Episode 73: “US Voluntary Disclosure series” — Complying with FATCA reporting: Forms W-8Ben and W-9

Release date: November 25, 2015
Guest: Chris Chan
Running time: 9:24 minutes

In this fifth episode of our “US Offshore Voluntary Disclosure” series, some FATCA reporting requirements are discussed by Chris Chan. Looking at Forms W-8Ben and W-9, he discusses the distinctions between the two forms, why they need to be completed and the process and timelines involved.
 


Through interviews with prominent PwC tax subject matter professionals, Tax Tracks is an audio podcast series that is designed to bring succinct commentary on tax technical, policy and administrative issues that provides busy tax directors information they require.
 

Transcript

“US Voluntary Disclosure” series — Complying with FATCA reporting: Forms W-8Ben and W-9

You’re listening to another episode of PwC’s Tax Tracks at www.pwc.com/ca/taxtracks. This series looks at the most pressing technical and management issues affecting today’s busiest tax directors.

Alison: Hi, it’s Alison Cumming of PwC Canada. Welcome to another installment in our podcast series on US Voluntary Disclosure. Today we are discussing some of the tax forms that relate to the recent developments under the Foreign Account Tax Compliance Act, more commonly known as FATCA legislation. With us we have Chris Chan, a senior manager with our cross border tax compliance group.

Chris: Thank you Alison, it is a pleasure to be here.

Alison: Chris, some of our listeners may be receiving a request from their Canadian and/or US financial institutions asking them to verify their US tax status. Why is this request being made?

Chris: Well Alison, we have been hearing a lot in the news regarding FATCA which was enacted by US Congress in response to a series of US tax evasion scandals. FATCA essentially requires foreign financial institutions to disclose and report to the IRS on US persons who hold accounts with them. Preparation for compliance with FATCA is well underway and there are various forms that have been issued by the IRS which financial institutions may use to help document an individual’s US tax status. Two of the more common forms are the W-8BEN and the W-9 and it is possible that our listeners may receive requests to complete these forms.

Alison: Why would someone need to complete the W-8BEN or W-9 forms? What is the purpose of these forms?

Chris: Form W-8BEN is called a “Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting”. This form applies to certain payments made to non-US persons. Non-US persons are generally subject to a 30% US non-resident withholding tax on the gross amount of certain income they receive from US sources. Some examples of US source income include interest, dividends, rents and royalties.

By providing a completed Form W-8BEN you:

  • establish the fact that you are not a US person
  • claim that you are the beneficial owner of the income for which this form is provided, and
  • if you reside in a country which has a tax treaty with the US, like Canada, you can claim a reduced rate of withholding tax to be deducted from a payment.

You may also be required to submit Form W-8BEN to claim an exemption from certain US information reporting and withholding from certain types of income. Such income may include broker proceeds from the sale of US stock, bank deposit interest or proceeds from certain gambling winnings.

With the recent FATCA legislation, your financial institution may request this form from you to document that fact that you are not a US person.

Alison: What about Form W-9, when do you need to complete this form?

Chris: Form W-9 is called a “Request for Taxpayer Identification Number and Certification”. Form W-9 should be completed by an individual who is considered a US person which would include US citizen, US green card holder or a US tax resident. US persons should complete this form to provide their taxpayer identification number to entities that pay you income.

Alison: Chris, you have just mentioned US taxpayer identification number. What is this number and what if someone does not have this number?

Chris: My answer would depend on your US tax status. For US persons, the taxpayer identification number would generally be their Social Security Number (SSN) or perhaps an Individual Taxpayer Identification Number (more commonly known as an ITIN). Where you do not have either number, you will need to apply for the appropriate one immediately. If asked to complete a Form W-9 and you do not have a taxpayer identification number, they can write “Applied For” in the appropriate box and submit to the requestor. In general, you have 60 days to obtain the appropriate identification number and provide it to the requestor.

Alison: So to summarize, whether someone completes Form W-8BEN or Form W-9, it depends on their US tax status. Well, how would someone determine their US tax status?

Chris: Determining whether you are a US person is not always straightforward, particularly where you have acquired your US citizenship from a parent.

For US tax residents, the determination of your US tax status should be made each year and it may change depending on your personal facts and circumstances (for example how often you travelled to the US for business or pleasure in a year). When you receive a request to complete a form, you need to determine if it is the appropriate form for you to complete based your status for that year. For instance, when you receive a Form W-8BEN from a Canadian financial institution, you may complete the form if it corresponds with your current status as a non-US person. However, if you are a US person for that year, you will need to complete and return a Form W-9;instead. Determining your US tax or citizenship status may be a complex matter and I would recommend that you check with your personal tax and/or immigration advisor before supplying any information to the requestor of the form.

Alison: OK, let’s assume I’m a person affected by this and I know which form to complete. What if the income is paid to more than one person? For example, I have a joint account with my spouse — do we need to complete separate forms?

Chris: If completing Form W-8BEN, both you and your spouse will need to each provide a certified copy of the form to the payer or withholding agent. If a Form W-9 is required, only one form needs to be completed on behalf of both spouses, even though only one spouse is a US person.

Alison: Once I complete and submit the forms, how long are they valid for?

Chris: As a general rule Form W-8BEN is valid for three years after the year in which it is signed, unless a change in circumstances makes any information on the form incorrect. For example, a form signed in June 2012 will expire on December 31, 2015. Form W-9 remains valid indefinitely or until there is a substantial change in circumstances.

Alison: What do you mean by a change in circumstances?

Chris: Generally, it would be any change that would make your certification no longer accurate. For instance, if you previously completed Form W-8BEN and then became a US person, you have to inform your financial institution or withholding agent of these new circumstances. Another example would be if you previously claimed a reduced rate of withholding based on a tax treaty between Canada and the US and moved to the UK, this is also considered a change in circumstances.

You have 30 days to inform your financial institution or a withholding agent of the change.

Alison: Once I’ve completed the appropriate form, when do I need to return it to the requestor?

Chris: You need to return the form as soon as possible. In order to apply any tax treaty benefits or confirm that you are a US person not subject to a withholding tax deduction, the completed form should be returned to the US payer before the income is paid to you or credited to your account.

Alison: And what happens if I do not complete and return the form?

Chris: The US payer or withholding agent must satisfy the IRS requirements to ensure that the correct rate of tax is deducted from certain income. Foreign individuals that have not submitted a valid Form W-8BEN or Form W-9 upon request may be subject to the highest withholding tax rate deduction. For example, when you receive a dividend from a US corporation, a dividend withholding rate of 30% will be applied as opposed to the lower 15% tax treaty withholding rate, so it is important to complete and submit these forms in a timely manner.

Alison: I see. Well, thank you for sharing this with us today so that we are all aware of actions to take when we receive Forms W-8BEN or W-9.

Chris: My pleasure Alison.

Alison: For any questions, Chantal’s contact details are available on our PwC podcast website www.pwc.com/ca/taxtracks or also on the page dedicated to information about US voluntary disclosure at www.pwc.com/ca/usdisclosure.

I encourage our listeners to stay tuned for upcoming podcasts in this US Voluntary Disclosure series, including the second podcast on this topic that will cover the other two options available to individuals under the US Offshore Voluntary Compliance Programs.

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