- As financial institutions have come to realize, these changes cut across every aspect of an organization -- business, operations, systems, tax, and legal. They also have the potential for major disruption in operations procedures, significant system implications and needs that could produce costly errors if not implemented correctly.
- Liability for underwithholding (i.e., the 31% backup withholding or the 30% non-U.S. persons withholding), due to lack of proper documentation are severe. It includes liability for underwithholding in addition to interest and penalties.
- The forms are unfamiliar to your business and operations personnel as well as to customers. They are complicated. Training of personnel and clear communications to customers are essential to ensure that the collection of correct documentation does not turn into a costly process. Errors or lack of preparation may cause loss of clients or improper compliance or both.
- Validation of Forms W-8 and W-9 is mandatory. Thus, new processes must be implemented – or existing ones revisited – to ensure that defective forms are detected, and corrective action is taken before forms are stored. As in the past, forms expire and stored documentation must be tracked to facilitate timely renewal, which may occur at least every three years. The rules also mean that institutions will receive a larger volume of forms, higher rejection rates resuling in increasing compliance costs.
- The rules are complex and detailed. Customers and personnel will have many questions.
- Procedures must also be established to grant the reduced rate of NRA withholding to payments to accounts held by non-U.S. financial institutions. In addition to training and changes in process flows, the requirements affecting non-proprietary (i.e., intermediary) accounts call for new systems solutions.
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