The IRS has released another draft of the Form W-8BEN-E for entities. As expected, the form has changed drastically since the draft published last year and has increased from six to eight pages. Two significant changes include the addition of sections designed specifically for disregarded entities and branches receiving payments and the expected change to a capacity check box to match the Form W-8ECI and W-8EXP drafts released last year.
If a disregarded entity or branch is receiving payments, the form includes a new line 3 to provide the name of such entity or branch. A new part II has also been added to capture the chapter 4 status, address, and Global Intermediary Identification Number (“GIIN” formerly the FFI-EIN/FATCA ID) (if any) for disregarded entities or branches. Part II is intended only for disregarded entities or branches of a nonparticipating FFI, participating FFI, or registered deemed-compliant FFI that are in a country outside the regarded entity’s or parent entity’s country of residence (presumably this requirement is the same for entering the name on line 3, but this is unclear without the instructions). Part II also includes a GIIN field on line 13, which indicates that FFIs should classify disregarded entities or branches separately because the IRS is likely to require FFIs to obtain separate GIINs for them. However, until the IRS releases additional guidance on registration, the exact GIIN registration process remains unclear.
Another welcome change that was hinted upon when the draft Forms W-ECI and W-EXP were released last year is the IRS’s removal of the controversial capacity line; and replacement of an easier to validate capacity check box. In the past, the signor of the Form W-8 was required to enter his or her capacity to sign tax forms on behalf of the entity named as the beneficial owner on the form (generally the person’s title). A capacity that only gives “apparent” authority to sign is often rejected by the IRS on audit if documentation is not provided to prove the person has actual signatory authority (such as a power of attorney). Moreover the IRS has never published a list of “acceptable” capacities and instead has consistently asserted that the capacity must give the person “inherent” or “actual” authority to sign tax documents on behalf of an entity (e.g., a title indicating the person is an officer for the entity). This approach viewed the definition of capacity from a U.S. lens whereas capacities in other jurisdictions may actually indicate inherent or actual authority (for example, “director” was often rejected even though it is an officer title in many jurisdictions outside the U.S.). The new change to the form removes this ambiguity and makes it significantly easier for withholding agents (or their service providers) to validate the capacity on a Form W-8.
In addition to the above changes, the form also makes various modifications to include concepts related to jurisdictions that have signed (or will sign) an Intergovernmental Agreement (“IGA”) to implement FATCA. The changes include adding IGA FATCA status types to line 5 along with corresponding changes or additions to related certifications.
Other changes in the new draft Form W-8BEN-E compared to the prior draft include the following:
- Addition of a name field for disregarded entities or branches receiving the payment on line 3 (in prior forms, the name of the disregarded entity was written on the reference number line per the instructions);
- Explicit instruction for disregarded entities, partnerships, simple trusts and grantor trusts to complete the treaty section of the form (Part III);
- Removal of the certified deemed-compliant retirement plan FATCA status type on line 5 (formerly line 4)
- Addition of FATCA status types on line 5 including new types from the final regulations and types to cover entities in IGA jurisdictions along with corresponding certification sections;
- Interestingly one of the new types is for a Sponsored FFI that has not obtained a GIIN indicating that there will be a delay in sponsored investment entities or controlled foreign corporations (registered-deemed compliant) obtaining GIINs
- Modification of certain FATCA status types on line 5 to correspond with updates in the final regulations;
- Removal of instructions in line 5 to complete a separate certification for Participating FFIs and Registered deemed-compliant FFIs (previously there was a separate section to certify and include the “FATCA ID” for these entities, but on the new draft the GIIN is included in Part I);
- Combined certain FATCA types on line 5 along with the corresponding certification sections (foreign governments and foreign central banks of issue; publically traded NFFEs and their affiliates);
- Addition of a new FATCA status type for entities not receiving withholdable/passthru payments along with a code (possibly for entities using the form for non-FATCA purposes such as 6050W). The codes that need to be entered will likely be provided in the instructions when they are published;
- Removal of the FFI-EIN and QI-EIN check boxes from line 8 of the form (formerly line 7) which is in line with recent changes to the Form 1042-S;
- Addition of a GIIN check box to the Foreign TIN field indicating that a Foreign TIN will not be required if a GIIN is provided (will likely be clarified in the coming instructions);
- Addition of a new Part II section to provide information on disregarded entities and branches of a nonparticipating FFI, participating FFI, or registered deemed-compliant FFI (see summary above);
- Addition of a new certification (box 23d) to the owner-documented FFI certification in Part IX;
- The certification for Nonreporting IGA FFIs in Part XI includes fields for the IGA country and the type of Nonreporting IGA FFI it qualifies for under the applicable IGA (types may be provided in the instructions);
- Certifications for five different types of Exempt Retirement Plans are now included in Part XIV (previously there were 2);
- Addition of a certification that the beneficial owner will provide the withholding agent with a new form if any information changes that would make the certifications on the form incorrect;
- Addition of a print name field to the signature line;
- Removal of the capacity line and added a check box for the signor to certify that he or she has capacity to sign on behalf of the entity named on line 1 of the form (see summary above);
- Removal of the percentage of ownership requirement for substantial U.S. owners of Passive NFFEs in Part XXVII which is in line with the requirements in the final regulations; and
- Changes to certifications for other FATCA status types to correspond with the changes in the final regulations.
Instructions to the Forms W-8, Reporting Forms, and Other Forms W-8
Instructions to accompany the newly released draft form were not released. The IRS has stated that it would not issue draft instructions and will instead publish final versions of the instructions along with the final versions of the Forms W-8 expected later this year. This leaves many open questions such as the foreign TIN validation requirements, GIIN collection requirements, and many more. Given the final version approach, it does not appear that industry will have an opportunity to comment on any new or missing items in the instructions.
To date, the IRS has released new drafts of the Form W-9, Form W-8BEN for individuals and W-8BEN-E for entities. Another Form W-8IMY should be released in a similar draft form soon and may generally follow the format laid out in the Form W-BEN-E. New drafts of the Forms W-8ECI and Forms EXP are likely to be issued soon, although changes to those drafts should not be significant.
Industry has been pushing for the new forms to be released given the short amount time left for FATCA to become effective and the amount of work necessary to update systems, processes, and procedures to accommodate the new forms. Hopefully, these recent developments are signs that the wait is almost over.