Introduction
Part I, line 4, chapter 3 – entity type status
Part I, line 5, chapter 4 – FATCA status
Part I, line 9 – GIIN and foreign TIN
Part VIII – withholding statement
Practical tips
Comment
In October 2021, the Internal Revenue Service (IRS) released an updated version of Form W-8IMY. This form is used by foreign intermediary entities and foreign flow-through entities to certify their status for US withholding tax purposes and the Foreign Account Tax Compliance Act (FATCA). Form W-8IMY is provided to requesting financial institutions for due diligence purposes and is not filed with the IRS. Similar to the recent updates made to Form W-8BEN-E (for further details please see "Completing US tax forms: comments on new Form W-8BEN-E and some practical tips"), the changes to Form W-8IMY and its instructions do not significantly affect foreign trusts and companies commonly used in family succession planning structures. Nevertheless, family advisers should be aware of and begin using the October 2021 Form W-8IMY. From 1 May 2022, requesting financial institutions will only be able to accept the new form.
Part I, line 4, chapter 3 – entity type status
The updated form makes no changes to the options listed for the chapter 3 entity type status. Foreign entities classified as flow-through entities or intermediaries are not themselves subject to US withholding tax. Form W-8IMY alerts the requesting financial institution that further information must be gathered regarding the beneficial tax owner of any US source income earned in the foreign entity's account. If the income is effectively connected with the conduct of a trade or business in the United States, the foreign entity should use Form W-8ECI instead.
The most common flow-through entities used in family succession planning structures are partnerships and grantor trusts. Foreign entities classified under the US entity classification default rules as foreign partnerships or foreign grantor trusts will use Form W-8IMY and tick the appropriate box in Part I, line 4. A foreign trust will qualify as a "grantor trust" only in certain circ*mstances (for further details please see "Overview (January 2021)"). A foreign partnership will qualify as a flow-through entity for US tax purposes only if at least one partner has unlimited liability.
Generally, a partnership or grantor trust used in family succession planning structures will be a "nonwitholding foreign partnership" or "nonwithholding foreign grantor trust". A withholding partnership or trust has entered into a withholding agreement with the IRS in which the entity itself has agreed to assume primary withholding responsibility for US tax purposes for all payments that are made to its partners, beneficiaries or owners, except as otherwise provided in the withholding agreement.
Eligible foreign entities may elect a different chapter 3 classification for US tax purposes than their default classification by obtaining a US tax identification number and filing Form 8832, Entity Classification Election, with the IRS. Once the election is properly made, a foreign entity electing to be treated as a foreign partnership rather than a corporation will thereafter use Form W-8IMY to certify to its chapter 3 entity type status. It is important to note that a foreign eligible entity with a single foreign owner that has elected to be "disregarded" for US tax purposes does not use Form W-8IMY (for further details please see "FATCA documentation for disregarded entities").
Part I, line 5, chapter 4 – FATCA status
The updated Form W-8IMY also makes no changes to the options listed for the chapter 4 FATCA status. Even though a flow-through entity or intermediary is not itself subject to US tax, it is an entity established under the law of a particular jurisdiction and subject to FATCA compliance. Form W-8IMY is used to certify to the entity's chapter 4 FATCA status.
Most offshore grantor trusts with a professional non-US trust company trustee will tick the box for "Nonreporting IGA FFI [foreign financial institution]" because they can qualify as a trustee-documented trust under the relevant FATCA intergovernmental agreement (IGA). Foreign trusts with a US-based trust company trustee will have a classification under the FATCA regulations, such as "Certified deemed-compliant sponsored, closely held investment vehicle" or "owner-documented FFI". As the regulations do not provide for a trustee-documented trust option, US-based foreign trusts often have a FATCA sponsoring entity agreement in place with their FATCA registered trust company. It is possible for a foreign trust to have a FATCA status of passive non-financial foreign entity (NFFE), generally where the trustee is an individual who has not hired a professional investment management firm with discretionary investment authority.(1)
The family trust will often own one or more holding companies, which may own diversified investment portfolios or shares of family operating companies. Each non-US entity in the family succession planning structure has a FATCA status. Non-US companies, if classified as an investment entity, will often have a FATCA status of "Nonreporting IGA FFI" as a sponsored investment entity or sponsored closely held investment vehicle under the relevant IGA. Holding companies classified as passive NFFEs tick the appropriate box in Part I, line 5, and complete the relevant part. For further details on FATCA classification please see "FATCA reporting: who and what".
Part I, line 9 – GIIN and foreign TIN
Line 9b, foreign taxpayer identification number (FTIN), if required, has been added to Form W-8IMY. The new line is used by a qualified derivatives dealer to indicate its FTIN. Unlike Form W-8BEN-E, which generally requires the entity to include its FTIN if one is issued by the jurisdiction of tax residence, Form W-8IMY requires the FTIN in more limited circ*mstances and does not include the check box for "not legally required", which was added to Form W-8BEN-E.
Line 9, global intermediary identification number (GIIN) (if applicable), has been redesignated as line 9a. Reporting FFIs registered with the IRS under an IGA or the FATCA regulations are required to have a GIIN that must be included on line 9a. In the case of a trust or company that has a FATCA status of "Nonreporting IGA FFI", a GIIN is required only when that entity is treated as registered deemed-compliant under an applicable Model 2 IGA or under the FATCA regulations. A sponsored closely held investment vehicle is never registered by its FATCA sponsor and so has no GIIN. A sponsored investment entity established in a jurisdiction with a Model 1 IGA need not be registered for a GIIN until a US reportable account is identified (for further details please see "Revised Forms W-8 clarify some FATCA issues – but not all"). The instructions to Form W-8IMY specifically require a certified deemed-compliant sponsored, closely held investment vehicle described in Part XIV of Form W-8IMY, to provide the GIIN of its sponsoring entity on line 9a.
Part VIII – withholding statement
Because the flow-through entity or intermediary is not itself subject to US tax, it will be necessary to provide details regarding the beneficial tax owner. The corresponding certification in parts IV through VIII of Form W-8IMY specifically note that the entity is using the form to transmit withholding certificates and/or other documentation and has provided or will provide a withholding statement, as required for purposes of chapters 3 and 4, that is subject to the certifications made on the form.
In cases like a foreign grantor trust, it may be sufficient to provide Form W-8BEN for the non-US individual treated as owner of the trust's income for US tax purposes (or Form W-9 where the trust's grantor is a US person). A foreign partnership will be asked to provide a withholding statement that includes details for each partner, along with a valid withholding certificate or other documentation sufficient to establish each partner's chapter 3 and 4 statuses. There is no IRS-issued standard form for the withholding statement and requesting financial institutions may have their own form. If asked to prepare and submit a withholding statement, the required elements for each partner include:
- name;
- address;
- tax identification number (if any);
- entity type or "individual" as appropriate;
- chapter 4 FATCA status for an entity partner or "individual" as appropriate; and
- partner's percentage ownership interest.
The updated Form W-8IMY adds a box to Part VIII for situations where the partnership or trust is providing an alternative withholding statement. Checking the box allows the entity to make the required certification that the information on all of the withholding certificates associated with the withholding statement may be relied on based on the standards of knowledge required under the FATCA regulations.
Below are a few practical tips for completing Form W-8IMY:
- An entity with a single foreign owner that is disregarded for US tax purposes is not a flow-through entity or intermediary and does not use Form W-8IMY. Such a foreign disregarded entity provides the appropriate W-8 form for the beneficial owner of its income. As set out in the instructions to both Form W-8IMY and Form W-8BEN-E, the name of the disregarded entity can be noted on the "reference number" line of the owner's form. The disregarded entity will also provide Form W-8BEN-E if required to certify to its FATCA status under the law of the jurisdiction where the entity was established.
- Completing Part II as regards a disregarded entity receiving a payment is only appropriate when the entity has been registered with the IRS and issued a GIIN. This is rarely the case in family succession planning structures.
- Like Part XII, line 26, of W-8BEN-E, when completing Part XIX, line 32, of W-8IMY for a sponsored investment entity or sponsored closely held investment vehicle, entities do not have to tick either box where it says: "The trustee is: US or Foreign".
- Form W-8IMY is not used to claim treaty benefits, except for a qualified intermediary acting as a qualified derivatives dealer. Instead, Form W-8BEN-E or W-8BEN should be used.
The appropriate W-8 form is generally required to document a foreign account holder anywhere in the world. Advisers to international families should carefully complete the correct form. Requesting financial institutions will often have comments and may demand that the form be completed in a particular manner. Knowing when to push back and being able to provide support for the position taken by referring to the instructions, relevant IGA or FATCA regulations will help when dealing with compliance officers. It is very important for the W-8 forms to be completed consistently for all requesters, and families are best served by advisers who know and understand the forms.
For further information on this topic please contact Jennie Cherry at Kozusko Harris Duncan by telephone (+1 212 980 0010) or email ([emailprotected]). Please note that the author is unable to provide legal advice to non-clients. The Kozusko Harris Duncan website can be accessed at www.kozlaw.com.
Copyright in the original article resides with the named contributor.
Endnotes
(1) For further details on the sponsoring programme, please see "FATCA: trustee-documented trusts are not sponsored entities" and "FATCA documentation for US-based trusts".
