Treaty-based excise tax exemptions.

• Author: Cruz, Joseph A.

Rev. Proc. 2003-78 streamlined and standardized the process for entering into a closing agreement to establish an exemption from Sec. 4371 excise taxes on premiums paid to foreign insurers or reinsurers under a U.S. tax treaty. The procedure supercedes Rev. Proc. 92-39, which required a foreign insurer or reinsurer to obtain a certificate of foreign residence from a local tax authority. This requirement has been abandoned and replaced with a "penalties of perjury" statement attesting to the insurer's or reinsurer's foreign residence. Rev. Proc. 2003-78 also provides a special closing agreement for foreign insurers or reinsurers seeking exemption under the U.S.-U.K. treaty and others that include an excise tax exemption subject to an anti-conduit arrangement limit.

Background

Sec. 4371 imposes a tax (insurance excise tax) on each policy of insurance or reinsurance issued by a foreign insurer or reinsurer for risks located in the U.S. Sec. 4374 provides that this excise tax must be paid, on the basis of a return, by any person who makes, signs, issues or sells any of the documents and instruments subject to the tax or for whose use or benefit the same are made, signed, issued or sold.

Some U.S. income tax treaties exempt policies issued by a foreign insurer or reinsurer from the tax if they meet certain requirements. Rev. Proc. 92-39 provided procedures to establish an exemption from the tax when the exemption was based on the provisions of the U.S.-Germany income tax treaty. Section 5 of that procedure extended the ruling/closing agreement procedure to foreign insurers and reinsurers in countries other than Germany, if three conditions were met: (1) the U.S. had an income tax treaty with the other jurisdiction; (2) that treaty, contained an excise tax exemption provision and a limitation-on-benefirs article similar to those in the U.S.-Germany income tax treaty; and (3) the treaty entered into force after May 18, 1992.

Rev. Proc. 2003-78

The new procedure simplifies the process for entering into an excise tax closing agreement with the IRS, and broadens application to all foreign insurers and reinsurers that are resident in treaty partner jurisdictions when the treaty contains an excise tax exemption provision. A person otherwise required to remit the insurance excise tax on account of premiums paid to a foreign insurance or reinsurance company may consider the premiums exempt from the...