Canadian funds which are hybrid entities for FATCA purposes face a dilemma in completing W-8 forms

There are three approaches for a Canadian fund to deal with the situation where it is a hybrid entity for FATCA purposes (i.e., an entity which is a reporting Canadian financial institution for purposes of the Canada-U.S. inter-governmental agreement but a non-financial foreign entity for ITA purposes):

1. be timid: register on the IRS portal as, and state on Forms W-8 that it is, a reporting "Model 1" foreign financial institution - and fully comply with the related reporting requirements;
2. be bold: take the view that its IRS status is determined by its ITA status when reporting its status (under penalty of perjury) to U.S. withholding agents; or
3. be Canadian: register with the IRS and complete W-8s as described in 1 above - but not comply with its the related reporting requirements (on the basis that it will not be subject to FATCA withholding until the IRS affirmatively declares it to be a nonparticipating financial institution).

Neal Armstrong. Summary of Matias Milet, "FATCA and Canadian Investment Entities," Journal of International Taxation, March 2015, p. 29 under s. 263(1) – listed financial institution – (j).