Internal Revenue Bulletin:  2003-45 

November 10, 2003 

Rev. Proc. 2003-78


SECTION 1. PURPOSE

This revenue procedure provides instructions for establishing exemption from the section 4371 excise tax on insurance premiums paid to a foreign insurer or reinsurer when the exemption is based on the provisions of an income tax treaty to which the United States is a party.

SECTION 2. BACKGROUND

.01 Section 4371 of the Internal Revenue Code generally imposes a tax (the "insurance excise tax") on each policy of insurance or reinsurance with respect to United States risks issued by any foreign insurer or reinsurer, unless the premiums paid are taxed as income effectively connected with the conduct of a United States trade or business.

.02 Section 4374 provides that the insurance excise tax shall be paid 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.

.03 Section 46.4374-1(c) of the Excise Tax Regulations provides that the insurance excise tax shall be paid on the basis of a return. Such return shall be filed and tax remitted by the person who makes the payment of a premium to a foreign insurer or reinsurer. If the tax is not paid by the person who makes payment of a premium, the insurance excise tax shall be paid on the basis of a return by any person who makes, signs, issues or sells any of the documents or instruments subject to the tax imposed by section 4371, or for whose use or benefit such document or instrument is made, signed, issued or sold.

.04 Pursuant to income tax treaties between the United States and several countries, policies issued by a foreign insurer or reinsurer that is a resident of any of such countries may be exempt from the insurance excise tax. This revenue procedure applies to a treaty excise tax exemption that is either a qualified exemption (for example, the exemption in the treaties with Germany and France) or an exemption subject to an anti-conduit arrangement limitation (for example, the exemption in the treaty with the United Kingdom), depending on the treaty.

SECTION 3. EXEMPTION PROCEDURE

.01 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 insurance excise tax under an income tax treaty if the premiums are paid to an insurer or reinsurer that is a resident for treaty purposes of a country with which the United States has a treaty containing an excise tax exemption and, prior to filing the return for the taxable period, such person has knowledge that there was in effect for such taxable period a closing agreement between the Internal Revenue Service and the foreign insurer or reinsurer as provided by section 3.04(2). As part of the closing agreement, the foreign insurer or reinsurer must agree to be liable as a United States taxpayer for the insurance excise tax pursuant to section 4371 et seq., subject to an applicable exemption under the relevant treaty or any other United States treaty. However, a person required to remit the excise tax may not consider the premiums exempt if prior to filing the return for the taxable period such person has knowledge that the foreign insurer or reinsurer did not qualify for benefits under the relevant treaty during the taxable period.

.02 Premiums paid on policies written by a foreign insurer or reinsurer cannot qualify for exemption from the insurance excise tax under a treaty with a qualified exemption to the extent that the risks covered by such premiums are reinsured with a person not entitled to the benefits of the relevant treaty or any other treaty that provides exemption from the insurance excise tax. Premiums paid on policies written by a foreign insurer or reinsurer cannot qualify for exemption from the insurance excise tax under a treaty with an exemption subject to an anti-conduit arrangement limitation to the extent that the premium is paid pursuant to a conduit arrangement as defined in the treaty.

.03 In addition to the requirements of sections 3.01 and 3.02, premiums paid on policies written by a foreign insurer or reinsurer cannot qualify for exemption from the insurance excise tax under a treaty to which the United States is a party unless the foreign insurer or reinsurer qualifies for benefits under the relevant treaty, including the limitation on benefits provision.

.04 A foreign insurer or reinsurer that wishes to enter into a closing agreement under this revenue procedure must:

(1) Submit the following information and documentation:

a. A statement signed under penalties of perjury that:

i. The foreign insurer or reinsurer is a resident of (name of treaty country) for purposes of the income tax treaty between the United States and (name of treaty country); and

ii. The foreign insurer or reinsurer qualifies for benefits under the Limitation on Benefits Article of the income tax treaty between the United States and (name of treaty country), accompanied by an explanation of the basis on which the foreign insurer or reinsurer so qualifies;

b. A letter of credit in the amount of $75,000. The Service may determine at any time that circumstances warrant a letter of credit in an increased amount and will notify the taxpayer if such a determination is made;

c. A completed Form SS-4 (Application for Employer Identification Number) to apply for an EIN if the applicant does not already have an EIN;

d. A list of the position titles of those persons who will be the responsible parties for performance under the closing agreement, and the names, addresses, and telephone numbers of those persons as of the date the application is submitted; and

(2) Enter into a closing agreement identical to the form set forth in Appendix A of this revenue procedure for treaties with qualified exemptions, or Appendix B of this revenue procedure for treaties with an exemption subject to an anti-conduit arrangement limitation.

.05 (1) Any foreign insurer or reinsurer wishing to enter into a closing agreement under this revenue procedure should submit a request for a closing agreement in accordance with Rev. Proc. 2003-1, 2003-1 I.R.B. 1, or any successor procedure, with the user fee stated in Appendix A of Rev. Proc. 2003-1, or any successor procedure, to the following address:

Internal Revenue Service
Attn: LM:IN:FP
1111 Constitution Avenue, NW
Washington, DC 20224
Telephone: (202) 435-5080
Fax: (202) 435-5082

(2) The request must be accompanied by three (3) copies of the closing agreement with an original signature on each copy and the information and documentation required by section 3.04. The Internal Revenue Service will sign the closing agreement and return one (1) copy to the Taxpayer.

SECTION 4. PERIODIC LISTING OF AGREEMENTS

The Service may periodically publish in the Internal Revenue Bulletin a list of foreign insurers or reinsurers that have entered into closing agreements under this revenue procedure and also a list of foreign insurers or reinsurers whose closing agreements are terminated.

SECTION 5. EFFECTIVE DATE

This revenue procedure is effective  October 10, 2003.

SECTION 6. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 92-39, 1992-1 C.B. 860, is superceded except with respect to existing closing agreements. With respect to closing agreements in existence prior to the effective date of this revenue procedure, the Internal Revenue Service will treat a taxpayer as fully complying with the requirements of Paragraph 7(b) of a closing agreement under Rev. Proc. 92-39, Rev. Proc. 87-13, 1987-1 C.B. 596, or Rev. Proc. 84-82, 1984-2 C.B. 779 (requiring the taxpayer (i) to obtain a certificate of residency from the tax authorities in its home jurisdiction every three years, and/or (ii) to certify its eligibility for benefits under the relevant treaty on an annual basis), if such taxpayer complies with the certification of residency and entitlement to treaty benefits requirement as provided in paragraph 9 of the closing agreement set forth in Appendix A of this revenue procedure (requiring the taxpayer to certify residency and qualification for eligibility for benefits under the relevant treaty every three years and without a requirement for obtaining a certificate of residency from the tax authorities of the taxpayer's home jurisdiction).

SECTION 7. DRAFTING INFORMATION

The principal author of this revenue procedure is Karen Rennie-Quarrie of the Office of the Associate Chief Counsel (International). For further information on this procedure, call Ms.  Rennie-Quarrie or Mr. W. Edward Williams at (202) 622-3880 (not a toll-free call).


More Internal Revenue Bulletins