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IMPORTANT INFORMATION FOR THE LIVE PROGRAM
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Forms W-8BEN and W-9 Compliance in
Foreign and U.S. Business Transactions
TUESDAY, DECEMBER 19, 2017, 1:00-2:50 pm Eastern
FOR LIVE PROGRAM ONLY
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Sound Quality
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FOR LIVE PROGRAM ONLY
Dec. 19, 2017
Forms W-8BEN and W-9 Compliance
Jack Brister, TEP, Partner
International Wealth Tax Advisors, New York
Professor William H. Byrnes, Associate Dean, Special Projects
Texas A&M University Law, Fort Worth, Tex.
Notice
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY
THE SPEAKERS’ FIRMS 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.
You (and your employees, representatives, or agents) may disclose to any and all persons,
without limitation, the tax treatment or tax structure, or both, of any transaction
described in the associated materials we provide to you, including, but not limited to,
any tax opinions, memoranda, or other tax analyses contained in those materials.
The information contained herein is of a general nature and based on authorities that are
subject to change. Applicability of the information to specific situations should be
determined through consultation with your tax adviser.
Tax Information Collection, Validation,
Management & Reporting
FATCA, CRS, W-8s and new 2018 FinCEN
Professor William Byrnes
6
If Ch 3 or Ch 4 withholding applies –
then a W-8. If not Ch 3 or Ch 4, then W-9.
services fees paid to a foreign firm?
insurance premium payments?
sale of assets or stock ?
interest on a receivable or treasury
bond?
From WHA Perspective?
7
U.S. or Foreign?
U.S. Chapter 61
Foreign Step 1: Chapter 4
(FATCA)
Withholding 30% under chapter 4, no further withholding
required
No withholding under chapter, 4 proceed under
chapter 3
Step 2: Chapter 3
8
Chapter 3 Taxpayer Character of Income Withholding Tax Withholding Agent Exemption
§1441 NRA
Foreign
Partnerships
FDAP Income
• Interest,
• Premiums,
• Annuities,
• Dividends,
• Compensations,
• Rents,
• Royalties,
• Salaries,
• Wages,
• Remunerations,
• Emoluments, etc.
30% gross Payor most Interest =
Portfolio /
Bank Deposit
Capital Gains
Real Estate electing to be
ECI - 871(d)
ECI (b/c requires tax
return)
§1442 Foreign Corps. FDAP 30% gross Payor Same as above
§1445 Foreign Persons Real Estate Disposition (FIRPTA) 10% gross Payor Certificate of Reduced WH
§1446 Foreign Partner Partnership ECI to a
U.S. Trade or Business Progressive tax rate Payor Income not ECI
(FDAP only §1441/41)
9
Chapter 4 Taxpayer Character of Income Withholding Tax Withholding Agent Exemption
§1471
Non Participating
FFI
“withholdable
payments”
FDAP
gross proceeds of
shares or bonds
No interest
exemptions
30% U.S Payor Payment whose
beneficial
owners
are:
-Foreign
governments
-International
Organizations
-foreign central
bank of issue
Recalcitrant
Account Holders “pass-thru
payments”
FFI ECI
4 Examples of W-9 or W-8 Issues
Example 1. A U.K. company owns a Dutch B.V. that has elected to be
treated as a disregarded entity for U.S. tax purposes and receives a
dividend from its U.S. subsidiary.
U.S. person forms foreign corporation under a statute that is NOT on
the per se list of corporations under the Treasury Regulations.
U.S. person forms foreign corporation under a statute that IS on the
per se list.
Two or more U.S. shareholders form a foreign corporation under a
statute that is not on the per se corporation list.
10
IRS View of W-9s for Foreign
Financial Institutions
More than 7 M Foreign U.S. persons
• 2015 IRS tax stats 467,971 returns claiming
foreign-income exclusion
• 8 M claimed FTC
3 million U.S. tax resident with foreign assets
FBAR non-compliance? Of 10 million req only
1 million filed; only 300,000 FATCA Form 8938s
11
1042-S / W-8 Imports
(IRC Ch 3 FDAP or Ch 4 FATCA)
Imported $505 B of Services
Paid $616 B Investment Income
$6.2 T US treasuries foreign owned
$5.8 T public equities foreign
12
China & USA Expats
US persons: 71,493 + 22,423 HK = appx 100,000
Chinese in US? 3 million
China assets in US $226 billion
• China $100,308 billion
• Hong Kong $126,092 billion
$463 billion imports from China
13
W-8s (Tax Self Certs) Fit for Purpose?
100m minimum to be replaced
but some industry states, with CRS, 900m
tax certifications (W8s, CRS) need
collecting and validating by end of 2018.
How much time per client? Cost?
14
2018 LB&I Audit Campaigns
Impacting W8s and W9 Veracity
1120-F Ch 3 and 4 Withholding
Names Collected from Swiss Bank Program
OVDP Declines-Withdrawals
Information Reporting Program Advisory
Committee (IRPAC) proposals for W-8 / 1042-S
audit penalties different resolutions
15
16
FinCEN UBO
Form
from May 11,
2018
New FinCEN CDD Rule & Form
from May 11, 2018
I. The rules contain explicit customer due diligence requirements
II.a new requirement to identify and verify the identity of beneficial
owners of legal entity customers, subject to certain exclusions and
exemptions
III.covered financial institutions must identify then verify the identity
of the beneficial owners of all legal entity customers (other than
excluded) at the time a new account is opened (other than
accounts exempted)
IV.FinCEN issued standard certification form & CIP Risk-Based
17
What did we learn from Qualified
Intermediary (QI) (‘FATCA Light’)?
For QI, only 20% of W8s were fit for purpose.
As of 2015 only 35% of W8s estimated fit for
purpose
5 - 7 months for a financial institution to obtain a
new W8 from pre-existing customer.
Then validation process begins
18
W-8 How much time for filer/Receiver?
Recordkeeping ................. 2 hr., 52 min.
Learning about the law or the form ... 2 hr., 05 min.
Preparing the form .............. 2 hr., 13 min.
= 7 hours
19
W-8BEN-E How much time ? 25 hours!
20
Recordkeeping 12 hr., 40 min.
Learning about
the law or the
form
4 hr., 17 min.
Preparing and
sending the
form
8 hr., 16 min.
21
11
32
Customer identification, verification, and review and
recordkeeping of the beneficial ownership information:
(only new accounts, annual)
A range of 20 to 40 minutes per legal entity customer.
Estimated Number of Respondents: 28,917
Estimated Total Annual Responses: 10,843,875
Estimated Recordkeeping Burden: 7,041,289 hours.
22
Costs? Let’s look at new FinCEN UBO Form
Costs? Let’s look at new FinCEN UBO Form
“order-of-magnitude assessment of the IT upgrade
costs, resulting in an upper bound of $10 billion”
and that’s a simple data form compared to W-8BEN-E
23
Survey 2015 (Paystream Advisors)
• 71% did not have an automated system for
collecting, validating and managing tax
certifications
• 61% replied that their foreign payees are
not classified as Foreign Financial
Institutions (FFIs) for compliance purposes
24
BUT … are the W8s correct?
• 66% replied payees accept deposits as
banking and financial businesses
• 13% trade, manage or invest financial assets
and hold financial assets on behalf of others
• 12% act as a holding company in connection
with an investment vehicle
• 10% qualify as foreign regulated insurance
companies
25
Chapter 3 WHT & Ch. 4 – 1042 / W8 Penalties
A withholding agent or payer that fails to obtain a fit-for-purpose, up–to-date W-8 or W-9 and fails to withhold as required is liable for the 30% rate or backup withholding rate of 28%, as well as interest and penalties for lack of compliance
Late Form 1042?
If a WHA files late incorrect and incomplete Form 1042 or Form 1042S to IRS or recipient, then 5% of the unpaid tax for each month or part of a month the return is late, but not more than 25% of the unpaid tax.
26
Failure to file correct Form 1042-S penalty by March 31
$30 if you file a correct form within 30 days, with a maximum
penalty of $250,000 per year ($75,000 for a small business)
$60 if you file after 30 days but by August 1, with a maximum
penalty of $500,000 ($200,000 for a small business)
$100 if you file after August 1 or do not file a correct form, with a
maximum penalty of $1,500,000, ($500,000 for a small business).
27
28
29
30
31
32
33
Symmetry of Information = Verification
Company
Internal
Revenue
Service
Individual
Report Payments
made to Individuals
Submit tax form /
Self assessment
IRS matches the
documents against
each other
34
35
36
37
FBAR
Financial
Self
Reporting
for
Financial
Crimes
38
Symmetry of
Information requires
- 1099
- 1042-S
- 8966
39
Data Requires
Systems:
Collection
Verification
Validation
Maintenance
Reporting
40
Who is a Withholding Agent?
Any person (U.S. or foreign), that has control,
receipt, custody, disposal or payment of an
amount subject to chapter 3 and 4
If more than one person or entity qualify as a
withholding agent for a payment, the person
who makes the original disbursement to the
foreign person will be the person responsible
41
Operational Work-Flow of Internal Controls
A/P - WA
Master
Vendor File
Related Parties
3rd Party
B/O
US Source
ECI
Income
Type
Apply
Treaty
Exemption
or
WHT
Rate
Reduction
Certificate
Management:
W-8-BEN-E
W-8-ECI
W-8-IMY
W-8-EXP
W-9
F8233
FORMS:
1042
1042S
1042-T
Reconciliation
1120
1120F
5471
5472
Entity
Type
42
Regulations and Forms
IRS writes regulations and develops forms from the
perspective that the recipient/taxpayer/vendor/payee,
etc. understand U.S. tax and are U.S. based persons –
but most FATCA and W-8 users do not and are not.
FATCA + IGAs = 129 new terms
244 countries and dependencies
Complex because FFI and NFFE Carve Outs /
Exceptions
43
Changing IGA Status Impacts W-8s
on File which impacts 1042-S’
Row Labels Signed and
“In Force”
Signed and
NOT “In
Force”
Substa
nce
Grand
Total
Model 1A IGA 48 9 15 72
Model 1B IGA 18 9 27
Model 2 IGA 7 3 4 14
Grand Total 73 21 19 113
44
45
From WHA FATCA Perspective? Apply A? FATCA Regulations
• A USWA or any FFI that is not resident in any country with which the U.S. has entered into an
intergovernmental agreement (“IGA”) will be subject to the final U.S. Treasury regulations which have
been issued under FATCA (“FATCA Regulations”).
• FFI will enter into agreement with IRS to agree to perform due diligence, withholding, and reporting
Or Apply B? IGA Regime
Model 1 IGAs
• Any FFI that is resident in a Model 1 IGA Partner Country will be governed by
the terms of the IGA in effect with that country and implementing laws and regulations adopted by
that country.
• Each “Reporting Model 1 FI” (as defined by that IGA) must comply with the registration
requirements of the Model 1 IGA.
Model 2 IGAs
• FFIs will be required to implement FATCA as prescribed by the FATCA Regulations, except to
the extent expressly modified by the relevant IGA.
• Model 2 FFIs will register with the IRS directly.
• FFI will seek consent from account holders to supply information to the IRS.
• Where consent is not granted, the FFI will provide aggregate information to the IRS with respect
to non-consenting investors.
• The IRS may then make further information requests to the Model 2 IGA Partner Country’s
government based on the aggregate information.
46
47
Who is a U.S. Person?
An individual who is a U.S. citizen or
U.S. resident alien
A partnership, corporation, company, or
association created or organized in
U.S.
An estate (other than a foreign estate)
A domestic trust
48
W-9 Problem -
Who is U.S. Taxable Person?
Who is a U.S. citizen or U.S. resident alien?
- Birth = Accidental Americans / dual nationals
- May not have a SSN not eligible for TIN
- Green Cards, H1B, Es, etc
- Substantial presence test of 3 year average
- May not have a SSN must get TIN
49
W-9 Problems
LLCs filers mark themselves to be limited liability
companies or corporations
Disregarded Entities
A.IRS removed “disregarded entity” checkbox from LLC
section of new Form W-9.
B.LLCs that are DEs must instead include owner’s name
in name line, and LLC name in business name/DE line.
50
W-9 Problems
S & C corp 1099 confusion Questions arise regarding the corporate exemption to Form 1099 reporting.
(LLC and S are sometimes exempt from 1099-MISC, but not for backup w/h
for attorney fees, and health care corps must report 1099-MISC payments)
Name conventions for sole proprietors sole proprietors may have a D/B/A or business aliases, the business
owner’s name is the name to be used for tax certification
in the case of individually owned sole proprietorships, payers can use either
the SSN or EIN on the 1099, IRS prefers the SSN
51
New W-9 Compliance Codes
Payees claiming exemption from backup withholding (i.e., Form
1099 reporting) have a line on Form W-9 to include an exemption code
(found in the instructions).
• e.g. 1 (tax-exempt); 2 (federal govt agency); 3 (state govt agency);
5 (corporation) (13 codes).
Payees claiming exemption from FATCA reporting for FFI also have
a space to enter from 13 codes indicating exempt FATCA status.
From Jan 1, 2015 all US corps must provide W-9 to avoid FATCA
(even if exempt from 1099) (FATCA regs allow Articles of Incorporation
but no more eye-ball test).
52
Sign under Penalty of Perjury?
1.payments reported on Forms 1099s: B, DIV,
INT, OID, and PATR (cooperatives).
2. In a first “B Notice” situation (backup 28% if
wrong TIN)
3.To overcome a presumption of foreign status
4.FATCA certifications
53
Newly released Form W-9 and Revised Form W-8BEN Presented by:
Jack Brister, TEP | [email protected]
December 19, 2017
For Strafford
• New Form W-9 and Instructions released December 2014
• Form W-9 – Changes to note since the August 2013 version include:
• Line 1 has an additional note stating that a name is required and the line
cannot be left blank.
• Line 3 federal tax classifications have been amended, changing
“Individual/sole proprietor” to “Individual/sole proprietor or single-member
LLC”.
• Line 4 clarification on the exemption codes is provided, noting that the codes
only apply to certain entities and not to individuals and that the FATCA
exemption codes apply to accounts maintained outside the U.S.
Newly Released Form W-9, Request for Taxpayer Identification Number and Certification
56
• Form W-9 Instructions – Changes to note since the August 2013 version include:
• The “Purpose of Form” section has been updated to provide examples of the
types of information returns on which requesters of Forms W-9 may have to
include reportable amounts.
• The “Backup Withholding” section explicitly states the withholding rate as 28%.
• The “Specific Instructions” section have been reformatted to provide line-by-line
instructions.
• Line 1 (Name) includes guidance for ITIN applicants, instructing them to enter their name as it appears on Form W-7, Line 1a.
• Line 4 (Exemptions) restates that corporations are not exempt from backup withholding with respect to attorneys’ fees or gross proceeds paid to attorneys and that corporations providing medical or health care services are not exempt with respect to payments reportable on Form 1099-Misc.
• Line 4 (Exemptions) a requester may write or print “Not Applicable” or a similar statement if an exemption code for FATCA reporting is not required.
Newly Released Form W-9, Request for Taxpayer Identification Number and Certification
57
• Purpose of form:
• To establish Chapter 3 status
• To avoid backup withholding
• To establish Chapter 4 status
Revised Form W-8BEN - The Basics
58
• When to Use and Not to Use
• The new Form W-8BEN (revision date 2014) is for use ONLY by non-resident aliens (NRA), that is, foreign individuals.
• A NRA (nonresident alien individual) is any individual who is not a citizen or resident alien of the United States. A foreign person who has a “green card” and not had it revoked or voluntarily turned it in, or a foreign person who meets the “substantial presence test” for
the calendar year is a resident alien, and must submit a Form W-9.
• An alien who is a bona fide resident of Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, the U.S. Virgin Islands, or American Samoa is a nonresident alien individual that should fill out a W-8BEN, not a W-9.
• A sole member of a "disregarded" entity is considered the beneficial owner of income
received by the disregarded entity, and thus the sole member must provide a W-8BEN. The sole member should inform the withholding agent if the account is in the name of a disregarded entity. The sole member includes his or her own name in line 1, but must include the name and account number of the disregarded entity on line 7 where it states “reference number”. However, if the disregarded entity is claiming treaty benefits as a hybrid entity, it must instead complete Form W-8BEN-E.
Revised Form W-8BEN - The Basics
59
• Expiration
• In general, the W-8BEN will remain valid until December 31st of the 3rd year
after the date of the signature unless there is a change of circumstances.
• Change of Circumstances
• If any information on the Form W-8BEN becomes incorrect because of a
change in circumstances, then, the NRA must provide the withholding agent,
payer, or Foreign Financial Institution (FFI) with a new W-8BEN, within 30 days
of the change of circumstances.
Revised Form W-8BEN - The Basics
60
• Line 2 • On line 2, the NRA must enter the country of citizenship. If the NRA is a dual citizen, then
the NRA must enter the country where the NRA is both a citizen and a resident at the time of completing the W-8BEN. If the NRA is not a resident in any country in which the NRA has citizenship, enter the country where the NRA was most recently a resident.
• Line 3 • Line 3 requires the NRA’s permanent resident address in the country where the NRA
claims to be a resident for purposes of that country’s income tax. If the Form W-8BEN is to be used for claiming a reduced rate of withholding under an income tax treaty, then the NRA must determine permanent residency in the manner required by that tax treaty. The NRA may not use the address of a financial institution, a post office box, or any of other type of mailing address.
• Line 5 • Line 5 requires a taxpayer identification number, which is the US social security number
(SSN), or if not eligible to receive a SSN, then an individual taxpayer identification number (ITIN).
• To claim certain treaty benefits, either line 5 must be completed with a SSN or ITIN, or line 6 must include a foreign tax identification number (foreign TIN).
• Line 6 • Line 6 requires a foreign tax identifying number (foreign TIN) issued by a foreign jurisdiction
of residence when an NRA documents him or herself with respect to a financial account held at a U.S. office of a financial institution. However, if the foreign jurisdiction does not issue TINs or has not provided the NRA a TIN yet, then the NRA must enter a date of birth in line 8.
Revised Form W-8BEN – Specific Line Items
61
• Disregarded Entities • A sole member of a "disregarded" entity is considered the beneficial owner of income
received by the disregarded entity, and thus the sole member must provide a W-8BEN.
• The sole member should inform the withholding agent if the account is in the name of a disregarded entity.
• The sole member includes his or her own name in line 1, but must include the name and account number of the disregarded entity on line 7 where it states “reference number”. However, if the disregarded entity is claiming treaty benefits as a hybrid entity, it must instead complete Form W-8BEN-E.
• Treaty benefits • To claim certain treaty benefits, either line 5 must be completed with a SSN or ITIN, or line
6 must include a foreign tax identification number (foreign TIN).
• ITIN & Foreign TIN requirement (or date of birth for an individual that has no foreign TIN) for forms submitted for accounts with US financial institutions
• Line 6 of Form W-8BEN requires a foreign tax identifying number (foreign TIN) issued by a foreign jurisdiction of residence when an NRA documents him or herself with respect to a financial account held at a U.S. office of a financial institution. However, if the foreign jurisdiction does not issue TINs or has not provided the NRA a TIN yet, then the NRA must enter a date of birth in line 8.
Revised Form W-8BEN – Special Situations
62
• What if you have an old Form W-8 BEN on file for a NRA individual?
• This form will be valid indefinitely as long as you have back-up ID on file. If no back-up ID, you will need a new form every 3 years.
• What if you have an old Form W-8 BEN on file for a foreign entity?
• Forms on file signed prior to December 31, 2014, can be relied on for payments made prior to January 1, 2017 in lieu of obtaining an updated version of the Form if you have the proper documentary evidence. Accordingly these W-8BEN forms are not valid indefinitely even if the proper documentary evidence is in place.
TO AVOID CONFUSION, IT IS RECOMMENDED TO REQUEST NEWLY SIGNED “W” FORMS FROM EVERYONE WHO IS REQUIRED TO PROVIDE YOU ONE AS THIS IS A GOOD TIME TO REFRESH YOUR RECORDS!
Old Form W-8BEN (revision date Feb. 2006 (a.k.a. “pre-FATCA Form W-8”)
63
Practice Leader
Jack Brister, TEP
International Wealth Tax Advisors 315 Madison Ave., 3rd and 4th Floors New York, NY 10017
[email protected] P. 212.256.1142
www.iwtas.com
Jack specializes in U.S. tax planning
and compliance for non-U.S. families
with international wealth and asset
protection structures which include
foreign trusts, estates and foundations
that have a U.S. connection.
Jack also specializes in foreign
investment in U.S. real property, and
other U.S. assets, pre-immigration
planning, U.S. expatriation matters,
U.S. persons in receipt of large foreign
gifts and inheritances, foreign account
compliance and offshore voluntary
disclosures.
64 64
• Foreign Account Tax Act (“FATCA”)
• Enacted under the HIRE Act of 2010 (Mar 18)
• Imposes documentation, withholding and reporting obligations
FATCA: Chapter 4 Overview
67
• Identify U.S. taxpayers hidden foreign assets
• Compel foreign financial institutions (“FFIs”) to provide information on foreign financial assets
• Penalize non-participating FFIs and NFFEs through a 30% withholding tax regime
FATCA: Purpose
68
• Improve tax compliance of U.S. taxpayers with offshore financial assets
• FFIs must enter into compliance agreements
• Identify accounts with direct or indirect U.S. ownership
• Annually report ownership information to IRS
• Close accounts or withhold on payments of non-compliant FFIs
FATCA: Goals and Objectives
69
• Non-financial foreign entities (“NFFEs”) must
• Certify they have no substantial U.S. ownership, have active business activities, or are a publicly traded (or affiliate) company or NFFE
• Disclose and report substantial U.S. owners
FATCA: Goals and Objectives
70
• An FFI must do the following to avail itself of the withholding 30%
• Be compliant under an IGA (intergovernmental agreement) Model 1 or 2
• Be compliant under FATCA regulations
• Sign and FFI agreement
• Register and obtain a GIIN
• Revise account opening procedures
• Review and obtain, if needed, additional information on existing account holder information
• Report U.S. account holder information to the IRS
• Impose 30% withholding tax as required under regulations
FATCA: Impact On FFIs
71
• Determine FATCA status
• Prepare applicable Form W-8BEN-E
• Passive NFFEs • Disclose substantial U.S. owners; or
• Certify that there are no substantial U.S. owners
FATCA: Impact on NFFEs
72
• U.S. source FDAP income (passive income)
• Gross proceeds from the sale of assets generating FDAP income
• Investment advisory fees
• Custodial fees
• Bank and brokerage fees
FATCA: Withholdable Payments
73
• Certain grandfathered obligations
• Grandfathered obligations generally include a legal agreement that produces, or could produce, a withholdable payment (e.g., FDAP)
• Obligation must have been created by or before June 30, 2014
• If the obligation is significantly modified after June 30, 2014 the grandfather status will be terminated
FATCA: Exempt Payments
74
FATCA: Timeline – key dates
75
• Financial institution
• Depository institution
• Custodial institution
• Investment entity
• Insurance company (cash value / annuity)
• Entity engaged in banking or similar business • Makes loans or provides credit (personal, mortgage,
business, etc.)
• Purchases, sells, discounts or negotiates A/R, provides installment obligations, etc.
• Issues letters of credit
• Provides institutional fiduciary or trust services
• Finances foreign exchange transactions
• Leases assets
FATCA: Definitions
76
• Expanded affiliated group
• Affiliated with a common parent • Directly, or indirectly owns more than 50% of the stock
(vote and value)
• Owns more than 50% of the beneficial interest in a partnership or non-corporate entity
• A common parent is generally a corporation
• Partnerships, trusts and other non-corporate entities may elect to be treated as common parent
FATCA: Definitions
77
• Withholding agent
• Any person (U.S. or foreign), that has control, receipt, custody, disposal or payment of an amount subject to withholding chapter 3 and 4 purposes
• If more than one person or entity qualify as a withholding agent for a payment, the person who makes the original disbursement to the foreign person will be the person responsible to make any necessary withholding
FATCA: Definitions
78
• Intergovernmental agreement
• Model 1 • An agreement between the U.S. and a foreign
government to implement FATCA through reporting by FFIs to the foreign government followed by automatic exchange of FATCA information.
• Model 2 • Reporting by FFIs directly to the IRS supplemented
by the exchange of information between the foreign government (or agency) and the IRS
• Global intermediary identification number (GIIN)
• GIIN is the identification number that is assigned to a participating FFI or registered deemed compliant FFI
FATCA: Definitions
79
• U.S. Person
• U.S. citizens, residents, and entities organized under U.S. law, domestic estates and trusts.
• Includes the U.S. Government, States, the District of Columbia and their agencies.
• A U.S. person does not include • Captive insurance companies electing to be treated
as a U.S. taxpayer under IRC § 953(d) who is not also licensed by a State as an insurance company
FATCA: Definitions
80
• Specified U.S. Persons do not include
• Publically traded corporations or members of a public company’s expanded affiliated group (EAG)
• Section 501 tax exempt organizations
• Retirement plans
• U.S., state and municipal governments and their agencies
• Banks, REITs, RICs (mutual funds)
• Dealers or brokers in securities, commodities and derivatives
• Charitable trusts
FATCA: Definitions
81
• Establishes foreign entity status
• Used by financial institutions (domestic and foreign) to establish FFI and NFFE status
• Used to claim treaty exemption or reduced withholding rate
• FATCA withholding applicable if not provided FFIs
• No treaty benefits allowed if not provided FFIs
• Form is not filed with IRS
FATCA: Form W-8BEN-E
82
• Form is provided and maintained by Withholding Agents
• Valid from date of signature to the last day of the third succeeding year
• Expires upon change of circumstances
FATCA: Form W-8BEN-E
83
• Part I
• Part I, Box 4 Chapter 3 withholding status
• Part I, Box 5 Chapter 4 withholding status
• Part II
• Complete if:
• Disregarded entity or branch
• Part III – treaty benefits (chapter 3 withholding only)
• Parts IV through XXVIIII
• Complete appropriate part based on entity type selected in Part I, box 5
FATCA: Form W-8BEN-E
84
• FATCA statuses requiring a GIIN
• Participating FFI
• Registered deemed-compliant FFI
• Reporting Model 1 FFI (beginning Jan 1,
2015)
• Reporting Model 2 FFI
• Direct reporting NFFE
• Sponsored direct reporting NFFE
FATCA: Form W-8BEN-E
85
• FATCA statuses not requiring further certification
• Non-participating FFI, including:
• Limited FFI
• FFI related to a reporting IGA FFI, except a registered deemed-compliant FFI or participating FFI
• FATCA statuses requiring further certification
• Sponsored FFIs that have not, and are not required to obtain a GIIN
• IGA Annex 2 entities
FATCA: Form W-8BEN-E
86
• IGA Annex 2 entities
• Certified deemed-compliant entities
• Local bank (Part V)
• FFI with low value accounts (Part VI)
• Sponsored closely held investment vehicles (Part VII)
• Limited life debt investment vehicles (Part VIII)
• Investment advisors and investment managers (Part IX)
• Owner-documented FFI (Part X)
• Restricted distributor (Part XI)
• Non-reporting IGA FFIs (including registered deemed compliant FFI under Model 2 IGA
FATCA: Form W-8BEN-E
87
• IGA Annex 2 entities
• Certified deemed-compliant entities (continued)
• Foreign government, government of U.S. possession, or foreign central bank (Part XIII)
• International organization (Part XIV)
• Exempt retirement plans (Part XV)
• Entity wholly owned by exempt beneficial owners (Part XVI)
• Territory financial institution (Part XVII)
• Sponsored direct reporting NFFE (Part XXVIII)
• Non-financial group entity (Part XVIII)
• Excepted non-financial entity in liquidation or bankruptcy (Part XX)
FATCA: Form W-8BEN-E
88
• IGA Annex 2 entities
• Certified deemed-compliant entities (continued)
• 501(c) organization (Part XXI)
• Other not-for-profit entity (Part XXII)
• Publicly traded NFFE or NFFE affiliate of a publicly
traded company (Part XXIII)
• Excepted territory NFFE (Part XXIV)
• Active NFFE (Part XXV)
• Passive NFFE (XXVI)
• Excepted inter-affiliate FFI (Part XXVII)
FATCA: Form W-8BEN-E
89
• FFI
• Exempt beneficial owners
• Foreign retirement plans
• Non-financial group entities
• Active NFFE
• Passive NFFE
FATCA: Common Designations and Certifications
90
• FFI
• Withholding agents must verify
GIIN
• If W-8BEN-E designates GIIN is
“applied for” the GIIN must be
the GIIN must be received within
90 days to be a compliant FFI
• If all registration and appropriate
designation criteria are not met
• Form W-8BEN-E is invalid
• Impose withholding
FATCA: Common Designations and Certifications
91
• Foreign retirement plans
• Need to review subsidiary funds
within organization
• Excepted from GIIN registration
• Not all treaty protected plans
will be covered, need to verify
criteria within regulations and IGAs
FATCA: Common Designations and Certifications
92
• Non-financial group entities
• Includes
• Holding companies
• Treasury centers
• Captive insurance company
• Does not include
• EAG entities with less than:
• Less than 25% gross passive income;
• Less than 5% of gross income generated from FFIs; and
• Less than 25% of its assets are passive income producing assets
• Holding companies are generally exempt from FFI status
FATCA: Common Designations and Certifications
93
• Public company and affiliates
• Includes
• Publicly traded NFFE
• An NFFE that is a member of an EAG which is a publicly traded U.S. or foreign entity
• Be sure to include the following on W-8BEN-E:
• Publicly traded parent company information
• Stock exchange parent is traded on
• Verify stock is regularly traded
• If missing any of the above information or verifications, the form is incomplete which requires withholding or request corrected form
FATCA: Common Designations and Certifications
94
• Active NFFE
• Includes
• Not an FFI
• Less than 50% of entity’s gross income
for the preceding calendar year is passive;
and
• Less than 50% of the weighted average
percentage of assets (test quarterly)
are passive income producing assets
• Must test annually
FATCA: Common Designations and Certifications
95
• Passive NFFE
• Not an active NFFE
• Must provide withholding agents
with substantial owner information,
or certify there are no substantial
U.S. owners
• Substantial U.S. owner
• U.S. person who directly or indirectly holds
10% or more ownership interest in the
entity; or
• More than 0% if an investment entity or specified insurance company
FATCA: Common Designations and Certifications
96
• Authorized individual
• An authorized individual is a:
• Representative of the beneficial owner; or
• Officer of the beneficial owner; or
• Participating payee; or
• Account holder
• An authorized individual must sign, date
and check the box certifying legal
capacity to sign for entity
FATCA: Certification of Form W-8BEN-E
97
Practice Leader
Jack Brister, TEP
International Wealth Tax Advisors 315 Madison Ave., 3rd and 4th Floors New York, NY 10017
[email protected] P. 212.256.1142
www.iwtas.com
Jack specializes in U.S. tax planning
and compliance for non-U.S. families
with international wealth and asset
protection structures which include
foreign trusts, estates and foundations
that have a U.S. connection.
Jack also specializes in foreign
investment in U.S. real property, and
other U.S. assets, pre-immigration
planning, U.S. expatriation matters,
U.S. persons in receipt of large foreign
gifts and inheritances, foreign account
compliance and offshore voluntary
disclosures.
98 98
Thank you