OUR THOUGHTS ON:

IRS Releases Revised Form W-8BEN-E

International|Tax

By Cynthia Hoffman

The IRS has finally released the modified Form W-8BEN-E, which has been out in draft form since May 2013.  The updated form is part of the effort to assist U.S. persons making payments to foreign persons in collecting documentation and certification needed under the new withholding rules under FATCA.

FATCA was enacted in 2010 to combat perceived tax evasion by U.S. persons and organizations who own offshore assets.  Among its many provisions, FATCA requires a 30% U.S. withholding tax on payments to certain foreign persons who are deemed to not be in compliance with the FATCA rules regarding certain reporting of U.S. account holders and owners.  These tax withholding rules are codified in Chapter 4 of the U.S. tax code.  The new withholding rule will take effect on July 1, 2014.  Existing U.S. withholding rules under Chapter 3 are still in effect.

W-8BEN-E is now six pages long and includes more than 20 new FATCA entity classification types with the corresponding FATCA certification for each type.  The updated Form W-8BEN-E is designed to assist the U.S. payor with classifying a foreign payee for purposes of property applying the withholding and reporting rules for both existing U.S. withholding rules under Chapter 3 and the FATCA-enacted withholding rules under Chapter 4.  Form 1042-S, used to annually report payments and tax withholding to foreign persons has also been revised to reflect the FATCA classifications and withholding types.

The revised Form W-8BEN-E follows the release last month of a revised Form W-8BEN (Individuals) for foreign individuals.  The individual form no longer requires the foreign payor to obtain a U.S. individual taxpayer identification number (ITIN) if the foreign person reports a foreign identification number in most circumstances.  There is still a requirement for certain foreign persons to obtain an ITIN, such as in the case of a partner in a U.S. partnership.

All U.S. taxpayers who make payments to foreign persons should review their current procedures for compliance with the new rules, including the collection of updated certification forms such as correct Form W-8BEN series.

Co-Authored by Cynthia Hoffman and Ken Kobayashi.

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