How Does Common Reporting Standard Affect Life Insurance Policies Owned By LATAM Clients

| November 08, 2016

The CRS provides for annual automatic exchange of financial account information between governments. CRS defines the financial account information to be exchanged, the financial institutions that need to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.

On October 29th, 2014, 51 jurisdictions signed a multilateral competent authority agreement to automatically exchange information based on Article 6 of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. Currently over 100 jurisdictions are participating.

Countries that have signed up to the CRS will exchange information automatically with one another. The financial information to be reported with respect to reportable accounts includes:

  • Interest and Dividends
  • Account balance, income from certain insurance policies
  • Sales proceeds from financial assets and other income generated with respect to assets held in the account

Reportable accounts include accounts held by individuals and entities (trusts and foundations are included, and look-through rules apply to passive entities).

Latin American countries committed to undertake first exchanges in 2017 are Argentina, Colombia, Mexico; those committed to start exchanging information in 2018 include Brazil, Chile, Costa Rica, Panama and Uruguay.

Insurance companies based in participating CRS jurisdictions, such as Bermuda, Cayman Islands, Guernsey, Ireland, Isle of Man, and Luxembourg are required to report cash value insurance policies of any amount (with only exception being pre-existing policies with cash value of $ 250,000 or less as of December 31, 2015). These insurers will automatically exchange  information with other countries on an annual basis. Keep in mind that term policies are excluded from the reporting requirements.

The U.S. has not committed to adopting the CRS legislation, so policies issued in the U.S. or Puerto Rico would not be subject to CRS reporting, affording many insurance planning opportunities. In this regard, we would be available to review any existing insurance policies to determine the impact that CRS may have on them.

Please contact us with any questions on insurance planning or to discuss how CRS reporting may affect both existing or future policies.