Guide to Global Payroll Management - 2020 - D-42

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Guide to Global Payroll Management

implement FATCA through reporting by FFIs directly to
the IRS in accordance with the requirements of an FFI
agreement, supplemented by the exchange of information
between such foreign government or agency and the IRS.
An FFI in a Model 2 IGA jurisdiction that has entered into
an FFI agreement with respect to a branch is a
participating FFI, but may be referred to as a reporting
Model 2 FFI.

Certain entities that are disregarded for U.S. tax
purposes may be recognized for purposes of claiming
treaty benefits under an applicable tax treaty (see the
definition of hybrid entity below). A hybrid entity claiming
treaty benefits is required to complete Form W-8BEN-E.
See Form W-8BEN-E and its instructions.

Financial account. A financial account includes:
A depository account maintained by a financial
institution;
A custodial account maintained by a financial
institution;
Equity or debt interests (other than interests regularly
traded on an established securities market) in investment
entities and certain holding companies, treasury centers,
or financial institutions as defined in Regulations section
1.1471-5(e);
Cash value insurance contracts; and
Annuity contracts.
For purposes of chapter 4, exceptions are provided for
accounts such as certain tax-favored savings accounts;
term life insurance contracts; accounts held by estates;
escrow accounts; and annuity contracts. These
exceptions are subject to certain conditions. See
Regulations section 1.1471-5(b)(2). Accounts may also
be excluded from the definition of financial account under
an applicable IGA.

Nonresident alien individual. Any individual who is not
a citizen or resident alien of the United States is a
nonresident alien individual. An alien individual meeting
either the "green card test" or the "substantial presence
test" for the calendar year is a resident alien. Any person
not meeting either test is a nonresident alien individual.
Additionally, an alien individual who is treated as a
nonresident alien pursuant to Regulations section
301.7701(b)-7 for purposes figuring the individual's U.S.
tax liability, or an alien individual who is a bona fide
resident of Puerto Rico, Guam, the Commonwealth of the
Northern Mariana Islands, the U.S. Virgin Islands, or
American Samoa is a nonresident alien individual. See
Pub. 519 for more information on resident and
nonresident alien status.

Even though a nonresident alien individual
married to a U.S. citizen or resident alien may
CAUTION choose to be treated as a resident alien for certain
purposes (for example, filing a joint income tax return),
such individual is still treated as a nonresident alien for
chapter 3 withholding tax purposes on all income except
wages. For purposes of chapter 4, a nonresident alien
individual who holds a joint account with a U.S. person will
be considered a holder of a U.S. account for chapter 4
purposes.

Financial institution. A financial institution generally
means an entity that is a depository institution, custodial
institution, investment entity, or an insurance company (or
holding company of an insurance company) that issues
cash value insurance or annuity contracts.
Foreign financial institution (FFI). An FFI generally
means a foreign entity that is a financial institution.

Participating FFI. A participating FFI is an FFI that has
agreed to comply with the terms of an FFI agreement with
respect to all branches of the FFI, other than a branch that
is a reporting Model 1 FFI or a U.S. branch. The term
"participating FFI" also includes a reporting Model 2 FFI
and a qualified intermediary (QI) branch of a U.S. financial
institution, unless such branch is a reporting Model 1 FFI.

Foreign person. A foreign person includes a
nonresident alien individual and certain foreign entities
that are not U.S. persons (entities should complete Form
W-8BEN-E rather than this Form W-8BEN).

Hybrid entity. A hybrid entity is any person (other than
an individual) that is treated as fiscally transparent for
purposes of its status under the Code but is not treated as
fiscally transparent by a country with which the United
States has an income tax treaty. Hybrid status is relevant
for claiming treaty benefits.

Participating payee. A participating payee means any
person that accepts a payment card as payment or
accepts payment from a third-party settlement
organization in settlement of a third-party network
transaction.

Intergovernmental agreement (IGA). An IGA means a
Model 1 IGA or a Model 2 IGA. For a list of jurisdictions
treated as having in effect a Model 1 or Model 2 IGA, see
the list of jurisdictions at www.treasury.gov/resourcecenter/tax-policy/treaties/Pages/FATCA-Archive.aspx.
A Model 1 IGA means an agreement between the
United States or the Treasury Department and a foreign
government or one or more agencies to implement
FATCA through reporting by FFIs to such foreign
government or agency, followed by automatic exchange
of the reported information with the IRS. An FFI in a Model
1 IGA jurisdiction that performs account reporting to the
jurisdiction's government is referred to as a reporting
Model 1 FFI.
A Model 2 IGA means an agreement or arrangement
between the United States or the Treasury Department
and a foreign government or one or more agencies to

Payment settlement entity (PSE). A PSE is a
merchant acquiring entity or third-party settlement
organization. Under section 6050W, a PSE is generally
required to report payments made in settlement of
payment card transactions or third-party network
transactions. However, a PSE is not required to report
payments made to a beneficial owner that is documented
as foreign with an applicable Form W-8.
Recalcitrant account holder. A recalcitrant account
holder includes an individual who fails to comply with the
requests of an FFI for documentation and information for
determining the U.S. or foreign status of the individual's
account, including furnishing this Form W-8BEN when
requested.
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Instructions for Form W-8BEN (Rev. 7-2017)

Guide to Global Payroll Management - 2020

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