Form W-8BEN-E is a critical component of foreign entity
compliance with the Foreign Account Taxpayer Compliance Act
("FATCA"). FATCA touches many commercial enterprises
dealing with the U.S., but particularly affects those in the
financial sector. Recently, the Internal Revenue Service (IRS)
published its long-awaited instructions to help guide foreign
entity taxpayers in completing the form. Prior to the release,
taxpayers struggled through completing the form with no guidance
from the IRS.
The Internal Revenue Service's Form W-8BEN-E replaced the
former W-8BEN for foreign entity taxpayers, which used the W-8BEN
to provide information regarding their foreign status, including
entitlement to any reduced rate of withholding under a treaty, to
payors of U.S. source income. The new Form W-8BEN-E is to be used
by foreign entity taxpayers to communicate not only their foreign
status, as under the former W-8BEN, but also to communicate their
chapter 4 status, i.e., taxpayers' classification for
determining whether they are subject to withholding under
FATCA. Form W-8BEN-E gives taxpayers a choice of 31 different
selections for their chapter 4 status. Choosing a status
requires a taxpayer to make complicated determinations including
whether it is a foreign financial institution
("FFI").
The newly released instructions provide limited guidance on how a
taxpayer should determine which chapter 4 status applies,
dedicating only half a page out of the 15 pages of instructions to
the question of chapter 4 status. Also, the definitions, including
the definition of FFI, generally refer to the Treasury Regulations
rather than providing guidance in the instructions themselves.
Significantly, the instructions note that a taxpayer should expect
to take eight hours to complete the form.
Foreign entity taxpayers will likely continue to need tax
professionals for clarification and advice in order to lead them
through the pages of Treasury Regulations that will determine their
chapter 4 status and to properly complete the form.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
