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Instructions for withholding agents
The IRS released the new instructions to supplement the instructions for the W–8BEN, W–8BEN–E, W–8ECI, W–8EXP, and W–8IMY, and provide, for each form, notes to assist 
withholding agents and FFIs in validating the forms for chapter 3 and 4 purposes in addition to outlining the due diligence requirements applicable to withholding agents for establishing a beneficial owner’s foreign status and claim for reduced withholding under an income tax treaty.
In order to document an account holder or other payee, a withholding agent or an FFI may need to obtain a withholding certificate (i.e., Form W-8 series) to establish the chapter 4 status of a payee or an account holder or the payee’s chapter 3 status, or to validate a payee’s or an account holder’s claim of foreign status when there are U.S. indicia associated with the payee or the account.
Who is a withholding agent?
Any person, U.S. or foreign, in whatever capacity acting, that has control, receipt, custody, disposal, or payment of an amount subject to withholding for chapter 3 purposes or a withholdable payment for chapter 4 purposes is a withholding agent. The withholding agent may be an individual, corporation, partnership, trust, association, or any other entity, including any foreign intermediary, foreign partnership, or U.S. branch of certain foreign banks and insurance companies.
What if more than one person qualifies as a withholding agent for a payment?
If several persons qualify as withholding agents for a single payment, the tax required to be withheld must only be withheld once. Generally, the person who pays (or causes to be paid) an amount subject to withholding under chapter 3 or a withholdable payment to the foreign person (or to its agent) must withhold.
Chapter 3 and Form 1099 Responsibilities
A withholding agent making a payment of U.S. source interest, dividends, rents, royalties, commissions, nonemployee compensation, other FDAP gains, profits, or income, and certain other amounts (including broker and barter exchange transactions, and certain payments made by fishing boat operators) must generally obtain from the payee either a Form W-9 or a Form W-8.
- Form W-9, then must generally make an information return on a Form 1099.
- Form W-8, then exempt from reporting on Form 1099, but must file Form 1042-S and withhold under the rules applicable to payments made to foreign persons.
Chapter 4 Responsibilities
A withholding agent making a chapter 4 withholdable payment to an entity payee must establish the chapter 4 status of the entity payee to determine if withholding applies by generally obtaining a Form W-8 that you can reliably associate with the payment.
A withholding agent can reliably associate a payment with a Form W-8 for purposes of establishing a payee’s chapter 4 status if, prior to the payment, the withholding agent obtains a valid form that contains the information required for chapter 4 purposes that can reliably determine how much of the payment relates to the documentation, and the withholding agent has no actual knowledge or reason to know that any of the information, certifications, or statements in, or associated with, the documentation are unreliable or incorrect for chapter 4 purposes.
NPFFI
If making a withholdable payment to an entity BUT cannot reliably associate the payment with a Form W-8 or other permitted documentation that is valid for chapter 4 purposes, then treat the entity payee as a nonparticipating FFI.
NFFE
If a withholdable payment to an NFFE, then withhold unless the NFFE (or other entity that is the beneficial owner of the payment) certifies on Form W-8 that it does not have any substantial U.S. owners or identifies its substantial U.S. owners or is a class of NFFE that certifies its status on Form W-8 to obtain an exemption from these requirements.
Requesting & Validating Form W-8
Request a Form W-8 described in these instructions from any person to whom making a payment that can be presumed or otherwise believed to be a foreign person.
Request Form W-8BEN from any foreign individual to whom you are making a payment subject to chapter 3 withholding or a withholdable payment if he or she is the beneficial owner of the income, whether or not he or she is claiming a reduced rate of, or exemption from, withholding (including under an applicable income tax treaty).
Request Form W-8BEN-E from any foreign entity to which you are making a payment of an amount subject to chapter 3 withholding or a withholdable payment if the entity is the beneficial owner of the income, whether or not it is claiming a reduced rate of, or exemption from, withholding (including under an applicable income tax treaty). For a Form W-8BEN-E that is associated with a withholdable payment to a foreign entity, obtain a valid chapter 4 status for the entity to the extent required for chapter 4 purposes to determine if withholding applies under chapter 4, and must obtain an applicable certification in Parts IV through XXVIII unless provided otherwise in the instructions for Form W-8BEN-E.
Request the form before making a payment so that the form can be reviewed when the payment is made. A completed Form W-8 must be reviewed for completeness and accuracy with respect to the claims made on the form. This responsibility extends to the information attached to Form W-8, including for Form W-8IMY, withholding statements, beneficial owner withholding certificates, or other documentation and information to the extent such documentation is required to be associated with the Form W-8IMY.
A withholding agent or payer that fails to obtain a Form W-8 or Form W-9 and fails to withhold as required under the presumption rules may be assessed tax at the 30% rate or backup withholding rate of 28%, as well as interest and penalties for lack of compliance.
FFI’s Requirement To Request Form W-8 To Document Account Holders
If an FFI maintains an account for an account holder, the FFI may be required to perform due diligence procedures to identify and document a U.S. account holder or entity account holder even if not making a payment that is a withholdable payment (or an amount subject to chapter 3 withholding) to the account holder. Forms W-8 may be used to document the chapter 4 status of a foreign account holder regardless of whether you make a payment that is a withholdable payment or an amount subject to chapter 3 withholding to the account holder, and to validate a claim of foreign status made by the account holder when the account has certain U.S. indicia.
Alternative Certifications Under an Applicable IGA
If an FFI covered under a Model 1 IGA or Model 2 IGA is using Form W-8BEN-E to document account holders pursuant to the due diligence requirements of Annex I of an applicable IGA, then may be permitted to request alternative certifications from the account holders in accordance with the requirements of and definitions applicable to the IGA to instead of the certifications in Parts IV through XXVIII of the Form W-8BEN-E (which are based on the regulations under chapter 4).
If covered by an IGA with alternative certifications, then the FFI should provide those certifications to account holders that provide a Form W-8BEN-E, and the account holder should attach the completed certification to the Form W-8BEN-E in lieu of completing a certification otherwise required in Parts IV through XXVIII of the form. In such a case, the FFI must provide a written statement to the account holder stating that the FFI has has provided the alternative certification to meet the FATCA due diligence requirements under an applicable IGA and must associate the certification with the Form W-8BEN-E.
A withholding agent (including an FFI) may also request and rely upon an alternative certification from an entity account holder to establish that the account holder is an NFFE (rather than a financial institution) under an applicable IGA. An entity providing such a certification will still be required, however, to provide its chapter 4 status (i.e., the type of NFFE) in Part I, line 5, as determined under the regulations or IGA, whichever is applicable to the withholding agent.
Alternative certification under an applicable IGA may be relied upon on unless known or have reason to know the certification is incorrect.
Substitute Forms W–8
A withholding agent may develop and use its own Form W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, or W-8IMY (a substitute form) if its content is substantially similar to the IRS’s official Form W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, or W-8IMY (to the extent required by these instructions) and it satisfies certain certification requirements. The withholding agent may even develop and use a substitute form that is in a foreign language, provided that an English translation of the form and its contents is made available to the IRS upon request. Forms W-8BEN, W-8BEN-E, W-8ECI, W-8EXP, and W-8IMY may be combined into a single substitute form. A form that satisfies these substitute forms requirements may be treated as a similar agreed form for purposes of an applicable Model 1 IGA, if the partner jurisdiction does not decline such treatment.
Requirements for Obtaining and Verifying a Global Intermediary Identification Number (GIIN)
A Form W-8BEN-E from an entity payee that is identified in Part I, line 1, that is claiming chapter 4 status as a participating FFI (including a reporting Model 2 FFI) or registered deemed-compliant FFI (including a reporting Model 1 FFI), or a nonreporting IGA FFI under a Model 2 IGA, provided that the nonreporting IGA FFI is treated as a registered deemed-compliant FFI under the Model 2 IGA, must include and have verified the entity’s GIIN against the published IRS FFI list. If a withholdable payment to a direct reporting NFFE, then obtain and verify the direct reporting NFFE’s GIIN against the published IRS FFI list.
Due Diligence Requirements
The withholding agent is responsible for ensuring that all information relating to the type of income for which Form W-8 is submitted is complete and appears to be accurate and, for an entity providing the form, includes a chapter 4 status (if required as described above). In general, a withholding agent may rely on the information and certifications provided on the form (including the status of the beneficial owner as an individual, corporation, etc.) unless it has actual knowledge or reason to know that the information is unreliable or incorrect.
Reason to know that the information is unreliable or incorrect exists if the withholding agent has knowledge of relevant facts or statements contained in the withholding certificate or other documentation that would cause a reasonably prudent person in to question the claims made.
Reason to know
Reason to know that a Form W-8 is unreliable or incorrect materializes if the Form W-8 is incomplete with respect to any item that is relevant to the claims made, the form contains any information that is inconsistent with the claims made, the form lacks information necessary to establish that the beneficial owner is entitled to a reduced rate of withholding, or the withholding agent has other account information that is inconsistent with the claims made.
Period of Validity
Generally, a Form W-8 is valid from the date signed until the last day of the third succeeding calendar year.
—> Instructions for Requester Available here <—-
free chapter download here —> http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2457671 Number of Pages in PDF File: 58
Over 600 pages of in-depth analysis of the practical compliance aspects of financial service business providing for exchange of information of information about foreign residents with their national competent authority or with the IRS (FATCA).
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