The long anticipated effective date arrived on July 1, 2014, requiring foreign financial institutions (FFIs) and non-financial foreign entities (NFFEs) to report certain information to the IRS regarding its U.S. accounts and owners as a result of the Foreign Account Tax Compliance Act (FATCA) passed in 2010.
It means that prior to making payments, you will need to determine whether every payee is a U.S. person. If they are not, you will need to determine whether FATCA withholding of 30% is required or if proper documentation has been provided to avoid the withholding. Proper documentation would be Form W-9 or the appropriate Form W-8 depending on the type of payee. Form W-8BEN-E is to be used by beneficial owners that are entities.
In May 2014, the IRS, through Notice 2014-33, said it would provide a transitional period with regard to FATCA compliance providing the responsible reporting party has “made good faith efforts to comply with the requirements of the chapter 4 regulations and the temporary coordination regulations.”
Although it wasn’t the delay in implementation that some were hoping for, it relieves some of the concern for those trying to comply with FATCA. Since the IRS issued 15 pages of instructions to the eight-page Form W-8BEN-E only one week before the July 1 effective date, it is no wonder that compliance has been filled with confusion. The IRS granted further reprieve allowing that entities may use the Form W-8BEN (revision date February 2006) through December 31, 2014 instead of Form W-8BEN-E.
FATCA, and what is necessary to comply, may continue to evolve. However, with the effective date passed, every effort should be made to follow the rules as they exist today. For more information about FATCA and what it might mean for your organization contact Sara Stubler at firstname.lastname@example.org or your MarksNelson professional.