The beginning of 2017 has seen a burst of activity from the IRS. The new QI and FFI agreements are rightly gaining a lot of attention, as the industry adapts to the new challenges faced by the QDD regulations and 871(m). Thus far largely overlooked is the humble Form W-8BEN, on which the QI and FATCA regulations rely. The W-8BEN has had a facelift for the new year.

The introduction of any new form usually has a number of impacts on financial institutions, some of which may be obvious while others may be a little harder to see right away. We’ll get to the detail of the wording changes on the new form shortly, but first we should look at the impacts that a new W-Series form will have upon Withholding Agents. Remember that every financial intermediary in the chain of payment is technically defined as a withholding agent.

Hidden Impacts of the New W-8BEN

The first major consideration when the IRS issues a new form relates to how quickly it should be implemented. The regulations are reasonably flexible in this regard. Withholding Agents can still accept the previous form for 6 months from the last day of the month in which the new form was issued. This of course merely dictates when the new form must be in circulation, not what is best for the Withholding Agent. QIs and NQIs that are using the new W-8BEN will need to consider the time it will take to devise new validation procedures, update policy, modify and roll out training to front-liners, as well as building in a margin for error for clients that are slower to return the forms.

Speaking of policies and procedures, this is another area that is impacted by the release of a new form. As a best practice approach to compliance, QIs and NQIs alike should be updating their policy and procedure documents to reflect the changes brought by a new form. Those that have attained QI status however, are bound by contract with the IRS to maintain an up to date compliance program containing written policies and procedures. Some considerations in this area include a policy decision as to when the Withholding Agent will start accepting the new form, as well as any necessary changes to validation procedures.

Implementation of policy and procedure logically follows. Withholding Agents will need to update training materials and roll out any necessary update training to anyone in the business that comes into contact with the forms in the normal course of their work.

Detailed Changes to the W-8BEN

The material changes to the new BEN are unusually few in number and limited in impact:

1. Line 10 – Claim of Tax Treaty Benefits: Special rates and conditions

• The filer of the form is now required to specify both the article AND paragraph of the tax treaty that they are referencing – in the past they were able to just reference the article.
• A more detailed description of what the IRS expects to be included to support the claim of special rates has been included – “Explain the additional conditions in the Article and paragraph the beneficial owner meets to be eligible for the rate of withholding”.
• I would add here that it is a common error for beneficial owners to think that the treaty rate is a ‘special rate’ and they therefore fill out this line. To be clear, if the beneficial owner is merely claiming straightforward treaty benefits, they would not normally be expected to be filling out line 10. Line 10 is for a rate, other than the standard treaty rate.

2. Notes

• The following disclaimer text has been added to the opening section of the form – “If you are resident in a FATCA partner jurisdiction (i.e., a Model 1 IGA jurisdiction with reciprocity), certain tax account information may be provided to your jurisdiction of residence”.

The impact that these changes will have for the majority of withholding agents is limited. The edits to line 10 are the only substantive change and the claiming of special treaty rates is, as one would expect and I noted above, only relevant in special circumstances – the vast majority of treaty claimants needing only to complete their certification of residency on line 9.

The W-8 Series forms fulfil a key role in the IRC Chapter 3 & 4 regulations. Paying close attention to the quality of client documentation and its validation can solve many of the issues that we see cropping up time and time again in the day-to-day operations of Withholding Agents. The changes to the new W-8BEN are few, but the issuance of a new form itself should trigger actions for Withholding Agents that take a proactive approach to compliance.