U.S. financial institutions, rather than FFI rules 9 Refunds of Withheld Amounts If FFI is beneficial owner of payment: If no treaty, no refund If treaty, refund for excess of 30% over treaty rate No interest on refunds

16 Refunds of Withheld Amounts (cont.) If NFFE is beneficial owner of payment: If treaty, refund for 30% over treaty rate If no treaty, refund for 30% over relevant statutory rate, but only if NFFE can demonstrate that it has no substantial U.S. owners or it identifies such persons In either case, no interest on refund if refund is paid within 180 days after later of date relevant return is due (without extensions) or refund claim is filed 11 Current Status of FATCA Proposed FATCA regulations issued February 8, 2012 Final regulations not likely until September October 2012 ( end of Summer ) Draft FFI Agreement should be released prior to that date Final FFI Agreement also not likely until end of Summer 12

17 Example of FATCA Application Foreign and U.S. Owners Foreign and U.S. Policyholders Foreign Insurer X (Country x treaty Country) Interest and dividends U.S. Issuer Foreign Insurer Y (Country Y nontreaty country) Interest and dividends 13 Example of FATCA Application (cont.) 30% withholding on all payments unless X and Y comply with new rules Refund may be available to X as a result of treaty, but not to Y. No interest on refund Y may be unable to avoid withholding by entering into agreement with IRS, unless X does likewise, even if Y has no U.S. policyholders Note that this treatment may apply even if U.S. Issuer is a sub of X 14

18 Proposed Regulations - General will be FFIs if they issue any cash value contracts or annuities Covered contracts include any cash value insurance contracts and all annuties. (Cash value is greater of surrender value (without reduction for surrender charges or loans) or amount holder can borrow.) Also include accounts for amounts held by an insurer under agreement to pay or credit interest 15 Proposed Regulations General (cont.) Limited exceptions for amounts payable for certain losses, premium refunds on non-life contracts, and certain policyholder dividends Exception for term life insurance contracts with equal annual premiums and surrender value not in excess of aggregate premiums paid, less mortality and expense charges Exceptions for certain retirement and savings plans, but very limited 16

19 Proposed Regulations Account Identification FFI must obtain from each holder either a Form W-9 or Form W-8 or proper identification showing the holder s country of residence FFI must retain original or copies of such documentation FFI must review all other information collected and look for U.S. indicia Information showing U.S. citizenship or residency (including U.S. place of birth, U.S. address or telephone number, U.S. bank account) If U.S. indicia are present, FFI must obtain a Form W-9, Form W-8, privacy law waiver and/or other information Identification information may need to be renewed if underlying documents have expiration date 17 Proposed Regulations FFI Agreements No passthru withholding until January 1, 2017, at earliest (except for custodial-type accounts) No passthru withholding on contracts in existence on January 1, 2013, if they constitute obligations Some ambiguity whether life insurance or annuity contracts payable on or until death are obligations Phase in of reporting on U.S. Accounts (see slide 22) 18

20 Proposed Regulations Account Identification for Pre-existing Insurance Accounts Life insurance or annuity contracts outstanding as of effective date of FFI agreement For accounts with an aggregate value of $250K or less, no need to identify an account as a U.S. Account if held by an individual This exception ceases to apply if account value exceeds $1MM Insurer FFIs can perform one-time electronic searches of their accounts with an aggregate value of $1MM or less to identify U.S. Accounts (w/i 2 years of FFI Agreement) Insurer FFI must perform manual search of larger accounts (w/i 1 year of FFI Agreement) 19 Proposed Regulations - EAGs As noted above, all members of an EAG must be participating FFIs (PFFIs) Transition relief until January 1, 2016, for members that cannot qualify (Limited FFIs) Limited FFIs cannot open new U.S. Accounts and must report information to the extent permitted by local law Withholding by U.S. payors applies Deemed-compliant status available, but very limited and insurers will not qualify 20

21 Proposed Regulations - Miscellaneous Special rule for insurers treats a beneficiary of a contract as the holder at maturity; therefore, identification as U.S. holder required Additionally, rule treats a beneficiary as the holder if the owner can neither access the cash value nor change the beneficiary Addition of rule negating obligation of NFFE to provide ownership information if it is an active NFFE (a category that does not include nonpublicly traded insurers) 21 Current Fixed FATCA Deadlines January 1, 2013 (or earlier) IRS opens on-line process for registering as a PFFI June 30, 2013 Complete FFI Agreement application July 1, 2013 First effective date for FFI Agreements January 1, 2014 Withholding occurs on FDAP payments by U.S. payors to NPFFIs and by PFFIs to recalcitrant holders of new custodial accounts unless an IGA is in effect September 30, 2014 First reporting by PFFIs to IRS (for 2013). Must include name, address, U.S. TIN of holder, account balance, and account number. 22

22 Current Fixed FATCA Deadlines (cont.) January 1, 2015 Withholding on all payments to NPFFIs (unless a pre-existing obligation). January 1, 2016 EAG rules take effect without regard to Limited FFI transition rule March 31, First reporting of FDAP income information on account March 31, 2017 First reporting of gross proceeds information on account 23 Current Variable FATCA Deadlines Complete due diligence and report U.S. account to IRS Within 1 year of FFI Agreement (for accounts with value in excess of $1 million) Within 2 years of FFI Agreement (for other accounts) Withholding by PFFIs on foreign passthru payments January 1, 2017 or later 24

23 Comments on Proposed Regulations Deemed-compliant status Branches to be treated as separate entities Insurer is licensed and regulated in local jurisdiction Jurisdiction is FATF compliant Insurer has no fixed place of business outside jurisdiction Insurer does not solicit policyholders outside jurisdiction i 95% of all contracts are held by residents of jurisdiction (as of issuance) Insurer has policies in place to prevent sales to U.S. residents 25 Comments (cont.) Simplify definition of life insurance and annuity definitions Exclude reinsurance from definition of cash value insurance contracts Adopt $50K exception to U.S. Account status Eliminate equal periodic payment prong of term life definition Clarify that grandfathered contracts include all life insurance and annuity contracts Clarify definition of depository accounts to exclude side accounts ancillary to existing life or annuity contracts 26

24 Comments (cont.) Expand exclusion from U.S. Account treatment for government-registered retirement and savings accounts Eliminate redocumentation absent new evidence of U.S. indicia Eliminate special holder rules for insurance and annuity contracts Eliminate reporting for amounts not taxable under U.S. law (e.g., death benefits and amounts in lieu of death benefits) 27 Comments (cont.) Eliminate any requirement to cancel insurance contracts Add inflation adjustment to dollar amounts Exclude premium payments from types of income to which withholding by U.S. payors should apply. Simplify certification for FATCA compliance Defer effective dates 28

25 Inter-Governmental Agreements (IGAs) February 2012 Joint Statement by U.S. and EU Members U.S. and individual countries will enter into specialized tax information sharing arrangements to avoid privacy law restrictions Indirect information submission No passthru withholding on accounts or need to close accounts of recalcitrant holders 29 Model IGAs Model IGAs released July 2012 reciprocal and nonreciprocal versions First final IGAs expected to be executed shortly Taxpayer-favorable provisions included in models; unclear whether final regulations will adopt all of those provisions i IGAs avoid privacy law issues by routing data through foreign tax authorities 30

26 Major Favorable Provisions in Model IGAs Significant relief for EAGs with NPFFIs Addition of $50k exception from financial account treatment for life insurance contracts Placeholder for country-by-country list of excepted retirement and savings plans Expansion of insurance due diligence exception for insurance and annuity contracts entered into before 12/31/13 31 Major Favorable Provisions in Model IGAs Due-diligence procedures allow use of existing KYC/AML procedures Elimination of need to refresh holder documentation unless U.S. indicia identified Beneficiary of existing contract not treated as owner unless he/she has beneficial ownership rights (but maturity rule unchanged) 32

27 IGAs Not a Panacea Not all countries may execute Negotiations will take time Enabling foreign legislation or new regulations may be needed No transition rule in Model IGAs 33

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