The IRS is updating several important forms.
These updates will affect recipients of U.S. source income who use these forms to certify their non-U.S. status and treaty eligibility by recipients of U.S. source income to require additional information, among other changes. The IRS updated form W-8BEN-E, used by most Canadian entities, in April 2016, while the form W-8BEN, used by individuals, was updated in January 2017.
Payors of U.S. source income to non-U.S. recipients are required to collect the correct certification form in order to apply preferential treaty withholding rates on dividends, interest and other items of income. Without a valid certification form, the payor must apply the statutory withholding rate of 30%.
Note that, while most payments made to Canadian suppliers in the ordinary course of business should not require withholding or the provision of Form W-8BEN or W-8BEN-E, U.S. payors are often unwilling to either perform the analysis to make that determination, or to accept the secondary liability for a failure to withhold should the analysis later be determined incorrect. As a result, Canadian suppliers may be asked by their U.S. customers to provide a W-8BEN or W-8BEN-E, regardless of whether the type of income they are receiving should be subject to withholding.
Changes to non-U.S. status and treaty eligibility forms
Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities)
Previously, in asserting eligibility for treaty benefits, the beneficial owner of the income who completed the form was required to enter the country of residence relied upon. Now, the beneficial owner must also enter the specific manner in which it meets the requirements of any treaty provision dealing with limitation on benefits.
Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)
The new version of this form still requires the beneficial owner to enter their country of residence relied upon in asserting eligibility for treaty benefits. However, in some cases the beneficial owner will now have to enter both the article and the paragraph relied on in asserting eligibility (previously only the article of the treaty was required). Furthermore, in some cases, beneficial owners must now explain how they meet the conditions of the cited article and the paragraph of the tax treaty.
Previously, where Form W-8BEN and W-8BEN-E were provided to payors of U.S. source income, these forms remained valid for three years after the year in which they were executed, provided that there was no change in the recipient's information. The IRS notes that individuals may provide the prior version of the Form W-8BEN until June 30, 2017. These forms will generally remain for three years, absent a change in circumstances.
For more information, contact your KPMG adviser.
Information is current to January 31, 2017. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500