Q. (cont.) No one from Switzerland came to the U.S. to perform services; however, services were provided by an individual at the U.S. branch. We have received a W-8 from them, but it was not completed correctly to receive treaty benefits. The invoices do not directly state anything about services, but the agreement that we have states that there were services performed in the U.S. by the U.S. branch.
A. Are you inquiring about whether you have a withholding obligation on the payment?
If I understand you, an individual employed by the Swiss firm but based out of a U.S. office is the individual who performed the services to you in the U.S.; is that correct?
Q. Yes, I am inquiring about whether we have a withholding obligation on this. The Swiss location is where the headquarters are located and the individual that performed services is employed by the North America location (United States). We are paying the headquarters location in Switzerland.
A. Here is the answer from tax consultants Cokala:
In our view, we don't have enough information to enable a specific answer. It's a facts-and-circumstances specific situation, for which we would assist a subscriber entity with which our firm had a nondisclosure agreement.
The payer needs to make a clear determination of the beneficial owner of the income that will be paid: with what specific entity did payer contract; is the documentation of status furnished and certified by the entity with which payer contracted; was that party the service provider or did it act as an agent; is the status certification furnished to payer consistent with the contract and invoices?
Then, payer needs to be sure the form it receives is the correct form: as an example, should it be W-8BEN-E; or W-8IMY, because the foreign entity is a nonqualified intermediary; or W-8ECI, because this specific income is effectively connected with a foreign entity's conduct of a trade or business in the United States? Then, determine whether withholding and/or reporting applies based upon an informed review of the correct form.
And if payment must be made before payer obtains a withholding certificate (a W-8 or W-9 form) or specific documentary evidence acceptable under Regulations, which it can reliably associate with the payment, then payer needs to rely on presumption rules in the tax Regulations (see sections 1.1441-3 and 1.1441-1) to make a presumed determination of either foreign or U.S. status of the payee, and type of payee -- and base its withholding and reporting decision on the presumption.
This question was answered by COKALA Tax Information Reporting Solutions, LLC, a 3rd party, independent advisory services firm offering experienced and practical help for tax regulatory compliance for Forms W-9, W-8, W-2, 1099, 1098, 5498, 945, 1042, 1042-S, and state reporting. You can learn more about them at www.cokala.com.