IRS releases drafts of Form W-8 series
Published: September 17, 2021
In the end of August and beginning of September the IRS released the draft versions of new Forms W-8 series (with the exclusion of Form W-8EXP). These form updates were mostly expected due to changing regulations around Publicly Traded Partnerships (“PTPs”) and Internal Revenue Code (“IRC”) Section 1446 withholding and reporting. The last time the IRS published updated Forms W-8 was 2017 so the focus of this article is to look at the practical implications of these updates and dust off some reminders. We will look at both sides: parties that fill out Forms W-8 and parties that request/receive Forms W-8. Other news outlets have covered these changes in more granular technical detail so we provide a summary here as a starting point.
Birds eye view of Form W-8 updates
Form W-8IMY (for the intermediaries) saw the largest volume of changes:
The Form went from 8 to 9 pages, thanks to the additions of IRC Section 1446 withholding and reporting related certifications
A new Line 9b is added for foreign TINs but this is only required for Qualified Derivatives Dealers (QDDs)
Part III/Chapter 3 certification for Qualified Intermediaries (QIs) is updated for certifications that QIs can make with regards to withholding and reporting for purposes of IRC Section 1446(f) regarding sales of an interest in a publicly traded partnership - something that QIs have not been able to do in the past due to the QI Agreement not covering IRC Section 1446
Form W-8BEN-E had some changes in addition to some small IRC Section 1446 certifications:
Chapter 3 status for foreign governments is now split in two: one for controlled entities and one for integral parts. This is not surprising since the 2020 Form 1042-S already added Chapter 3 status codes for the split
A new checkbox is added for scenarios in lieu of a foreign TIN indicating that “it is not legally required”. This box is only ticked if no FTIN is required to be obtained in the jurisdiction of residence
Some clarification is added to the form instructions regarding electronic/digital signatures
Form W-8BEN:
A new checkbox is added for scenarios in lieu of a foreign TIN indicating that “it is not legally required”. This box is only ticked if no FTIN is required to be obtained in the jurisdiction of residence
A new checkbox is added which is ticked by a party acting on behalf of the beneficial owner which indicates that they have the authority to sign on their behalf (such as through a Power of Attorney). The way the instuctions are written it does not seem that the beneficial owner needs to tick this box if they are acting/signing for themselves though there is unlikely to be consequences if they do tick the box
Some clarification is added to the form instructions regarding electronic/digital signatures
Form W-8ECI had some changes in addition to some small IRC Section 1446 certifications:
Chapter 3 status for foreign governments is now split in two: one for controlled entities and one for integral parts. This is not surprising since the 2020 Form 1042-S already added Chapter 3 status codes for the split
A new checkbox is added for scenarios in lieu of a foreign TIN indicating that “it is not legally required”. This box is only ticked if no FTIN is required to be obtained in the jurisdiction of residence
Some clarification is added to the form instructions regarding electronic/digital signatures
Though a draft Form W-8EXP has not been released yet we would expect to see a similar change in the foreign government Chapter 3 status splitoff to integral part vs controlled entity.
So what now? The good stuff:
For those completing Forms W-8:
Every company should refresh/redocument all of the entities in their structure once the final (non-draft) versions of Form W-8 are released (likely end of September or October). Update all of your templates. These should then be pro-actively given to requesters/payors/withholding agents
The most complex updates to the Form W-8IMY are really only relevant if you are making/holding investments into PTPs. Even in the more common case that you have no investment in PTPs, you still need to be able to tick all of the correct/relevant boxes on the Form. This may require consulting a tax advisor to assist you in completing the form correctly
For QIs, keep in mind a lot of QIs (including Clearstream) have been disposing of their PTP business rather than getting caught up in the IRC Section 1446 requirements. As such, it is expected that QIs are mostly focused on continuing to dispose of these products/business lines rather than assessing how they wish to implements the new requirements of the QI Agreement with regards to withholding and reporting. For QIs that are not offloading their PTP business:
Keep in mind that as the new QI Agreement has not yet been released then it is unclear how a QI, in the interim, can tick any of the boxes (make the certifications under penalties of perjury) without having seen what they are agreeing to. QIs should proceed with caution and consult their tax advisor before signing any new Forms W-8IMY prior to the publishing of the new QI Agreement
For QIs that retain their PTP products but choose not to act as a QI with regards to their PTP account holders (and therefore must act as NQIs like they should have in the past) then there are still a number of requirements to review in the instructions. Choosing the NQI route is not an “easy way out” of the IRC Section 1446 complications
For those receiving/requesting Forms W-8:
Requestors of Forms W-8 usually have 6 months by which they must begin collecting/using the new Forms W-8 versions (usually outlined in the Instructions for the Requester which have not yet been released). Some requesters may start earlier, however if the technology/systems are not ready to start recording the new data points then requesters may need to track the forms separately in order to update systems later
Whether a requester needs to re-document existing customers will depend on the circumstances. For example, where PTP products are in scope then re-documenting (prior to expiration) may be necessary in order to comply with IRC Section 1446 but where PTP products are not in scope then it may be sufficient to await expiration of existing forms. Guidance is expected on this point in the Instructions for the Requester which have not yet been released
It is interesting to note that the Form 1042-S does not have a “historical” foreign government option. Since 2020, they only allow for “foreign government - integral part” and “foreign government - controlled entity” which implies that the withholding agent has that knowledge (which it actually would not have from current versions of Form W-8)
The “foreign TIN not legally required” could be misinterpreted by payees who think there is no legal basis for a withholding agent to ask them for this information. This box should only be ticked if no FTIN is required to be obtained in the jurisdiction of residence of the payee. This could create more back and forth with customers who incorrectly tick this box
Payees that are QIs may push back on providing a new signed Form W-8IMY until the updated QI Agreement is published so requesters will need to manage the implications of this with their tax advisor
How can Dune Consultants help?
We can assist you in either completing your Forms W-8 or in updating your processes, systems, written procedures, training, and more with the new requirements. Contact us today to discuss at info@duneconsultants.com.
