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  • Elizabeth A. McMorrow

Mandatory Use of 2016 Form W-8BEN-E Coming Down the Pike

In April 2016, the IRS released a new Form W-8BEN-E. The old 2014 Form W-8BEN-E is permitted to be used for six months subsequent to the release of the new form. The mandatory date to use the 2016 form is creeping up on us as November 1, 2016 approaches.

For a Form W-8BEN-E, the validity period is generally the period starting on the date the form is signed and ending on the last day of the third succeeding calendar year absent a change in circumstances. For example, a Form W-8BEN-E signed on October 1, 2016 remains valid through December 31, 2019. In some circumstances, a Form W-8BEN-E will remain in effect indefinitely until a change of circumstances occurs.

With the 2016 Form W-8BEN-E, the IRS updated the form with accompanying instructions. Some updates of note are the following:

  • Clarification regarding the completion of Part I Identification of a Beneficial Owner by a disregarded entity.

  • Addition of a chapter 4 status checkbox in Part I, Line 5: Account that is not a financial account.

  • Opportunity to identify controlling persons in addition to substantial U.S. owners.

  • Addition of ten “Limitation of Benefits” (LOB) categories to take advantage of a double tax agreement’s reduced withholding provision.

A couple of these changes merit further elaboration . . .

Coordination with IGAs

The IRS amended the 2016 Form W-8BEN-E instructions to coordinate the reporting of chapter 4 regulations’ “substantial U.S. owners” and IGAs’ “controlling persons.” The 2014 Form W-8BEN-E required certain NFFEs report their “substantial U.S. owners but made no reference to “controlling persons.” The IRS now permits the use of Part XXIX to report “controlling persons” if the NFFE is providing the Form W-8BEN-E to an FFI treated as a reporting Model 1 FFI or reporting Model 2 FFI.

Additional LOB Categories

The IRS instructions make clear that in order for an entity to claim treaty benefits, it must be a resident of the treaty country, be the beneficial owner of the income, and satisfy the LOB article of the treaty under which it is claiming benefits.

The LOB categories include the nine main tests that can be met to satisfy an LOB provision along with a tenth “Other” catch-all category that requires the filer identify the test relied upon. Further explanation must be provided if the filer claims an exceptional reduction of withholding not already covered by the representations of the ten LOB categories (or other certifications on the form).

The instructions provide substantial detail on these LOB treaty provisions, outlining the applicable tests for each provision for convenience but emphasize that the final determination must be made using the language of the treaty itself. While validation software may verify that a particular clause exists in a double taxation treaty, it is up to the filer to seek guidance whether her circumstances match an applicable clause.

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