“Countries white list” released
Registration deadline postponed by 10 days
Several Final Certification Forms Released by IRS
IGA signed with Honduras
Countries with IGAs listed; more time provided for foreign financial institutions to register
The Treasury Department and IRS announced on 2 April that jurisdictions that have reached “agreements in substance” with the United States on the terms of intergovernmental agreements (IGAs) under the Foreign Account Tax Compliance Act (FATCA) can be treated as having agreements in effect until the end of 2014.
According to Treasury’s release, this treatment will be available to jurisdictions:
- That reach “agreements in substance” prior to 1 July 2014, and
- That consent to having the status of their agreements disclosed
Read Announcement 2014-17 (PDF, 34KB) released by the IRS.
Implications for FFIs include more time to register
Because an increasing number of jurisdictions have reached agreements in substance, Wednesday’s announcement provides foreign financial institutions (FFIs) located in these jurisdictions with needed guidance before the upcoming registration deadlines.
Also, because of IRS experience with processing the registrations that have been submitted to date, Wednesday’s announcement also provides FFIs with 10 more days to register in order to be included on the first IRS FFI list.
Prior to yesterday’s notice, FFIs were required to register by 25 April 2014, to be certain that they would be included on the first IRS FFI list—i.e., the only list that will be published before withholding begins.
Yesterday’s announcement provides that FFIs will be included on this list if they submit a complete registration form by 5 May 2014—instead of 25 April as originally announced.
26 IGAs signed, 45 IGAs in effect
Treasury reports that as of 2 April:
- The United States has signed 26 IGAs with countries and jurisdictions - read the list.
- There are 19 additional countries and jurisdictions that will be treated as having IGAs in effect, bringing the total number of jurisdictions that are treated as having IGAs in effect to 45 - read the list.
- This list is expected to continue to grow in the coming weeks, as additional countries provide consent to having the status of their IGAs disclosed and additional agreements in substance are reached.
Several Final Certification Forms Released by IRS
The IRS has released final versions of the following forms and related instructions for 2014.
- Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding; Instructions also released
- Form W-8BEN-E, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities); No Instructions released
- Form W-8ECI, Certificate of Foreign Person’s Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States; Instructions also released
Other W-8 forms, released in draft during 2013, that have yet to be finalized are:
- Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding and Reporting
- Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding and Reporting
The forms and instructions were updated to reflect the Foreign Account Tax Compliance Act (FATCA) provisions as well as the temporary regulations that amend the final regulations. Highlights of the final forms are provided below.
Form W-8BEN (Revision date February 2014)
The Form W-8BEN is intended to be completed by a non-U.S. individual to certify he/she is the non-U.S. beneficial owner of income and, as applicable, entitled to treaty benefits. Revisions to note on form:
- Abbreviations: The instruction to not abbreviate a country has been removed.
- Foreign tax identification number (TIN): A foreign TIN is a required field when the owner is documenting him/herself with respect to a financial account held with a U.S. office of a financial institution. If the owner’s jurisdiction of tax residence does not issue TINs, or the owner does not have a TIN, the owner must provide date of birth.
As indicated, the instructions regarding country abbreviations have been removed. While this has long been an issue between industry and the IRS, and would appear to be welcomed relief, it is interesting to note that the regulations require the withholding agent to also have government issued identification, from a country that reasonably matches the abbreviated country, for the person providing such a form. Also noteworthy is the line 8 instruction that appears to require a date of birth for all owners of financial accounts held with a U.S. office of a financial institution.
That said, the Line 6 instruction provides that a date of birth is required only where a foreign TIN is not provided on Line 6. Given the language in the regulations and IGAs regarding the future reporting requirements (foreign TIN or DOB) by a U.S. withholding agent, we believe the Line 6 instruction is the correct one. We are in the processing of confirming this with the IRS. Finally, the use of the February 2014 version of the Form W-8BEN is August 2014. Until that time, withholding agents may continue to accept the prior version (February 2006).
Form W-8BEN-E (Revision date February 2014)
The Form W-8BEN-E is intended to be completed by a non-U.S. entity who is certifying it is the non-U.S. beneficial owner of a payment of income for current withholding tax purposes (under Chapters 3 and 61) as well as to provide its FATCA status as either payee or account holder of a foreign financial institution (under Chapter 4). No instructions have been issued for this revised form. Revisions to note on form:
- As provided in the draft issued in May 2013, the final Form W-8BEN-E is laid out with the first three parts of the form and the certification in Part XXIX. The remaining parts are to be completed, as appropriate, for the Chapter 4 status claimed in Part I, Line 5. Part I is used by an entity to indicate both its Chapter 3 status and its FATCA (i.e., Chapter 4) status. Part II is to be completed only by a disregarded entity or branch of a foreign financial institution in a country other than the FFI’s country of residence. Part III is to be completed only when a beneficial owner of a payment seeks to claim a reduced rate of withholding under an applicable income tax treaty.
- New FATCA classifications from the final regulations, the intergovernmental agreements (IGAs), and the temporary amending regulations are reflected in the Chapter 4 Status, Part I, Line 5. New in the final version are:
- Nonparticipating FFI including a limited FFI or an FFI related to a reporting IGA FFI other than a registered deemed-compliant FFI or participating FFI (Note, this was not a new entity but, rather, a language modification).
- Registered deemed-compliant FFI other than Model 1 FFI or sponsored FFI that has not obtained a GIIN (Note, this was not a new entity but, rather a language modification).
- Certified deemed-compliant investment advisors and investment managers (plus corresponding new Part IX)
- Nonreporting IGA FFI including an FFI treated as a registered deemed-compliant FFI under a Model 2 IGA
- Nonfinancial group entity (omitted the word “excepted” in the check box but it was intended, as provided in Part XVIII)
- Excepted inter-affiliate FFI (plus corresponding new Part XXVII). Note, this is not a new entity type. The draft form had inadvertently omitted this.
- Direct reporting NFFE (no corresponding part to complete)
- Sponsored direct reporting NFFE (plus corresponding new Part XXVIII)
- Abbreviations: Same as Form W-8BEN, the instructions have been removed for not abbreviating country in Lines 2, 6 and 7
- TIN on Lines 9a and 9b: On the last draft of the form, Line 9 requested either a Global Intermediary Identification Number (GIIN) or a Foreign TIN. In the final form, the two have been divided into their own tiny line, 9a for GIIN and 9b for Foreign TIN
- Reference number in box 10: the previous full line of the form has been reduced to a small space at the end of page 1
- Disregarded entity or branch: New Part I, Line 3 requests the disregarded entity or branch’s FATCA status as well as address. The revised Part II of the form would be completed for a branch or disregarded entity receiving payment that is: a limited branch, a participating FFI, a reporting model 1 or 2 FFI or a U.S. branch of a foreign financial institution
- New Part IX for certified deemed-compliant investment advisors and investment managers. This designation was introduced in the amending regulations and is for FIs that meet the definition of investment entity but does not maintain financial accounts.
- New Part XXVII for Excepted Inter-Affiliate FFIs. This designation is for entities that are part of an expanded affiliated group (EAG) and do not maintain financial accounts or withholdable payments (except for EAG members) not have they agreed to perform FATCA reporting
- New Part XXVIII for Sponsored Direct Reporting NFFEs: A sponsoring entity is identified in new line 42, and it certifies that it is sponsoring the direct reporting NFFE identified on line 1
- Certification to Provide Future Changes: At the bottom of the revised Certification section (Part XXVI), a new certification has been added, requiring the person completing the form to agree to update the form within 30 days of a change that would make any certification on the form incorrect.
It is noteworthy that Part IV, which is to be completed by a sponsored FFI that has not obtained a GIIN, does not include numbered checkboxes as it has in every other section (such as 17a and 17b where a choice needs to be made). This could be an identification challenge for requestors of the form. Another challenge for persons completing the paper version of the form is the very limited space provided on Line 9 (GIIN). Because the GIIN is 16 digits, it will be difficult for these persons to enter the number in a readable format. This could lead to many inadvertent mismatches when the withholding agent tries to verify the number to the IRS published list. With respect to country abbreviations, the IRS has also removed the instructions that prohibit the use of country abbreviation on the Form W-8BEN-E. However, as indicated above, the regulations remain in conflict with this. Finally, like Form W-8BEN, mandatory use of final Form W-8BEN-E is six months after the revision date shown on the updated form (Rev. February 2014). It is interesting that the IRS has backdated this form. Unless the IRS states differently in instructions (not yet issued) or other guidance, the revised form is required to be in use by August 2014. Until that time, withholding agents may continue to accept the prior version (Rev. February 2006).
Form W-8ECI (Revision date February 2014)
The form is intended to be completed by a non-U.S. person that is beneficial owner of U.S. source income that is effectively connected with a trade or business in the U.S.. The revised form is identical to the July 2013 draft, with the exception of the revision date. Like the forms noted above, the revision date of the form is February 2014, making its use mandatory by August 2014.
For Your Reference
The forms described above can be accessed by clicking on the following links:
FATCA - IGA with Honduras
On 2 April, the Treasury Department posted text of an intergovernmental agreement (IGA) signed by representatives of the United States and Honduras in order to implement provisions of U.S. law known as FATCA.
The IGA between the United States and Honduras follows the Model 1 IGA. Read text of the IGA (PDF, 257 KB) with Honduras.
For further information, please do not hesitate to contact us.
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.