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International alert: Doing business with foreign entities? Say hello to Form W-8BEN-E

May 1, 2014 / 8 min read

While the Form W-8BEN-E has been a long time coming, the IRS’s eight-page effort can seem overwhelming, especially for those that have to have their vendors and subsidiaries fill out the behemoth by July 1.

While the Form W-8BEN-E has been a long time coming, the IRS’s eight-page effort can seem overwhelming, especially for those that have to have their vendors and subsidiaries fill out the behemoth by July 1.  This Tax Alert will provide an overview of the form, a little of the form’s history, and some practical advice on how to approach the form if you are a U.S. company doing business with foreign vendors, making intercompany payments subject to withholding, or subsidiaries that are not “foreign financial institutions.”  For a process that began over four years ago, the new form provides some clarity as to what compliance with FATCA will look like in the future.  Another Tax Alert will cover issues connected with foreign financial institutions.

The provisions commonly referred to as FATCA (short for Foreign Account Tax Compliance Act) were enacted in March 2010 as part of the 2010 Hiring Incentives to Restore Employment (“HIRE”) Act.  FATCA was passed to target tax noncompliance by U.S. persons with foreign bank accounts (think of the classic secret Swiss or Cayman Island bank accounts).  FATCA provisions were responsible for the new Form 8938 (Statement of Specified Foreign Financial Assets) reporting requirements for U.S. individual returns starting in 2012.  This new Form W-8BEN-E is an added requirement for U.S. taxpayers doing business with foreign entities or that have foreign subsidiaries.  The Form W-8BEN-E documents the status of those foreign entities for U.S. income tax, treaty benefits, and FATCA purposes.

The old Form W-8BEN can be found online here and the new Form W-8BEN-E can be found online here.  While the basic purposes of the forms are similar – they both document information on a foreign individual or entity and requested treaty benefits – the Form W-8BEN-E is much longer due to information required by FATCA for foreign entities, the “E” in W-8BEN-E.  The good news is that most of the new eight-page form will not have to be filled out.  The trick will be determining the right sections to complete.

Who needs to complete a Form W-8BEN-E?

Any U.S. taxpayer that has nonproduct related transactions with a foreign entity (FE) must receive a completed Form W-8BEN-E from that FE to determine if the FE is subject to the default 30 percent withholding on payments to FEs or if is the FE is eligible for any reduced withholdings related to an applicable treaty.  

It should be noted that prior versions of Form W-8BEN expire on March 28, 2014, or will expire six months after that date for entities.  The new Form W-8BEN-Es will have to be received from all foreign entities that you do business with.  Due to the expiration of the old Form W-8BENs, we recommend that all U.S. taxpayers perform a full review of your organization and vendor files to identify all foreign entities that you do business with.  This will allow you to update your files at one time and ensure that a good base for future compliance with FATCA has been set.

What does the name of the Form W-8BEN-E tell us?

Looking at the name of a form often provides good insight into the function of the form – knowing the tax nomenclature can be enlightening.  For the Form W-8BEN-E, the title Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities) tells us:

What parts of Form W-8BEN-E must always be completed?

Form W-8BEN-E contains 30 parts (which use the Roman numeral system to make the numbering more interesting).  While there are a number of parts, very few of them for a particular entity will need to be completed.  However, all foreign beneficial owners must complete Parts I (Identification of Beneficial Owner) and XXIX (Certification).

Part I requires information related to:

The key element of completing the form correctly is correctly identifying the Chapter 4 status and completing the designated additional part(s). 

What are some guidelines for choosing the correct Chapter 4 status?

Over time more detailed tools and instructions will become available to determine the correct Chapter 4 status but for now common sense and plain reading of the form and related guidance are enough.  In the short term, knowledge of details regarding your foreign subsidiary(ies) or understanding your foreign vendor’s information will help in completing the form accurately or assisting your vendor in completing the form. 

As noted above, this tax alert will not cover FFIs that will be responsible for greater compliance under FATCA.  We will provide a few common examples to help in completing the form for common nonfinancial institution structures.

While more complex examples will arise in dealing with foreign structures involving holding companies we believe that the new form, while somewhat intimidating, can be efficiently completed once the status of a foreign entity is known.  Foreign subsidiaries of U.S. companies will need to be scrutinized to ensure that the proper category is chosen.

The information provided in this International Tax Alert is only a general summary and is being distributed with the understanding that Plante & Moran, PLLC is not rendering legal, tax, accounting, or other professional advice, position, or opinions on specific facts or matters and, accordingly, assumes no liability whatsoever in connection with its use.

This Alert was authored by Jerry Jonckheere from the Praxity affiliate Plante & Moran PLLC.  Jerry is an international tax partner located in Plante Moran’s Grand Rapids, Mich., office.   This Alert has been provided to the North American member firms of Praxity as part of the group’s collaborative efforts and initiatives and illustrates how Praxity members share a common desire to deliver professional excellence and high service standards.  Praxity, AISBL is the largest global alliance of independent accounting firms and is the world’s largest association of accounting firms.  Praxity’s website can be found at www.praxity.com.

Download "International Alert - Doing Business With Foreign Entities? Say Hello to Form W-8BEN-E. IRS Finally Issues FormW-8BEN-E, the Crown Jewel of FATCA Forms" (PDF) >>

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