Industry sources are criticising a draft Internal Revenue Service (IRS) form that will fulfill reporting requirements for both regular withholding tax and the Foreign Account Tax Compliance Act (FATCA).
Form W-8IMY, which will be used by foreign private equity firms to report tax information on their US investors under FATCA rules, will “require a much higher degree of expertise and familiarity with US tax rules than was the case before” to complete, said David Saltzman, partner at law firm Ropes & Gray.
Foreign intermediaries and others using the form to identify US source income held in overseas accounts for withholding tax purposes will submit a more complex seven-page form, instead of two pages, to meet new FATCA rules.
FATCA, which takes effect in 2013, imposes a 30 percent tax on any withholdable payment travelling outside the US to a foreign private equity firm unless these reporting requirements are met.
The updated forms follow the release of two intergovernmental model agreements countries can sign to provide financial firms, including private equity houses, a way to report tax information on any US investors through their local authorities.
The IRS has not yet released instructions for completing Form W-8IMY.