Tax & Accounting Blog

Draft of new Form W-8ECI released by the IRS

1099, ONESOURCE, Tax Information Reporting, W-8 & W-9 Foreign Reporting, Withholding Management September 12, 2012

The fourth in the new series of Forms W-8 has been released for public comment.  The W-8IMY has been revised so that the form will serve as documentation for compliance with both Chapter 4 (FATCA) of the Internal Revenue Code and Chapter 3 of the Code (the Section 1441 nonresident alien withholding-at-source requirements, some amendments to which are part of the proposed Chapter 4 regulations).

The IRS draft shows Form W-8ECI, Certificate of Foreign Person’s Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States, as a one-page form with only a few changes from the current Form W-8ECI which has been in use for more than seven years.  No new “Instructions” have yet been issued for the new W-8ECI.  Among the changes in the Form W-8ECI are the following:

1) In box 3 (the checkboxes which indicate the “Type of entity”) the old “disregarded entity” box has been eliminated.  This is a useful change, since a “disregarded entity” by definition is not a beneficial owner, but must be looked through (disregarded) to identify its controlling entity which is the beneficial owner, unless the disregarded entity is recognized as a tax resident under terms of a treaty and it is making a treaty claim.  The Form W-8ECI is not used to make treaty claims.

2) In box 7, the Foreign tax identifying number is no longer an optional piece of information.  Requiring the home-country tax ID number of the individual or entity is consistent with the other new Form W-8 drafts recently released by the IRS.  Requiring the Foreign tax ID number will support the reciprocal exchange of tax information which the U.S. is establishing with foreign countries.

3) In box 9, the caption has been lengthened to clarify that the W-8ECI covers not only income from a “trade or business” in the U.S. but also gross proceeds from the sale of property that can produce U.S. source fixed or determinable annual or periodical (FDAP) income.

4) In Part II, Certification, the signer makes a new certification that a new form will be submitted “if any certification made on this form becomes incorrect.”

5) In the signature area, the IRS has eliminated the “Capacity in which acting” line.  Instead, there is a new checkbox for the statement, “I certify that I have the capacity to sign for the entity identified on line 1 of this form.”  Since the IRS has not yet released “Instructions” for completing the new form, we do not know whether the Instructions will list limitations or guidelines, as there are now, for specific titles deemed to have authority to sign.  The “capacity in which acting” presently is a stumbling block when the title of a foreign individual is not recognized in U.S. guidance as having the authority to sign; a common example is the foreign title “Managing Director” which carries authority in the foreign county, but not in the U.S. where a “director” does not have authority to sign such a certification.

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