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Compliance with the Various W-8 Series of Forms - Requesting the Form

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Rödl & Partner Tax Matters Vol 2014 – 15, published in October 2014

 

Throughout 2014, the IRS has released new versions of the various W-8 series of forms to comply with the Foreign Account Tax Compliance Act ("FATCA") which generally went into effect on July 1, 2014. FATCA requires U.S. persons to disclose foreign financial assets with their U.S. tax return while foreign financial institutions must disclose the identities of U.S. persons holding accounts with the institutions. In addition, certain non-financial foreign entities must disclose the identities of their substantial U.S. owners. FATCA imposes 30% withholding on any withholdable payment made to an undocumented account holder/payee or a non-compliant foreign entity even though a treaty may provide a lower rate under the normal U.S. withholding regime. Form W-8 is used by non-U.S. persons to document their status as payee under Chapter 4 of the Internal Revenue Code ("IRC"), the FACTA provisions, and as a beneficial owner of the income under Chapter 3 of the IRS, the withholding provisions. The W-8 is also used to document entitlement to a reduced rate of withholding under a treaty. Whether you are requesting a W-8 or completing it, the changes introduced by FATCA have led to many questions regarding compliance with the W-8 form, which are further addressed below. Please note that these questions and answers are generally for non-financial institutions.

 

Must I obtain Form W-8?

There is only one way for a withholding agent to avoid liability for its payees' withholding tax and that is to obtain a valid W-8 from every single payee, before you make a payment. In addition, you must be sure that you have systems in place to capture all the information you need for the annual 1042 and 1042-S reporting requirement.

 

What if I have existing Forms W-8? Do I need to obtain the revised Form W-8?

Existing Forms W-8 are generally valid for a three year period beginning on the date the form was signed and ending on the last day of the third succeeding calendar year. Therefore, existing forms should still be valid. As a practical matter, however, the old W-8 does not provide information regarding FATCA status.

 

Therefore, it may be prudent to go ahead and obtain the updated form. Regardless, for transactions entered into after December 31, 2014, the new W-8 will be required.

 

When does the form expire?

Generally Form W-8 will remain valid for both Chapter 3 withholding and Chapter 4 FATCA purposes, including claims for treaty benefits, for a three year period beginning on the date the form was signed and ending on the last day of the third succeeding calendar year. Under certain circumstances a W-8 may remain in effect indefinitely.

 

When can I rely on a W-8?

As long as the form is properly completed, appears reasonable, and contains information that you don't know or have reason to know is wrong, you can rely on it and will not be liable for under withholding. The fact-based representations on the form must be consistent with the other information you have about the person or entity from which you are requesting the form. All required information must be provided including a U.S. taxpayer identification number where necessary.

 

The "know or reason to know" standard suggests that you should be careful regarding how much assistance you provide in completing the form.

 

Examples of when you cannot rely on a W-8:

  • Vendor claims foreign residence but has a U.S. mailing address
  • Vendor has an individual's name but asserts status as a corporation or other entity
  • W-8 contains a claim for benefits under a non-existent treaty
  • W-8 bears a name (e.g., DBA or trade name) for the beneficial owner that does not match the name on the vendor's bank account, invoice, or procurement agreement
  • W-8 claims benefits for a different type of income than you are paying
  • The addresses provided on the W-8 regarding claims of treaty residence is not consistent with the addresses the company has on file for correspondence, etc.
  • U.S. identification is not provided when required. Generally, this will not be an issue.
  • The payee did not certify that it meets the treaty-specific eligibility requirements for withholding tax relief when making a treaty claim.
  • The W-8 is not signed by someone having the authority to sign tax returns on behalf of the payee. If not a company officer, ask for a power of attorney.

 

What about faxed or emailed W-8s?

Effective July 1, 2014 withholding agents may rely on fax or PDF versions of valid withholding certificates unless the withholding agent knows the sender transmitted the document without the authority of the signor.

 

Can I rely on payment exceptions under FATCA to avoid obtaining a W-8?

Certain "nonfinancial" payments are excepted from FATCA withholding but may still be subject to FATCA information reporting, Chapter 3 withholding and reporting, and back-up withholding. Therefore, a W-8 is still required. Note, however, that a FATCA status is not required unless you are making a FATCA withholdable payment.

 

Can I rely on entity exceptions to avoid obtaining a W-8?

As with certain "nonfinancial" payments, certain entity types are exempt from FATCA withholding. These entities are still subject to Chapter 3 withholding and reporting and therefore, a W-8 is still required.

 

What if I am paying foreign source income do I still need to get the W-8?

We recommend obtaining the W-8 for several reasons. It ensures you're dealing with a foreign and not a U.S. person. You want to ensure coverage for other types of payments you may be paying out. Finally, the IRS likes to see consistency in obtaining W-8s.

 

What if I don't have the W-8 prior to the payment or can't get one?

  • In a pinch, go back and get a form that also has an affidavit of prior status on it (confirming that the representations were true at the time of the payment)
  • Generally, a late W-8 with an affidavit of prior status will protect you but the IRS may require additional proof BUT the IRS is considering discontinuing use of the affidavit (so no curing of past mistakes)
  • Under harmonization regulations, you may also need additional documentation
  • Although substitute documentation may not FATCA-compliant, it does show the IRS that due diligence was performed to obtain the status of the payee.
  • If you can't get a form or can't rely on the form start looking at the payment being made to see if it's exempt from withholding tax
  • No matter what, FATCA interest and penalties will not be waived even if no FATCA withholding is ultimately owed

 

What issues should I consider in requesting documentation?

  1. Allow enough time to obtain the documentation and expect resistance.
  2. Decide how much advice you are prepared to give – the more you give the less you'll be able to say you had no reason to know.
  3. Train the staff who will receive the documentation to ensure they know how to review it properly – FATCA specifically requires they be reviewed and accepted.
  4. Document that a review and acceptance took place.
  5. Designate a person with authority to handle objections.

Is there a specific form I can use to request the W-8?

There isn't a specified form to obtain the W-8 but we can provide a sample request letter.  

 

If you have any questions, please contact your Rödl & Partner representative.

 

 

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