(1) A non-U.S. insurance company, incorporated in a country that has no income tax
treaty with the United States, issues direct insurance policies to a U.S. corporation with
respect to risks located wholly or partly within the United States. The non-U.S. insurer
then purchases reinsurance, covering all or part of the loss that the non-U.S. insurer may
sustain on its policies issued to the U.S. corporation, from a non-U.S. reinsurer that is
incorporated in a country that has a U.S. income tax treaty that does not contain an FET
waiver. Neither the non-U.S. insurer nor the reinsurer is engaged in a U.S. trade or
business. Rev. Rul. 2008-15 holds that the FET will apply to (a) the premium paid by the
U.S. corporation to the non-U.S. insurer (the 1st leg FET) at a 4% rate and (b) the
premium paid by the non-U.S. insurer to the non-U.S. reinsurer (the 2nd leg FET) at a 1%
rate.
The Non-US insurer then reinsures the US risk to another Non US reinsurer that has no
FET waiver. The premium paid in this second leg is subject to 1% FET
(2) A non-U.S. reinsurance company, incorporated in a country that has a U.S. income
tax treaty that does not contain an FET waiver, issues reinsurance policies to a U.S.
insurer with respect to policies the U.S. insurer has issued to insureds (as defined in
section 4372(d)), i.e., that cover U.S. risks. The non-U.S. reinsurer then cedes some or all
of those risks to another non-U.S. reinsurance company, incorporated in a different
country that has a U.S. income tax treaty that does not contain an FET waiver. Rev. Rul.
2008-15 holds that the FET will apply to (a) the premium paid by the U.S. insurer to the
first non-U.S. reinsurer at a 1% rate and (b) the premium paid by the first non-U.S.
reinsurer to the second non-U.S. reinsurer at a 1% rate.
(3) A non-U.S. insurance company, entitled to the benefits of a U.S. income tax treaty
containing a qualified FET waiver issues direct insurance policies to a U.S. corporation
with respect to risks located wholly or partly within the United States. The non-U.S.
insurer then purchases reinsurance, covering all or part of the loss that the non-U.S.
insurer may sustain on its policies issued to the U.S. corporation, from a non-U.S.
reinsurer that is incorporated in a country that has a U.S. income tax treaty that does not
contain an FET waiver. Neither the non-U.S. insurer nor the reinsurer is engaged in a
U.S. trade or business. Since the anti-conduit provision of the qualified FET waiver was
violated by the first non-U.S. insurance company with the reinsurance of the U.S. risks to
the second non-U.S. reinsurer, the premium paid by the U.S. corporation to the first non-
U.S. insurer is subject to excise tax. Rev. Rul. 2008-15 holds that the FET will apply to
(a) the premium paid by the U.S. corporation to the non-U.S. insurer (the 1st leg FET) at
a 4% rate and (b) the premium paid by the non-U.S. insurer to the non-U.S. reinsurer (the
2nd leg FET) at a 1% rate.
(4) A non-U.S. insurance company, entitled to the benefits of a U.S. income tax treaty
containing an FET waiver subject to a conduit arrangement limitation issues direct
insurance policies to a U.S. corporation with respect to risks located wholly or partly
within the United States. The non-U.S. insurer then purchases reinsurance, covering all or
part of the loss that the non-U.S. insurer may sustain on its policies issued to the U.S.
corporation, from a non-U.S. reinsurer that is incorporated in a country that has a U.S.
Excise Tax – Foreign Insurance 7-3
Audit Techniques Guide Revised 04/08