Understanding the W-8BEN-E Form for UK Pension Schemes with US Investments

This is a bit of a niche one, even for us, but it is an area of discussion we have had with clients as part of our work in pension scheme audits, so we thought it would be useful to gather our knowledge, insight and research into an article for those pension schemes with US investments.

Basically, if you manage a UK-based pension scheme with investments in the United States, understanding the W-8BEN-E form is important for tax compliance and optimising your returns.

What is the W-8BEN-E Form?

The W-8BEN-E form is a certificate of foreign status for entities. It’s used by non-U.S. entities, such as UK-based pension schemes, to:

• Certify they are not U.S. taxpayers.
• Claim a reduced rate of withholding tax under an applicable income tax treaty.
• Document their FATCA (Foreign Account Tax Compliance Act) status.

Why is the W-8BEN-E Form Applicable to UK Pension Schemes with US Investments?

The W-8BEN-E Form is applicable to UK pension schemes with US-based investments in their portfolios for a range of reasons:

1. Avoidance of Double Taxation

The United States and the United Kingdom have a tax treaty that aims to prevent double taxation and tax evasion.

By submitting a W-8BEN-E, a UK-based pension scheme can claim benefits under this treaty.

This often means a reduced rate of withholding tax on U.S. source income like dividends and interest.

2. FATCA Compliance

Under FATCA, foreign financial institutions (FFIs), including pension schemes, must report information about U.S. account holders to the IRS.

By filing the W-8BEN-E, a UK pension scheme provides necessary information about its FATCA status, helping to avoid potential penalties and withholding requirements.

3. Certification of Foreign Status

The W-8BEN-E helps a UK pension scheme to certify its foreign status. This is crucial for U.S. withholding agents to correctly apply withholding tax rates and to avoid unnecessary tax withholdings.

Steps for Completing the W-8BEN-E Form

Follow these steps to complete a W-8BEN-E form

1. Obtain the Form

Download the W-8BEN-E from this page on the IRS website.

2. Complete the Form

Part I: Identification of Beneficial Owner

• Line 1: Enter your pension scheme’s name.
• Line 2: Enter the country of incorporation (United Kingdom).
• Line 3: Select the appropriate entity type (i.e. Pension Fund).
• Line 4: Provide a detailed address of the principal office, including the country.
• Line 5: Mailing address, if different from the address in line 4.
• Line 6: Enter the U.S. taxpayer identification number (TIN) if applicable.
• Line 7: Enter the Global Intermediary Identification Number (GIIN) if applicable.
• Line 8: Reference numbers if applicable (e.g., account number with the U.S. payer).

Part II: Claim of Tax Treaty Benefits

• Line 9a: Check the box for claiming treaty benefits and enter “United Kingdom” as the country of tax residence.
• Line 9b: Specify the article of the U.S.-UK tax treaty and the percentage of withholding tax rate being claimed (e.g., Article 10, 15% for dividends).
• Line 9c: Explain the reason for meeting the terms of the treaty article (e.g., “The pension scheme is established in the UK and qualifies under Article 10 of the U.S.-UK tax treaty for a reduced rate of withholding on dividends”).

Part III: Chapter 4 Status (FATCA Status)

• Line 14: Select the appropriate FATCA status (e.g., Nonreporting IGA FFI under a Model 1 IGA if the UK pension scheme is exempt from FATCA reporting under the U.S.-UK IGA).

3. Certification

Have the form signed by a person authorised to do so on behalf of the pension scheme, and provide their name, capacity, date, and contact details.

4. Submission

Submit the completed form to the U.S. withholding agent or financial institution requesting it.

This is typically the U.S. payer or the custodian of the income.

Key Considerations

Accuracy

Ensure all information is accurate to avoid issues with the IRS or delays in processing payments. Inaccurate information can lead to incorrect withholding tax rates being applied or penalties.

Understanding Treaty Benefits

Clearly understand the specific benefits available under the U.S.-UK tax treaty, including reduced withholding tax rates for different types of income (e.g. dividends, interest).

FATCA Compliance

Verify the pension scheme’s FATCA status and ensure it meets the criteria for the selected status. Under the U.S.-UK intergovernmental agreement, nonreporting IGA FFI is common for UK pension schemes.

Professional Guidance

Given the complexity of international tax regulations, it’s advisable to seek assistance from a professional, especially for initial setup and periodic reviews.

Renewal and Updates/General Validity Period

The W-8BEN-E forms are generally valid for a period of three years from the date of signature. However, there are specific conditions and exceptions that may affect this validity period:

General Validity Period:

Three Years: The form is valid for three calendar years following the year in which it was signed. For example, if the form is signed on January 15, 2024, it will be valid until December 31, 2027.

Conditions Affecting Validity:

Change in Circumstances: If any change in the circumstances makes any information on the form incorrect, the form becomes invalid as of the date of the change. A new W-8BEN-E form must be submitted within 30 days of the change.

Specific Expiry Rules:

Permanent Residence: If the entity claims benefits under a tax treaty and the form includes a U.S. TIN, the form might be valid indefinitely, provided there are no changes in circumstances and the withholding agent is satisfied with the validity of the claim.

Documentation Requirements: Some withholding agents may require a new form more frequently, based on their internal compliance policies, even before the three-year period ends.

Special Cases

Indefinite Validity: In some cases, the entity’s FATCA status and tax treaty benefits remain unchanged, and the entity continues to certify that no change in circumstances has occurred. In this case, the form might be considered valid indefinitely.

Form Revisions: If the IRS revises the W-8BEN-E form, entities may need to submit the updated version to remain compliant.

Practical Advice:

Track Expiry Dates: Pension schemes should maintain a record of when their W-8BEN-E forms were signed and track the expiry dates to ensure timely renewal.

Monitor Changes: Continuously monitor any changes in circumstances that could affect the validity of the form and prepare to submit a new form if necessary.

Coordinate with Withholding Agents: Communicate with the U.S. withholding agents to understand their specific documentation requirements and renewal policies.

By understanding these conditions, a UK-based pension scheme can ensure that their W-8BEN-E forms remain valid and up to date, thereby maintaining compliance and optimising tax benefits.

Benefits of Compliance

Reduced Withholding Tax

Properly completed W-8BEN-E forms allow UK pension schemes to benefit from reduced withholding tax rates on income from U.S. sources, directly increasing net returns.

Avoidance of Penalties

Compliance with FATCA and other IRS requirements helps avoid penalties arising from non-compliance, such as a 30% withholding tax on certain payments.

Streamlined Payments

Ensuring the correct form is on file with U.S. withholding agents can facilitate smoother payment processing and minimise disruptions.

Enhanced Credibility

Maintaining compliance with U.S. tax regulations enhances the credibility of the pension scheme with U.S. financial institutions and counterparts.

Efficient Tax Management

Effective use of the W-8BEN-E form ensures that the pension scheme’s U.S. tax obligations are managed efficiently, minimising administrative burdens and costs.

By understanding and properly handling the W-8BEN-E form, UK pension schemes can optimise their tax position, comply with international regulations, and ensure smooth financial operations. Stay proactive about renewal and compliance to benefit from your U.S. investments fully.

How Assure UK Can Help with the W-8BEN-E Form

As mentioned above under key considerations, “Given the complexity of international tax regulations, it’s advisable to seek assistance from a professional, especially for initial setup and periodic reviews” is an area that Assure UK can assist with via our specialist partners.

Please contact either your existing Pension Scheme Auditor at Assure UK or email us via [email protected]

Note: all information is correct at the time of writing, July 2024