Forms W-8BEN and W-9 Compliance in Foreign and U.S...

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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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Dec. 19, 2017

Forms W-8BEN and W-9 Compliance

Jack Brister, TEP, Partner

International Wealth Tax Advisors, New York

jbrister@iwtas.com

Professor William H. Byrnes, Associate Dean, Special Projects

Texas A&M University Law, Fort Worth, Tex.

profbyrnes@gmail.com

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 | jbrister@pragermetis.com

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

jbrister@iwtas.com 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

Form W-8BEN-E Presented by:

Jack Brister, TEP | jbrister@pragermetis.com

December 19, 2017

For Strafford

• 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

jbrister@iwtas.com 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