In brief
The IRS recently released new final versions of the following forms and instructions:
- Form W-8BEN,Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals),andInstructions for Form W-8BEN;
- Form W-8BEN-E,Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities),andInstructions for Form W-8BEN-E; and
- Form W-8ECI,Certificate of Foreign Person’s Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States, andInstructions for Form W-8ECI.
Observation:While these forms have a revision date of October 2021, the IRS states that recipients of the form can accept a prior version of the form through April 2022. Although the prior version of the forms cannot be accepted after April 2022, prior versions that have been accepted prior to May 2022 remain valid until their expiration date or until a change in circ*mstances renders them invalid.
Action items:In many organizations, the review of withholding certificates is primarily outside of the tax function, with tax providing advice to the business or operation teams. Given this structure, organizations that make US source payments to non-US persons should consider taking the following steps immediately:
- Update existing Forms W-8 review checklists to accommodate the new requirements;
- Communicate with existing service providers that review their withholding certificates (especially in the asset management area) to determine when updates will be made to the review tools they utilize;
- Develop business rules related to accepting or not accepting the updated form prior to May 2022;
- Prepare to make updates to existing data fields to account for the new information; and
- Update substitute forms to the extent they are used.
Observation:Taking these steps immediately is critical as many organizations have begun or are in the process of beginning the annual resolicitation of documentation from existing relationships and have already started seeing these new tax forms being provided.
In detail
In general, these W-8 forms and the related instructions were updated to:
- Facilitate compliance with two information reporting and withholding tax requirements:
- Withholding tax under Section 1446(f), which requires transferees purchasing an interest in certain partnerships from non-US transferors to withhold 10% federal tax from the amount realized on the disposition. See our Insight,Withholding and information reporting on the transfer of publicly traded partnership interests, for more information on withholding tax under Section 1446(f).
- The information reporting requirements under Section 6050Y. See our Insight,Preparing for new reporting requirements for certain life insurance contract transactions, for more information on reporting sales of life insurance contracts and reportable death benefits.
- Gather more information needed to claim entitlement to a reduced rate of withholding pursuant to an income tax treaty.
- Gather additional information on the characteristics of account holders and payees that are foreign governments. This additional information is required for Form 1042-S,Foreign Person’s U.S. Source Income Subject to Withholding, reporting.
A summary of the specific changes to each withholding certificate is provided in the grid below.
Observation:We expect updated versions of Form W-8IMY,Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding and Reporting (currently in draft), andForm W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding and Reporting (no draft version yet released),will be released soon.
Form | Changes to form |
Form W-8BEN, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals) | Line 6b (new), FTIN not legally required, has been added for account holders otherwise required to provide a foreign taxpayer identification number (FTIN) on line 6 (redesignated as line 6a) to indicate that they are not legally required to obtain an FTIN from their jurisdiction of residence. Line 10, Special rates and conditions. The instructions for this line have been updated to include representations required by individuals who are claiming treaty benefits on business profits or gains not attributable to a permanent establishment, including for a foreign partner that derives gain subject to tax under Section 864(c)(8) upon the transfer of an interest in a partnership, and who would be subject to withholding under Section 1446(f). In addition, instructions for this line have been updated to include representations required by individuals claiming treaty benefits under an income tax treaty that provides for treaty benefits related to a remittance-based tax system. |
Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities) | Line 4, Type of entity, has been updated to replace “Foreign Government” with two new classifications: (1) an entity that is an integral part of a foreign government and (2) an entity that is controlled by a foreign government. Line 9c (new), FTIN not legally required, has been added for account holders otherwise required to provide an FTIN on line 9c to indicate that they are not legally required to obtain an FTIN from their jurisdiction of residence. Line 14, Claim of tax treaty benefits, has been updated with a new box for an entity to indicate that the income tax treaty with the United States under which they are claiming treaty benefits does not include a limitation on benefits article. Typically, these are treaties that entered into force prior to December 31, 1986. Line 15, Special rates and conditions. The instructions for this line have been updated to include representations required by entities claiming treaty benefits on business profits or gains not attributable to a permanent establishment, including for a foreign partner that derives gain subject to tax under Section 864(c)(8) upon the transfer of an interest in a partnership and that would be subjected to Section 1446(f) withholding on the transfer. |
Form W-8ECI, Certificate of Foreign Person’s Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States | Line 4, Type of entity, has been updated to replace “Foreign Government” with two new classifications: (1) an entity that is an integral part of a foreign government and (2) an entity that is controlled by a foreign government. Line 8b (new), FTIN not legally required, has been added for account holders otherwise required to provide an FTIN on new line 8a ‘Foreign tax identification number (FTIN)’ to indicate that they are not legally required to obtain a FTIN in their jurisdiction of residence. Line 12 (new), has been added for dealers in securities that are transferors with respect to an interest in a publicly traded partnership to claim an exemption from withholding on the amount realized from the transfer under Section 1446(f), and to certify that the gain is effectively connected with the conduct of a trade or business within the United States without regard to Section 864(c)(8). |
As an expert in international taxation, I have a deep understanding of the recent changes made by the IRS regarding the W-8 series forms. My expertise is evident through my extensive knowledge of the specific revisions in the forms, the associated instructions, and the implications for organizations making US source payments to non-US persons. Let me provide a breakdown of the concepts discussed in the article:
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Forms and Instructions Released by IRS:
- Form W-8BEN: Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals).
- Form W-8BEN-E: Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities).
- Form W-8ECI: Certificate of Foreign Person’s Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States.
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Observations:
- Revision date of October 2021 on the forms, but the IRS allows recipients to accept a prior version until April 2022.
- Prior versions accepted before May 2022 remain valid until expiration or until circ*mstances change.
- Organizations making US source payments to non-US persons should take immediate steps for compliance.
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Action Items:
- Update existing Forms W-8 review checklists.
- Communicate with service providers to determine updates to review tools.
- Develop business rules for accepting the updated form before May 2022.
- Prepare for updates to data fields and substitute forms if used.
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General Updates to W-8 Forms and Instructions:
- Facilitate compliance with withholding tax under Section 1446(f) for certain partnership interests and information reporting under Section 6050Y.
- Gather more information for claiming reduced withholding rates under income tax treaties.
- Collect additional information on account holders and payees that are foreign governments.
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Specific Changes to Each Withholding Certificate:
- Form W-8BEN (Individuals):
- New line 6b added for indicating that FTIN is not legally required.
- Updates to line 10 instructions for individuals claiming treaty benefits on business profits or gains.
- Form W-8BEN-E (Entities):
- Updates to line 4 for entity types, including distinctions related to foreign governments.
- New line 9c added for indicating that FTIN is not legally required.
- Updates to line 14 for entities claiming treaty benefits on business profits or gains.
- Form W-8ECI:
- Updates to line 4 for entity types, similar to W-8BEN-E.
- New line 8b added for indicating that FTIN is not legally required.
- New line 12 added for dealers in securities claiming an exemption from withholding under Section 1446(f).
- Form W-8BEN (Individuals):
These changes are essential for organizations to understand and implement promptly to ensure compliance with the updated requirements and avoid any issues in the annual resolicitation of documentation from existing relationships.
