Key Points in New W-8IMY Instructions

Key Points in New W-8IMY Instructions On June 19, the IRS finally released instructions to the new W-8IMY. Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding and Reporting, was extensively revamped to handle the new FATCA status classifications and was initially released in final form without instructions on April 30. The key points outlined in this note are intended to cover some more complex points in the new form instructions, supplementing Cokala s more basic outline on the use of the W-8IMY in The new W-8IMY: An Accounts Payable Perspective (and for those who just need an introduction to the form) which provides a basic outline of the purposes of the form and who may submit it. Details on specific requirements for listed FATCA payee status categories are not covered in this note, but can be developed for Cokala clients; if interested, please let us know. Pre-existing accounts get special treatment. Under the new instructions, as in the new instructions to the W-8BEN-E, if a payee is a pre-existing entity it is not required to provide a FATCA status in Line 5 until after a certain specified time period. IRS Notice 2014-33 extended the determination period for pre-existing status from July 1, 2014, to cover payees on your books through December 31, 2014. New instructions to Line 5 now say that a payee that is a pre-existing entity is not required to provide its FATCA status prior to July 1, 2016, the date when FATCA withholding begins, unless the pre-existing payee is a prima facie FFI. For prima facie FFIs, withholding begins on January 1, 2015, so the FATCA status is required to be disclosed on Line 5 as of January 1, 2015. This may pose some concern since the dates precluding status disclosure are the same as the dates when FATCA withholding begins, leaving no time for a payer to solicit the new form with a status prior to the effective date of withholding. Pre-existing accounts that have provided an older version of the W-8IMY (2006 version), supporting documentary evidence and, where required, a GIIN that is validated on the IRS website within 90 days, will not need to provide the newer version of the W-8IMY until the end of 2016 to avoid FATCA withholding. Chapter 4 FATCA status only required if paying FATCA withholdable income. The instructions say that an entity is only required to provide its chapter 4 status if it is the payee of a FATCA withholdable payment or it is documenting the status of an account it holds with an FFI. This is good news for those who do not pay FATCA withholdable payments, such as non-financial payments made in the ordinary course of business including non-financial service fees, rentals on office and equipment leases, and payments 1

for the use of other property, software license fees, transportation and freight, awards, prizes, scholarships and other similar Accounts Payable disbursements. An intermediary or flow-through entity receiving a FATCA withholdable payment will be required to provide its chapter 4 status and the chapter 4 status of persons for whom it receives a withholdable payment when required for chapter 4 purposes. And, generally, intermediaries and flow-through entities receiving reportable amounts will also be required to provide both their chapter 3 status and the chapter 3 status of persons for whom they receive such payments. Line 5 is required to be completed by: - Payees acting as intermediaries with respect to a FATCA withholdable payment - Flow-through entities receiving a FATCA withholdable payment on behalf of their owners - Payees that provide a withholding statement that allocates a portion of the payments to a chapter 4 withholding rate pool of U.S. payees with respect to their direct account holders, or - Payees providing this form to an FFI requesting the form to document the payee s chapter 4 status. U.S. taxpayer identification number in Line 8: A nonqualified intermediary, a nonwithholding foreign partnership, or a nonwithholding foreign simple or grantor trust is generally not required to provide a U.S. TIN on Form W-8IMY. Read the instructions for line 8 to make certain to recognize all other entity types that are required to provide a U.S. TIN. A QI, WP or WT must provide its specially assigned EIN. Special rules for GIINs in line 9: A participating FFI (including a reporting Model 2 FFI), registered deemed-compliant FFI (including a reporting Model 1 FFI), direct reporting NFFE (including a sponsored direct reporting NFFE), and a trustee of a trustee documented FFI is required to enter its GIIN (assigned with regard to their country of residence) on line 9. For payments made prior to January 1, 2015, however, a Form W-8IMY provided by a reporting Model 1 FFI need not contain a GIIN. For payments made prior to January 1, 2016, a sponsored direct reporting NFFE or sponsored FFI that has not obtained a GIIN may provide the GIIN of its sponsoring entity. Expiration of W-8IMY. The new instructions follow the February 2014 changes in the regulations (published March 6, 2014, in the Federal Register) regarding when the Form W-8IMY expires. It will remain valid until the status of the person whose name is on the certificate is changed in a way relevant to the certificate or there is a change in circumstances that makes the information on the certificate no longer correct. The indefinite validity period does not extend, however, to any other withholding certificates, 2

documentary evidence, or withholding statements associated with the certificate, particularly in regard to the underlying beneficial owner information. This means that withholding agents will need to track the expiration dates of W-8 forms passed through with the certificates by non-qualified intermediaries and non-withholding partnerships and trusts. New categories of entities must provide W-8IMY, and new rules cover pools for existing entities that provide a W-8IMY. Under the FATCA requirements, there are new categories of entities that must now provide a W-8IMY or, if in the past they have provided a W-8IMY, there are now new forms of FATCA-based pooled accounts possibly requiring a new W-8IMY to help to establish the pools and related processing. For example, a nonparticipating FFI will be subject to FATCA withholding even if it is acting as an intermediary (NQI) in collecting the payments for others. Similar treatment is given to a flow-through entity that is a nonparticipating FFI. If these entities collect payments for beneficial owners that are exempt FATCA entities, the non-participating FFI may now use the W-8IMY to transmit a withholding statement and withholding certificates or other documentation for the FATCA exempt beneficial owners described in Reg. 1.1471-6 (a long list) to avoid FATCA withholding on their portions of the payments. See Parts IV and IX of the Form W-8IMY and related instructions. - Participating FFIs and registered deemed compliant FFIs that are QIs are allowed to submit U.S. payee pooled account information. See Part III of the Form W-8IMY and related instructions. A pool of U.S. persons included in a U.S. payee pool that includes 1099-exempt recipients may be established by a participating FFI (including a reporting Model 2 FFI), a registered deemed-compliant FFI (including a reporting Model 1 FFI), or a QI that will require special treatment. However, a chapter 4 withholding rate pool identified on a withholding statement provided by an intermediary or flow-through entity with respect to a FATCA withholdable payment that is allocated to payees that are nonparticipating FFIs will require FATCA withholding. The complexities of these elections are covered mostly in Parts III and IV of the form and related instructions. - Hybrid entities. Some entities will need to provide both a W-8BEN-E and a W-8IMY for the same payment stream. Where the entity is a hybrid entity (respected for tax purposes by its resident country, but treated as a partnership for U.S. tax purposes) it is to use the W-8BEN-E to claim treaty benefits on its own behalf for chapter 3 purposes. But if payments are FATCA withholdable, it must provide Form W-8IMY to establish its chapter 4 status (unless also a disregarded entity) and the chapter 4 status of each of its owners. - Disregarded foreign entities. A foreign disregarded entity (DE) does not furnish a Form W-8. A DE is a business entity that has a single owner and is not a corporation for U.S. 3

tax purposes so is disregarded as an entity separate from its owner. Instead, the single owner (if a foreign person) should provide the appropriate Form W-8 based on the single owner's status. This rule is much the same for both FATCA and chapter 3 purposes unless the DE is either a branch of a participating FFI or a foreign QI branch of a U.S. financial institution where it has its own GIIN and must provide its own W-8IMY. Failure to provide details on either the FATCA status of the entity or, when required, for the entity s beneficial owners may subject the intermediary or flow-through entity to FATCA withholding at a 30% rate on all or a portion of the FATCA withholdable payments. - Only FFI branches complete Part II. Payees are instructed to only complete Part II if they are a branch of an FFI identified in line 1 receiving a FATCA withholdable payment as an intermediary (including a branch that is a disregarded entity) and they operate in a jurisdiction other than the country of residence identified on line 2. Instructions give the following example: Assume ABC Co., which is a participating FFI resident in Country A, operates through a branch in Country B (which is a Model 1 IGA jurisdiction) and the branch is treated as a reporting Model 1 FFI under the terms of the Country B Model 1 IGA. ABC Co. is instructed to not enter its GIIN in line 9, and the Country B branch is told that it needs to complete Part II by identifying itself as a reporting Model 1 IGA FFI and providing its GIIN on line 13. Furthermore, if the Country B branch receiving the payment is a disregarded entity it may be required to provide its legal name on line 3. See the instructions for Part I, line 3 for more information. - Qualified Securities Lenders (QSL). A withholding agent is not required to withhold on a dividend equivalent payment that is a substitute dividend made to a Qualified Securities Lender (QSL) that certifies to the withholding agent that it is acting as a QSL. The required certifications for QSL status are added to the Form W-8IMY in Part III, line 14f, as part of the Qualified Intermediary certifications. [Notice 2010-46 (2010-24 I.R.B. 757)] See more specifics on form reliance in the new requestor of forms instructions covered further below. - FFIs Covered by IGAs and Related Entities. A reporting FFI covered by a Model 1 IGA is instructed to check Reporting Model 1 FFI in line 5. A reporting FFI covered by a Model 2 IGA is to check Reporting Model 2 FFI. Registered deemed-compliant FFIs under an applicable IGA are to check Nonreporting IGA FFI. An FFI that is related to a reporting IGA FFI and that is treated as a nonparticipating FFI in its country of residence should check nonparticipating FFI and will be subject to FATCA withholding. See.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA-Archive. for a list of jurisdictions treated as having an IGA in effect. Note that if the instructions stopped at this point, the instructions appear clear for these entities, but see the next bullet. 4

Instructions on IGA certifications may cause difficulties in reviewing some submitted forms. A payee may provide with a W-8IMY another form of IGA certification if they are determining their chapter 4 status under the definitions provided in an applicable IGA and their certification identifies the jurisdiction that is treated as having an IGA in effect and describes their status as an NFFE or FFI in accordance with the applicable IGA. Even if status is determined under an IGA, a NFFE is still required to determine if it is an excepted NFFE under the regulations in order to complete the W-8IMY. Specific instructions on the last page of the W-8IMY instructions open the door to potentially confusing situations by providing: If the payee cannot provide the certifications in Parts IX through XXVII, they are not to check a box in line 5. If you qualify for a chapter 4 status that is not shown in Part I, line 5, of this form, you may attach applicable certifications for such status from any other Form W-8 on which the relevant certifications appear. For example, if you are a certified deemed-compliant investment advisor or investment manager described in Regulations section 1.1471-5(f)(2)(v) that is a flow-through entity, you may attach the certifications found in Part IX of Form W-8BEN-E. If the applicable certifications do not appear on any Form W-8 (if, for example, new regulations provide for an additional chapter 4 status and this form has not been updated) then you may provide an attachment certifying that you qualify for the applicable status described in a particular Regulations section in lieu of checking a box in Part I, line 5. Include a citation to the applicable provision in the Regulations. Any such attached certification becomes an integral part of this Form W-8IMY and is subject to the penalty of perjury statement and other certifications made in Part XXVIII. Points on W-8IMY from Instructions for the Requester of Forms W 8BEN, W 8BEN E, W 8ECI, W 8EXP, and W 8IMY (Rev. July 2014), released July 18, 2014 Qualified Securities Lenders. Withholding agents are instructed to solicit Form W-8IMY from entities to claim status as a qualified securities lender (QSL) with respect to payments of U.S.-source substitute dividends and tell withholding agents they may rely on the W-8IMY certification regardless of whether the QSL acts as an intermediary with respect to substitute dividends associated with the form. In a case in which an entity certifies on Form W-8IMY its status as a QSL, withholding agents are told that they may make payments of substitute dividends to this entity without requiring a withholding statement when the QSL provides a written statement that it is not acting as an intermediary with respect to such payments associated with the form or certifies its status as a QI. 5

Requestor instructions reaffirm need for entity and owner chapter 4 information. The instructions say chapter 4 status of an intermediary or flow-through entity is also required on the form if the form is associated with a withholdable payment and you are required to determine the entity's status for chapter 4 purposes. Except to the extent provided otherwise in applicable regulations, appropriate withholding certificates, documentary evidence, and withholding statements must be associated with Form W-8IMY for both chapter 3 and 4 purposes or you must apply the presumption rules. The requestor instructions include notes for validating Form W-8IMY that cover TIN, chapter 4 status, and withholding statements. Substitutes for W-8IMY forms are authorized. - The substitute Form W-8IMY must contain: o All of the information required in Part I, lines 1 through 6, line 8 if a U.S. TIN is required, and line 9, if a GIIN is required. o Information required in Part II if making a withholdable payment to a branch or disregarded entity if the payee is within a class of FFI identified in Part II operating in a jurisdiction other than the jurisdiction of residence of the entity named in Part I of the form. o All of the statements and certifications relevant to chapter 3 contained in Parts III through VIII if you are making a payment subject to withholding under chapter 3. o Except as otherwise indicated in the form s instructions, the statements and certifications relevant to the chapter 4 status contained in Parts IX through XXVI for the intermediary or flow-through entity providing the form if making a FATCA withholdable payment. o Penalties of perjury statement (must appear immediately above the single signature line): The Internal Revenue Service does not require your consent to any provisions of this document other than the certifications required to establish: 1) your status as a qualified intermediary, a nonqualified intermediary, a specific type of U.S. branch, a withholding foreign partnership, a withholding foreign trust, a nonwithholding foreign partnership, a nonwithholding foreign simple trust, or a nonwithholding foreign grantor trust; 2) your chapter 4 status; and/or 3) your status as a qualified securities lender. - A substitute Form W-8IMY must incorporate the same attachments as the official form (such as a withholding statement and beneficial owner documentation, to the extent otherwise required). - A withholding agent may also include any information or require any information to be associated with the form that is reasonably related to the agent s obligation to withhold and correctly report payments. 6

- The design of the substitute Form W-8IMY must be such that the information and certifications that are being attested to by the penalties of perjury statement clearly stand out from any other information contained on the form. - A specific part needs to be included (in its entirety) in a substitute only if it is relevant. For example, if the only intermediaries to which a U.S. withholding agent makes payments are qualified intermediaries that are participating FFIs, the withholding agent may use a substitute Form W-8IMY that contains only the required information from Part I (including line 9 to collect the intermediaries GIINs), plus the statements and certifications from Part III. 7