The Internal Revenue Service has released a new 2014 Form W-8BEN-E,“Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting (Entities),” which can be used by foreign financial institutions and other entities in connection with the Foreign Account Tax Compliance Act, or FATCA.
The form includes areas where financial institutions can identify the name of an organization that is a beneficial owner, the country of incorporation or origination, the entity type (such as a simple trust, grantor trust, central bank of issue, tax-exempt organization, corporation, complex trust, estate, private foundation, disregarded entity, partnership or government), as well as the FATCA status, such as a participating foreign financial institution, nonparticipating FFI, etc. Another part of the form allows for a claim of tax treaty benefits, and there is a section for a sponsored FFI that has not obtained a global intermediary identification number, or GIIN.
Other sections are provided for “certified deemed-compliant” entities, including non-registering local banks, FFIs with only low-value accounts, closely held investment vehicles, limited life debt investment entities, investment advisors and investment managers.
OECD Global Tax Data Sharing
FATCA is beginning to be implemented not only in the U.S., but also in other parts of the world as the Treasury Department signs intergovernmental agreements with a host of other countries. The Organization for Economic Cooperation and Development announced a new global standard in February for automatic exchange of tax information on an international basis, building upon the FATCA model agreements (see OECD Sets Standard for Automatic Exchange of Tax Information between Countries).
“The OECD appears to want to piggyback on FATCA purely from the technical point of view of the implementation of that legislation,” said Paul Henninger, global product director at BAE Systems Applied Intelligence, which develops software that banks are using to comply with FATCA. “That said, even within the FATCA scheme itself, there are all kinds of intergovernmental agreements between the U.S. and other countries that define in different ways the types of information that needs to be submitted to a local tax authority and ultimately then to a foreign tax authority, to determine when that needs to happen, how quickly and in what form.”
Henninger noted that banks are still waiting for the IRS to clarify the 2015 reporting requirements to figure out what they are expected to do once they have the information, and the OECD requirements will only be increasing the workload. “You’re taking what’s already a fairly complex piece of regulation and adding a multi-country dimension on top of it,” he said in an interview last month. “Even the institutions that were already investing in preparing for complying with that legislation, that really ups the burden in terms of what they’re ultimately going to be required to do.”
He pointed out that there are a large number of banks in the United States that didn’t need to worry about FATCA unless they had significant operations abroad, but the OECD global standard for automatic exchange of financial account information changes that. “In a very simple way, this turns the tables in that regard,” he said. “Hundreds of banks doing business in the United States will now bear a similar burden of trying to figure out if they have got account holders who are covered by tax laws in the U.K., Germany, France, Malaysia, etc. Given the size of the U.S. banking industry, that significantly changes the complexion of what this means for the banking industry as a whole.”
From a tax accounting point of view, that means it will be harder to avoid paying taxes in the U.S. or abroad. “Not that there’s a very large population of folks trying to avoid doing that, but effectively what the legislation is attempting to do is to collapse the distinction between tax evasion and tax avoidance,” Henninger added. “Historically, you could argue that you have money in an offshore bank account, but you didn’t intend to break any laws. What you’re effectively now being asked to certify when you open an account with one of those banks is that you’re not opening an account or moving funds into that bank with the intention of avoiding tax payments. In terms of the strategies that tax accountants share with their clients, one thing that they can cross off the list is using offshore tax shelters as part of their tax strategy. That’s not to say that you shouldn’t or couldn’t move your money to an offshore location for all kinds of different reasons. You may incorporate a company there, but it’s no longer a particularly attractive option to even attempt to avoid a tax burden.”