Rev. Rul. 58-612

Advice has been requested whether a policy of reinsurance issued by a foreign insurer, not authorized to do business in the United States, is subject to the documentary stamp tax imposed by section 4371(3) of the Internal Revenue Code of 1954 where the primary or direct insurance policy was issued by a domestic insurance company.

An insurance company, which is authorized to do business in the District of Columbia, all of the 48 states, and several foreign countries, is engaged in the business of writing life, accident, and sickness insurance policies and annuity contracts. The company ceded to a foreign insurance company, which is not authorized to do business in the United States, reinsurance of life insurance policies that were made with respect to lives of residents of the United States.

Section 4371 of the Code provides as follows:

There shall be imposed a tax on each policy of insurance, indemnity bond, annuity contract, or policy of reinsurance issued by any foreign insurer or reinsurer at the following rates:

(1) CASUALTY INSURANCE AND INDEMNITY BONDS.-Four cents on each dollar, or fractional part thereof, of the premium charged on the policy of casualty insurance or the indemnity bond, if issued to or for, or in the name of, an insured as defined in section 4372(d);

(2) LIFE INSURANCE, SICKNESS, AND ACCIDENT POLICIES AND ANNUITY CONTRACTS.-One cent on each dollar, or fractional part thereof, of the premium charged on the policy of life, stickness, or accident insurance, or annuity contract, unless the insurer is subject to tax under section 816;

(3) REINSURANCE.-One cent on each dollar, or fractional part thereof, of the premium charged on the policy of reinsurance covering any of the contracts taxable under paragraph (1) or (2).

There is no documentary stamp tax on policies of insurance or reinsurance issued by domestic insurance companies.

Section 4372(f) of the Code provides that, for the purpose of section 4371(3), the term `policy of reinsurance' means any policy or other instrument by whatever name called whereby a contract of reinsurance is made, continued, or renewed against, or with respect to, any of the hazards, risks, losses, or liabilities covered by contracts taxable under paragraph (1) or (2) of section 4371.

Section 4371 of the Code imposes a tax on original or primary insurance policies as well as reinsurance policies issued by a foreign insurer. The reference made in paragraph (3) of section 4371 of the Code to paragraphs (1) and (2) of that section limits the application of paragraph (3) only to reinsurance contracts which cover the same kinds of hazards, risks, losses or liabilities insured by taxable original or primary insurance policies. In other words, a policy of reinsurance issued by a foreign insurer is taxable under the provisions of section 4371(3) of the Code if it covers a hazard, etc., which would render it taxable under the provisions of section 4371(1) and (2) of the Code. This would be true even though the primary insurance policy was issued by a domestic insurer.

Accordingly, it is held that a policy of reinsurance issued by a foreign insurer covering any of the hazards, risks, losses or liabilities covered by contracts taxable under section 4371(1) and (2) of the Code is subject to the tax imposed on reinsurance policies by section 4371(3) of the Code, regardless of whether the primary insurer was a domestic or foreign insurer. Therefore, in the instant case, the reinsurance policy issued by the foreign insurer is subject to the tax.