FATCA & CRS Alert 2017-05 | KPMG | LU

FATCA & CRS Alert 2017-05

FATCA & CRS Alert 2017-05

On May 24, 2017, the Internal Revenue Service (IRS) released a cover sheet that accompanies the 2016 version of the Form W-8BEN-E.

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IRS issues new cover sheet for 2016 version of the Form W-8BEN-E

The cover sheet highlights some of the modifications made to the Forms W-8BEN-E due to the issuance of both the final and temporary regulations (under Internal Revenue Code chapters 3 and 4) in January 2017. In particular, the cover sheet highlights modifications and incorporates elements of the regulations that foreign persons should be aware of when completing the form. Note, these items will be included in the next issuance of the form W-8BEN-E and instructions, as well as the instructions for the requester of forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY.


The modifications, summarized below, include:

  • Updates to the rule to furnish a Foreign TIN;
  • New requirements surrounding GIINs for Sponsored FFIs, and the like;
  • The expiration and renaming of chapter 4 classifications; and,
  • Use of electronic signatures.

Requirement to furnish Foreign TIN on Line 9b

Account holders of financial accounts held at a U.S. office of a financial institution (including accounts held at U.S. branches of foreign financial institutions) who receive U.S. source income reportable on a Form 1042-S, must provide their taxpayer identification number (TIN) on line 9b, unless:

  1. The account holder has not been issued a TIN;
  2. The jurisdiction does not issue TINs; or,
  3. The account holder is a government, central bank of issue, international organization, or resident of a U.S. possession.


If the account holder falls within one of the aforementioned exceptions to the rule, then the account holder must provide the withholding agent with a reasonable explanation as to why the account holder was not issued a TIN. Account holders should attach the explanation to the form or write it within the margins of the form.


KPMG Observation

  1. Note that an explanation for failure to provide a foreign TIN may be entered on an accompanying statement only if an account holder has already furnished an otherwise valid Form W-8BEN-E to the withholding agent. Thus, if the account holder is furnishing a new Form W-8BEN-E to the withholding agent, then the foreign TIN must be written on the Form W-8BEN-E and cannot be attached on a separated document.
  2. If an account holder states that their jurisdiction does not issue TINs, the IRS has informally stated that this can be accepted at face value as the IRS has not published a list of jurisdictions that issue TINs.
  3. The cover sheet states that a foreign TIN is only required for accounts that receive U.S. source income reportable on a Form 1042-S. Based on the latest updates in the regulations, the foreign TIN was not limited to U.S. source income reportable on a Form 1042-S but rather all Forms W-8BEN-E (or the account holder would provide an explanation for why there is no foreign TIN). It is unclear if this was an intended change or oversight by the IRS, however, we recommend that a Foreign TIN or reasonable explanation be obtained from all account holders in case they receive withholdable and non-withholdable payments.

New GIIN requirements for Sponsored FFIs, Sponsored Direct Reporting NFFEs and Nonreporting IGA FFI GIINs

As of January 1, 2017, Sponsored FFIs that are registered deemed-compliant FFIs and sponsored direct reporting NFFEs must obtain their own GIIN and report it on Line 9a of the Form W-8BEN-E. The GIIN of the sponsoring entity is no longer required to be reported on Line 16 or 42 (as applicable).

Moreover, the following Nonreporting IGA FFIs are no longer required to provide in Part XII, the GIIN of their sponsoring entity or the GIIN of the trustee (for trustee documented trusts) if the entity is a:

  1. Sponsored investment entity or controlled foreign corporations (as defined in Annex II of an applicable IGA or in Treas. Reg. §1.1471-5(f)(1)(i)(F); or,
  2. A Trustee-documented trust with U.S. financial institutions.

 

KPMG Observation

This appears to be a welcomed change as it was unclear why the IRS previously required the GIIN of the Sponsoring Entity if the Sponsored Entity is required to obtain their own GIIN.
 

Reminder: Luxembourg sponsored investment funds generally should qualify as Nonreporting IGA FFI under Annex II of the Luxembourg IGA. Therefore, they should fill-in the W-8BEN-E as Nonreporting IGA FFI and not as Sponsored FFI.

Expiration of chapter 4 classification: Limited Foreign Financial Institution (FFI) and Limited branch

The limited FFI and limited branch classification applied to FFIs that, due to local law restrictions, were prohibited from complying with the terms of an FFI agreement, or were unable to be treated as a Participating FFIs (PFFIs or Registered Deemed Compliant FFIs (RDC FFIs). Theses FFIs satisfied certain obligations in order to obtain the chapter 4 status of limited FFI or limited branch status.

On December 31, 2016, these statuses expired. Therefore, as of January 1, 2017 limited branches or limited FFIs that failed to become FATCA compliant are treated as a nonparticipating FFIs. Foreign persons should to disregard the reference to limited FFIs on line 5 and to substitute the phrase “branch treated as nonparticipating FFI” for “limited branch” on line 11.

Renaming of chapter 4 status

The chapter 4 status “certified deemed-compliant investment advisors and investment managers” has been renamed to “certain investment entities that do not maintain financial accounts.” However, it is important to note that the substantive requirements for this status located at Part IX of the Form remains the same.

Electronic signatures are now permissible

Pursuant to a temporary regulation issued under chapter 3, withholding agents may now accept a withholding certificate with an electronic signature if the withholding agent “reasonably demonstrates” that the person identified on the form has signed it electronically (or a person authorized to sign for the person identified on the form). An example of such demonstration is a signature block that contains the name of the beneficial owner, a time and date stamp, and a statement that the document had been signed electronically.

For Your Reference

To access the cover sheet and accompanying Form W-8BEN-E click here (PDF | 306KB).

Any tax advice in this communication is not intended or written by KPMG to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing, or recommending to another party any matters addressed herein.

The information contained herein 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 on such information without appropriate professional advice after a thorough examination of the particular situation.

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