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Originally Posted by Barefootsies
What they do in regards to a W-8, or a W-9, has to do with THEIR taxes and liabilities. It has nothing to do with YOU.
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I fully understand that. US companies must document those payments, but where you and a few others go wrong is in assuming that the only way to documents those transactions is by using either a w8 or w9 form.
W9 forms are meant for documenting certain types of payments. W8 forms are for documenting a few other types of payments. And then there's those types of payments that cannot be documented with either a w8 or w9 form.
Now, I can understand where the confusion comes from. When you read the docs about w8 forms you see:
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Who must file. You must give Form W-8BEN to the withholding agent or payer if you are a foreign person and you are the beneficial owner of an amount SUBJECT TO WITHHOLDING.
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I can see people reading that and seeing the word "foreign" and thinking "Oh, this applies to our foreign affiliates".
Of course their assumption would be wrong in most cases. The W8BEN form is only required to be filled out for US SOURCED income. If the foreign affiliate has no US sourced income, he is not the beneficial owner of an amount SUBJECT TO WITHHOLDING.
"US sourced" means that the work was done in the US (either by the affiliate or one of his employees) or the work was done in the US using property the affiliate owns in the US.
If the affiliate is not a US citizen and lives outside the US and has no employees or property in the US, the w8 form cannot be used to document his situation.
So it's in the best interest of the US company to make sure its affiliates fill out the correct form. For US citizens that would be a w9, for certain types of foreign affiliates that would be a w8 and for the majority of foreign affiliates that would be some other type of document.