Foreign Account Tax Compliance Act - FATCA (SESSION CODE HERE [Ariel 11 point, not bold)

Craig Coit - Deputy CFO ARS

This  publica,on  contains  general  informa,on  that  Aon  considers  to  be  reliable,  but  such  reliability  is  not  guaranteed.  Aon  is  not,  by  means  of  this  publica,on,  rendering  accoun,ng,  business,  financial,  investment,  legal,  tax,  or  other  professional  advice  or  services.  This  publica,on  is  not  a  subs,tute  for  such  professional  advice  or  services,  nor  should  it  be  used  as  a  basis  for  any  decision  or  ac,on  that  may  affect  your  business.  Before  making  any  decision  or  taking  any  ac,on  that  may  

affect  your  business,  you  should  consult  a  qualified  professional  advisor.  

Learning Objectives

At the end of this session, you will know: •  The basics of FATCA

•  Aon’s Response, and influence on FATCA

•  FATCA’s documentation requirements

Craig Coit Deputy CFO ARS

•  Responsibilities –  Financial Management (FP&A) –  Deputy to Brokerage Division CFO –  Executive sponsor for Aon FATCA program –  Also leading projects for:

•  Global Client profitability •  Free cash flow improvement

•  Job History –  Consolidated Rail Corporation 2 years –  Kellogg’s (Battle Creek , Michigan) 2 years –  First National Bank of Chicago, FCNBD, Bank One 20 years –  Aon joined October 2002

•  CFO ARSA •  Deputy CFO ARS

What is FATCA?

•  The  Foreign  Account  Tax  Compliance  Act  is  a  U.S.  law  intended  to  improve  tax  compliance  related  to  offshore  investments.  It  was  created  in  response  to  high  profile  tax  evasion  and  became  law  in  March  2010.  

 •  In  January  2013,  the  U.S.  Internal  Revenue  Service  released  updated  regula,ons  for  FATCA,  

which  apply  to  a  broad  range  of  financial  payments  including  insurance  and  reinsurance  premiums.  

 

Key Dates

•  July  1,  2014    –  FATCA  transi,on  period  (July  1,  2014  –  December  31,  2014)  went  into  effect  

•  IRS  granted  a  transi,on  period  where  companies  are  expected  to  comply  with  the  law  in  a  good  faith  effort  un,l  the  withholding  requirements  begin    on  January  1,  2015.  

 

•  January  1,  2015  –  FATCA  withholding  requirements  went  into  effect    

•  March  15,  2015  –  1042  and  1042  S  repor,ng  is  due  for  all  withheld  premiums  in  2014    

FATCA Requirements

•  FATCA  requires  Insurance  Brokers  to  obtain  and  validate  FATCA  documents  from  carriers  and  intermediaries  for  premium  payments  from  US  clients  related  to  U.S.  risk  made  to  non-­‐U.S.  carriers  

–  U.S.  risks  means  risks  aUributable  to:  •  Property  located  in  the  U.S.  •  Any  liability  arising  out  of  ac,vity  in  the  U.S.  •  Lives  or  health  of  U.S.  residents    

•  If  insurance  brokers  do  not  obtain  and  validate  the  appropriate  FATCA  documenta,on  prior  to  payment,  the  broker  is  required  to  withhold  30%  of  premium  payment  related  to  U.S.  risk  from  the  carrier  and  remit  this  amount  to  the  IRS  

Aon’s Response to FATCA

•  Aon  created  a  team  of  12+  employees  dedicated  to  FATCA  compliance  since  June  2013  –  The  team  is  made  of  members  from  corporate  tax,  compliance,  market  security,  and  

each  of  our  major  business  units  (ARS,  Aon  Benfield,  and  Aon  HewiU)    

•  The  Aon  FATCA  team  reviewed  all  of  Aon’s  business  processes  to  determine  the  impact  the  regula,ons  would  have  on  our  opera,ons  

–  We  determined  that  the  main  impact  was  on  our  retail  and  reinsurance  business  –  The  majority  of  Aon  HewiU  was  scoped  out  of  FATCA  because  service  fees  are  excluded  

from  the  regula,ons  

•  We  also  hired  Price  Waterhouse  Coopers  (PWC)  to  advise  us  on  how  the  regula,ons  specifically  impact  our  business  and  to  perform  our  valida,on  process  

Legal Entity Analysis and FATCA Forms

•  The  Aon  FATCA  team  classified  all  of  Aon’s  900+  legal  en,,es  as  either:  –  Non-­‐Foreign  Financial  En,,es  (NFFE)  –  Foreign  Financial  Ins,tu,on  (FFI)  

•  We  registered  all  of  our  FFIs  with  the  IRS  

•  We  completed  the  appropriate  FATCA  documenta,on  for  all  of  our  en,,es    

•  We  made  all  of  our  FATCA  documenta,on  available  to  our  clients  via  Aon.com  

System and Process Modifications

•  Aon  iden,fied  our  Market  Security  Department  as  the  centerpiece  for  FATCA  compliance  –  We  modified  our  Market  Security  system  to  include  FATCA  informa,on  –  We  adapted  the  Market  Security  Homepage  to  include  FATCA  resources,  present  

FATCA  compliance  informa,on,  and  created  a  FATCA  updates/ques,on  response  page    

•  We  also  inserted  FATCA  controls  into  our  US  retail  broking  system  and  global  reinsurance  broking  system  to  prevent  placing  in  scope  business  with  non-­‐FATCA  compliant  markets/intermediaries  

Communications and Training

•  Since  June,  2013  the  Aon  FATCA  team  has  worked  with  500+  carrier  groups  to  obtain  FATCA  documenta,on,  and  validated  over  3,000  FATCA  forms  for  3,500+  underwriters  and  intermediaries  

•  We  have  also  trained,  15,000  Aon  colleagues  globally  on:  –  What  FATCA  is  –  Where  to  find  FATCA  informa,on  –  Aon’s  FATCA  processes  –  How  to  appropriately  communicate  with  clients  regarding  FATCA  compliance    

•  We  have  also  sent  numerous  documents  to  our  clients  regarding  Aon’s  readiness  to  comply  with  the  FATCA  regula,ons  and  how  it  could  poten,ally  impact  their  upcoming  insurance  premium  payments  

Aon’s Impact on the Regulations

•  Aon  has  been  working  with  the  IRS  and  US  Treasury  to  educate  the  government  on  how  the  FATCA  regula,ons  are  specifically  impac,ng  our  industry  

•  We  successfully  advocated  a  change  to  the  regula,ons  which  greatly  simplified  insurance  brokers  and  our  clients  opera,onal  responsibili,es  

–  In  February  of  2014  the  IRS  released  an  update  to  the  regula,ons  which  specifically  called  out  US  insurance  brokers  to  be  treated  as  beneficial  en,,es  in  terms  of  FATCA  compliance    

•  Meaning  US  brokers  would  no  longer  be  required  to  pass  all  downstream  carrier  documenta,on  and  a  transac,onal  document  called  a  withholding  statement  to  the  client  on  each  of  their  placements  (examples  on  next  slides  will  further  clarify)  

 

FATCA Documentation Requirements

US  or  Non-­‐US  Carrier(s)  

Premium Flow

Documentation Flow Technical Requirements:

Packet 2 – ARS US W-9 to US Client

Packet 1 – US Carrier(s) W9(s) or Non-US Carrier(s) W8-BEN-E(s) to US Broker

Aon’s Operational Plan:

§  Instructions for clients to pull the Aon’s W-9 from Aon.com will be provided on all ACS, H&B, and Affinity invoices.

§ Broker’s must check to ensure the Carrier(s) are listed as authorized on the Market Security Market Guide

US  Client   US  Broker  

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FATCA Documentation Requirements Premium Flow

Documentation Flow Technical Requirements:

Packet 2 – Non-US broker’s W-8IMY and withholding statement and downstream carrier forms to US Client

Packet 1 – Non-US Carrier(s) W-8BEN-E(s) to Non-US brokers

Operational Plan: § Provide Non-US Aon Broker’s W-8IMY and a completed Withholding Statement to US Client

§ Packet 1 § Both Packet 1 and 2 will be attached to

the Non-US Aon invoice

§ Non-US brokers must check and retrieve covering Carrier(s) W-8BEN-E(s) from the Market Security Market Guide

US  Client   Non-­‐US  Broker   Non-­‐US  Carrier(s)  

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Complicated Areas of the Regulations for our Industry

•  Personal  lines  –  Individuals  cannot  be  withholding  agents  but  corpora,ons  or  groups  coverage  individuals  would  be  

considered  in  scope  

•  Direct  bill  policies  –  Out  of  scope  for  brokers  because  we  do  not  touch  the  premium  but  could  s,ll  be  in  scope  for  our  

clients  

•  Cap,ve  transac,ons  –  Documenta,on  requirements  must  be  broken  down  by  contract    

•  (ex;  client  to  front  =  contract  1,  front  to  cap,ve  =  contract  2  ,  etc.)  

•  Foreign  to  foreign  –  All  transac,ons  involving  US  risk  would  be  in  scope  for  FATCA  (including  contracts  without  a  US  client  

or  US  insurer)  

•  Form  requirements  –  Staying  current  with  updated  forms  –  Upda,ng  forms  as  they  expire  (W-­‐8BEN-­‐E’s  have  a  3  year  lifespan)  

•  Keeping  abreast  of  changes  in  the  law  –  The  regula,ons  have  been  adapted  numerous  ,mes  and  we  expect  further  updates  in  the  future  

Next Steps

•  Aon  is  transi,oning  FATCA  into  steady  state  within  our  Market  Security  and  Tax  departments  and  outside  of  the  business  

•  Aon  is  developing  a  web  based  FATCA  compliance  course  that  will  be  an  annual  mandatory  requirement  

•  Aon  is  s,ll  in  contact  with  the  IRS  and  is  lobbying  to  remove  the  Foreign  to  Foreign  requirement  that  incepts  on  January  1,  2017  from  the  regula,ons  for  good  

–  Aon  is  working  with  our  network  offices  to  strategize  implementa,on  if  foreign  to  foreign  is  not  permanently  removed  from  the  scope  of  the  regula,ons