FATCA & CRS Alert issue 2016-05 / QI News Issue 2016-02

FATCA & CRS Alert issue 2016-05

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IRS Releases Revised Form W-8BEN-E and Instructions

The IRS has posted revised Form W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities) to its website. The Form and its Instructions are final and reflect those revisions indicated in the draft released in January (see e-Alert 2016-03) along with a number of examples added to the Instructions. The revision date is April 2016.

Highlights of updates are as follows.
 

Part I: Identification of Beneficial Owner

  • Chapter 3 Status (Line 4): addition of box for International organization
  • Chapter 4 Status (Line 5):
  • Nonparticipating FFI (NPFFI): addition of exempt beneficial owner as a type of entity not included in definition of NPFFI
  • Registered deemed-compliant FFI (RDCFFI): addition of nonreporting IGA FFI as a type of entity not included in definition of RDCFFI
  • Sponsored FFI: addition of status
  • Account that is not a financial account: addition of status. A financial account does not include:
    • Certain savings and retirement accounts that are tax-favored.
    • Certain term life insurance contracts.
    • Account held by an estate.
    • Certain escrow accounts.
    • Certain annuity contracts.
    • Account or product excluded under an intergovernmental agreement.
  • Formatting change: Line 10 moved to separate line below its former shared line with Lines 8, 9a and 9b

Part III: Claim of Tax Treaty Benefits - Limitations on Benefits (LOB)

As provided in the draft form, in order to claim treaty benefits, an entity must satisfy three requirements:

  1. Be a resident of the treaty country and identify that country on Line 14a. 
  2. Derive and beneficially own the item of income and indicate such by checking the box on Line 14b.
  3. Satisfy the LOB article of the treaty and indicate how it meets those requirements by checking the appropriate LOB box delineated under Line 14b.

KPMG Observation:
 
While the instructions provide a general overview of each of the ten new boxes listed on the form (i.e., the general requirements needed to meet each particular LOB provision), it is nevertheless anticipated that the new requirement will result in a high level of failed treaty claims. Given the complexities of the new Form W-8BEN-E in general, this added requirement will undoubtedly result in further frustration by both the beneficial owner completing the form and the withholding agent receiving it.  

Part IV: Sponsored FFI

Formerly entitled, “Sponsored FFI that has not obtained a GIIN,” the part has been renamed as sponsored entities are able to obtain a GIIN and should by January 1, 2017 (as updated in the Instructions for Line 16). In addition, a new line for the GIIN of the sponsoring entity was added to Line 16. A slight verbiage change was noted to the first bullet Line 17 for an investment entity.

Part X: Owner-Documented FFI (ODFFI)

  • Addition of final certification of Line 24a that the ODFFI certifies that it does not have any specified U.S. persons that own an equity interest or debt interest in the FFI other than those identified on the FFI owner reporting statement.
  • Addition of final certification of Line 24b that the ODFFI has provided, or will provide, valid documentation meeting the requirements for each person identified in the FFI owner reporting statement (and corresponding change to 2nd bullet of Line 24b)

Part XII: Nonreporting IGA FFI

Line 26 has been modified for an FFI to reflect the IGA under which it meets the requirements to be classified as a nonreporting financial institution. In addition to naming the country of the applicable IGA, the FFI must indicate the type of IGA (Model 1 or 2) and provide the specific category of FFI it is as described in Annex II of the IGA. However, if the Nonreporting FFI is claiming a deemed-compliant status under the U.S. Treasury regulations, it must instead indicate which section of the regulations it qualifies under for this status. In addition, the Instructions provide coordination between the FATCA regulations and the IGAs for FFIs that are classified as nonreporting under an IGA.

Specifically, the instructions provide that an FFI that meets the requirements of both a nonreporting IGA FFI under its IGA and a deemed-compliant FFI under the regulations, should certify its status as a nonreporting IGA FFI on Form W-8BEN-E. However, if such entity meets the requirements for ODFFI status for payments associated with the Form W-8BEN-E, it should instead certify to that status under the regulations only by completing Part X. Lastly, a final certification was added to Line 26 for a trustee documented trust or sponsored entity. The Instructions provide that a Nonreporting IGA FFI that has registered and received a GIIN that was not identified in Line 9a because the trustee’s or sponsor’s GIIN was reported there, should name the trustee or sponsor and provide its own GIIN on the new 2nd bullet of Line 26.
 

Part XXVI: Passive NFFE

Of significance, the instructions include a note to passive entities that are professionally managed that they are, in fact, classified under FATCA as FFIs and not passive NFFEs. In addition, Lines 40b and 40c have been updated for non-U.S. entities in IGA jurisdictions that might need to disclose “controlling U.S. persons” instead of “substantial U.S. owners.”

Part XXVIII: Sponsored Direct Reporting NFFE

Line 42 was modified to add a line for the sponsoring entity’s GIIN for a direct reporting NFFE.

Part XXIX: Substantial U.S. Owners of Passive NFFE

The form and instructions were modified to add that if the NFFE is disclosing controlling U.S. persons to a Model 1 FFI or a Reporting Model 2 FFI, it can provide that information in the lines provided for substantial US owners of a passive NFFE.

Part XXX: Certification

This Part (and the preceding one) were reordered so that the certification was last on the form.

Other Updates Noted in the Instructions

  • Definitions

- Disregarded Entity (DRE): A DRE with a U.S. owner or a DRE with a foreign owner that is not otherwise able to fill out Part II of Form W-8BEN-E, may provide the form to an FFI solely for purposes of documenting itself for Chapter 4 purposes. In this case, a DRE should complete Part I as if it were the beneficial owner and should not complete Line 3.

- Qualified Derivatives Dealer (QDD): a QDD is a Qualified Intermediary that has agreed to certain reporting and withholding requirements under chapter 3.

  • No Withholdable Payments

The instructions provide that an account holder providing Form W-8BEN-E solely for purposes of documenting its account yet not receiving a withholdable payment or reportable amount, should complete Part I by substituting the references to “beneficial owner” with “account holder” and not complete Line 4 (chapter 3 status).

  • Treaty Claims for Hybrid Entities

If the entity completing the form is a partnership, DRE, simple or grantor trust, receiving a payment for which treaty rates are being claimed, the entity must check that status box and the “yes” box, along with Part III. The only time the “no” box is acceptable for one of these entities is if the entity is using the form solely to document itself as an account holder of an FFI , yet no withholdable payments or reportable amounts will be received.

  • Absence of chapter 4 Status for Preexisting Accounts

The Instructions provide that lack of a chapter 4 status provided on Line 5 with respect to a preexisting account is acceptable prior to July 1, 2016.
 

Mandatory Usage

While the instructions do not provide requirements on mandatory usage of the revised form, other IRS certification forms have carried a mandatory usage date of six months after the revision date shown on the updated form. It is presumed that the revised Form W-8BEN-E (Rev. April 2016), will be required to be in use within six months (by October 2016). Until that time, withholding agents may continue to accept the prior version (Rev. February 2014). In addition, withholding agents may rely on current, valid, Forms W-8BEN-E that are already on file until the validity period of that form expires.

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