Solving the W-8 / W-9 Puzzle

Transcription

1 May 7-9, 2017 Disney s Yacht & Beach Club Resorts, Florida Solving the W-8 / W-9 Puzzle Marianne Couch, J.D. Mary Kallewaard Cokala Tax Information Reporting Solutions, LLC

2 Form W-9 v Forms W-8 U.S. persons Individuals U.S. citizens U.S. green card holders U.S. resident aliens Substantial presence test Entities Organized under U.S. law (50 states and D.C.) Form W-9/1099 backup withholding and reporting rules Non-U.S. persons Chapter 3 rules Individuals Non-resident aliens Not U.S. citizens; not green card holders; not residents (have not passed the SPT) Entities Organized under the laws of a country other than the U.S. Chapter 4 (FATCA) rules Foreign financial institutions (FFIs) Non-financial foreign entities (NFFEs) Forms W-8 (8233)/1042-S withholding and reporting rules

3 Form W-9 Purposes Is a withholding certificate Signed Form W-9 certifies that: Payee is a U.S. person The TIN provided on the form is correct (certified TIN) The payee is not subject to backup withholding on payments of interest and dividends The FATCA code provided, if any, is correct FATCA codes needed only for certain accounts maintained outside of the U.S. An unsigned Form W-9 is acceptable if none of the above certifications is required (e.g., Form 1099-MISC, and certain other Form 1099, reportable payments; payee is not in a B Notice situation, etc.)

4 Form W-9 TIN Solicitation Rules If paying ( 1099-INT ) Bank-deposit Interest ( 1099-DIV ) Dividends ( 1099-B ) Gross broker proceeds ( 1099-OID ) Original Issue Discount ( 1099-PATR ) Patronage Dividends Or in a First B-notice situation The payee must certify under penalties of perjury that the TIN (taxpayer identification number) they've provided is correct. See IRC Sec

5 Form W-9 TIN Solicitation Rules For other payments (e.g., most of those reported ( 1099-MISC on Form The payee may provide the TIN either orally or in writing. No penalty of perjury signature is required. See IRC Sec Recommendation: written documentation is better, but the regs. do allow you to take the TIN over the phone, for example, or by , etc. But there are other reasons besides obtaining a TIN for which a Form W-9 or acceptable substitute is required.

6 W-9 U.S. Person Certification A signed Form W-9 attesting to payee s status as a U.S. person is required to overcome a presumption of foreign status. Foreign vendors are subject to the Form W-8 solicitation and Form 1042-S withholding and reporting rules. Foreign indicia giving rise to presumption of foreign status: Foreign address Presumption can be overcome with signed Form W-9 attesting to U.S. person status Per se foreign corporate indicator Ag, SA, SE, PLC, others Presumption cannot be overcome with signed Form W-9 You MUST treat vendors with per se foreign corporate indicators in their name as foreign corporations. Apply Form W-8/1042-S withholding and reporting rules 98 EIN Explore with vendor whether vendor is U.S. or non-u.s. Foreign telephone number and no U.S. number If a 1099 exempt recipient (e.g., corporation), signed Form W-9 will overcome presumption of foreign status.

7 FATCA Payments Generally, FATCA payments are those to foreign entities arising out of lending and investment activities, and life insurance or annuity contract premium payments; also insurance of U.S. risk. E.g., loan interest, dividends, derivatives, energy hedges, etc.

8 U.S. Person Certification and the FATCA Presumption The FATCA regulations require you to presume that the following types of entities, to which you are making U.S. source FATCA income payments, are foreign: Corporations Financial institutions (including banks and insurance companies Brokers, swap dealers, nominees and custodians A signed Form W-9 attesting to payee s status as a U.S. person overcomes this presumption. The signed Form W-9 establishes the vendor s status as U.S. FATCA is not applicable to U.S. vendors Without this documentation, you would be required to treat the vendor as foreign, withhold 30% of the payment, and report the payment on a Form 1042-S.

9 Form W-9 Also provides information on vendor s tax status Knowing tax status can help you determine: Whether vendor is subject to Form 1099 reporting or is an exempt recipient Corporations (except for medical or legal services providers) Tax-exempt entities Government entities Others What the vendor s correct name is (for tax reporting purposes) Individual name? Entity/business name?

10 LLCs Limited liability company Generally, taxed as individuals or partnerships, not corporations. If want to be taxed as corporation, must file a form with the IRS. Many LLCs think they are limited liability corporations, but they are not, they are limited liability companies, and default tax status is based on number of owners, called members. 1 single individual owner: taxed as individual 1099 report in the individual s name Use SSN or EIN (IRS prefers SSN) More than 1 owner (individuals; entities; combinations thereof): taxed as partnership 1099 report in the entity s name Use EIN Neither individuals nor partnerships are exempt from reporting If LLC wants to be taxed as a corporation, must file either a Form 2553 (S Corp) or 8832 (C Corp) with the IRS.

11 Disregarded Entities Disregarded entities are entities that are disregarded as separate from their owners. For tax reporting purposes (e.g., 1099 reporting) treat the payment as made to the owner even if you made it to the DE. E.g., payment made to Veritas Auto Designs, LLC, which is a DE owned by Takei Motors, Inc. Reportable payee is Takei Motors, Inc., not Veritas Auto Designs, LLC. In this situation, you can apply the corporate exemption, since the corp. is the beneficial owner of the income, and do not need to report the payment (since Takei is not a medical or legal services provider). Veritas s Form W-9 should be completed with Takei s name in line 1; Veritas s name in line 2; Takei s EIN in the TIN field; and Takei s status indicated by the appropriate checkbox (C or S Corp).

12 Sole Proprietors 1099 report in individual owner s name, not the business or d/b/a name. Use the sole proprietor s SSN or EIN IRS prefers SSN Sole proprietors should include the owner s name in line 1 of the Form W-9; the business name in line 2; should check the individual/sole proprietor/single-member LLC box; provide the individual s SSN or EIN (IRS prefers SSN)

13 Corporations We recommend not using the eyeball test to exempt your U.S. corporations from Form W-9 solicitation. Soliciting the Form W-9 can help: Flush out your potentially foreign vendors Protect you from the 30% withholding liability on FATCA payments to U.S. corps., financial institutions, brokers, swap dealers, nominees and custodians Prevent erroneously giving the corporate exemption to LLCs that are not taxed as corporations, and to incorporated medical and legal services providers

14 Form W-9 Line 4 Codes Exempt Payee Code (entities only) Optional If payee indicates elsewhere on the form that it s an exempt recipient (e.g., checks one of the corporation boxes), payer may give the payee the exemption as long as it has no reason to question the claim of corporate status, and as long as the recipient is not a medical or legal services provider; an exemption code is not required. FATCA exemption code (entities only) Needed only for certain accounts maintained outside the United States by certain foreign financial institutions. If FATCA exemption codes do not apply to your payees, IRS has stated that you may pre-fill this line with NA or Not Applicable.

15

16

17

18

19

20

21

22 Forms W-8: Purposes Documents beneficial owner s or agent s/intermediary s status as non-u.s person. Claim ECI (effectively connected income) on Form W-8ECI. Claim treaty benefits on Form W-8BEN, -BEN-E or Provide FATCA certifications for U.S. source FATCA income payments (Form W-8BEN-E). Claim intermediary/agent status (i.e., intermediary/agent is not the beneficial owner of income paid to it) on Form W- 8IMY. Claim exempt status as foreign government or foreign taxexempt entity (Form W-8EXP; rarely applicable to payments). Form W-8CE (covered expatriate) used for certain deferred compensation payments.

23 Form W-8BEN (individuals) If using the form simply to document a payee s status as a non-u.s. person (i.e., there are no treaty claims or payment is documented as non-u.s. source income), beneficial owner needs to complete only: Line 1 (name) Line 2 (country of citizenship) Line 3 (permanent residence address; cannot be U.S.; unless cured with documentary evidence; might not be same as country of citizenship) Signature, printed name, date Date of birth is required for financial accounts at U.S. offices of financial institutions

24 Form W-8BEN (individuals) Treaty Claims Treaty claims on U.S. source FDAP income (e.g., interest, dividends, royalties, non-qualified scholarships, etc.) Treaty claims on U.S. source services income are made on Form 8233 Treaty claims are made in Part II of Form W-8BEN New regulations require due diligence to verify that the treaty exists and is applicable (information on irs.gov helps: Tax Treaty Tables and texts of treaties) If treaty applies, withhold at treaty rate (might be zero or some other amount less than 30%) Form must include U.S. or foreign TIN for treaty claim

25 Treaty Claims Form W-8BEN Line 10 Line 10 must be used if the beneficial owner is claiming treaty benefits that require the beneficial owner to meet conditions not covered by the representations made on line 9 and Part III. Written explanation must provide details of qualification for the benefit. Instruction says, Explain the additional conditions in the Article and paragraph the beneficial owner meets to be eligible for the rate of withholding. Also required if the treaty contains different withholding rates for different varieties of an income type (example: royalties). However, this line should always be completed by foreign students and researchers claiming treaty benefits. This line is generally not applicable to treaty benefits under an interest or dividends (other than dividends subject to a preferential rate based on ownership) article of a treaty.

26

27

28

29 Form 8233 Individual U.S. source services income Treaty Requires U.S. TIN. If no treaty is available, use the Form W-8BEN or presumption rules to document your payee s non U.S. status.

30 Form 8233

31

32 Form W-8BEN-E Entities, only Includes sections regarding FATCA payments and sections regarding Chapter 3 payments. If making a U.S. source FATCA income payment (payments arising out of lending, investing and insurance activities) to a non-u.s. entity, the entity must provide you with the necessary FATCA certifications on the form. If payee does not provide necessary FATCA certifications, 30% FATCA withholding is required; payment(s) is/are reported on Form 1042-S. No Chapter 3 analysis is conducted Note: Our discussion today is about non-fatca payments

33 Form W-8BEN-E If making a FATCA payment and entity has provided necessary certifications, or when making a Chapter 3 payment that is not a FATCA payment, you must conduct a Chapter 3 analysis. Payments reportable under Chapter 3 are subject to 30% withholding absent a treaty claim. (ECI, claimed on Form W-8ECI, is not subject to FATCA or Chapter 3 withholding; payment is still reported on Form 1042-S)

34 Form W-8BEN-E If using form just to document vendor s status as a non-u.s. entity, it needs to complete only: Line 1 (name) Line 2 (country of incorporation or organization) Line 4 (type of entity for Chapter 3 purposes) Line 6 (permanent residence address) Signature, printed name, date, capacity check box If the vendor is making a treaty claim on the payment, it must complete the above lines plus Line 8 (U.S. TIN) or 9b (foreign TIN) Part III (treaty section)

35 Form W-8BEN-E Treaty Claim Line 15 must be used if the vendor is claiming treaty benefits that require it to meet conditions not covered by the representations made in line 14. This line is generally not applicable to claiming treaty benefits under an interest or dividends (other than dividends subject to a preferential rate based on ownership) article of a treaty. The following are examples of persons who should complete line 15: Exempt organizations claiming treaty benefits under the exempt organization articles of the treaties with Canada, Mexico, Germany, and the Netherlands. Foreign corporations that are claiming a preferential rate applicable to dividends based on ownership of a specific percentage of stock in the entity paying the dividend. Entities claiming treaty benefits on royalties if the treaty contains different withholding rates for different types of royalties. Entities claiming treaty benefits under an other income treaty article. Entities claiming under an article that sets the condition that the foreign entity does not have a permanent establishment in the United States.

36 Form W-8BEN-E Treaty Claim cont. New Limitation on Benefits section required for treaty claims by entities. Limitation on Benefits provisions in income tax treaties are intended to prevent a foreign entity with U.S.-source income, resident in a country that doesn t have an attractive income tax treaty with the United States, from claiming a U.S. tax reduction under a third country s treaty through a shell entity the foreign entity sets up in the third country.

37 Form W-8BEN-E Treaty Claim cont. In line 15b, the foreign entity must check one of the group of 10 boxes (each of which is a test of meeting an LOB treaty provision. You have a due diligence requirement to verify that the LOB provision, checked by the entity, exists in the applicable valid treaty. On Form 1042-S, a code number is reported to indicate to the IRS which LOB test the entity claimed to meet.

38 Only the April 2016 version can now be accepted (starting 1/1/2017)

39 Form W-8BEN-E, page 1 STUDY AND DISCUSSION NOTES

40 Form W-8BEN-E, page 2 STUDY AND DISCUSSION NOTES

41 Form W-8BEN-E STUDY AND DISCUSSION NOTES If entity omits the date, the payer that receives the form may date-stamp or fill in the date the form was received

42 Questions? Questions?