Page 10 - Withholding Taxes for Foreign Entities

10:50 - 14-Feb-2020
Page 8 of 55
Fileid: … tions/P515/2020/A/XML/Cycle10/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
U.S. branch as a payee that is a U.S. person, orting Model 2 FFI treated as registered W-8IMY for allocating payments to this pool.
provided you receive a Form W-8IMY from the deemed compliant), When a WP or WT is not acting as a WP or WT
U.S. branch that you can reliably associate with • Registered deemed-compliant Model 1 with respect to an amount distributed to, or in-
the payment. If you treat the branch as a U.S. IGA FFI, or cluded in the distributive share of, an indirect
person, you are not required to withhold on an • Retirement fund. partner, beneficiary, or owner, it must provide
amount subject to Chapter 3 withholding or a A WP or WT that is an NFFE also may enter you with a nonwithholding foreign partnership or
withholdable payment. Even though you agree into a WP or WT agreement with the IRS. An nonwithholding foreign trust withholding certifi-
to treat the branch as a U.S. person, you must FFI that is a foreign reverse hybrid entity may cate on a Form W-8IMY and documentation for
report the payments made to the branch on apply to enter into a WP agreement, provided its indirect partners, beneficiaries, and owners
Form 1042-S. that the FFI is a participating FFI, a registered that are not included in a Chapter 4 withholding
A territory financial institution is a financial deemed-compliant FFI, or a registered rate pool.
institution as defined for Chapter 4 purposes deemed-compliant Model 1 IGA FFI.
(except when it is an investment entity that is A WP or WT must act in that capacity for re- Foreign Persons
not also a depository institution, custodial insti- portable amounts that are distributed to, or in-
tution, or specified insurance company) incor- cluded in the distributive share of, its direct part- Rules relevant to Chapters 3 and 4. A payee
porated or organized under the laws of a pos- ners, beneficiaries, or owners. A WP or WT is subject to withholding only if it is a foreign
session of the United States. A territory financial may act in that capacity for reportable amounts person. A foreign person includes a nonresi-
institution that is an intermediary or flow-through that are distributed to, or included in the distrib- dent alien individual, foreign corporation, for-
entity is treated as a U.S. branch that agrees to utive share of, its indirect partners, beneficia- eign partnership, foreign trust, foreign estate,
be treated as a U.S. person. The special rules ries, or owners that are not U.S. nonexempt re- and any other person that is not a U.S. person.
described in this section apply to a territory fi- cipients (except for a U.S. nonexempt recipient It also includes a foreign branch of a U.S. finan-
nancial institution. that is included in a Chapter 4 withholding rate cial institution if the foreign branch is a QI. In
If you are paying a U.S. branch an amount pool of U.S. payees). A WP or WT acting in that most cases, the U.S. branch of a foreign corpo-
that is not subject to Chapter 3 withholding and capacity must assume primary Chapters 3 and ration or partnership is treated as a foreign per-
is not a withholdable payment, treat the pay- 4 withholding responsibility for payments sub- son. The determination of whether a foreign
ment as made to a foreign person, irrespective ject to withholding and must assume certain re- person is treated as an entity or as a foreign
of any agreement to treat the branch as a U.S. porting requirements with respect to its U.S. corporation, foreign partnership, or foreign trust
person for such amounts. Consequently, partners, beneficiaries, and owners. You may is made under U.S. tax rules.
amounts not subject to Chapter 3 withholding treat a WP or WT as a payee if it has provided If an amount is both a withholdable payment
and that are not withholdable payments that are you with documentation (discussed later) that and an amount subject to Chapter 3 withholding
paid to a U.S. branch are not subject to Form represents that it is acting as a WP or WT for and the withholding agent withholds under
1099 reporting or backup withholding. such amounts. Chapter 4, it may credit this amount against any
Alternatively, a U.S. branch may provide you See Revenue Procedure 2017-21, available tax due under Chapter 3.
with a Form W-8IMY with which it associates at IRS.gov/irb/2017-06_IRB#RP-2017-21, for
the documentation of the persons on whose be- more information on becoming a WP or WT. Nonresident alien. A nonresident alien is an
half it acts. In this situation, the U.S. branch is individual who is not a U.S. citizen or a resident
not treated as a U.S. person, and the payees WP agreement and WT agreement. The alien. A resident of a foreign country under the
are the persons on whose behalf the branch WP agreement and WT agreement and the ap- residence article of an income tax treaty is a
acts provided you can reliably associate the plication procedures for the agreements are in nonresident alien individual for purposes of
payment with valid documentation from those Revenue Procedure 2017-21. An entity applies withholding.
persons. See Nonqualified Intermediary (NQI) for WP or WT status at IRS.gov/Businesses/
under Documentation, later. Corporations/Qualified-Intermediary-System. Married to U.S. citizen or resident alien.
If you cannot reliably associate the payment The WP or WT will be assigned a WP-EIN or Nonresident alien individuals married to U.S.
with a Form W-8IMY from the U.S. branch but WT-EIN to be used only when acting in that ca- citizens or resident aliens may choose to be
you have obtained an employer identification pacity. treated as resident aliens for certain income tax
number (EIN) for the branch, you should treat A WP or WT that is an FFI (other than a re- purposes. However, these individuals are still
the payment as a payment to a foreign person tirement fund) also must register with the IRS at subject to the Chapter 3 withholding rules that
of income that is effectively connected with the IRS.gov/Businesses/Corporations/FATCA- apply to nonresident aliens for all income ex-
conduct of a trade or business in the United Foreign-Financial-Institution-Registration- cept wages. Wages paid to these individuals
States. If you cannot reliably associate the pay- System to obtain its applicable Chapter 4 status are subject to graduated withholding. See Wa-
ment with a Form W-8IMY from the U.S. branch and GIIN. ges Paid to Employees—Graduated Withhold-
and you have not obtained an EIN for the Documentation. A WP or WT must pro- ing, later.
branch, you should treat the payment as a pay- vide you with a Form W-8IMY that certifies that
ment to a foreign person of income that is not the WP or WT is acting in that capacity and pro- Resident alien. A resident alien is an individ-
effectively connected with the conduct of a vides all other information and certifications re- ual who is not a citizen or national of the United
trade or business in the United States. quired by the form, including its WP-EIN or States and who meets either the green card test
or the substantial presence test for the calendar
Withholding foreign partnership and with- WT-EIN. When you make a withholdable pay- year.
holding foreign trust. A withholding foreign ment to a WP or WT, the WP or WT generally • Green card test. An alien is a resident
also may provide a certificate of a Chapter 4
partnership (WP) is any foreign partnership that alien if the individual was a lawful perma-
has entered into a WP agreement with the IRS status permitted of a WP or WT (and GIIN, if ap- nent resident of the United States at any
plicable). The WP or WT, when acting in such
and is acting in that capacity with respect to its time during the calendar year. This is
partners. A withholding foreign trust (WT) is a capacity, is not required to provide a withhold- known as the green card test because
ing statement and is not required to disclose
foreign simple or grantor trust that has entered these aliens hold immigrant visas (also
into a WT agreement with the IRS and is acting any information regarding its direct partners, known as green cards).
beneficiaries, or owners or any indirect partner,
in that capacity with respect to its owners and • Substantial presence test. An alien is
beneficiaries. In order to enter into a WP or WT beneficiary, or owner for which it acts as a WP considered a resident alien if the individual
or WT that is not a U.S. nonexempt recipient
agreement with the IRS, a WP or WT that is an meets the substantial presence test for the
FFI must have Chapter 4 status as a: (except for a U.S. nonexempt recipient included calendar year. Under this test, the individ-
in a Chapter 4 withholding rate pool of U.S. pay-
• Participating FFI (including a reporting ual must be physically present in the Uni-
Model 2 FFI), ees). A Chapter 4 withholding rate pool also ted States on at least:
• Registered-deemed compliant FFI (includ- means a payment of a single type of income 1. 31 days during the current calendar year;
ing a reporting Model 1 FFI and a nonrep- that is allocated to U.S. payees when the WP and
provides the certification required on Form
Page 8 Publication 515 (2020)