Long-awaited instructions for FATCA form issued
posted Aug 7, 2014 by Paul Oliveira, CPA
The IRS has released instructions for filing Form W-8BEN-E, “Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities).”
Entities use this form to, among other things, document their status both as payees and beneficial owners for Foreign Account Tax Compliance Act (FATCA) purposes.
Information reporting and withholding
Sections of Internal Revenue Code (IRC) Chapter 3, which existed before FATCA, deal with information reporting and withholding on foreign persons. They contain reporting and withholding rules related to payments of such U.S.-source income as dividends on stock of U.S. companies to non-U.S. persons. These payments are from sources within the United States that constitute:
- Fixed or determinable annual or periodic income such as interest, dividends, rents and annuities,
- Certain gains from the disposal of timber, coal or domestic iron ore with a retained economic interest,
- Gains relating to contingent payments received from the sale or exchange of patents, copyrights and similar intangible property, and
- Distributions of effectively connected income by a publicly traded partnership.
Chapter 4, established under FATCA, requires withholding agents to withhold 30% of certain payments to a foreign financial institution (FFI) unless it has agreed with the IRS to report certain information related to U.S. accounts, among other things. (The withholding rules are essentially a mechanism to enforce new reporting requirements.)
How to use the form
Form W-8BEN-E is used for both Chapter 3 and Chapter 4 purposes. The newly released instructions require a foreign entity to give the form to a withholding agent or payer if it is:
- Receiving a withholdable payment from the withholding agent,
- Receiving a payment subject to Chapter 3 withholding, or
- Maintaining an account with an FFI requesting the form.
A withholding agent or payer of income may rely on a properly completed Form W-8BEN-E to treat a payment as a payment to a foreign person who beneficially owns the amounts paid. If applicable, the withholding agent may rely on the form to apply a reduced withholding rate or exemption from withholding. Those who receive certain types of income must provide Form W-8BEN-E to:
- Claim that they’re the beneficial owner of the income or a partner in a partnership subject to the section of the code that requires a partnership conducting trade or business in the United States to withhold tax on a foreign partner’s distributive share of the partnership's effectively connected taxable income, and
- If applicable, claim a reduced withholding rate or exemption from withholding as a resident of a foreign country with which the United States has an income tax treaty that is eligible for treaty benefits.
The form should be provided to the withholding agent or payer before income is paid or credited. Failure to provide a form when requested may lead to 30% withholding (foreign-person withholding rate) or the backup withholding rate under IRC Section 3406.
Form W-8BEN-E isn’t provided to the IRS; it’s given to the person who is requesting it from the taxpayer, generally the person who makes the payment and credits the taxpayer’s account, or a partnership that allocates income to the taxpayer. An FFI may also request the form from a taxpayer to document the status of the taxpayer’s account.
Future hiccups likely
So far approximately 77,000 financial institutions and 80 countries have registered with the IRS and agreed to report certain information about their U.S. accounts under FATCA, with more to come. Even China and Russia have jumped on board. With the complexity of the law and the number of participants, there are likely to be hiccups in the future. Stay tuned.
Sidebar: IRS sets guidelines for “FATCA Report” form
Form W-8BEN-E isn’t the only FATCA-related form the IRS has addressed recently.
The U.S. tax agency also has published instructions for filing Form 8966, “FATCA Report.” Foreign financial institutions (FFIs) use this form to report information about their U.S. accounts and to report information regarding:
- Substantial U.S. owners of passive nonfinancial foreign entities (NFFEs),
- U.S. accounts held by owner-documented foreign financial institutions (FFIs), and
- Certain other accounts based on the filer’s Internal Revenue Code Chapter 4 status.
For calendar years 2015 and 2016, Form 8966 must also be filed by participating FFIs (PFFIs), registered deemed-compliant (RDC) FFIs and Reporting Model 2 FFIs to report certain amounts paid to their account holders that are nonparticipating FFIs.
Form 8966 must be filed for the 2014 calendar year on or before March 31, 2015. A Reporting Model 2 FFI must file Form 8966 on the same filing dates that apply to a PFFI, unless a different reporting date is specified in an applicable Model 2 IGA.
An automatic 90-day extension to file may be requested. For reporting with respect to calendar year 2014 only, an automatic 90-day extension of time to file will be provided to all filers (including those filing electronically) without the need to file any form or take any action.
After calendar year 2014, an application for an extension must be filed. An extension isn’t allowed for forms filed by a Reporting Model 2 FFI to report a nonconsenting U.S. account or a nonconsenting nonparticipating FFI. A Reporting Model 2 FFI should refer to the applicable Model 2 IGA for the due dates for these filings.
Under certain hardship conditions, the IRS may grant an additional 90-day extension.
Keep an eye out. The IRS intends to provide additional guidance on requests for extensions based on hardship.