An overview of FATCA and the implications for captives

1. An overview of FATCA and the implications for captives

2. An overview of FATCA and the implications for captives • Moderator: • James Berry – Director, KPMG • Panelists: • Beverley Todd – Executive Vice President, JLT Insurance Management (Bermuda) Ltd • Richard E. Irvine – Managing Director, PwC • Steven Rees Davies – Counsel, Appleby

3. Disclaimer • ANY TAX ADVICE IN THIS COMMUNICATION OR PANEL DISCUSSION IS NOT INTENDED OR WRITTEN BY THE PRESENTERS, PARTICIPANTS OR THEIR FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. • The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

4. The Road to FATCA The U.S. federal income tax system relies on voluntary compliance by taxpayers to self-report their worldwide income and compute their income tax. The Foreign Account Tax Compliance Act (“FATCA”) was enacted on March 18, 2010. It is estimated that hundreds of billions of dollars of offshore assets are owned by U.S. persons and billions of dollars of taxes are evaded annually by U.S. persons holding offshore accounts. FATCA compliance is compelled by imposing a withholding tax on withholdable payments paid, directly or indirectly, to foreign financial institutions (“FFIs”) and certain other foreign entities that fail to comply with FATCA. FATCA introduces a new regulatory compliance and reporting regime which compels certain foreign entities to disclose U.S. persons with offshore “financial accounts”. When voluntary compliance is augmented by third-party information reporting, the IRS is able to verify taxpayer compliance.

5. FATCA law, notices and regulations • HIRE Act signed into law by U.S. President Obama on March 18, 2010 • Guidance notices • Notice 2010-60: preliminary guidance issued August 27, 2010 • Notice 2011-34: additional guidance issued April 8, 2011 • Notice 2011-53: more guidance issued July 14, 2011 • Proposed Regulations: Issued February 8, 2012 • Final Regulations: Issued January 17, 2013 • Bermuda Model II IGA: December 2013 • Temporary Regulations: Issued February 20, 2014

6. FATCA – Highlights

7. An FFI is any non-US entity that does the following: Accepts deposits in the ordinary course of business; Holds financial assets for the benefit of others as a substantial portion of its business; Is an investment entity; Is a specified insurance company; or Is an entity that is a holding company or treasury center. What is a Foreign Financial Institution?

8. Payments subject to FATCA withholding Generally, FATCA withholding applies to: “Withholdable Payments”: Beginning July 1, 2014, U.S. source investment income (“FDAP” – interest, dividends, royalties, rents, etc.) and Beginning January 1, 2017, gross proceeds from the sale or exchange of U.S. assets that produce U.S. source interest and dividends. Withholdable payments do include insurance and reinsurance premiums. To what payments does FATCA apply?

9. Governments support FATCA goals but legal impediments prevent compliance Alternative approach to FATCA created where countries (FATCA partners) would enter into Intergovernmental Agreement (IGA) Alternative regime based on automatic exchange authorized in existing bilateral tax treaties IGA Regime Model 1 IGAs Any FFI that is resident in a Model 1 IGA Partner Country will be governed by the terms of the IGA in effect with that country and implementing laws and regulations adopted by that country. Model 2 IGAs FFIs will be required to implement FATCA as prescribed by the FATCA Regulations, except to the extent expressly modified by the relevant IGA. FFI will seek consent from account holders to supply information to the IRS. Where consent is not granted, the FFI will provide aggregate information to the IRS with respect to non-consenting investors. The IRS may then make further information requests to the Model 2 IGA Partner Country’s government based on the aggregate information. Alternative regime to FATCA: Inter-Governmental Agreement (IGA)

10. Regulations vs. IGA requirements * Each Reporting FI that is tax resident in a Model 1 Partner Country must comply with the registration requirements of the relevant Model 1 IGA.

11. Non-Financial Foreign Entity • A “Non-Financial Foreign Entity” (“NFFE”) is any foreign entity that is not a Financial Institution • A NFFE is treated as a “Passive NFFE” unless: • Less than 50 percent of the NFFE’s assets held during the preceding calendar year are assets that produce passive income • The stock of the NFFE (or a Related Entity) is publicly traded • NFFE is a holding company for subsidiaries engaged in businesses (other than the business of a Financial Institution), and the NFFE does not function as an investment fund • The entity is an “Excepted NFFE” as described in U.S. Treasury Regulations • The entity elects to be a Direct Reporting NFFE

12. Non-Financial Foreign Entity (cont’d) • A Passive NFFE must provide documentation regarding its “Controlling Persons” in order to avoid FATCA withholding on withholdable payments (including U.S. insurance premiums) • Account held by a Passive NFFE with U.S. Controlling Persons is treated as a U.S. Account for FATCA purposes • Treasury Department and the IRS have issued regulations to create new FATCA classifications to facilitate FATCA administration for Passive NFFEs • Direct Reporting NFFE – An NFFE that elects to register with the IRS, obtain a GIIN, and (if necessary) report information regarding U.S. Controlling Persons directly to the IRS • Sponsored Direct Reporting NFFE – Sponsor agrees to undertake FATCA administration on behalf of Direct Reporting NFFE

13. FATCA timeline – Foreign financial institutions • July 1, 2014 • New account due diligence/ identification begins • Grandfathered Obligations: Payments on certain obligations outstanding on 7/1/14 are exempt from FATCA withholding ** • FATCA withholding begins on U.S. source FDAP payments to new account holders identified as NPFFIs, recalcitrants, and Passive NFFEs with undisclosed Substantial U.S. Owners • FFI Agreement becomes effective • March 15, 2016 • Annual tax return reporting (Form 1042) • Annual information reporting (Forms 042-S) • Reporting of foreign reportable amounts to NPFFIs begins • March 31, 2016 • Annual Form 8966 reporting • January 1, 2017 • FATCA withholding begins on certain gross proceeds payments to noncompliant accounts • FATCA withholding begins on foreign passthru payment (or 6 months after publication of regulations defining term, whichever is later) • For qualified collective investment vehicles, date by which policies aim to redeem or immobilize Bearer Interests • March 15, 2015 • Tax return reporting begins (Form 1042) • Information return reporting begins (Forms 1042-S) • March 31, 2015 • Form 8966 reporting for 2014 on Substantial U.S. Owners of Passive NFFEs & all U.S. owners of ODFFI accounts identified by December 31, 2014 January 17, 2013 Final FATCA regulations released J A E N G June 30, 2018 Deadline for Responsible Officer to file certification for First Certification Period Summer/Fall 2013 IRS portal anticipated to open P August 31, 2016 Due date for Responsible Officer due diligence certifications (unless previously submitted)* C L 2013 2014 2015 2016 2017 2018 December 31, 2016 Final Day of Transitional Rule treating U.S. source FDAP payment paid by non-intermediaries on offshore obligations as excluded from definition of “withholdable payment” • March 15, 2017 • Annual tax return reporting (Form 1042) • Annual information reporting (Forms 1042-S) • Reporting of foreign reportable amounts to NPFFIs ends • March 31, 2017 • Annual Form 8966 reporting O December 31, 2015 Final date for FFIs to qualify for Limited Branch & Limited FFI Status M December 31, 2014 Deadline for FFIs to complete remediation on preexisting entity accounts held by Prima Facie FFIs (begin withholding)* Spring 2014 April 25, 2014 Last date to register with IRS to ensure inclusion on FFI List (safe harbor) June 2, 2014 FFI List published by IRS List I F July 12, 2013 Revised Model IGAs and accompanying annexes released B D June 30, 2015 Deadline for FFIs to complete remediation on preexisting high-value accounts* H June 30, 2016 Deadline for FFIs to complete remediation on preexisting accounts, other than Prima Facie FFIs and high-value accounts (begin withholding)* K *These dates assume that the PFFI’s FFI agreement is approved by the IRS and effective on July 1, 2014 **Payments treated as dividend equivalents, under section 871(m), may be treated as Grandfathered up to 6 months after the publication of regulation implementing 871(m) Payments treated as foreign passthru payments may be treated as Grandfathered up to 6 months after the publication of implementing regulations