The Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, is used by foreign persons (including corporations) to certify their non-American status.
The form establishes that either a person or an entity is a non-resident alien or foreign corporation, to avoid or reduce tax withholding from US source income, such as rents from US property, interest on US bank deposits or dividends paid by US corporations.
Global law firm Baker & McKenzie, which has reviewed the new forms, said the changes address requirements introduced by the Foreign Account Tax Compliance Act, which is due to begin being implemented in January 2013.
W-8BEN
The new W-8BEN form, unlike its predecessor, is used exclusively by individuals and remains a one-page document, said Baker & McKenzie, which added that entities will now be directed to the new W-8BEN-E form. Consequently, all references to “entities” have been removed from the form and, aside from this, Baker & McKenzie said there are only relatively minor differences with the draft form.
One notable addition though, is the requirement to enter a foreign taxpayer identification number, something which was previously optional, and Baker & McKenzie said “appears to be an attempt by the IRS to begin collecting non-US individual taxpayer information to transfer under the upcoming intergovernmental agreements.”
Baker & McKenzie further notes however, that without the instructions to the form, “we are left to ask what responsibilities this may put on the withholding agents to verify its accuracy”.
The intergovernmental agreements referred to include those with five European countries, including the UK, which have agreed to collect the necessary tax information on behalf of the IRS.
W-8BEN-E
The W-8BEN-E form meanwhile, is used exclusively by entities. Baker & McKenzie note that one of the more significant features of the draft form are “the vast number of chapter 4 (FATCA) statuses to choose from, 24 in total”.
Another addition, notes the law firm, is the category of FFI-EIN and QI-EIN to go along with the previously requested EIN. Furthermore, said Baker 7 McKenzie, when certifying that the entity is either a participating FFI or registered deemed-compliant FFI, the form requests a FATCA ID number. It is with this FATCA ID number that the withholding agent will be required to check the IRS database to verify whether the payee is participating in FATCA.
Baker & McKenzie conclude: “In summary, there is very little, if anything, surprising about the new draft forms W-8BEN or W-8BEN-E. These forms are based solely on the proposed regulations and do not provide any further insight into the many unanswered questions that remain about FATCA. Our next step is to see the revised instructions for the forms, which hopefully will answer some of our outstanding questions.”
To read Baker & McKenzie’s full review of the forms and additional information click here.
Thomson Reuters recently conducted a report into firms’ preparation for FATCA, revealing that there are “major gaps” in the compliance industry’s readiness. Click here to read the story.
