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International Tax Bulletin (January 1999)

U.S. Withholding Tax Regulations Update




By Brian Wainwright, a tax partner in the Palo Alto office of Pillsbury Winthrop Shaw Pittman LLP. If you have or can obtain the Acrobat Reader, or have an Acrobat 3.0-enabled web browser, you may wish to review the printed version of the bulletin containing this article, a 123K pdf file, or the Materials Available On-Line at the end of this article for links to the administrative material discussed in this article.

This update of the U.S. withholding tax regualtions is part of the Pillsbury Winthrop Shaw Pittman LLP Tax Page, a World Wide Web demonstration project. Comments are welcome on the design or content of this material. However, this material is not intended and cannot be regarded as legal or tax advice.


On October 14, 1997, the U.S. Internal Revenue Service (the "IRS") promulgated final regulations (the "Regulations") concerning withholding of U.S. income tax on certain U.S. source income payments to foreign persons. T.D. 8734, 62 F.R. 53387.

As originally adopted the Regulations were to have applied to payments made after December 31, 1998. However, in Notice 98-16, 1998-15 I.R.B. 12 (Apr. 13, 1998), the IRS announced that it would amend the Regulations to provide that they would be effective for payments made after December 31, 1999. The formal amendment delaying the Regulations' effective date until 2000 was published in the Federal Register for December 31, 1998. T.D. 8804, 63 F.R. 72183.

Notice 98-16 also provided information regarding the IRS' plan to develop model "qualified intermediary agreements." Revenue Procedure 98-27, 1998-15 I.R.B. 15 (Apr. 13, 1998), set forth the procedure for entering into a withholding agreement with the IRS to be treated as a "qualified intermediary" under the Regulations.

Finally, Notice 99-8, 1999-5 I.R.B. 26 (Feb. 1, 1999), announced changes the IRS would be making to the Regulations affecting a withholding agent's or payor's information systems and the type of beneficial owner or payee documentation that a withholding agent or payor must obtain before January 1, 2000. Notice 99-8 also contains a proposed model qualified intermediary withholding agreement. The IRS states that the model agreement will be modified to reflect the "know-your-customer" rules in a particular country to create a model qualified intermediary agreement for that country. Other modifications may be made prior to issuance of a country-specific model agreement "if the IRS concludes that they are necessary to implement [qualified intermediary] withholding agreements in that country, will not result in a competitive advantage for qualified intermediaries in that country, and do not violate principles that are fundamental to sound tax administration."

In Announcement 98-15, 1998-10 I.R.B. 36 (Mar. 9, 1998), the IRS released and requested comment on new, February 1998 draft forms implementing the Regulations–Form W-8 (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding), Form W-8A (Foreign Person's Claim of Income Effectively Connected with the Conduct of a Trade or Business in the United States), Form W-8B (Certification for United States Tax Withholding for Foreign Governments and Other Foreign Organizaitons) and Form W-8C (Certificate of Indermediary for United States Tax Withholding). In Announcement 98-15 the IRS stated that these new withholding certificates would ultimately replace existing IRS Forms W-8, 1001, 4224, 8709 and 1078. In Announcement 98-51, 1998-24, I.R.B. 7 (Jun. 15, 1998), the IRS not only released June 2, 1998 drafts of the new forms but included draft instructions. The IRS subsequently finalized the new forms in October 1998 as Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Withholding Tax), 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 United States), Form W-8EXP (Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholdding) and Form W-8IMY (Certificate of Foreign Intermediary, Foreign Partnership, or Certain U.S. Branches for United States Tax Withholding).

Materials Available On-Line

You can use the links below to download or view (with Acrobat Reader 3.0 or an Acrobat 3.0-enabled web browser) the listed administrative materials. Alternatively, those materials can be obtained via ftp in the indicated directory at ftp.pms.tax com (file names and sizes are indicated in the list below).


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