New forms and transitional rules for withholding tax.

• Author: Sheard, Tony J.

In 1997, the IRS issued final regulations on withholding of tax on certain U.S. source-income paid to foreign persons under Secs. 1441, 1442 and 1443, the related tax deposit and reporting requirements under Sec. 1461 and various other related rules. These regulations were to be effective Jan. 1, 1999. This date was postponed to Jan. 1,2000 by TD 8804 and postponed again until Jan. 1, 2001 by TD 8856, as explained in Notice 99-25.

The new withholding certificates must be used by persons who want to reduce or eliminate withholding tax. The regulations require mandatory use of these new withholding certificates and similar documentation for payments after 2000.

Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for U.S. Tax Withholding, should be used by foreign persons to claim either a reduced rate of (or exemption from) withholding under an income tax treaty or to claim an exemption from 31% backup withholding on certain types of income. The form requires full details on the foreign person receiving the income (who also must be the income's beneficial owner), the tax treaty benefits claimed and certain other information. This form usually is given directly to the withholding agent or payor, although in some situations it is given to an intermediary.

If the form is supplied without a U.S. taxpayer identification number (TIN), it generally will be valid from the date of signature and for the three succeeding calendar years (unless a change of circumstances makes any information on the form incorrect). For example, a form signed on Sept. 30, 1999 remains valid through Dec. 31, 2002. If supplied with a TIN, the form remains valid until the beneficial owner's status changes or a change in circumstances makes any information on the form incorrect.

Form W-8ECI, Certificate of Foreign Person's Claim for Exemption from Withholding on Income Effectively Connected with the Conduct of a Trade or Business in the U.S., should be used by foreign persons to claim an exemption from withholding tax on income effectively connected with the conduct of a trade or business within the U.S. The form requires full details on the foreign person receiving the income, who also must be the income's beneficial owner. A U.S. business address and TIN are also required, as are specific details of each type of income effectively connected with the conduct of a trade or business in the U.S. This form usually is given directly to the withholding agent or payor...