In April last year, Markit signed a partnership agreement with tax compliance software and consulting company, Compliance Technologies International (CTI) in order to integrate CTI’s electronic W-8 application for the US Internal Revenue Service (IRS) with Markit Document Exchange’s counterparty document solution. Based on this work, the vendors have launched their E-Tax offering, aimed at centralising withholding tax documents W-8 and W-9 on the Markit Document Exchange platform.
“The platform went live in November last year and firms are now able to complete just one form to submit their withholding tax information to the IRS, rather than multiple forms. This data is then validated by our partner CTI, including entity data validation,” explains Penny Davenport, managing director of Markit Document Exchange.
Around 20 banks have signed up so far and the next stage is to build up the database further, she continues. “It has been a slow burn to get the buy side firms on board and we expect more forms to come in over the next month. The next major milestone will be getting 1,000 forms on the system and then we will begin work on creating an online form rather than paper-based forms. This will likely happen in the third quarter,” she says.
The W-8 IRS form is required for completion by non-US investors to establish their non-US status, thus exempting them from being subject to US withholding taxes and reporting. All entities must provide W-8 and W-9 tax forms to their counterparties when investing in US securities in order to prove their withholding tax status. Traditionally, the process of validating these forms is manually intensive and this is where Markit is hoping to step into the fray and reduce the effort involved by centralising the workflow onto its platform.
To this end, Markit Document Exchange is collecting W-8 and W-9 forms physically from institutional investors and allowing withholding agents to share these forms by providing validated scanned copies for daily use and originals for external audits. The forms are then validated by CTI’s MD3 engine, as well as being reconciled against an online withholding statement.
According to the vendors, institutional investors will be able to disseminate validated, digitised tax forms to withholding agents from a single original rather than mailing multiple forms. Withholding agents will also have a single source for validated tax forms, thereby easing the operational burden of validating in-house.
The vendors’ work is being publicly backed by a number of firms including Bank of America, Citi, Deutsche Bank, JPMorgan, Loomis, Sayles & Co, Pimco and Royal Bank of Scotland (RBS).