Tax & Accounting Blog

Understanding W-8BENs – A Foreign Perspective

1042-S, 1099, 6050W, Cost-Basis Reporting, Document and WorkFlow Management, International Reporting & Compliance, Tax Information Reporting, TIN Compliance, Trust Tax, W-8 & W-9 Foreign Reporting, Withholding Management July 28, 2011

W-8BENs have been around for just over 10 years and it has taken the select few that currently use them years of cumbersome administration – and some painful audit procedures – to truly understand how they need to be completed correctly.

Now that we’ve finally grasped them, we are soon to be faced with not just one revised W-8BEN, but multiple new W-8BENs to facilitate the impending FATCA legislation.

From a UK-based foreign perspective, I think it is valuable to understand what the key areas of confusion are on the current W-8BEN, as I am confident this list will expand somewhat with the future W-8BEN forms.

  1. Foreign Status. If asked if you are foreign, it is a natural assumption to think that the question being asked is: Are you from this country? If my UK stock broker asked if I was foreign I would probably respond, “No, I am English.”
  2. Beneficial Owner. The IRS instructions take over 400 words to describe what a beneficial owner is, so how can we expect foreign organisations to explain this to their clients in a quick and concise way? If, on paper or via email, withholding agents ask their clients, “Are you the beneficial owner that requires a certificate of foreign status?”, you are at risk of confusing your client and not receiving a W-8BEN at all.
  3. Treaty Benefits. Employees that work for an organisation that may receive some US source dividends (and, therefore, need documentation on record to get a reduced rate of withholding tax) generally do not have a tax background. Therefore, the term, treaty benefits, generally doesn’t register. However, the term, this could save you paying more tax, generally does.

Although the new W-8BEN(s) have yet to be released, I wouldn’t be surprised to see some new terminology on the forms that will make the administration burden that much tougher.

For the W-8BEN targeting individuals, I would expect to see words such as, substantial presence test, or maybe the new term, US Indicia. For the W-8BENs designed to capture information from non-individuals (entities), I would expect to see terms such as, Participating FFI, Expected NFFE and many more.

For those of us that are currently following the material that surrounds the forthcoming FATCA legislation, we would have had nearly 2.5 years to get our heads around these new terms; however, for the end participants that will need to complete the documentation, this will be brand new. My hopes are that the IRS will take into consideration the terminology issues we face currently, especially those outside of the US, to make the Foreign Financial Institutions’ life that bit easier.