August 14, 2012: IRS Releases Draft Form W–8IMY
On August 14, the IRS released a draft version of highly anticipated Form W-8IMY which has been modified for FATCA purposes. The new draft form has been published on the IRS website (www.irs.gov/FATCA) along with the previously released Form W-8BEN for individuals, the Form W-8BEN-E for entities, and the Form W-8ECI. Similar to the Form W-8BEN-E, the Form W-8IMY has increased in size from the previous two page form to the latest eight page version. Like the Form W-8BEN-E, the additional pages now contain the various new Chapter 4 certifications for the specific FATCA entity types.
Some of the major changes include many of the same changes made to the Form W-8BEN-E for entities, including a new line 4 for the Chapter 4 status with twenty-one status types; a required foreign TIN field; updated certification language with an affirmative requirement to update the form if there is a change that makes the certifications incorrect; matching certification for each Chapter 4 status on Line 4, and fields for the FFI-EIN and FATCA ID. Although the Form has increased in size, entities will generally only need to focus on the particular section that corresponds to their Chapter 3 and Chapter 4 status. Additionally, the IRS has not yet released details regarding the validation requirements for the newly required foreign TIN field.
The complicating factor compared to the W-8BEN-E is that on the Form W-8IMY, entities will have to complete two sets of certifications (one for Chapter 3 and another for Chapter 4) which may be confusing to some and may lead to errors in completing the form. Moreover, like the W-8BEN-E, several sections refer to code sections within the U.S. federal regulations. This may overly complicate the certification process as it requires a non-U.S. person to research and understand U.S. law. This may not be a major issue for large institutions with legal departments or outside advisors, but for smaller entities that will be subject to FATCA, it presents another burden to certification. These additional certification requirements coupled with the complex references to U.S. tax law may exponentially increase the time it takes to obtain and validate valid Forms W-8IMY.
The complete list of changes for the Form W-8IMY includes the following:
- Line 3 — Added Territory Financial Institution to the Chapter 3 status along with a corresponding certification section;
- Line 4 —
- Added the following entity types to the Chapter 4 status:
- QI Branch of a U.S. Financial Institution;
- “Other. Must Enter Code;”
- It is unclear what this status refers to or what code needs to be entered
- Non-participating FFI with exempt beneficial owners;
- Removed the following Chapter 4 entity types because the entity must be the beneficial owner of the payment and therefore the W-8BEN-E would be required:
- Exempt retirement plan;
- Foreign government or government of a U.S. possession;
- Foreign central bank of issue;
- Removed the Publically traded NFFEs and affiliates Chapter 4 status types;
- Added the following entity types to the Chapter 4 status:
- Line 5 — Added in care of address as a prohibited type of address for a permanent resident address. Previously it was unclear whether an in care of address was allowed on the W-8IMY because the W-8BEN clearly stated the prohibition, however the current From W-8IMY 2006 instructions do state that an address of another financial institution or an address solely used for mailing purposes is not allowed (and an in-care of address would arguably fall under this definition).
- Line 7 — Added the FFI-EIN field on line 7 (previously line 6) for participating FFIs or registered deemed compliant FFIs;
- The QI-EIN field remains indicating that QIs will have two EINs; and
- Line 8 — The foreign tax identifying number is now required.
Parts II through XVI (Chapter 3 Certifications)
- Part II Qualified Intermediary (QI) Certifications — The major changes here include an additional line to enter a branch country if the branch is eligible to act as a QI and the removal of the certification to assume primary 1099 reporting and backup withholding responsibility. Other changes include adding Chapter 4 to the certification requiring the QI to provide a withholding statement and adding Chapter 4 to the certification to assume primary withholding responsibility;
- Part III Non-qualified Intermediaries (NQI) — Added Chapter 4 to the certification requiring the NQI to provide a withholding statement;
- For Part IV Certain U.S. Branches — Added language to both certifications that the branch is a U.S. branch of a participating FFI indicating that if the branch was treated as a U.S. Branch previously, but the parent entity does not become a participating FFI, the Branch will lose the ability to be treated as a U.S. Branch;
- Part V Withholding Foreign Partnership or Trust — Removed the certification to provide a withholding statement and added a certification to assume withholding responsibility for both Chapters 3 and 4 with respect to payments accepted on behalf of partners, beneficiaries, or owners; and
- Part VI Nonwithholding Foreign Partnership, Simple Trust, and Grantor Trust — Added Chapter 4 to the certification requiring the entities to provide a withholding statement.
Parts VII through XXIII (Chapter 4 Certifications)
- Parts VII through XXIII — The IRS added new certifications for each type of FATCA classification allowing the entity to make the appropriate certification by classification per the proposed regulations;
- Part VIII Participating FFI and Registered Deemed Compliant FFI — The significant change is the addition of the certification to assume primary withholding responsibility for gross proceeds and foreign passthru payments. Like the Form W-8BEN-E, a new field for a FATCA ID is provided. This new ID is an addition to the FFI-EIN issued to a participating FFI or registered deemed compliant FFI and will be the ID withholding that agents will use to match against the public list available from the IRS. The reason for the new ID is that the IRS did not want to publish the FFI-EIN for privacy reasons because it will be the identification number participating FFIs and registered deemed complaint FFIs use on tax and informational returns;
- Part IX Owner-Documented FFI — A certification was added to indicate the entity is a partnership, simple trust, or grantor trust indicating that entities that are of these types must use the Form W-8IMY and not the Form W-8BEN-E;
- Part XIV Restricted Distributed — Although not a separate FATCA classification, a certification section (along with a corresponding FATCA classification type on line 4) was provided for a restricted distributor which it will presumably use to certify its status to a Restricted Fund. Restricted funds are required to only use restricted distributors as part of their registered deemed compliant FFI status qualifications;
- Parts XVII and XVIII Excepted Start-Up Company and Excepted Nonfinancial Entity in Liquidation or Bankruptcy — Date fields have been provided for the start-up date for an Excepted Start-up Company and the bankruptcy date for an Excepted Nonfinancial Entity in Liquidation or Bankruptcy. This date will need to be stored and tracked by the withholding agent as it will trigger additional documentation requirements after a certain period of time has elapsed;
- Part XX Territory Financial Institution — The certification will be for Territory Financial Institutions acting as intermediaries and gives the entity the option to either be treated as a U.S. person for Chapter 3 and 4 purposes, or to provide a withholding statement along with documentation or withholding certificates for underlying payees;
- Part XVIII Passive NFFE —The certification that the entity is not an excepted NFFE was removed, but perhaps this change will be carried over to the W-8BEN-E. More importantly, the certifications of having no substantial owners or if there are, providing the Name, Address, and U.S. Taxpayer Identification Number for the owners have been removed and replaced with the requirement to provide a more complete withholding statement along with withholding certificates or other documentation as required. Essentially Passive NFFEs that are partnerships, grantor trusts or simple trusts will satisfy the Chapter 4 requirement of providing information on substantial U.S. owners because they are already providing more detailed information for all partners, beneficiaries or owners on the withholding statement and underlying documentation or withholding statements.
- The entity must now certify to provide a new Form W-8IMY if any certification made on the form becomes incorrect.
As with the Form W-8BENs, it had been hoped that allowing country abbreviations on the address fields would be permitted. This prohibition has been a heated contention point between withholding agents and the IRS because the use of abbreviations has invalidated otherwise valid forms even though in most instances, the identity of the country is clear. On the one hand, withholding agents feel that a blanket prohibition on country name abbreviations is unnecessary, particularly when “London, UK” is extremely clear, yet deemed unacceptable under current law; requiring the agent to invalidate the Form W-8 and request a new form. On the other hand, the IRS believes that some abbreviations are unclear and therefore the requirement of full country names is necessary.
An additional concern is the absence of new rules that would alter the certification for participating FFIs and registered deemed compliant FFIs to withhold on gross proceeds and foreign passthru payments. Although it was clear that participating FFIs and registered deemed complaint FFIs would have to withhold on foreign passthru payments, many had hoped that, similar to income payments, the withholding responsibility for gross proceeds would be passed up to the U.S. withholding agent. This inconsistency creates a disconnect in how withholding will occur and will require participating FFIs and registered deemed compliantFFIs to carefully characterize payment types to determine whether they are responsible for the withholding. On the other hand, this position does alleviate some of the withholding responsibility for U.S. withholding agents who do not have to withhold on gross proceeds under Chapter 3 and would have had to make substantial system enhancements to accommodate the additional withholding responsibility.
Instructions to the Forms W-8, Reporting Forms, and Other Forms W-8
Instructions to accompany the released draft forms to date are not yet available. However, 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 late this year. This decision leaves open questions such as the foreign TIN validation requirements, capacity validation requirements for the Form W-8BEN-E, etc. that will not be clear until the instructions are released. Moreover, it appears that industry may not have an opportunity to comment on any new or missing items in the instructions.
Updated reporting forms for FATCA and the FFI agreements have not yet been released in draft form. Industry has been awaiting the updated forms (particularly new or updated forms for U.S. person reporting) and the agreements given the short timeline to update systems and procedures. However, the IRS stated that it is on track to release drafts of the revised or new reporting forms and the FFI agreement in the next month.
Regarding the other Forms W-8, the IRS has already released the Form W-8ECI and should be releasing the Form W-8EXP in the coming days. Additionally, the IRS has stated that the Forms W-8ECI and W-8EXP should not significantly change, but are welcoming any comments as to whether changes should be made.