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Insurers Seek Eased Reporting Obligations From OECD

by Ulrika Lomas,, Brussels

10 June 2014

The Global Federation of Insurance Associations (GFIA) has called for a revision to the Organisation for Economic Co-operation and Development's draft commentaries on its new common reporting standard (CRS) to relax rules on the treatment of pre-existing cash value insurance and annuity accounts.

The GFIA argues that: "Pre-existing cash value insurance and annuity contracts should be excluded from the scope of CRS to ensure a reasonable and proportionate compliance burden relative to the very low level of tax evasion risk these policies present."

It added that: "Given the long term nature of life insurance, contracts may extend for more than 60 or 70 years. As a result, contracts and administration systems for pre-existing life insurance policies and annuities may have been designed many years ago, prior to any systems for the automatic exchange of information. Accordingly, the information necessary to identify a foreign tax person is often not available for review, as existing systems were not designed to capture and store this data or to permit an electronic search of such data. Furthermore, the number of policies in force makes any manual searching practically impossible."

"In practice, in order to make a determination of a policyholder's tax residence status, insurers would be required to ask for new and additional information from policyholders. This would be very burdensome and impractical."

Under the CRS, a pre-existing annuity contract falls outside the scope of the rules if the reporting financial institution is "effectively prevented by law" from selling the contract to a resident of a reportable jurisdiction. In this regard, the GFIA has said that the wording should be amended in this section to provide a waiver to institutions for policies sold to the domestic market.

"If, despite the above concerns, the proposed amendment of the 'effectively prevented by law' requirement is not possible, GFIA believes that, at the very least, application of the residence address rule under Section III B.1 of the CRS should be further relaxed to take account of the specific practical difficulties for older insurance contracts."

In its concluding comments, the GFIA also expressed concerns about the challenges of achieving concurrent compliance with anti-money laundering (AML) or know-your-customer (KYC) rules and the recommendations issued by the Financial Action Task Force (FATF).

"Where the local AML/KYC rules are inconsistent with FATF Recommendations currently, it is practically impossible for financial institutions to implement AML/KYC procedures based on the FATF Recommendations as well as the local AML/KYC procedures solely for the purpose of complying with the CRS. In this case, the AML/KYC procedures under local laws and regulations in the FATF member jurisdiction should be considered consistent with FATF Recommendations," it concluded.

TAGS: compliance | tax | business | law | insurance | Organisation for Economic Co-operation and Development (OECD) | standards | regulation | trade | Financial Action Task Force (FATF) | Tax | Tax Evasion

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