Rev. Proc. 81-2

Section 1. Purpose

The purpose of this revenue procedure is to provide instructions for establishing an exemption from the excise tax on insurance policies issued by a foreign insurer or reinsurer when such exemption is based on the provisions of a tax treaty.

Sec. 2. Background

.01 Section 4371 of the Internal Revenue Code imposes a tax on each policy of insurance or reinsurance issued by any foreign insurer or reinsurer.

.02 Section 4374 of the Code provides that the tax imposed by section 4371 shall 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.

.03 Section 46.4374-1(a) of the Excise Tax Regulations provides that in the case of premiums paid on or after January 1, 1966, the tax imposed by section 4371 of the Code shall be paid on the basis of a return. Such tax shall be remitted by the person who makes the payment of the premium to a foreign insurer or reinsurer or to any nonresident agent, solicitor, or broker. The phrase "person who makes the payment" means the resident person who actually transfers the money, check, or its equivalent to the foreign insurer or reinsurer (including transfers to any bank, trust fund, or similar recipient designated by the foreign insurer or reinsurer), or to any nonresident agent, solicitor, or broker.

.04 Presently, pursuant to treaties between the United States and several countries (the United Kingdom, France, Hungary, Romania, and the Union of Soviet Socialist Republics), policies issued by a foreign insurer or reinsurer that is a resident of any of such countries may be exempt from the tax imposed by section 4371 of the Code. The provisions of this revenue procedure will also apply with respect to policies exempt under treaties that come into force after the effective date of the revenue procedure.

Sec. 3. Exemption Procedure

.01 A person required to remit the excise tax on foreign insurance or reinsurance during any taxable period may consider the policy issued by the foreign insurer or reinsurer exempt under a treaty from the excise tax, if the foreign insurer or reinsurer is certified by the taxing authority of the treaty country as having been a resident of the treaty country (1) during the last three months of the calendar year preceding the calendar year in which the taxable period occurs or (2) during the taxable period. Such certification may be in the form of a list compiled by the taxing authority of the treaty country of all insurers or reinsurers that were residents. A copy of such a list or of an individual certification upon which an exemption is based must be retained by the person required to remit the excise tax. The person required to remit the excise tax may not consider the policy exempt if prior to filing the return for the taxable period such person has knowledge that the foreign insurer or reinsurer was not a resident of the treaty country during the taxable period.

.02 In addition, if the treaty permits an exemption from tax only to the extent that the foreign insurer or reinsurer does not reinsure the risks covered by a policy with a person that would not be entitled to an exemption from the tax on such policy (such as the treaty with France), the person required to remit the tax must obtain from the foreign insurer or reinsurer and retain for each policy a certificate signed under penalties of perjury, stating the name and address of the foreign insurer or reinsurer, the date the certificate was signed, the date the policy was issued, whether the risks covered by the policy have been reinsured and if so, the name of the reinsurer, the country of residence of such reinsurer and the extent to which such risks have been reinsured. The certificate must also state that the foreign insurer or reinsurer agrees to inform the person required to remit the tax if there is any additional reinsurance.

Sec. 4. Effective Date

The provisions of this revenue procedure shall be effective with respect to tax required to be remitted after February 9, 1981, the date of its publication.

¹ Also released as News Release IR-81-7, dated January 16, 1981.