The American Council of Life Insurers, Washington, is blasting a pair of Bush administration tax rulings that could increase withholding taxes for U.S. life insurers’ overseas customers.[@@]
The first decision, Revenue Ruling 2004-75, holds that foreign investors who get income from life insurance policies or annuities issued by foreign branches of U.S. life insurance companies are getting U.S.-source income. That ruling, released in June, will force some of U.S. insurers’ foreign life and annuity customers to comply with 30% tax withholding requirements.
The ruling does not apply to residents of countries that have other provisions for life and annuity taxation in tax treaties with the United States, according to the ruling text.
The new decision, Revenue Ruling 2004-97, further softens the effect of the first ruling. It will grandfather in life and annuity income paid before Jan. 1, 2005, on contracts issued before July 12, 2004, according to the ruling text.
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Meanwhile, the IRS “will carefully review the treatment of payments to which Revenue Ruling 2004-75, as amplified by this ruling, does not apply,” Gregory Spring, an IRS international tax specialist, writes in the new revenue ruling.