FATCA Compliance Form W-8BEN-E Instructions Released

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Form W-8BEN-E is a critical component of foreign entity compliance with the Foreign Account Taxpayer Compliance Act.
Canada Tax

Form W-8BEN-E is a critical component of foreign entity compliance with the Foreign Account Taxpayer Compliance Act ("FATCA"). FATCA touches many commercial enterprises dealing with the U.S., but particularly affects those in the financial sector. Recently, the Internal Revenue Service (IRS) published its long-awaited instructions to help guide foreign entity taxpayers in completing the form. Prior to the release, taxpayers struggled through completing the form with no guidance from the IRS.

The Internal Revenue Service's Form W-8BEN-E replaced the former W-8BEN for foreign entity taxpayers, which used the W-8BEN to provide information regarding their foreign status, including entitlement to any reduced rate of withholding under a treaty, to payors of U.S. source income. The new Form W-8BEN-E is to be used by foreign entity taxpayers to communicate not only their foreign status, as under the former W-8BEN, but also to communicate their chapter 4 status, i.e., taxpayers' classification for determining whether they are subject to withholding under FATCA. Form W-8BEN-E gives taxpayers a choice of 31 different selections for their chapter 4 status. Choosing a status requires a taxpayer to make complicated determinations including whether it is a foreign financial institution ("FFI").

The newly released instructions provide limited guidance on how a taxpayer should determine which chapter 4 status applies, dedicating only half a page out of the 15 pages of instructions to the question of chapter 4 status. Also, the definitions, including the definition of FFI, generally refer to the Treasury Regulations rather than providing guidance in the instructions themselves. Significantly, the instructions note that a taxpayer should expect to take eight hours to complete the form.

Foreign entity taxpayers will likely continue to need tax professionals for clarification and advice in order to lead them through the pages of Treasury Regulations that will determine their chapter 4 status and to properly complete the form.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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