Top 3 Challenges For Tax Operations Following IRS W-8 Series Updates

IRS Draft Updates for W8 Series Tax Forms in 2021

As expected we have now seen the published draft Internal Revenue Service (IRS) release of the expected changes and updates to several of the W-8 Series tax forms, along with the updated guidance notes. 

These W-8 forms updates have been highly anticipated by the industry based on feedback we have heard consistently the last 12 months, A lot of these updates, specifically on or around  W8IMY are to map inline better with the 1042-s and also some of these form updates are capturing pending regulation updates, such as 1446(f) and Vendor Payments as an example.

Tax Operations will now need to act fast as they only have a small window to implement the number of expected process changes to several of the W-8 forms to ensure they are Operationally compliant and capturing what they have to.

Tax Operations will feel the heavy burden, even more so, if they don’t already have a vendor solution or automated process in place.

Tax Operations, Which W-8 Forms Have Been Updated & How Many Amendments?

• Form W-8BEN

  • 2 amendments/changes - listed below

• Form W-8ECI

  • 4 amendments/changes - listed below

• Form W-8IMY

  • 25 amendments/changes - listed below

That is 31 updates and amendments in total to these 3 W-8 forms alone!

How will these W-8 form updates Impact Tax Operations Teams?

Tax operations will only have months to update their systems, train staff and establish processes for collection of the updated W-8 series forms to ensure they are implementing and being compliant with Tax Due Diligence, Tax Withholding, Exemption Certificate collection (where necessary) and then Reporting obligations under 1446(f). 

3 Challenges For Tax Operations Following IRS W-8 Series Updates:

• Challenge 1: Manual Workaround

  • With less time to implement these changes tax operations teams without a solution which will already have all of these updates included and logic for validating checked and built, they will have to manually run extra cross checks and reviews. This will add time, create potential human manual errors of interpretation, as well as potential documentation having to now be requested in some cases.

  • Re-Solicitation, a 6 month grace period to obtain new forms for “New to Bank”. However, what will happen to pre-existing accounts and the re-Solicitation of fifty forms or hundreds or even thousands of impacted W-8 forms that will need to be replaced within the IRS grace timeline, has this been considered? 

  • This will be extremely time consuming, having a solution that can assist and capture the review process of impacted forms to make these BAU steps more manageable and efficient should be considered. As you know that once the new forms start to come in, then comes the new and accurate validation rules. 

  • Tax operations teams with internal builds will have to raise tickets with IT and go onto prioritization calls to fight for these changes to be captured and processed. The next steps off of that will be amending the BAU process to capture the triggers raised to the Tax Operative.

• Challenge 2: Change In Circumstance Monitoring:

  • With the draft W-8 series tax forms updates, you have to ask yourself; How will Tax Operations now add to the already painful process of Ongoing Monitoring of Change in Circumstances? 

  • Will IT internally take the strain of multiple report requests to have a minimum control in place for capturing CIC’s, or do you get a solution that will solve for all of this

• Challenge 3 Tax Operative Training:

  • Without a solution that already has all of these updates and logic built in ready for your Tax Operations team, each tax operative will have to learn and ensure all of these 31 changes are taken into the validation process. 

  • Training will have to be broken down to understand and capture validation and also consider additional next steps to be taken that previously never existed.

Read the proposed draft  W-8BEN, W-8ECI & W-8IMY Form Updates and Amendments listed below:

W-8BEN Form Updates & Amendments:

1.Taxpayers can now certify when a Foreign Tax Identifying Number (FTIN) is not legally required as the FTIN line or Line 6 has been updated and divided into lines 6a and 6b. 

2.The form has also updated how individuals certify that they have legal capacity to sign on behalf of the beneficial owner from a written field to a checkbox field.

W-8ECI Form Updates & Amendments:

1.The draft form’s entity type field on line 4 has been updated to separate the current government box into a integral parts of foreign governments box and controlled entities of foreign governments box 

2.The draft form includes the addition of line 12, an added section 1446(f) checkbox for dealers/brokers in securities that are transferring an interest in a publicly traded partnership (PTP) and are claiming an exemption from withholding.  A further requirement included in the updated form is that dealers must certify that any gain from transfer is connected to the beneficial owner’s U.S. trade or business.

3.Similarly to the W-BEN the W-8ECI has also been updated to allow taxpayers to now certify when a FTIN is not legally required by dividing the current FTIN line (Line 8) into line 8a and 8b.

4.Similarly to the W-BEN the W-8ECI has also updated the certification of capacity from a written field to a checkbox, with 

W-8IMY Updates & Amendments:

1.Similarly to the above forms the FTIN line (Line 9b) has been updated to include the FTIN only if legally required.

2.Part I: Line 9b: FTIN: The draft form now includes a line to include a Foreign Taxpayer Identification Number (FTIN), if required.

3.Part III: Qualified Intermediary (QI) Certifications:

4.The certifications generally contain updated language clarifying that the certifications apply to all accounts identified on the withholding statement or, if no withholding statement is provided, then to all accounts.

5.Line 14a: Contains the general certification of QI status. The draft form has been updated to state that the QI will also provide documentation required for Sections 1446(a) and 1446(f), as required.

6.Added Line 15b: Allows a QI to certify that it is assuming all withholding responsibilities for transfers of PTP interests for Section 1446(f) purposes.

7.Added Line 15c: Allows a QI to certify that it is acting as a nominee for Section 1446 purposes for a distribution by a PTP.

8.Moved 15f to 15d: Former Line 15f, addressing a QSL that is assuming withholding and reporting for substitute dividend payments, was moved to Line 15d. The IRS also modified the certification to make clear that the QSL is assuming primary withholding and reporting for the substituted dividend payment (whereas previous language merely stated that the entity was acting as a QSL).

9.Moved 15g to 15e: Former Line 15g, which addresses the assumption of withholding and reporting for substitute interest, was moved to Line 15e.

10.Part IV: Nonqualified Intermediary (NQI) Certifications:

11.Added Line 17e: The draft form includes a checkbox for an NQI to make the required certification when providing an alternative withholding statement (i.e., a certification that the NQI does not have information in its files that conflicts with the information provided on the withholding certificates).

12.Part V: Territory Financial Institution (FI) Certifications:

13.Added Line 18d: Certification that the Territory FI agrees to be treated as a US person under Section 1446(f) for amounts received on sales of interest in PTPs.

14.Added Line 18e: Certification that the Territory FI agrees to be treated as a US person under Section 1441 and as a nominee with respect to distributions by PTPs.

15.Added Line 18f: Certification that the Territory FI is not acting as nominee for distributions from PTPs and is providing a withholding statement for the distributions.

16.Part VI: Certain US Branch Certifications:

17.Updated Line 19a: Certification was updated to address distributions from PTPs and amounts realized on sales of interests in PTPs.

18.Added Line 19d: The US branch certifies that it is acting as a US person under Section 1446(f) for amounts received on sales of interest in PTPs.

19.Added Line 19e: The US branch is acting as a US person under Section 1441 and as a nominee with respect to distributions by PTPs.

20.Added Line 19f: The US branch is not acting as a nominee for distributions from PTPs and is provided a withholding statement for the distributions.

21.Part VIII: Nonwithholding Foreign Partnership (NWP) Certifications:

22.Updated Line 21b: Certification was updated to apply to foreign grantor trusts that are partners in lower tier partnerships and are providing the form for Section 1446 purposes.

23.Added Line 21c: Certification that the entity is a foreign partnership receiving an amount realized on a transfer of an interest in a partnership for Section 1446(f) purposes.

24.Added Line 21d: Certification that the entity is a foreign partnership providing a withholding statement for a modified amount realized from the transfer. This box should only be checked if Line 21c is also checked.

25.Added Line 21e: Certification that the entity is a foreign grantor trust providing the form for each grantor or other owner of the trust to allocate the amount realized by each owner for Section 1446(f) purposes

How can TAINA help Tax Operations accommodate 1446(f) and updated W-8 Forms?

TAINA continues to help support our clients and will lobby for additional relief to implement validation system and process updates to comply with the above W-8 form changes and 1446(f) regulation. 

The TAINA FATCA, CRS and QI Compliance Platform can help you meet your 1446(f) requirements by providing a fully automated, flexible system for tracking events, collecting withholding certificates and managing withholding. We can also help you automate your change in circumstances monitoring and tracking to ensure you get good data in.

The Return on Investment (ROI) of the TAINA Platform can be seen across the full Tax Operation process and include significant time savings, cost savings, risk elimination, full and robust compliance and comprehensive logic and ruleset updates. This means you won’t have to worry about the operational costs, as the TAINA platform will streamline your tax validation and ensure you are compliant with the recent IRS changes and provide good filing to tax authorities all year round.

If you have any questions about the W-8 form updates or final 1446(f) regulations and would like to have a chat about them please contact me at [email protected]

If you would like to see how the TAINA FATCA, CRS and QI Compliance Platform can add value to your business, request a demo today.