Form W-8IMY establishes foreign status for foreign intermediaries, foreign flow-through entities, and certain U.S. branches. A Form W-8IMY should be completed when receiving a reportable amount or withholdable payment on behalf of another person or as a flow-through entity. Two draft Forms W-8IMY have been released in tax year 2016 and the changes between the two versions are minimal.
Draft 2016 Form W-8IMY Instructions
The draft instructions accompanying the draft Form W-8IMY were released in September and expand upon the new boxes and changes on the draft Form W-8IMY. Key changes can be found below.
Who Must File
The draft instructions now include the concept of a qualified derivatives dealer (QDD). Accordingly, to the extent a foreign person, or a foreign branch of a U.S. person wants to establish that it acts as a QDD and is assuming primary withholding responsibility with respect to payments of dividend equivalent payments and substitute interest, a Form W-8IMY must be completed.
A QDD is a qualified intermediary that agrees to meet the requirements of both the Treasury Regulations and the QI agreement and acts as one of the following:
- A dealer in securities subject to regulatory supervision as a dealer;
- A bank subject to regulatory supervision as a bank which it was organized or operates that (1) issues potential section 871(m) transactions to customers; and (2) receives dividends with respect to stock or dividend equivalent payments pursuant to potential section 871(m) transactions that hedge potential section 871(m) transactions that it issued;
- An entity that is wholly-owned (directly or indirectly) by a bank subject to regulatory supervision which it was organized or operates that (1) issues potential section 871(m) transactions to customers; and (2) receives dividends with respect to stock or dividend equivalent payments pursuant to potential section 871(m) transactions that hedge potential section 871(m) transactions that it issued; or
- A foreign branch of a U.S. financial institution, if the foreign branch would meet one of the above requirements.
Filers should be aware that QDD Status is only relevant on or after January 1, 2017. The instructions clarify that the Qualified Securities Lender regime will remain in effect until the QDD regime is implemented.
The 2016 draft Form W-8IMY instructions include new guidance on how Nonreporting IGA FFIs and Qualified Intermediaries (including QDDs) should complete their certifications.
- Nonreporting IGA FFI Certification
The draft instructions provides additional guidance for FFIs completing the Form W-8IMY that meet the qualifications for both nonreporting IGA FFI status and a deemed-compliant status. In such cases the FFI should check “Nonreporting IGA FFI” on line 5 of the form even if they meet the qualifications for deemed-compliant status under the chapter 4 regulations. FFIs operating under a Model 2 IGA that qualify as both a nonreporting IGA FFI and a registered deemed-compliant FFI should check “Nonreporting IGA FFI” on line 5 and list their GIIN on line 9.
The 2016 draft Form W-8IMY also requires the FFI to check the box indicating whether their jurisdiction has a Model 1 or a Model 2 IGA in affect and to list the specific entity status described in Annex II of the IGA. The 2016 draft instructions further state that the FFI should use the language directly from Annex II that best and most specifically describes their status in the IGA. For example, the full status of “investment entity wholly owned by exempt beneficial owners’ should be used rather than “exempt beneficial owner.”
Due to the increased level of detail required by the Nonreporting IGA FFI section, those completing the Form W-8IMY should familiarize themselves with the language used in Annex II of their jurisdiction’s IGA.
- Qualified Intermediary Certifications
The 2016 draft instructions added additional certifications to Part III for Qualified intermediaries. The Qualified Intermediary section now includes a box for QDDs (box 14g) where an FFI documents itself with respect to all potential section 871(m) transactions and underlying securities it receives in a principal capacity and indicates that it will assume primary chapters 3 and 4 withholding responsibility and primary Form 1099 reporting and backup withholding responsibility for the payments it makes and receives as a QDD.
In addition to box 14g, Box 14e has been updated to include additional certifications. Box 14e is should be used when a QI has not assumed primary Form 1099 reporting and backup withholding responsibility. The new form now requires the QI to check the applicable certifications in (i), (ii), and (iii). These certifications differentiate between a QI that uses the form to transmit Forms W-9 to U.S. nonexempt recipients and QIs that use the form to allocate a portion of the payment to a chapter 4 withholding rate pool.
Other Changes/Clarifications to the Form W-8IMY Instructions
The draft 2016 Form W-8IMY instructions contain the following changes and clarifications:
- The draft Form W-8IMY now provides further guidance for foreign partnerships and trusts providing Form W-8IMY for purposes of section 1446 and states that line 19b should be check to certify that the entity is a foreign partnership or grantor trust providing this Form W-8IMY to a lower-tier partnership for purposes of section 1446. Additionally, both boxes 19a and 19b may be checked if the person completing the form is a foreign partnership or grantor trust receiving payments of reportable amounts and providing the form for purposes of section 1446.
- When an FFI is claiming a chapter 4 status under an applicable IGA, a change in circumstances includes the scenario where a jurisdiction in which the FFI is organized or resident (or the jurisdiction where a disregarded entity or branch of an FFI is organized) is removed from the list of jurisdictions treated as having an IGA in effect or when the FATCA status of the jurisdiction changes (e.g., Model 2 to Model 1).
- FFIs located in a jurisdiction having an IGA in effect should check Reporting Model 1 or 2 FFI, rather than Participating FFI.
- If Part II of the form is completed and it is a U.S. branch or limited branch the GIIN of the head office must be entered on line 9.
Draft 2016 Form W-8IMY
The 2016 draft Form W-8IMY has the following changes (as covered in KPMG IRP e-Alert #2016-44):
- There is a new chapter 4 status of Certified deemed-compliant investment advisors and investment managers. The corresponding certification can be found in Part XVI.
- The chapter 4 status of Sponsored FFI replaces Sponsored FFI that has not obtained a GIIN.
For payments made after December 31, 2016, all Sponsored FFIs must have their own GIIN. Note: Certain Model 1 Sponsored entities that do not have any US reportable accounts do not need a GIIN until they actual have a US reportable account.
- Part III contain additional certifications and checkboxes for Qualified Intermediaries (QI) that act as qualified derivatives dealers (QDDs) or QIs that assume primary withholding responsibility for payments of substitute interest.
- The Nonwithholding Foreign Partnership, Simple Trust, or Grantor trust certification section in Part VIII now includes Line 19b which allows a foreign partnership to certify that it is a partner in a lower-tier partnership completing the form for purposes of section 1446.
- The Sponsored FFI certification section in Part X now requires Sponsored FFIs to list the Sponsoring Entity’s GIIN on line 21a.
- The Nonreporting IGA FFI certification section in Part XIX now requires entities claiming to be a Nonreporting IGA FFI to check whether they are operating under a Model 1 or Model 2 agreement. Additionally, a trustee documented trust or a sponsored entity must provide the name of their trustee or sponsor whose GIIN is provided on line 9a or their own GIIN (if issued to them).
- The Sponsored Direct Reporting NFFE section in Part XXVIII now requires the Sponsored Entity to list the Sponsoring Entity’s GIIN.
For Your Reference
The 2016 draft Form W-8IMY can accessed by clicking here and draft form instructions can accessed by clicking here.
This draft 2016 Form W-IMY was released by the IRS for comments and should not be relied upon for filing as the finalized forms are subject to change before release. If you have any comments regarding the draft form, you may submit comments at https://www.irs.gov/uac/comment-on-tax-forms-and-publications.