geo necf 2015 - exploring the challenges of tax compliance and the w-8ben
TRANSCRIPT
Brian Burke, Director, TD Ameritrade
Andrew Gewirtz, Managing Director, KPMG
Andrea Kagan, U.S. Lead Regulatory and Tax, Solium
Karen Needham,CEP, Senior Manager, ARIAD Pharmaceuticals
Exploring the Challenges of Tax Compliance and the W-8BEN
KPMG Notice
The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
These materials are copyrighted to the company of the presenter presenting them.
KPMG LLP does not provide legal services.
Discussion Topics
• W-8BEN vs W9 Overview
• Who must file a W-8BEN
• Non-wage income tax withholdings
• Globally mobile employees
• FATCA and its impact on your employees
• Common questions from non-U.S. employees
• Best Practices
W9 vs W8 at a glance W9 Form W-‐8BEN Form
Filed by U.S. Persons Cer2fies the individual is the beneficial owner of the account
Provides broker with SSN/TIN for repor2ng purposes
Cer2fies that the individual a non-‐U.S person
Does not expire unless individual has a change in circumstance
Expires on the last day of the third succeeding calendar year aHer it is signed Ex: Form W-‐8BEN signed on September 30, 2015, remains valid through December 31, 2018
U.S Person Definition
• U.S Citizen (regardless of residency) • Resident Aliens (satisfy one of the following
criteria) – Hold a green card
– Meet the substantial presence test
• All others should file a W-8BEN form
Consequences of failing to file
• Broker is required to apply 28% backup withholding to all sales
• Non U.S. persons may lose preferential treaty rates on dividends
TAX WITHHOLDING AND FORM W-8BEN MORE THAN JUST A FORM TO DOCUMENT TAX STATUS
Substantiating US Nonresident Status of an Individual • Submit signed Form W-8BEN, Certificate of Foreign Status of
Beneficial Owner for United States Withholding and Reporting (Individuals)
• Used by foreign individuals to:
– Establish foreign status,
– Claim to be beneficial owner of the income,
– Claim tax treaty to reduce or exempt income from withholding
– Provide a TIN when beneficial owner holds an account at a US office of a financial institution
– Avoid backup withholding on income not subject to 30% withholding
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Substantiating US Nonresident Status of an Individual
• Given to withholding agent; not IRS
• Must submit W-8BEN to withholding agent upon request if you are a NRA who is the beneficial owner of an amount subject to withholding whether or not claiming a reduced rate of, or exemption from, withholding
Do Not Use Form W-8BEN if… • You are a US citizen even if residing outside the US
– US citizens on international assignment or employed and living in outside the US always use Form W-9
• You are a foreign national who meets the definition of a US tax resident under IRC section 7701(b) and are not a resident of another country under a treaty provision
– Foreign nationals on international assignment in the US need to update filing (W-8BEN or W-9) based on annual US tax status determination if tax status changes
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Do Not Use Form W-8BEN if… • You are an NRA claiming an exemption from withholding on
compensation
– For exemptions on compensation use Form 8233 or Form W-4
• You are a foreign entity (e.g., trust, corporation, partnership, estate) documenting your foreign status (use Form W-8BEN-E)
• You are receiving income effectively connected with the conduct of a trade or business in the US (other than personal services) (use Form W-ECI)
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Form W-8BEN and US Tax Withholding
• Withholding and reporting obligations depend on the US tax residency status of the taxpayer
• Physical residence or mailing address does not determine tax status! Have to follow federal and state tax laws
• State tax resident rules may be different
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How Tax Status Affects Federal Withholding
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Taxpayer’s Status
US Nonresident Alien
Non-‐wage income: 30% withholding (absent an excep2on or treaty relief) Wage income: Graduated rates (unless exempt under treaty or flat rate for certain supplemental wages)
US Ci8zen or Resident Alien
Non-‐wage income: No withholding Wage income: Graduated rates (or flat rate for certain supplemental wages)
How Tax Status Affects Federal Withholding
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Taxpayer’s Status
Documenta8on is used to: 1. Establish individual taxpayer’s status (Form W-‐8BEN or Form W-‐9) 2. Claim reduced rate of, or exemp2on from, withholding (Form W-‐8BEN (non-‐wage income), Form 8233 (compensa2on) and Form W-‐4) 3. Report income and withholding to IRS / taxpayer (Form 1042/1042S, Form 1099 and Form W-‐2)
Nonresident Alien 30% Withholding • NRA is subject to tax on US-source income
– 30% rate on non-wage income
– Graduated rates on wages paid by an employer
• Withholding agent responsibilities (non-wage income)
– Withhold at 30% on gross amount of non-wage income (unless an exception applies or a treaty provides for a reduced rate)
– Deposit amounts withheld with IRS
– File information returns (Form 1042 and 1042-S)
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Nonresident Alien 30% Withholding • Employer responsibilities (wage income)
– Withhold at graduated rates (unless an exception or treaty applies)
– Deposit amounts withheld with IRS
– File Form W-2
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Non-wage Income Subject to 30% Withholding
• Interest (e.g., bonds, notes, government obligations)
– Exception for portfolio interest
• Dividends
• Royalties
• Rents
• Pensions and Annuities
– Special rule for modified withholding
• Alimony
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Non-wage Income Subject to 30% Withholding (cont’d)
• Withholding at 30% required
• Withholding may be reduced if NRA completes and submits to withholding agent Form W-8BEN
– Part I – NRA identified as beneficial owner of the income
– Part II – Completed when NRA is claiming treaty benefits
• Withholding agent reporting
– Completes Form 1042 / 1402-S
– Due date – March 15
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Persons Subject to 30% Withholding
• Foreign person only
– Includes NRA, foreign corporation, foreign partnership, foreign trust or estate, or any other person that is not a US person
• NRA includes:
– Non-US citizen or resident
– Resident of a foreign country under a treaty residence article (i.e., treaty tie-breaker)
– IRC section 6013 election (election to treat a nonresident alien individual as a resident of the US)
• Subject to NRA withholding for all income except wages
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Backup Withholding
• Backup withholding rules require income tax withholding of 28% from certain payments if the payee is not exempt from backup withholding and fails to furnish correct taxpayer identification number (TIN)
• The IRS may also notify a payer to begin backup withholding because of payee underreporting
• Backup withholding can apply to rents, non-employee compensation for services, royalties, reportable gross proceeds paid to attorneys, and other fixed or determinable gains, profits, or income payments that are reportable on Form 1099-MISC
• Backup withholding does not apply to wages or pension payments
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Backup Withholding
• Payers of US-source, non-wage income to US persons generally must report that income on Form 1099
• US persons must provide Form W-9 with TIN to the payer
• If payment subject to reporting and no Form W-9 provided and the recipient is not exempt from W-9 requirement then payer must impose backup withholding
• Foreign person generally not subject to US reporting and backup withholding unless foreign person treated as US nonexempt recipient under “presumption rule” of IRC sec. 1441 regulations
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Backup Withholding
• Under “presumption rule” an undocumented payee is treated as a US person subject to backup withholding – so…
• Foreign person must provide documentation of foreign status (e.g., Form W-8BEN) to be exempt from US reporting and backup withholding
• Failure to follow the backup withholding rules can result in penalties to the payer for filing incorrect information returns. The payer may also become liable for any uncollected amounts
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FATCA IMPACT
What is FATCA? • Foreign Account Tax Compliance Act • Signed into law as part of the HIRE (Hiring
Incentives to Restore Employment) Act • January 17, 2013, US Treasury and IRS
released final regulations for FATCA • US policy to address underreporting of US
taxable income related to assets held outside the US
FATCA (continued)
• Increase enforcement of US taxable income reporting: – Requiring Foreign Financial Institutions (FFI) to
find and disclose US taxpayers holding assets in non-US funds
– Requiring individuals to report foreign financial assets
Impact on FFI
• Acquire appropriate due diligence information and documentation for accountholders/investors/payees (W8/W9) – US indicta (7)
• Report as required (Form 8966, Foreign Account Tax Compliance Act (FATCA) Report)
• Operate withholding as necessary
US Indicta • Identification of an account holder as a U.S. resident or citizen;
• U.S. place of birth;
• U.S. resident address or U.S. mailing address (including a U.S. post office box);
• U.S. telephone number;
• Standing instructions to transfer funds to an account maintained in the United States;
• Power of attorney or signatory authority granted to a person with a U.S. address; or
• An “in-care-of” address or “hold mail” address that is the sole address the FFI has identified for the account holder.
Impact on Participant
• Where not a US Citizen/resident, may be asked to prove that W9 is not correct form – Particularly where participant has no connection
to US other than account with share plan administrator, this can be difficult to understand
• US taxpayers – Form 8938, Statement of Specified Foreign Financial Assets
Common Questions
• What happens if I do not complete the W-8BEN form?
• So if taxes are deducted – I can get them back pretty easy?
• If I move from Spain to Switzerland do I have to file a new W-8BEN?
• How do I find out if there is a tax treaty between my country and the U.S.?
• I changed jobs but the new employer uses the same broker – why do I have to complete new forms?
Thank You Brian Burke
Director, Stock Plan Services TD Ameritrade
Andrew Gewirtz Managing Director
KPMG [email protected]
Andrea Kagan U.S. Lead Regulatory and Tax
Solium [email protected]
Karen Needham, CEP Senior Manager
ARIAD Pharmaceuticals [email protected]