Many excess line brokers probably do not know that there is a federal excise tax applicable to CERTAIN excess line transactions.  Many excess line brokers may not know about the federal excise tax because approximately 90% of New York’s excess line transactions are exempt from the tax.  What every excess line broker should know is as follows:

1.
The federal excise tax does not apply to excess line transactions placed with any insurer which is domiciled in the United States.  Those are the insurers that ELANY publishes on the foreign insurance company eligible list.
2.
The federal excise tax, generally, applies only to transactions with non-U.S. or alien insurers which are domiciled in countries which do not have an exemption under a treaty agreement between their country and the United States.
3.
Some countries have a qualified exemption and some countries have no exemption whatsoever.  Please refer to Section C Treaty Exemptions of the Sutherland Asbill & Brennan LLP Opinion of Counsel attached.
4.
The excess line broker is one of the parties which have legal responsibility to pay the tax when it applies so make sure the tax is collected and paid on transactions when the tax applies.
5.
The last domestic party in the chain of premium payment is primarily responsible for remitting the tax to the Internal Revenue Service.  However, all of the following parties can be held jointly and severally liable: 1) the insured, 2) a beneficiary, 3) policyholder, 4) the insurer, 5) the broker who obtained the coverage. (See IRS Foreign Insurance Excise Tax-Audit Technique Guide).
6.
The obligation to file the tax return belongs to the person who pays the premium to the foreign insurer (or to any nonresident person such as a foreign broker).  [See IRS Publication 510 (2011)]


If you are placing business or intend to place business with non-U.S. insurance companies, you should view the legal memorandum which analyzes, among other things, which countries trigger the application of the federal excise tax which is 4% of the applicable premium.

Since the excess line brokers is potentially liable for the tax it behooves you to verify that the tax is paid in every instance where you use a non-U.S. insurer in a country that does not enjoy an exemption from it.


ELANY DISCLAIMER:

"This is not intended to be nor should it be construed as legal advice. Consult with your own legal counsel.”