• COVID-19
  • Insights
  • Who We Help
    •   Industrial Automation
    •   Manufacturing & Distribution
    •   A&E Professional Services
    •   International Businesses
      • ◦   Expanding Outside the U.S.
      • ◦   Expanding to the U.S.
  • Services
    •   COVID-19
      • ◦   Cash Flow Confidence Assessment
      • ◦   Maximize Your Loan Forgiveness
      • ◦   5 Key Focus Areas
      • ◦   COVID-19 Resource Center
    •   Client Accounting
      • ◦   Software Solutions
      • ◦   Accounting Support
      • ◦   Reporting
    •   Tax
      • ◦   R&D Tax Credit
      • ◦   Tax Credits & Incentives
      • ◦   Tax Structure
      • ◦   Federal Tax
      • ◦   State & Local Tax
      • ◦   Personal Tax
      • ◦   Other Tax Filings
    •   Advisory & Assurance
      • ◦   Assurance Levels
      • ◦   Reporting
      • ◦   Employee Benefit Plan Audits
      • ◦   Technical Accounting & Reporting
    •   Consulting
      • ◦   Data Analytics
      • ◦   Transaction Services
      • ◦   Business Planning
      • ◦   Succession & Exit Strategies
    •   International
      • ◦   International Tax
      • ◦   Foreign Direct Investment
      • ◦   Global Expansion
      • ◦   International Accounting
  • Events
  • Careers
    •   Why C&M
    •   Students
      • ◦   Campus Events
      • ◦   Internships
      • ◦   Reach Beyond Program
    •   Experienced Professionals
      • ◦   Team member profile videos
    •   Opportunities
    •   Employee Journals
    •   Office Tour
  • About Us
    •   How We Help
      • ◦   Service Approach
      • ◦   Affiliations
      • ◦   Communications & Technology
    •   Meet Our Team
    •   Testimonials
    •   Our Videos
    •   Our Story
  • Contact Us
  • Subscribe
CHANGE COUNTRY:
  • United States
  • 中国
  • Client Login
Clayton & McKervey Logo
  • COVID-19
  • Insights
  • Who We Help
  • Services
  • Events
  • Careers
  • About Us
  • Contact Us
  • Subscribe
    • Most Recent Insights
  1. Home
  2. Insights
  3. Top 5 Questions about the Foreign Tax Compliance Act (FATCA)

Top 5 Questions about the Foreign Tax Compliance Act (FATCA)

Posted by Sarah Russell and Nina Wang on September 29, 2015

Sarah Russell Sarah Russell

In our first article, we discussed the basics of FATCA, considerations for non-financial domestic entities, and foreign entities. We subsequently published another article that discussed the key elements of FATCA, including the types of payments subject to FATCA, compliance requirements, steps, the cost of noncompliance, and the reporting of the 1042 series. It has been about a year since the implementation of FATCA withholding, and we wanted to share the top five practical questions most commonly asked by our clients.

1. What are the due diligence standards for validating Form W-8BEN-E received?

Step 1: It’s important to review the information on Form W-8BEN-E for accuracy and completeness. Review the documentation line by line to ensure the form is complete and consistent. A failure on any singular line item does not necessarily fail the form and all claims made therein. However, a withholding agent should be cautious in the case of fatal errors that would fail the form.

For example, a company in Argentina checks the box that it is a reporting Model 1 Foreign Financial Institution. However, Argentina is not a country that has Intergovernmental Agreement (IGA) with the U.S, This would be a fatal error that would fail the form.

Note: A list of IGA countries could be found on the US Department of the Treasury website.

Step 2: Ensure the information provided on Form W-8BEN-E is consistent with other tax information. Contradictions in information may invalidate the form. The withholding agent should review for indication of U.S. status (e.g., U.S. mailing address) or information that would indicate residence in a country other than that claimed on the form for a payee making a treaty based claim. A Form W-8-BEN-E that contains indicia of U.S. status is not valid unless documentation supports non-U.S. status. Additional documentation must be obtained to support the claim of residence in the treaty country that does not contain an address outside the treaty country.

Step 3: If a payee claims it is a participating foreign financial institution (FFI), registered deemed-compliant FFI, Reporting Model 1 FFI, Reporting Model 2 FFI, Direct Reporting Nonfinancial Foreign Entity, or Sponsored entity, it must provide the Global Intermediary Identification Number (GIIN) on Form W-8. The withholding agent must validate the GIIN against the IRS list within 90 days of receipt. This check must be repeated annually.

2. If tax under FATCA is required to be withheld, will Nonresident Alien Tax (Chapter 3) be applicable?

No, FATCA is a filter on top of Chapter 3. If FATCA withholding applies, there will be no Chapter 3 withholding. However, if FATCA withholding does not apply, a withholding agent will look to see if Chapter 3 withholding applies. Even though both rates are 30%, the withholding agent must be able to distinguish which type of withholding applies as this will determine the account funds are deposited to and how the amounts are presented on From 1042.

Example 1: ABC Russian Bank fails to provide a Form W-8 to the U.S. withholding agent and is treated as a non-participating FFI. ABC Russian Bank receives $200,000 in U.S. source interest on January 31, 2015.

ABC Russian Bank is subject to 30% FATCA withholding. There is no Chapter 3 withholding. 

Example 2: Assume ABC Russian Bank provides a Form W-8 with a valid GIIN prior to receiving the interest payment. However, it does not make a valid treaty claim.

ABC Russian Bank is NOT subject to FATCA but is subject to Chapter 3 withholding at a rate of 30% (no reduced rate since no treaty claim is made to reduce the rate of withholding).

3. How long is Form W-8BEN-E valid to claim treaty benefits and FATCA exemption?

Form W-8BEN-E will remain valid until the last day of the third calendar year following the year in which the form is signed, unless a change in circumstances makes any information on the form incorrect. For example, a Form W-8BEN-E signed on June 30, 2015, remains valid through December 31, 2018.

4. Can we use Form W-8BEN-E after the date of payment to avoid liability on underwithholding for the period there was no documentation?

A withholding agent may prove that withholding under FATCA was not required on the basis of a valid Form W-8BEN-E furnished after the payment date but effective as of the payment date. A signed affidavit (either at the bottom of the form or on an attached page) must state the information and representations contained on the form were accurate as of the time of the payment.

If it is beyond a year after the date of payment, the withholding agent will be required to obtain documentary evidence that supports the Chapter 4 status claimed in addition to Form W-8BEN-E and the affidavit

mentioned above. Acceptable documentary evidence includes, but is not limited to, the organizational documents (e.g., articles of incorporation), financial statements, a letter from a government agency, etc.

5. When is the withholding agent required to deposit the tax withheld?

  • Annual deposits (due on March 15 of the following calendar year) – when the aggregate amount of withholding tax is less than $200.
  • Monthly deposits (due within 15 days after the close of such month) – when the withholding tax is greater than $200 but less than $2000.
  • Quarter-monthly deposits (due within 3 banking days after the close of such quarter-monthly period, i.e. 7, 15, 22, and last day of the month) – when the withholding tax is greater than $2000.

All deposits must be made by electronic funds transfer.

The application of FATCA rules to a particular individual or entity is highly fact-dependent. For more information on FATCA compliance and implementation, speak with your tax advisor or visit www.irs.gov.

Our team is always ready to help.

Please contact us for more information.

Sarah Russell

Sarah Russell

Shareholder, Tax

Contact Sarah   |   Read Sarah's bio

related news

How to Claim R&D Tax Credits

Part four of our R&D series answers two common questions about the R&D tax credit: How do I claim the R&D tax credit? Do I really need to claim the…

Read full story

IRS Issues New Guidance on PPP and Employee Retention Credit Eligibility

The IRS issued highly anticipated guidance regarding the employee retention credit (ERC) on March 1. We have previously outlined how the Consolidated Appropriations Act, passed in December, permitted employers receiving…

Read full story

Honoring International Women’s Day

In honor of International Women’s Day, I’d like to take a moment to recognize the talented women who have helped build our outstanding reputation within the business community – both…

Read full story

How to Calculate R&D Tax Credits

As we’ve seen in the first two installments of this series, business owners often miss out on the R&D tax credit opportunity and the bottom-line infusion it can provide. Many…

Read full story

Doing Business in Mexico: What to Expect this Year

Without a doubt, this year will be interesting for Mexico. To start, it’s an election year and we all know what that means…a lot of uncertainty. As the global pandemic…

Read full story

Categories

Jump directly to the topics that matter to you most.

  • A&E Professional Services
  • About Us
  • Advisory & Assurance
  • Business Owners
  • C&M Press Releases
  • Careers
  • China Consulting
  • Clayton & McKervey
  • Client Accounting Services
  • Consulting
  • COVID-19
  • Data Analytics
  • Estate Planning
  • Expanding Outside the U.S.
  • Expanding to the U.S.
  • From the President
  • Industrial Automation
  • International
  • Manufacturing & Distribution
  • Mexico Consulting
  • Podcasts
  • Private Client Services
  • Tax & Tax Credits
  • Transaction Services
  • Videos

Authors

Read news direct from our managers and stakeholders.

    • Ben Smith
    • Beth Butchart
    • Bryan Powrozek
    • Carlos Calderon
    • Casey Haggerty
    • Clayton & McKervey
    • Dave Van Damme
    • Denise Asker
    • Eric Lin
    • Jim Biehl
    • Julie Killian
    • Kevin Johns
    • Margaret Amsden
    • Miroslav Georgiev
    • Nina Wang
    • Rob Dutkiewicz
    • Ruben Ramirez
    • Sarah Russell
    • Sue Tuson
    • Tarah Ablett
    • Teresa Gordon
    • Tim Finerty
    • Tim Hilligoss
    • Wendy Reedy

Additional Resources

Additional news from Clayton & McKervey can be found below.

  • Subscribe to our email newsletter
  • View upcoming events
  • Contact us to let us know how we can help you
  • Main Content
  • Related Insights

Top 5 Questions about the Foreign Tax Compliance Act (FATCA)

Posted by Sarah Russell on September 29, 2015

Sarah Russell

In our first article, we discussed the basics of FATCA, considerations for non-financial domestic entities, and foreign entities. We subsequently published another article that discussed the key elements of FATCA, including the types of payments subject to FATCA, compliance requirements, steps, the cost of noncompliance, and the reporting of the 1042 series. It has been about a year since the implementation of FATCA withholding, and we wanted to share the top five practical questions most commonly asked by our clients.

1. What are the due diligence standards for validating Form W-8BEN-E received?

Step 1: It’s important to review the information on Form W-8BEN-E for accuracy and completeness. Review the documentation line by line to ensure the form is complete and consistent. A failure on any singular line item does not necessarily fail the form and all claims made therein. However, a withholding agent should be cautious in the case of fatal errors that would fail the form.

For example, a company in Argentina checks the box that it is a reporting Model 1 Foreign Financial Institution. However, Argentina is not a country that has Intergovernmental Agreement (IGA) with the U.S, This would be a fatal error that would fail the form.

Note: A list of IGA countries could be found on the US Department of the Treasury website.

Step 2: Ensure the information provided on Form W-8BEN-E is consistent with other tax information. Contradictions in information may invalidate the form. The withholding agent should review for indication of U.S. status (e.g., U.S. mailing address) or information that would indicate residence in a country other than that claimed on the form for a payee making a treaty based claim. A Form W-8-BEN-E that contains indicia of U.S. status is not valid unless documentation supports non-U.S. status. Additional documentation must be obtained to support the claim of residence in the treaty country that does not contain an address outside the treaty country.

Step 3: If a payee claims it is a participating foreign financial institution (FFI), registered deemed-compliant FFI, Reporting Model 1 FFI, Reporting Model 2 FFI, Direct Reporting Nonfinancial Foreign Entity, or Sponsored entity, it must provide the Global Intermediary Identification Number (GIIN) on Form W-8. The withholding agent must validate the GIIN against the IRS list within 90 days of receipt. This check must be repeated annually.

2. If tax under FATCA is required to be withheld, will Nonresident Alien Tax (Chapter 3) be applicable?

No, FATCA is a filter on top of Chapter 3. If FATCA withholding applies, there will be no Chapter 3 withholding. However, if FATCA withholding does not apply, a withholding agent will look to see if Chapter 3 withholding applies. Even though both rates are 30%, the withholding agent must be able to distinguish which type of withholding applies as this will determine the account funds are deposited to and how the amounts are presented on From 1042.

Example 1: ABC Russian Bank fails to provide a Form W-8 to the U.S. withholding agent and is treated as a non-participating FFI. ABC Russian Bank receives $200,000 in U.S. source interest on January 31, 2015.

ABC Russian Bank is subject to 30% FATCA withholding. There is no Chapter 3 withholding. 

Example 2: Assume ABC Russian Bank provides a Form W-8 with a valid GIIN prior to receiving the interest payment. However, it does not make a valid treaty claim.

ABC Russian Bank is NOT subject to FATCA but is subject to Chapter 3 withholding at a rate of 30% (no reduced rate since no treaty claim is made to reduce the rate of withholding).

3. How long is Form W-8BEN-E valid to claim treaty benefits and FATCA exemption?

Form W-8BEN-E will remain valid until the last day of the third calendar year following the year in which the form is signed, unless a change in circumstances makes any information on the form incorrect. For example, a Form W-8BEN-E signed on June 30, 2015, remains valid through December 31, 2018.

4. Can we use Form W-8BEN-E after the date of payment to avoid liability on underwithholding for the period there was no documentation?

A withholding agent may prove that withholding under FATCA was not required on the basis of a valid Form W-8BEN-E furnished after the payment date but effective as of the payment date. A signed affidavit (either at the bottom of the form or on an attached page) must state the information and representations contained on the form were accurate as of the time of the payment.

If it is beyond a year after the date of payment, the withholding agent will be required to obtain documentary evidence that supports the Chapter 4 status claimed in addition to Form W-8BEN-E and the affidavit

mentioned above. Acceptable documentary evidence includes, but is not limited to, the organizational documents (e.g., articles of incorporation), financial statements, a letter from a government agency, etc.

5. When is the withholding agent required to deposit the tax withheld?

  • Annual deposits (due on March 15 of the following calendar year) – when the aggregate amount of withholding tax is less than $200.
  • Monthly deposits (due within 15 days after the close of such month) – when the withholding tax is greater than $200 but less than $2000.
  • Quarter-monthly deposits (due within 3 banking days after the close of such quarter-monthly period, i.e. 7, 15, 22, and last day of the month) – when the withholding tax is greater than $2000.

All deposits must be made by electronic funds transfer.

The application of FATCA rules to a particular individual or entity is highly fact-dependent. For more information on FATCA compliance and implementation, speak with your tax advisor or visit www.irs.gov.

Our team is always ready to help.

Please contact us for more information.

Sarah Russell

Shareholder, Tax

Contact Sarah   |   Read Sarah's bio

related news

How to Claim R&D Tax Credits

Part four of our R&D series answers two common questions about the R&D tax credit: How do I claim the R&D tax credit? Do I really need to claim the…

Read full story

IRS Issues New Guidance on PPP and Employee Retention Credit Eligibility

The IRS issued highly anticipated guidance regarding the employee retention credit (ERC) on March 1. We have previously outlined how the Consolidated Appropriations Act, passed in December, permitted employers receiving…

Read full story

Honoring International Women’s Day

In honor of International Women’s Day, I’d like to take a moment to recognize the talented women who have helped build our outstanding reputation within the business community – both…

Read full story

How to Calculate R&D Tax Credits

As we’ve seen in the first two installments of this series, business owners often miss out on the R&D tax credit opportunity and the bottom-line infusion it can provide. Many…

Read full story

Doing Business in Mexico: What to Expect this Year

Without a doubt, this year will be interesting for Mexico. To start, it’s an election year and we all know what that means…a lot of uncertainty. As the global pandemic…

Read full story

Categories

Jump directly to the topics that matter to you most.

  • A&E Professional Services
  • About Us
  • Advisory & Assurance
  • Business Owners
  • C&M Press Releases
  • Careers
  • China Consulting
  • Clayton & McKervey
  • Client Accounting Services
  • Consulting
  • COVID-19
  • Data Analytics
  • Estate Planning
  • Expanding Outside the U.S.
  • Expanding to the U.S.
  • From the President
  • Industrial Automation
  • International
  • Manufacturing & Distribution
  • Mexico Consulting
  • Podcasts
  • Private Client Services
  • Tax & Tax Credits
  • Transaction Services
  • Videos

Authors

Read news direct from our managers and stakeholders.

  • Ben Smith
  • Beth Butchart
  • Bryan Powrozek
  • Carlos Calderon
  • Casey Haggerty
  • Clayton & McKervey
  • Dave Van Damme
  • Denise Asker
  • Eric Lin
  • Jim Biehl
  • Julie Killian
  • Kevin Johns
  • Margaret Amsden
  • Miroslav Georgiev
  • Nina Wang
  • Rob Dutkiewicz
  • Ruben Ramirez
  • Sarah Russell
  • Sue Tuson
  • Tarah Ablett
  • Teresa Gordon
  • Tim Finerty
  • Tim Hilligoss
  • Wendy Reedy

Additional Resources

Additional news from Clayton & McKervey can be found below.

  • Subscribe to our email newsletter
  • View upcoming events
  • Contact us to let us know how we can help you

Website

  • COVID-19
  • Insights
  • Who We Help
  • Services
  • Events
  • Careers
  • About Us
  • Contact Us
  • Subscribe

Location

+1 248.208.8860
2000 Town Center
Suite 1800
Southfield, MI
48075 | USA

Connect

  • Events
  • Newsletter
  • Client Login

Social

  • LinkedIn
  • Facebook
  • Twitter
  • Glassdoor
  • YouTube
  • Instagram

Awards

DFP Top Work Places Best & Brightest
Prime Global

Tax | Accounting | Assurance | Consulting | Highly technical and accessible team of CPAs helping growth driven, closely held, middle market companies compete in the global marketplace. Michigan-based accountants and advisors focused on helping business owners in the United States and throughout Europe and China.

Privacy Policy Disclaimer

© 2021 Clayton & McKervey