Under the Foreign Account Tax Compliance Act (Chapter 4 or FATCA), certain foreign financial institutions (FFIs) must report information on U.S. account holders to the IRS. Noncompliant taxpayers are subject to a 30 percent withholding on any “withholdable” payments made to the foreign payee. U.S. withholding agents must collect this tax and are liable for any failure to withhold and deposit the correct amount with the IRS in a timely fashion. In addition, U.S. withholding agents must report all payments subject to FATCA to the IRS.
FATCA information reporting is based on pre-FATCA withholding rules (Chapter 3 withholding) and, as such, utilizes many of the same forms. Forms W-9, W-8BEN, W-8IMY, W-8ECI, W-8EXP and 1042-S have all been updated to include FATCA-related classifications and representations. In addition, the IRS has put forth a new Form W-8BEN-E, which will be required for many foreign entities to represent their FATCA status to U.S. withholding agents.