How should the withholding agent properly document the foreign status or treaty claim of a foreign person

To properly document the foreign status or treaty claim of a foreign person, the withholding agent must follow specific procedures and obtain the appropriate forms and documentation. Here are the steps and requirements:

1. Obtain the Correct Form:
   • Form W-8BEN: Used by foreign individuals to certify their non-U.S. status and, if applicable, claim treaty benefits.
   • Form W-8BEN-E: Used by foreign entities to certify their non-U.S. status and, if applicable, claim treaty benefits.
   • Form W-8ECI: Used by foreign persons to certify that the income is effectively connected with the conduct of a trade or business in the United States.
   • Form W-8EXP: Used by foreign governments, international organizations, foreign central banks of issue, foreign tax-exempt organizations, and foreign private foundations to claim exemption from withholding.
   • Form W-8IMY: Used by intermediaries, flow-through entities, and certain U.S. branches to certify their status and provide necessary documentation.
2. Ensure the Form is Complete and Valid:
   • The form must be completed in accordance with the applicable instructions.
   • The form must include all required information, such as the foreign person's name, address, and taxpayer identification number (TIN) if required.
   • The form must be signed under penalties of perjury.
3. Verify the Information:
   • The withholding agent must ensure that the information provided on the form is accurate and complete.
   • The withholding agent must not have actual knowledge or reason to know that the information provided is unreliable or incorrect.
4. Documentation for Treaty Benefits:
   • If a foreign person is claiming a reduced rate of withholding under an income tax treaty, the form must include a U.S. or foreign TIN and a certification that the person is a resident of a treaty country, the beneficial owner of the income, and meets any limitation on benefits provisions of the treaty.
   • For entities, the form must include the appropriate limitation on benefits certification.
5. Maintain Documentation:
   • The withholding agent must retain the original documentation, a certified copy, a photocopy, a scanned copy, or other means that allow reproduction.
   • The documentation must be retained for as long as it is relevant for determining the withholding agent's tax liability or reporting responsibilities.
6. Use of Documentary Evidence:
   • In certain cases, documentary evidence may be used instead of a Form W-8 to establish foreign status. This is typically allowed for payments made outside the United States with respect to an offshore obligation.
7. Withholding Statement:
   • For intermediaries and flow-through entities, a withholding statement must be provided along with Form W-8IMY. The statement must include information about the payees, such as their names, addresses, TINs, and the amount allocated to each payee.
8. Periodic Review and Updates:
   • The withholding agent must periodically review the documentation to ensure it remains valid and update it as necessary. If there is a change in circumstances that affects the reliability of the documentation, the withholding agent must obtain new documentation.

By following these steps and ensuring that all required documentation is complete, accurate, and properly maintained, the withholding agent can properly document the foreign status or treaty claim of a foreign person.

Sources:
Instructions for Form W-8IMY (10/2021)
Publication 515 (2024)
Rev. Proc. 2017-21
Rev. Proc. 2014-47
Rev. Proc. 2017-15
IRM Part 21. Customer Account Services. Chapter 8. International. Section 2. BMF International Adjustments