August 16, 2012: IRS Releases Draft Form W–8ECI
On August 16, the IRS released a draft version of the newly revised Form W-8ECI 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-8IMY. Unlike the other recently released forms, the Form W-8ECI has not drastically changed and remains one page.
Although the changes to the Form W-8ECI are minor, the IRS has made one very welcome change regarding the capacity line. In this latest form iteration, the IRS has removed the capacity line and replaced it with a self-certification checkbox for the person signing the form to certify to his or her capacity to sign on behalf of the entity on line 1.
The removal of the capacity line has been one of the most requested changes to the Forms W-8 and has been one of the most controversial elements of the Form W-8. The IRS has never published a list of “acceptable” capacities and instead asserted that the capacity must give the person “inherent” or “actual” authority to sign tax documents on behalf of an individual (if someone is signing on behalf of the individual) or entity. 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). Such an approach views the definition of capacity from a U.S. lens whereas capacities in other jurisdictions (particularly for entities) may actually indicate inherent or actual authority.
The self-certification checkbox will eliminate many of these validation issues with Forms W-8. The IRS has not indicated whether this change will find its way back to the more widely used Forms W-8BEN, but the new addition does hint that it may be applied to all forms containing the capacity line.
The complete list of changes for the Form W-8ECI includes the following:
- Line 3 — Removed Disregarded entity type;
- Lines 4 and 5 — Added in care of address as a prohibited type of address for a permanent resident address and business address. Previously it was unclear whether an in-care of address was allowed on the permanent residence line because the Form W-8BEN clearly stated the prohibition, however the current From W-8ECI 2006 instructions do state that an address of another financial institution or an address solely used for mailing purposes is not allowed on the permanent resident address line (and an in-care of address would arguably fall under this definition). This requirement, however, has been extended to the business address as well;
- Line 8 — The foreign tax identifying number is now required as in the other Forms W-8;
- Line 9 — Line 9 includes a statement to include gross proceeds that are effectively connected with the conduct of a U.S. trade or business to take into account that gross proceeds are subject to withholding under FATCA, but may be ECI; and
- Certifications —
- Includes same gross proceeds language on line 9 in the certification language;
- The entity must now certify to provide a new Form W-8IMY if any certification made on the form becomes incorrect;
- A print name line has been added below the signature line, presumably to make it easier for withholding agents to verify that the name on the signature line matches the name on line 1 of the form; and
- Removed capacity line and replaced it with a self-certification checkbox that the individual has authority to sign.
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, 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 or the FFI agreements have not yet been released in draft form. Industry has been waiting to view 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-8IMY and should be releasing the Form W-8EXP in the coming days. Additionally, the IRS has stated that the Form W-8EXP should not significantly change but are welcoming any comments as to whether changes should be made.