New forms and transitional rules for withholding tax.
The new withholding certificates must be used by persons who want to reduce or eliminate withholding tax. The regulations require mandatory use of these new withholding certificates and similar documentation for payments after 2000.
Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for U.S. Tax Withholding, should be used by foreign persons to claim either a reduced rate of (or exemption from) withholding under an income tax treaty or to claim an exemption from 31% backup withholding on certain types of income. The form requires full details on the foreign person receiving the income (who also must be the income's beneficial owner), the tax treaty benefits claimed and certain other information. This form usually is given directly to the withholding agent or payor, although in some situations it is given to an intermediary.
If the form is supplied without a U.S. taxpayer identification number (TIN), it generally will be valid from the date of signature and for the three succeeding calendar years (unless a change of circumstances makes any information on the form incorrect). For example, a form signed on Sept. 30, 1999 remains valid through Dec. 31, 2002. If supplied with a TIN, the form remains valid until the beneficial owner's status changes or a change in circumstances makes any information on the form incorrect.
Form W-8ECI, Certificate of Foreign Person's Claim for Exemption from Withholding on Income Effectively Connected with the Conduct of a Trade or Business in the U.S., should be used by foreign persons to claim an exemption from withholding tax on income effectively connected with the conduct of a trade or business within the U.S. The form requires full details on the foreign person receiving the income, who also must be the income's beneficial owner. A U.S. business address and TIN are also required, as are specific details of each type of income effectively connected with the conduct of a trade or business in the U.S. This form usually is given directly to the withholding agent or payor, although in some situations it is provided to an intermediary. The form generally is valid from the date of signature and for the three succeeding calendar years, unless there is a change of circumstances making any information on the form incorrect. This form replaces Form 4224, Exemption From Withholding of Tax on Income Effectively Connected with the Conduct of Trade or Business in the U.S.
Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for U.S. Tax Withholding, should be used by foreign governments, international organizations, foreign central banks of issue, foreign tax-exempt organizations or foreign private foundations to claim either a reduced rate of (or exemption from) withholding. The form requires full details on the foreign person receiving the income, who also must be the income's beneficial owner. It also requires the claimant to check a box that specifies the basis for claiming the tax benefit. This form usually is given directly to the withholding agent or payor, although in some situations it is given to an intermediary. Generally, if the form is furnished without a TIN, it will be valid from the date of signature and for the three succeeding calendar years, unless a change in circumstances makes any of the information on the form incorrect for certain categories of claimants. If supplied with a TIN, the form will be valid until a change in circumstances makes any information on it incorrect.
The last new form in this series, W-8IMY, Certificate of Foreign Intermediary, Foreign Partnership, or Certain U.S. Branches for U.S. Tax Withholding, should be used by a foreign intermediary recipient of income who is not the income's beneficial owner. Therefore, any foreign person who acts as a custodian, broker, nominee, trustee, executor or other type of agent for another person, may need to file the form. This form also may be used by a foreign partnership, a U.S. branch of certain foreign banks and insurance companies, or a reverse hybrid entity.
There are two types of intermediaries--a qualified intermediary (QI) or an unqualified intermediary. A QI must have entered into an agreement with the IRS to withhold and pay taxes applicable to payments it makes and to provide the Service with sufficient information to support the appropriate withholding tax rates on those payments. Regs. Sec. 1.1441-1(e)(5)(ii) describes those persons eligible to be QIS. Rev. Proc. 2000-12 provides guidance for entering into a QI withholding agreement with the IRS. A nonqualified intermediary must file withholding certificates (Forms W-8BEN, W-8ECI or W-8EXP) or other appropriate documentation with Form W-8IMY to provide support for the withholding rate to be used by the withholding agent.
Form W-8IMY requires full details on the intermediary, including its status as a QI or nonqualified intermediary. It is given to the withholding agent, who generally will be the person making the payment to the intermediary or crediting its account.
The form is also used by foreign partnerships that may be either withholding or nonwithholding partnerships. A withholding foreign partnership is a foreign partnership that has entered into a withholding agreement with the Service in which it agrees to assume primary withholding responsibility for all payments made to it for its partners. If the foreign partnership is a nonwithholding foreign partnership, it should provide Forms W-8BEN (or other documentation) for all its partners to the withholding agent. The agent uses this information to determine the appropriate amount of withholding to be collected on the beneficial owners' behalf.
Generally, Form W-8IMY remains valid until the status of the person whose name is on the certificate is changed in a way relevant to the certificate or circumstances change that make the information on the certificate incorrect. However, the indefinite validity period does not extend to any withholding certificates or documentary evidence attached to the certificate. Moreover, it does not extend to statements attached to the certificate if a change of circumstances makes the information on those attachments no longer correct. If a change in circumstances makes any information on Form W-8IMY (or its attached documentation) incorrect, the withholding agent or payor must be notified within 30 days of such changes and a new form must be filed or new documentation submitted.
In addition to these four new forms, Form W-9, Request for Taxpayer Identification Number and Certification, still remains important. The IRS prefers that foreign persons use Form W-8, Certificate of Foreign Status. After 2000, foreign persons must use an appropriate Form W-8.
The new forms are valid now and generally have been valid for all periods since their initial introduction. The old forms generally remain valid under the rules prescribed by the old regulations, which will apply until Dec. 31,2000. After that date, the old forms will not be valid. The new regulations will apply; the new forms will be mandatory for payments after 2000.
Pursuant to TD 8856, Form W-8 and the following other forms and documentation will not be valid after 2000:
* Form 1001--Ownership, Exemption, or Reduced Rate Certificate.
* Form 1078--Certificate of Alien Claiming Residence in the U.S.
* Form 4224--Exemption from Withholding of Tax on Income Effectively Connected with the Conduct of a Trade or Business in the U.S.
* Form 8709--Exemption from Withholding on Investment Income of Foreign Governments and International Organizations.
* Statement under Regs. Sec. 1.14415, relating to an individual's claim to be a U.S. citizen or resident, or a partnership's or corporation's claim that it is a domestic entity.
The following forms will likely be revised for payments after 2000:
* Form 1042--Annual Withholding Tax Return for U.S. Source Income of Foreign Persons.
* Form 1042-S--Foreign Person's U.S. Source Income Subject to Withholding.
* Form 8233--Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual.
Revised forms will likely require additional information on immigration status, among other changes.
Although the old forms are valid until Dec. 31,2000 and are still available from the IRS, it is recommended that new forms be used for all expiring forms or new situations during this year. Procedures should be established to ensure that all previously filed old forms are replaced before any payments are made after 2000.
FROM TONY J. SHEARD, LL.B., FCA, ATII, LOS ANGELES, CA
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|Author:||Sheard, Tony J.|
|Publication:||The Tax Adviser|
|Date:||May 1, 2000|
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