1996 Legislative Change Affecting the
Insurance Premiums Tax
PURPOSE: The purpose of this Special Notice is to describe changes affecting the insurance premiums tax made during the 1996 session of the Connecticut General Assembly.
STATUTORY AUTHORITY: 1996 Conn. Pub. Acts 253.
EFFECTIVE DATE: Effective July 1, 1996, for calendar year 1996 and all subsequent calendar years.
INSURANCE AND FINANCIAL SERVICES EXPORT ZONE: 1996 Conn. Pub. Act 253 establishes an Insurance and Financial Services Export Zone within the City of Hartford to promote economic development by allowing certain insurance or financial entities to do insurance or financial business with non-United States persons from within said zone. Under 1996 Conn. Pub. Act 253, qualifying companies will be exempt from the tax on insurance premiums.
Exempt Company, Exempt Insurer and Exempt Activities Defined: For purposes of 1996 Conn. Pub. Act 253, exempt company means a corporation that (a) does not engage in the active conduct of a trade or business anywhere in the United States, except as provided by this act, (b) elects to be an exempt company, (c) has its headquarters in and conducts all of its exempt activities in the United States from locations within the insurance and financial services export zone, (d) is an exempt insurer, and (e) includes the initials "IFSEZ" or the words "Insurance and Financial Services Export Zone" in its corporate name. 1996 Conn. Pub. Act 253 defines exempt insurer to mean an alien insurer or domestic insurer, as defined in section 38a-1 of the General Statutes, whose policy holders are non-United States persons and which only insures risks located outside of the United States and which conducts no business other than that of an exempt company within Connecticut. Under 1996 Conn. Pub. Act 253, exempt activities are those activities undertaken by an exempt company such as the earnings or receipt of interest on deposits with banks or on amounts held by an insurance company under an agreement to pay interest thereon, the earnings or receipt of interest or dividends from another exempt company, the realization of gain or loss from the sale or exchange or other disposition of the stock of another exempt company, including communicating with policy holders, all of which are "non-United States persons." Non-United States person means anyone other than a United States person, as defined in 26 U.S.C. §957(c).
Exempt Company Status: A corporation may elect to become an exempt company by filing, at the time of filing its certificate of incorporation (if organized under Connecticut law) or at the time of filing its application for a certificate of authority (if not organized under Connecticut law), a certificate stating that it shall (a) be considered an exempt company, (b) be headquartered and conduct substantially all of its exempt activities in the United States at a location in the Insurance and Financial Services Export Zone and (c) engage only in those exempt activities, unless and until it revokes its election. An exempt insurer shall file an original or copy of the certificate with the Insurance Department. An exempt company may revoke its election by filing a letter or statement of such revocation with the Secretary of the State. A copy of such letter or statement shall be filed with the Insurance Department.
Exempt Insurers: Each exempt insurer shall file not later than March 31 of each year a certificate with the Insurance Department containing the (a) full name and address of the company and each officer and director thereof; (b) a statement that the company has a net worth which is adequate for the applicant to transact business; (c) a statement that each director and officer of the exempt company are of good character, competent to perform their functions with respect to the exempt company and collectively adequate to manage the business; (d) a statement that the company is transacting its business in a safe and sound manner and shall maintain itself in a safe and sound condition; (e) a statement that the company was engaged during the most recent fiscal year completed, and is engaging in the current fiscal year, only in exempt activities; (f) financial statements for the exempt company; (g) a diagram disclosing the exact ownership structure of the exempt company; (h) and a statement that the exempt company has engaged, and in the future will engage, only in exempt activities unless and until it files a written revocation of its election. The certificate shall be in writing and certified as correct by the president, vice-president or managing director on a form prescribed by the Insurance Department.
Filing Fees: Each exempt insurer shall pay to the Insurance Department a nonrefundable fee of $1,000 to be used for processing the annual certificate. The Insurance Commissioner may retain legal, financial and examination services, the reasonable cost of which may be charged against the exempt company, upon determination that such services are necessary to confirm that the exempt company complies with the "Code of Conduct for Financial Institutions to Assist in the Detection and Disclosure of Information with Respect to the Criminal Use of the Systems Operated by Financial Institutions (Money Laundering)."
Insurance Department: 1996 Conn. Pub. Acts 253, §5 provides that an exempt insurer shall be subject to regulation, investigation and examination by the Insurance Commissioner to enable the commissioner to determine if the exempt insurer is an exempt company and limits its activities to exempt activities. 1996 Conn. Pub. Acts 253, §5, allows the Insurance Commissioner to adopt regulations to implement the provisions of this section. Such regulations may provide for the assessment and collection of fees from exempt insurers sufficient to meet the expenses of the Insurance Department in carrying out its responsibilities under this section. If the commissioner finds that the exempt insurer has intentionally engaged in activities that are not exempt activities or engaged in a pattern of conduct demonstrating reckless indifference by engaging in activities that are not exempt activities, the Insurance Commissioner may bring an action in the superior court to revoke the certificate filed by the exempt insurer.
1996 Conn. Pub. Acts 253, §5(b) provides that, except as otherwise provided , an exempt insurer shall be treated as if its exempt activities were being conducted from offices located outside the United States.
Department of Revenue Services: An exempt insurer must file annually a declaration with the Commissioner of Revenue Services affirming its status as an exempt company and describing the activities in which it engages. The company, however, shall not be required to report to the Commissioner of Revenue Services the earnings of its policyholders.
1996 Conn. Pub. Acts §253 provides the Commissioner of Revenue Services with the ability to adopt regulations regarding the filing and record keeping requirements of the annual declaration. Further, the act authorizes the Commissioner of Revenue Services to examine the books, papers, records and equipment of any exempt person and investigate the activities of the exempt company to verify the accuracy of the required declaration, or if no return is made, to determine the amount required to be paid. The Commissioner of Revenue Services may bring an action in the superior court to revoke the status of a company as an exempt company.
Confidentiality: Notwithstanding any provisions of 1996 Conn. Pub. Acts. 253, the identity of the policyholders of the exempt company shall be kept strictly confidential.
Insurance Premiums Tax and Sales and Use Taxes: Notwithstanding the provisions of the general statues, exempt insurance companies shall not be subject to any tax imposed on insurance premiums nor shall exempt companies be subject to sales and use taxes imposed on the purchase of goods and services.
Employees of Exempt Companies: The employees of exempt companies shall be considered to be employees of a company domiciled in the United States and such exempt companies shall be required to comply with applicable federal and Connecticut employment and labor laws requiring the income tax imposed under chapter 229 of the general statutes to be deducted and withheld from wages of employees and to be paid over to the Commissioner of Revenue Services.
EFFECT OF THIS DOCUMENT: A Special Notice (SN) is a document that, in response to newly enacted or amended Connecticut or federal laws or in response to newly released judicial decisions, announces a new Department position, policy or practice affecting the tax liability of taxpayers.
Insurance premium tax