While validating an XML document, the violation of WFC Entity Declared ( http://www.w3.org/TR/xml/#wf-entdeclared ) is not reported if the entity is declared in the external subset, even if the document is declared as "standalone=yes".

An example of this behaviour:

<?xml version="1.0" encoding="uft-8" standalone="yes"?>
<!DOCTYPE test SYSTEM "http://example.org/test.dtd"><test>&test;</test>

where test.dtd contains:
<!ENTITY test "test content">
<!ELEMENT test (#PCDATA)*>

is considered valid by the markup validator, but it should be a Fatal Error according to XML, because the document is not well-formed (and thus cannot be valid).

(Tested using the version online at validator.w3.org)