The IRS has issued guidance in Notice 2017-46 (the “Notice”) relaxing the rules applicable to U.S. financial institutions that require the collection of foreign taxpayer identification numbers (Foreign TINs) from U.S. nonresident aliens.
Under anticipated amendments to temporary regulations that are described in the Notice, withholding agents will be required to collect a Foreign TIN and date of birth (in the case of an individual account holder) on a foreign person’s beneficial owner withholding certificate (e.g., a Form W-8BEN) where the foreign person is seeking to substantiate the right to a reduced withholding rate under an income tax treaty on U.S.-source income that is reportable on Form 1042-S. However, withholding agents will not be required to collect a Foreign TIN or foreign person’s date of birth where the Form W-8BEN is obtained solely to avoid Form 1099 reporting and “backup” withholding or in other cases where a payments is not otherwise subject to reporting on Form 1042-S.
The requirement to collect a Foreign TIN and date of birth applies to a withholding agent that is a U.S. branch or office of a financial institution (a depositary institution, custodial institution, investment entity or a specified insurance company). Therefore, a U.S. broker or U.S. branch of a non-U.S. broker that is administering the payment of a dividend on behalf of a U.S. corporation to nonresident alien shareholders would be required to collect a Foreign TIN from the shareholder. However, a corporation that pays the dividend directly to its shareholder would not be required to collect the shareholder’s Foreign TIN.
The Notice also provides transitional relief and alternative procedures for otherwise valid withholding certificate signed before January 1, 2018.
If the withholding agent does not receive the required Foreign TIN (absent a reasonable explanation) and date of birth, the individual’s U.S.-source income will be subject to the 30% tax withholding rate beginning January 1, 2018, unless the alternative procedures or other limited exceptions apply.