The Foreign Account Tax Compliance Act (FATCA), passed as part of the Hiring Incentives to Restore Employment (HIRE) Act enacted in March 2010, added a requirement which generally provides that a foreign financial institution ("FFI") will need to be registered with the Internal Revenue Service ("IRS") in order to avoid a 30% withholding tax on certain payments (generally U.S. source passive income and gross proceeds from the sale of U.S. securities) starting in 2013. On February 8, 2012, the Treasury Department issued proposed regulations governing FATCA and the implementation of FATCA which require foreign persons to document their status to their FFI. (see our Practice Update discussing the proposed regulations). The new requirement is very similar to the long standing requirement under which U.S. withholding agents are required to document the status of foreign beneficial owners of payments on U.S. source income, which they satisfy by obtaining the applicable Forms W-8.
The Internal Revenue Service ("IRS") has released new draft forms incorporating all of the information necessary to address both the prior and new FATCA requirements so that withholding agents and FFIs will not have to maintain two separate forms.
On August 14, the IRS issued a draft version of Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding. This Form is used by foreign intermediaries, flow-through entities, and certain branches under FATCA to identify U.S. persons or entities receiving U.S. source income in foreign accounts, and to certify the status of a foreign intermediary, foreign flow-through entity or certain U.S. branches for U.S. withholding tax purposes.
The new version of the Form W-8IMY now identifies U.S. persons or entities receiving U.S. source income in foreign accounts, whereas the previous version only identified foreign persons and entities receiving U.S. source income. Accordingly, what once was a straightforward two-page information return is now a complex, seven page information return.
Earlier this summer, the IRS also released modified draft versions of Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, for individuals, and Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, for entities.
The new Forms W-8BEN reveal an FFI employment identification number (FFI-EIN) and a FATCA ID for participating FFIs, and deemed-compliant FFIs. In order to protect taxpayer confidentiality, the IRS decided that it will issue entities the two different numbers to serve different roles. The FFI-EIN will be used for filing purposes and the FATCA ID will be used for public verification purposes. A foreign tax identifying number will now also be required on all Forms W-8BEN.
The IRS has not yet released drafts of instructions for completing these new forms.