Tax form for Build Challenge prize

frejete

Congratulations to all winners of the Build Challenge!

Like me, you must have received the KYC form to receive your prize. Lots of pretty standard questions in there, no big deal, until I hit the Tax Form part...

As a French national residing in Japan, I frankly have no idea how to go about filling this W-8BEN form. I have to investigate the tax treaty between US and Japan but I have no idea what this prize is categorized as.

The IRS instructions says the following income categories are subject to 30% unless there is a special case in the tax treaty:

Interest (including certain original issue discount (OID));
Dividends;
Rents;
Royalties;
Premiums;
Annuities;
Compensation for, or in expectation of, services performed;
Substitute payments in a securities lending transaction; or
Other fixed or determinable annual or periodical gains, profits, or income.

Does anyone have more information about how to go around claiming this prize?

frejete

Note that I asked Stellar.org and they told me they are checking with their legal team what the reward should be categorized as. I will post here when I get their reply.

dzham

A W-8BEN is for you to claim that you're not liable for US taxes.

dzham

At least that's usually the case for when you're contracting.

I'm Swedish, tax resident (but not a tax-payer; no domestic income) in the Philippines, with a US LLC. FUN.

I don't even want to think about this. This is isn't a prize, this is a liability.

frejete

dzham Yes, so I need to know if this should be considered a "compensation for services performed", like contracting, in which case it seems not to be subject to the 30% withholding under the US-Japan tax treaty for my case.

Headache for sure...

dietervds

I'm in a similar boat here. Belgian, living in the Netherlands, having won a price of magical Internet coins from a US non-profit.

I share in the fear that this would become more of a liability than a price.
Let's see if we can work out what to do together with the good peeps from Stellar.org.

umbrel

Good thread,
Reside in Australia right now, looking at tax treaty, can't classify prize for coding competition as any of categories in tax treaty, so should it go as "not expressly mentioned" ?
article 21

Does that mean US should not withhold anything and I will just pay Australian income taxes?
Such a pain in the ass

frejete

umbrel Same for me in Japan. There is a mention for prize money but it's in relation with a sports event that is physically attended in one of the contracting country so it does not really apply here because I did not perform the coding in the US.

I'm leaning forward the Other Income clause too which would be taxed in my country of residence where I was while coding my entry.

dupe

Well, it was not a required field like the other fields so I skipped it.

dietervds

dupe That's certainly one way to go about it I suppose ?

frejete

dupe I believe that if you skip that form, they will by default withhold 30% for taxation in the US.

Obviously, I'm not 100% sure about that, it would be great to get more info from StellarOrg on that.

Edit: the instructions are pretty clear.

Failure to provide a Form W-8BEN when requested may lead to withholding at the foreign-person withholding rate of 30% or the backup withholding rate under section 3406.

dupe

frejete I just filed it again, this time including the tax form. Actually withholding 30% would be preferable because where I live this would be even a higher tax. Plus you run the risk that you are taxed with fiat value of the xlm on the day you receive the prize but then something really bad happens to the market and the crypto is decimated and you might end up losing money. Probably best not to run that risk at all and convert to fiat as soon as you get the prize.

frejete

dupe I don't know how it works in your country of residence, but in mine the fact that you were taxed in the source country does not cancel your tax liability in your home country if the tax treaty says taxes are owed in your home country. There's usually a no double taxation clause that would say if you owed 40% in your home country but US withheld 30% at the source, then you must still pay the 10% difference.

Anyways, if you prefer hiding it that's your prerogative, good luck on that.

dupe

frejete Interesting, that's good to know. No, I've no intention to break the law. Just thinking aloud what could be the most advantageous option. Although, come to think about it, even if it were more advantageous to pay taxes in the US I would certainly prefer to pay them in my own country...

umbrel

frejete I don't think it works as you described, when you submit form with tax treaty mentioned, US won't withhold 30% from you, but it will forward your info to your local tax authorities to make sure you pay 40% in your own country.

frejete

umbrel Yes, if you submit the form. If you submit nothing, then potentially US withholds 30% but you're still liable to taxes in your home country for 40% unless you can prove 30% has already been withheld, in which case you're still on the hook for the 10% difference.

Note that I got a reply from Zac @ StellarOrg who said they will not be withholding anything for any rewards sent.

dietervds

I'm submitting it filled in as well. As I understand it, it will prevent the US from witholding tax and instead leave it to your own country to process it further. (If your country has a taxation treaty with the US)

Since I'm an IT contractor my accountant advices me to bring the lumens into my sole proprietorship, to have it taxed just like any other professional activity.

frejete

FYI, I received the reward last night, no taxes withheld.

MisterTicot

frejete
Please can you tell me if you put something in fields 5, 6, 7?
I'm feeling a bit lost with this thing...

Thank you.

dietervds

MisterTicot I filled in number 6, with my personal tax number that I use in my own country.

frejete

MisterTicot I filled only field 6 with my local tax number. I also filled fields 9 and 10 with the details of my country's tax treaty.