This month we turn our attention to the recently revised 2016 W-8BEN-E form which has 30 parts over eight pages that can be cataloged into four sections. The IRS released its previous substantial update of the W-8BEN-E in February 2014 and in April 2016 its most recent updated form with accompanying updated instructions. The 2016 revision more represents a technical correction release for the evolution of FATCA and its IGAs since 2014 than substantive changes. The 2014 W-8 series update, on the other hand, was a major departure from the previous series, exemplified by the former W-8BEN in use since 2006 had just four parts. The 2014 Forms may continue to be used by institutions until October 2016 when it becomes mandatory to switch to the new 2016 W-8BEN-E.

Most Important Updates

 

This new 2016 W-8BEN-E includes three primary amendments:

1. Inclusion of Limitation of Benefits Categories

 

Firstly, the new W-8BEN-E contains 10 new potential items for selection to comply with a “Limitation of Benefits” (LOB) article of a double tax agreement to receive the advantages of the agreements reduced withholding provision. These new LOB boxes reside within Part III – Claim of Tax Treaty Benefits, Line 14. The items include the nine main tests that can be met to satisfy an LOB provision, and then includes a tenth “Other” catch-all category that requires the filer cite to the treaty article and paragraph number test not covered within the nine categories.

Moreover, line 15 requires further explanation be provided of how additional conditions are met to qualify for any further exceptional reduction of withholding. Line 15 must be used only if claiming treaty benefits that require that meeting conditions not already covered by the representations of line 14 (or other certifications on the form).

This line is generally not applicable to claiming treaty benefits under an interest or dividends (other than dividends subject to a preferential rate based on ownership) article of a treaty or other income article, unless such article requires additional representations. For example, certain treaties allow for a zero rate on dividends for certain qualified residents provided that additional requirements are met, such as ownership percentage, ownership period, and that the resident meet a combination of tests under an applicable LOB article.

2. New FATCA Category for Non-Financial Accounts

 

Secondly, a new checkbox has been added to the chapter 4 statuses in line 5 for payments made to payees for accounts they hold that are not financial accounts under the FATCA regulations [section 1.1471-5(b)(2)].

3. Coordination with IGAs

 

Finally, the new W-8BEN-E instructions are amended to coordinate qualification for the status of a non-reporting Foreign Financial Institution (FFI) under the Intergovernmental Agreements (IGA) with a deemed-compliant FFI status under the chapter 4 regulations. An FFI that meets the requirements of both a non-reporting IGA FFI under the IGA and under the regulations should certify as a non-reporting IGA FFI, unless such entity meets the requirements for owner-documented FFI status for payments associated with this form, in which case it should certify to that status under the regulations only by completing Part X of the form.

The W-8BEN-E Structure

 

The filer’s primary focus will be on Part I.

Identifying Information and Choice of Classification

 

All filers of the W-8BEN-E must complete Parts I (Identifying Information and FATCA Classification). Part I of the W-8BEN-E requires general information, the QI status, and the FATCA classification of the filer. Question 4 of Part I requests the QI status. If the filer is a disregarded entity, partnership, simple trust, or grantor trust, and also claiming benefits under a U.S. tax treaty, then the filer must complete Part III. Part I, Question 5 requests the FATCA classification of the filer, of which the form list 31 choices. The classification indicated determines which one of the parts IV through XXVIII must be completed.

General Certification

 

All filers must complete Part XXX (General Certification). Part XXX requires certification, under penalty of perjury, by the payee or a person authorized to sign on the payee’s behalf. This part of the final form also requires the signatory agree that she will submit a new form within 30 days if any certification made on this form becomes incorrect.

The signatory is certifying, subject to perjury:

The entity identified on line 1 of this form is the beneficial owner of all the income to which this form relates, is using this form to certify its status for chapter 4 purposes:

• • The entity identified on line 1 of this form is not a U.S. person
• • The income to which this form relates is: (a) not effectively connected with the conduct of a trade or business in the United States, (b) effectively connected but is not subject to tax under an income tax treaty, or (c) the partner’s share of a partnership’s effectively connected income
• • For broker transactions or barter exchanges, the beneficial owner is an exempt foreign person as defined in the instructions.

Moreover, Line XXIX for identification of substantial U.S. owners is subject to the same perjury statement and other certifications made in Part XXX.

Specific Certification of FATCA Classification

 

Completion of the other parts of the form W-8BEN-E will depend upon the Part I, Question 5 FATCA classification of the filer.

Substantial U.S. Owner

 

The information required to answer this line may be attached to the form in a separate statement, which remains subject to the same perjury statement and other certifications made in part XXX. A filer that is a Passive Non-Financial Foreign Entity (NFFE) and thus completes part XXVI must also complete as well as part XXIX if it has substantial U.S. owners.

For a Passive NFFE, a specified U.S. person is a substantial U.S. owner if the person has more than a 10% beneficial interest in the entity. But if an applicable IGA instead employs the standard of “controlling U.S. persons”, then the filer must look to the definition of a controlling person within the IGA of the jurisdiction of the financial institution to which the W-8BEN-E is provided.

Who Must Provide the W-8BEN-E?

 

A foreign entity must submit a Form W-8BEN-E to the withholding agent if it will receive a FATCA withholdable payment, receive a payment subject to chapter 3 withholding, or if it maintains an account with an FFI.

Disregarded Entity

 

A disregarded entity with a U.S. owner or a disregarded entity with a foreign owner that is not otherwise able to fill out Part II (i.e., because it is in the same country as its single owner and does not have a GIIN) may provide this form to an FFI solely for purposes of documenting itself for chapter 4 purposes. In such a case, the disregarded entity should complete Part I as if it were a beneficial owner and should not complete line 3.

Beneficial Owners

 

Form W-8 BEN-E must be provided by each of the entities that are beneficial owners of a payment, or of another entity that is a beneficial owner. If the income or account is jointly owned by more than one person, then the income or account will be treated by the withholding agent as owned by a foreign beneficial owner only if Forms W-8BEN or W-8BEN-E are provided by each owner of the account.

Treatment as a U.S. Account

 

If the withholding agent or financial institution receives a Form W-9 from any of the joint owners, then the payment must be treated as made to a U.S. person and the account treated as a U.S. account. An account will be treated as a U.S. account for FATCA by an FFI if any of the account holders is a specified U.S. person or a U.S.-owned foreign entity, unless the account is otherwise excepted from U.S. account status for FATCA purposes.

Expiration of Form W-8 BEN-E

 

Generally, a Form W-8BEN-E will remain valid for purposes of both chapters 3 and 4 for a period starting on the date the form is signed and ending on the last day of the third succeeding calendar year, unless a change in circumstances makes any information on the form incorrect. For example, a Form W-8BEN signed on September 30, 2014 remains valid through December 31, 2017. However, under certain conditions, a Form W-8BEN-E will remain in effect indefinitely until a change of circumstances occurs.

Change in Circumstances

 

If a change in circumstances makes any information on the Form W-8 BEN-E incorrect for purposes of either chapter 3 or chapter 4, then the submitting person must notify the withholding agent or financial institution maintaining the account within 30 days of the change in circumstances and must file a new Form W-8 BEN-E (or other appropriate form as applicable).

The new 2016 instructions point out that if the submitter has relied upon an IGA to respond to the form, and the country is thereafter removed from the U.S. Treasury list of current IGAs, then from the date of removal a ‘change of circumstances’ has occurred. The W-8BEN-E will no longer be ‘fit for purpose’ after the expiration of the change of circumstance time frame.