EY’s innovative approach to tax form validation operates on a modern technology platform that provides client-side electronic form validation, operator-focused efficiency, and high-quality business logic based on expertise from industry experienced tax professionals.
In recent years, tax authorities have sought to boost revenues by focusing on the gap between anticipated tax revenues and the amounts actually collected. This has created new compliance challenges for US and non-US financial institutions, and for individuals or entities paying or earning income outside their country of residence.
The implementation of FATCA in 2014 made documentation requirements more difficult for US financial institutions, which have been required to document their foreign payees for over 20 years. The general rule is that whenever US-source income (including dividend income, interest or other passive income) is being paid to a non-US person, the intermediary US financial institution must collect an IRS Form W-8 that establishes a reduced rate or exemption from withholding under an Internal Revenue Code (IRC) provision or an income tax treaty.
Payors of US income have liability for any amounts they fail to withhold in accordance with claims made on a W-8. Customers may claim they’re eligible, but if the form is invalid and the IRS lacks jurisdiction (as with a non-US person), it will look to the financial institution.
Moreover, invalid forms are rather common, as approximately 25 percent of Form W-8 submissions from customers are invalid. Overwhelmingly, this is not due to fraud, but rather customers’ inability to manage the complexities of the tax forms and their instructions effectively.
Through this approach, US-based financial institutions, FFIs, and payors of US-source income will significantly improve data quality, operational efficiency, and customer satisfaction.
The electronic tax form validator’s efficient approach to ensuring data accuracy will handle most forms with straight-through processing, meaning that forms are always valid on their face and against available books and records data. When additional documentation is required (e.g., to cure US indicia), the eTFV provides easy and clear instructions to customers to enable them to understand those requirements. The result will be a significant reduction in the operational burden for financial institutions. At the same time, the eTFV makes it easier for individuals and business entities to transact internationally, contributing to their success and bolstering the reputation of the financial institution as a valuable business partner.
EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.
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EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.
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This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.
