Mastering FATCA Compliance and Implementation for NFFEs: Are You Ready for the July 1 Deadline?

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1 Mastering FATCA Compliance and Implementation for NFFEs: Are You Ready for the July 1 Deadline? TUESDAY, JUNE 24, 2014, 1:00-2:50 pm Eastern IMPORTANT INFORMATION This program is approved for 2 CPE credit hours. To earn credit you must: Attendees must listen throughout the program, including the Q & A session, in order to qualify for full continuing education credits. Strafford is required to monitor attendance. Record verification codes presented throughout the seminar. If you have not printed out the Official Record of Attendance, please print it now (see Handouts tab in Conference Materials box on left-hand side of your computer screen). To earn Continuing Education credits, you must write down the verification codes in the corresponding spaces found on the Official Record of Attendance form. Please refer to the instructions ed to the registrant for additional information. If you have any questions, please contact Customer Service at ext. 10. WHOM TO CONTACT For Assistance During the Program: - On the web, use the chat box at the bottom left of the screen - On the phone, press *0 ( star zero) If you get disconnected during the program, you can simply call or log in using your original instructions and PIN.

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5 Mastering FATCA Compliance and Implementation for NFFEs: Are You Ready for the July 1 Deadline? June 25, 2014 Bill Leary, Doeren Mayhew leary@doeren.com S. Michael Chittenden, Miller & Chevalier Chartered mchittenden@milchev.com Will Fernandez, Deloitte Tax wilfernandez@deloitte.com

6 Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

7 FATCA Overview How We Got Here and Why Foreign Account Tax Compliance Act (FATCA) passed as part of the HIRE Act of 2010 Objective prevent evasion by wealthy US individuals who fail to report income earned offshore Tactic coerce foreign financial institutions (FFIs) to disclose identity, earnings, and account info of US account holders by imposing 30% withholding tax on FFI s US source income Key focus is on FFIs Effects every payor and recipient of U.S.-source fixed, determinable, annual, or periodical (FDAP) Income May also effect individuals and entities that never receive or pay U.S.- source FDAP income 7

8 FATCA Overview How FATCA Works Imposes a 30% withholding tax on payments of U.S.-source FDAP income paid to: Certain FFIs Certain nonfinancial foreign entities (NFFEs) Effective in 2017, imposition of tax on the gross proceeds from the disposition of property producing U.S. source interest or dividends The tax is not imposed if the entity agrees to provide certain information to the U.S. government or to the person or entity making the payment (the goal is not the collection of tax, but the collection of information) 8

9 FATCA Overview Transition Relief under Notice and 2015 treated as transition period Date for preexisting obligations involving obligations held by an entity extended six months to December 31, 2014 Minor changes to standards of knowledge rules Relaxation of certain requirements for limited FFIs and limited branches (e.g., registration requirements, restrictions on account opening for certain accounts) In practice, what does relief mean to nonfinancial companies? Keep working to comply under existing timeline 9

10 FATCA Overview How FATCA Effects Nonfinancial Companies Withholding obligation for certain payments to foreign payees Reporting obligations for certain payments to foreign payees Potential registration of foreign affiliates with IRS Documentary requirements for foreign accounts Potential reporting obligations to foreign taxing authorities and to IRS by affiliated FFIs 10

11 FATCA Overview The World Divided in Two FFIs NFFEs Compliant Excepted Noncompliant Passive Noncompliant FFIs and Passive NFFEs are potentially subject to FATCA withholding; Compliant FFIs and Excepted NFFEs are not. 11

12 FATCA Overview Intergovernmental Agreements Because local banking laws in foreign jurisdictions may prevent compliance with FATCA, the Treasury Department has been in discussions with over 80 countries on intergovernmental agreements( IGAs ) designed to streamline compliance. To date, more than 30 countries have signed an IGA, and nearly 30 more are treated as having an IGA in place. The agreements primarily effect the obligations of FFIs, and implications for U.S. withholding agents are limited. Some payees in IGA jurisdictions may have a different Chapter 4 status than they would under the regulations. 12

13 FATCA Overview FFI is Defined Very Broadly FATCA defines FFI very broadly and includes: Depository institutions Custodial institutions Investment entities (including pension funds, professionally managed investment funds, mutual funds, trusts, and investment managers) Certain insurance companies Certain holding companies and treasury centers In IGA jurisdictions, the IGA governs 13

14 FATCA Overview Withholdable Payments U.S. Source FDAP Income Gross Proceeds (2017) Nonfinancial Payments and other Excluded Payments Withholdable Payments Note: As under Chapter 3, the source rules are the key to determining if the FATCA rules apply to a payment the answer to a sourcing question can t be I don t know 14

15 FATCA Overview You Must Act to Avoid Withholding NFFEs could be subject to potential 30% FATCA withholding tax Tax only applies to recalcitrant account holders and nonparticipating FFIs (those that do not register with the IRS and agree to report information on U.S. accounts) Problem: FATCA presumption rules default to non-participating FFI status Note: An NPFFI can potentially taint an entire EAG whether or not the group is financial or nonfinancial Note: Limited branch / FFI transitional rules exist, but not for determining whether the group is a financial group 15

16 FATCA Overview Passive NFFEs Must Identify their Substantial U.S. Owners Passive NFFEs are subject to FATCA withholding tax if they fail to identify their substantial U.S. owners (generally 10% direct or indirect owners that are specified U.S. persons ) All U.S. persons are specified U.S. person, except publicly traded corporations and corporations that are members of the same EAG; 501(a) exempt organizations and 7701(a)(37) individual retirement plans; the United States, U.S. states, D.C., U.S. territories, political subdivisions of any of those, and wholly owned agencies and instrumentalities of each; a 581 bank, 856 REIT; regulated investment companies and entities registered with the SEC under the 40 Act; 584 common trust funds; charitable remainder trusts and charitable trusts; dealers in securities, commodities, or derivatives that are registered under U.S. laws or any state law; brokers; 403(b) trusts and 457(g) plans 16

17 FATCA Overview Coordination with Treaties Treaty claims will not prevent FATCA withholding Payees who are withheld upon may file a return requesting a refund based on the treaty rate applicable to the class of income paid Refunds are paid without interest Payees who are not in a treaty jurisdiction have no recourse to recover the withheld tax 17

18 Disclosure This presentation contains general information only and is not a substitute for professional legal advice. Because your facts and circumstances will vary, it should not be used as the basis of for any decision or action that may affect your business. Before taking any action that may affect your business, consult a qualified attorney. 18

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20 NFFEs

21 What are NFFEs?

22 How do I know if I m an NFFE? Entity Classification An NFFE is an legal entity that is not a FFI and includes excepted NFFEs, active NFFEs, and passive NFFEs (must provide information on substantial U.S. owners) Therefore, the first step in determining if you re an NFFE is determining whether you fall under one of the definitions of an FFI FFI Types: Depository Institution Custodial Institution Investment Entity Holding Company and Treasury Center Specified Insurance Company 22 Copyright 2014 Deloitte Development LLC. All rights reserved.

23 How do I know if I m an NFFE? Entity Classification (cont.) FFI Details: Depository Institution accepts deposits in the ordinary course of a banking or similar business Deposits is undefined and can include cash pooling (whether for members of your affiliated group or otherwise), overpayments on credit cards (a deemed-compliant status may apply), and other instances whereby the legal entity holds cash on behalf of another person or entity Cash pooling treasury centers may come under this definition but exclusions exist Does not include entities that solely accept deposits as collateral or security pursuant to a financing arrangement or similar agreement (e.g., case deposit as collateral to secure a leasing arrangement) Ordinary course of banking or similar business includes: extending credit or make loans; negotiating instruments that are "evidence of indebtedness"; issuing letters of credits; providing trust or fiduciary services; financing FX transactions; or transacting in finance leases or leased assets Similar definition in IGAs 23 Copyright 2014 Deloitte Development LLC. All rights reserved.

24 How do I know if I m an NFFE? Entity Classification (cont.) FFI Details (cont.): Custodial Institution holds financial assets for the account of third parties Third parties can include members of the institution s affiliated group The entity s gross income attributable to holding 3rd party financial assets for the past 3 years must exceed 20% of its total gross income for that period (including start-ups expected to meet the threshold) Similar definition in IGAs 24 Copyright 2014 Deloitte Development LLC. All rights reserved.

25 How do I know if I m an NFFE? Entity Classification (cont.) FFI Details (cont.): Investment Entity Type A - Generally include entities trading in money market instruments, foreign currency, foreign exchange interest rate, and index instruments, transferable securities, or commodity futures for customers; performing individual or collective portfolio management; or investing, administering, or managing funds, money, or financial assets on behalf of other persons E.g., investment advisors, investment management companies, brokers, etc. Type B - Generally includes professionally managed investment funds, mutual funds, SICAVs, trusts and other similar investment vehicles Type C - Meant to capture any investment vehicle created to invest in financial assets including collective investment vehicles, mutual funds, exchange traded funds, private equity funds, hedge funds, venture capital funds, leveraged buyout funds or any similar investment vehicles Similar definition in IGAs 25 Copyright 2014 Deloitte Development LLC. All rights reserved.

26 How do I know if I m an NFFE? Entity Classification (cont.) FFI Details (cont.) Holding Company and Treasury Center Holding companies that hold stock in other members of its expanded affiliated group or a treasury center performing financial transactions to finance the group or hedge risk that are part of an expanded affiliated group that includes a depository institution, custodial institution, insurance company, or investment entity, or are formed in connection with or availed of by an investment vehicle established with an investment strategy of investing, reinvesting, or trading in financial assets Essentially any holding company or treasury center in a private equity or investment group will be considered an FFI Definition generally does not apply in an IGA jurisdiction, however the UK adopted a similar category in local regulations but the holding company or treasury center must be holding/providing treasury services primarily to other financial institutions 26 Copyright 2014 Deloitte Development LLC. All rights reserved.

27 How do I know if I m an NFFE? Entity Classification (cont.) FFI Details (cont.) Specified Insurance Company - an insurance company or a holding company with an insurance company in its expanded affiliated network whereby the insurance company or holding company issues or is obligated to make payments with respect to cash value insurance or annuity contracts However, a holding company that do not issue specified contracts or have to make payments on said contacts is not an FFI Insurance companies need to determine the value of any cash value insurance contracts issued as it will affect its classification for FATCA purposes because a cash value insurance contract does NOT include contracts with a value of $50,000 USD or less Similar definition in IGAs 27 Copyright 2014 Deloitte Development LLC. All rights reserved.

28 Am I an Excepted NFFE?

29 Now that I m an NFFE how can I be excepted? By default, an NFFE is a passive NFFE unless it can qualify for certain exceptions available both in the regulations and the IGAs Passive NFFEs must provide information regarding any substantial U.S. owners (generally over 10% direct or indirect ownership) Generally the exceptions in the IGA are identical to those in the regulations, but the terminology is different What is known as an excepted NFFE in the regulations is broadly termed as an active NFFE in the IGAs This can cause confusion because an active NFFE is a specific type of excepted NFFE status in the regulations An NFFE in an IGA jurisdiction could technically have to certify as an active NFFE to a bank in an IGA jurisdiction, while certifying as a publically traded NFFE (a type of excepted NFFE) to a bank in the U.S. Both cases result in no withholding to the NFFE, but this illustrates one of the many inconsistencies between the regulations and the IGA 29 Copyright 2014 Deloitte Development LLC. All rights reserved.

30 Now that I m an NFFE how can I be excepted? Excepted or Active NFFE categories Most Common Active NFFE - Less than 50% of the entity s gross income last year is passive income and less than 50% of the weighted average percentage of the entity s assets (tested quarterly) are held to produce passive income Publically Traded NFFEs and Affiliates of Publically Traded Corporations Entities regularly traded on a recognized public securities exchange. Certain minimal trading activity applies and under the regulations entities using the affiliate exception must be corporations themselves (the IGAs do not require this last point) Other exceptions Excepted Territory Entities Certain territory entities wholly owned directly or indirectly by bona-fide territory residents. Direct Reporting NFFE Passive NFFEs that elect to register with the IRS to obtain a GIIN and provide substantial U.S. owner information directly to the IRS Sponsored Direct Reporting NFFE Passive NFFEs that make the same election above but register under a sponsor 30 Copyright 2014 Deloitte Development LLC. All rights reserved.

31 Now that I m an NFFE how can I be excepted? Excepted or Active NFFE categories (cont.) Exceptions that arise from exclusions to FFI status Nonfinancial Group Entities Applies to holding companies, treasury centers, and captive finance centers of nonfinancial groups as long as certain requirements are met including a prohibition from providing depository or custodial services to members outside of the affiliated group and passing a nonfinancial group calculation that measures passive income of the group and its FFIs for the past 3 years. Excepted Inter-affiliate FFI Generally applies to FFIs that are part of an participating FFI group that do not maintain accounts outside the group, do not make withholdable payments to entities outside the group, and do not hold financial accounts with entities outside the group (other than depository account in the country to pay expenses). 501-(c) Organization Charitable organizations qualifying for 501(c) status. Non-profit Organization Generally a tax exempt charitable organization Nonfinancial Startup-Company Start-up entity that does not intend to operate a financial business. Can only use the exception for 2 years from start-up date. Nonfinancial Entity in Liquidation or Bankruptcy Entity that is in liquidation or bankruptcy that has not in the past and will not in the future operate a financial business. 31 Copyright 2014 Deloitte Development LLC. All rights reserved.

32 I m a Passive NFFE, what do I need to do?

33 I don t qualify for an exception. Now what? If an excepted NFFE status does not apply, you are a passive NFFE As a passive NFFE, you have to either certify that you do not have substantial U.S. owners, or if you do, provide a withholding agent the name, address, and U.S. taxpayer identification number of each substantial U.S. owner. 33 Copyright 2014 Deloitte Development LLC. All rights reserved.

34 I don t qualify for an exception. Now what? Substantial U.S. owners Does not include persons that are not specified U.S. persons The following are not specified U.S. persons (and therefore excluded as substantial U.S. owners) Publically traded corporations and corporate affiliates of publically traded corporations 501(a) tax exempt organizations or certain exempt individual retirement plans; The United States, any State, the District of Columbia, Any U.S. Territory; Banks Real estate investment trusts Regulated investment companies and entities registered under the Investment Company Act of 1940; Any common trust fund as defined in section 584(a); Any trust that is exempt from tax under section 664(c) or is described in section 4947(a)(1); A dealer in securities, commodities, or derivative financial instruments (including notional principal contracts, futures, forwards, and options) that is registered as such under the laws of the United States or any State; A broker; and Any tax exempt trust under a section 403(b) plan or section 457(g) plan. 34 Copyright 2014 Deloitte Development LLC. All rights reserved.

35 I don t qualify for an exception. Now what? Substantial U.S. owners (cont.) Other than non-specified U.S. persons, generally includes U.S. citizens or tax residents (including entities) that directly or indirectly hold 10% or more interest in the passive NFFE For corporations more than 10 percent of the stock of such corporation (by vote or value); For partnerships - more than 10 percent of the profits interests or capital interests in such partnership For trusts more than 10 percent of the beneficial interests of the trust; and any specified U.S. person treated as an owner of any portion of the trust under sections 671 through 679 of the U.S. Code Ownership percentage reduces to 0% for passive NFFEs that are passive investment vehicles 35 Copyright 2014 Deloitte Development LLC. All rights reserved.

36 I don t qualify for an exception. Now what? Substantial U.S. owners (cont.) Indirect ownership may require looking through certain types of entities to determine whether an individual has over 10% ownership and generally will include indirect ownership through options Look through generally excludes participating FFIs, a deemed-compliant FFI other than an owner-documented FFI, a U.S. financial institution, a U.S. person that is not a specified U.S. person, an exempt beneficial owner, or an excepted NFFE) 36 Copyright 2014 Deloitte Development LLC. All rights reserved.

37 I don t want to disclose U.S. owners to my withholding agent. What can I do? Direct Reporting NFFE or Sponsored Direct Reporting NFFE As a passive NFFE you can elect to register with the IRS to obtain a GIIN By registering as a direct reporting NFFE (or having a sponsor register you), you or your sponsor agree to provide the substantial U.S. owner information directly to the IRS The option is useful if you have privacy or security concerns with disclosing U.S. owners to a local withholding agent You will be treated as a type of excepted NFFE by other withholding agent and must provide your GIIN 37 Copyright 2014 Deloitte Development LLC. All rights reserved.

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39 Chapter 4 Compliance Withholding Agents Any person, acting in any capacity, having the control, receipt, custody, disposal, or payment of an item of income that is subject to FATCA withholding is required to have appropriate documentation. The NFFE certifies to the withholding agent that it does not have substantial U.S. ownership Withholding agents that fail to obtain this documentation are required to withhold 30% on withholdable payments. FATCA makes the withholding agent liability to deduct and withhold the tax and liable for unpaid withholding. Treas. Reg (c). Notice announces that 2014 and 2015 will be transitional periods for enforcement and administration of the new rules. 39

40 Chapter 4 Compliance Required Withholding Chapter 4 withholding requires U.S. payers (and certain NFFEs) to withhold the 30 percent on payments to Recalcitrant Account Holders Treas. Reg (g). NFFEs can avoid the 30% withholding tax if they certify to the withholding agent that it has no substantial US owners or provide the name, TIN and other information on their substantial US owners to the withholding agent 40

41 Chapter 4 Compliance Withholdable Payments Fixed or determinable annual or periodical income ( FDAP ) and certain gross proceeds from the sale or disposition of a type that can produce interest or dividends from U.S. sources. Generally, the exceptions from foreign withholding otherwise applicable (such as for portfolio interest or bank deposits) only if the NFFE supplies the required information. Treaty provisions will reduce the tax even for nonparticipating NFFE, but only by means of a refund, and no interest will be allowed. Treas. Reg Certain exceptions apply, e.g., effectively connected income and grandfathered obligations. 41

42 Chapter 4 Compliance Interaction with Withholding Regimes Sections 1471 and 1472 impose a new 30% withholding tax, in addition to the historic 30% withholding tax imposed on US source fixed and determinable, annual or periodic ( FDAP ) income under Sections 1441 and In the case of a withholdable payment that is both subject to withholding under Chapter 4 and is an amount subject to FDAP withholding, a withholding agent may credit the withholding applied under Chapter 4 against its liability for tax due under 1441, 1442 or

43 Chapter 4 Compliance Important Categories of NFFEs Active NFFE. An NFFE of which less than 50% of its income is passive and less than 50% of its assets produce passive income. Active NFFEs are Excepted NFFEs. Treas. Reg (c)(1)(iv). Excepted NFFE. Includes Active NFFEs and publicly traded companies. Payments to excepted NFFEs are not subject to withholding. Treas. Reg (c)(1). Passive NFFE. An NFFE other than an excepted NFFE. Treas. Reg (b)(88) 43

44 Chapter 4 Compliance Exempt Beneficial Owners A corporation, if its stock is regularly traded on an established securities market or if it is a member of an expanded affiliated group that includes a corporation with stock regularly traded on an established securities market. Reg (c) Any entity that is organized under the laws of a U.S. possession and wholly owned by bona fide residents of the possession A foreign government, a political subdivision of a foreign government, an international organization or a wholly owned agency or instrumentality A foreign central bank of issue Certain foreign retirement funds 44

45 Chapter 4 Compliance Excludable Nonfinancial Payments Payments made in the Ordinary Course of Business for nonfinancial services, goods and the use of property Services (including wages and other employee compensation, such as stock option income) Use of property payments Office and equipment leases Software licenses Transportation and freight payments Gambling winnings, awards, prizes and scholarship amounts Interest arising from the acquisition of goods or services 45

46 Chapter 4 Compliance Exempt Amounts Amounts paid by a U.S. Real Property Holding Corporation or a qualified investment entity subject to FIRPTA withholding. A foreign partner s distributable share of a partnership income subject to withholding under Payments of income treated as effectively connected with a U.S. trade or business. Income will not be treated as taken into account under this exception if it is or is deemed to be effectively connected with the conduct of a trade or business in the United States and the beneficial owner claims an exception from tax under an income tax treaty because the income is not attributable to a permanent establishment in the United States. 46

47 Chapter 4 Compliance Specific Withholdable Amounts Interest (including OID as defined in 871(g)(1)) Dividends Lending transaction payments, including loans of securities Forward, futures, options or notional principal contracts Investment advisory fees Custodial fees Bank or brokerage fees Premiums for insurance or annuity contracts Cash-value insurance or annuity payments 47

48 Chapter 4 Compliance Grandfathered Obligations Any legally binding agreement or instrument outstanding on January 1, Treas. Reg (b)(2). Grandfathered obligations are permanently exempt from withholding. This does not include obligations that are treated as equity for tax purposes, or that lack a stated expiration date. If the obligation is materially modified, it will be treated as newly issued as of the effective date of the modification. A withholding agent may rely on the issuer s written statement to determine whether the obligation is considered a Grandfathered Obligation. Treas. Reg (b)(4). 48

49 Chapter 4 Compliance Preexisting Obligations Any account, instrument, contract, debt, or equity interest maintained, executed, or issued by the withholding agent that is outstanding on December 31, Treas. Reg (b)(98). Payments on these obligations, if made to an NFFE, are excluded from the withholding requirements. Treas. Reg (b)(2). The withholding agent must also not have documentation indicating the payee s status as a passive NFFE with substantial U.S. owners. New accounts of preexisting customers are also treated as Preexisting Accounts, provided the withholding agent treats the accounts as a consolidated obligation. Treas. Reg (b)(98)(ii)(B). Preexisting Obligation exemption only lasts through 2015, 49

50 Chapter 4 Compliance Reporting Requirements When a foreign payee who is not an excepted NFFE has substantial U.S. owners, U.S. payers will not only be required to obtain a completed Form W-8BEN-E, but also to use the information provided on the Form W-8BEN-E to complete Form 8966, FATCA Report. Form 8966 will provide the IRS the name, address and tax identification number of each substantial U.S. owner of the NFFE, and the total payments made to the NFFE. Under Reg (e), a withholding agent that treats a withholdable payment is made to designated payee must provide information about such payee on Form 1042-S and file a withholding income tax return on Form 1042 as provided in Reg (d) and (c). Information on substantial US owners must be reported in accordance with Reg (i)(2). 50

51 Chapter 4 Compliance W-8BEN W-8BEN was revised February 2014, and updated to reflect the documentation changes mandated by FATCA. Form W-8BEN is now used exclusively by individuals. Entities documenting their foreign status, chapter 4 status, or making a claim of treaty benefits (if applicable) should use Form W-8BEN-E. Generally, a Form W-8BEN will remain in effect for purposes of establishing foreign status for a period starting on the date the form is signed and ending on the last day of the third succeeding calendar year, unless a change in circumstances makes any information on the form incorrect. Withholding certificates and documentary evidence obtained for chapter 3 or chapter 61 purposes that would otherwise expire on December 31, 2013, will not expire before January 1, 2015, unless a change in circumstances occurs. 51

52 Chapter 4 Compliance W-8BEN-E On March 29, 2014, the IRS announced the release of the final Form W- 8BEN-E. The updated form will be used by foreign entities to certify their status under FATCA and chapter 3 as well as their entitlement to treaty benefits. Withholding agents can rely on the older Form W-8BEN (2006) until it sunsets in August. Using the older form will allow them to rely on the form until it expires. Any U.S. taxpayer that has non-product related transactions with a foreign entity must receive a completed Form W-8BEN-E from that foreign entity to determine if the it is subject to the default 30% withholding on payments to foreign entities or if is the foreign entity is eligible for any reduced withholdings related to an applicable treaty. The form is prepared by the beneficial owner of the payment. 52

53 Chapter 4 Compliance Form 8933 Form 8966 will be used for the FATCA reporting and will be due by March 31st of the year following the reporting calendar year.. Identification of Filer Account Holder or Recipient Information Identifying Information of U.S. Owners that are specified U.S. persons Financial Information Pooled Reporting Type The Form 8966 reporting is required to be submitted electronically reporting does not begin until

54 Chapter 4 Compliance Substantial U.S. Owners Generally, a specified U.S. person holding more than 10% of the interests of a corporation, partnership, or trust Treas. Reg (b). A substantial U.S. owner is defined for these purposes as a U.S. person who owns, directly or indirectly, more than 10 percent of: The stock of a payee corporation, by vote or value The profits interests or capital interests of a payee partnership The beneficial interest in a foreign trust (or is treated as the owner of a foreign grantor trust) A substantial U.S. owner of a foreign trust also includes a U.S. person who is an owner of any portion of that trust under the grantor trust rules Attribution rules under Reg (b)(1)(iii) apply. 54

55 Chapter 4 Compliance Other W-8 Forms W-8ECI is used to report many types of effectively connected income that would otherwise be subject to FDAP withholding or backup withholding. The form was revised in February In this latest form iteration, the IRS has removed the capacity line and replaced it with a self-certification checkbox for the person signing the form to certify to his or her capacity to sign on behalf of the entity. W-8IMY was revised June An intermediary or flow-through entity receiving a withholdable payment will be required to provide its chapters 3 and 4 status and the chapters 3 and 4 status of persons for whom it receives a withholdable payment. W-8EXP (for foreign governments and organizations) was revised April 2014 and has been revised, for among other things, to permit certification of Chapter 4 status. Those entities claiming a treaty benefit, though, must file Form W-8BEN-E. 55

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57 Best Practices for Implementation

58 What are some best practices? Know thy self - Always conduct a complete entity classification to determine the classification of your legal entities Document the entity classification exercise, results, and assumptions for auditors, the IRS, and other interested parties Prepare Forms W-8, have them reviewed by tax professionals, and make them readily available to your legal entities so that they may be provided to withholding agents upon request Develop procedures to ensure your legal entities know what to do with withholding agents that do not except Forms W-8 (e.g., substitute Forms W-8 or self-certifications) Develop an entity management system to classify and re-classify entities as needed in the future and to house FATCA classification information 58 Copyright 2014 Deloitte Development LLC. All rights reserved.

59 What are some best practices (cont)? Keep track of your substantial U.S. owners to accurately certify to your withholding agent Consider a direct reporting NFFE status if reporting substantial U.S. owners to withholding agents is a concern 59 Copyright 2014 Deloitte Development LLC. All rights reserved.

60 About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. Copyright 2014 Deloitte Development LLC. All rights reserved. Member of Deloitte Touche Tohmatsu Limited