Page 15 - Withholding Taxes for Foreign Entities

10:50 - 14-Feb-2020
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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
and each intermediary or flow-through en- holding rate pool is a payment of a single type not assume primary Chapters 3 and 4 withhold-
tity that receives the payment on behalf of of income that is subject to a single rate of with- ing responsibility or primary Form 1099 report-
the payee. holding and that is reported on Form 1042-S ing and backup withholding responsibility for
• Any other information the withholding under a single Chapter 4 exemption code. Pay- the payment, you can reliably associate the
agent reasonably requests in order to fulfill ments made to U.S. exempt recipients also may payment with valid documentation only to the
its obligations under Chapter 4. be included in a Chapter 3 withholding rate pool extent you can reliably determine the part of the
A Chapter 4 withholding statement is permit- to which withholding does not apply. payment that relates to each withholding rate
ted to provide pooled allocation information with A QI is required to provide you with informa- pool for foreign and U.S. payees. Unless the al-
respect to payees that are treated as nonpartici- tion regarding U.S. nonexempt recipients (U.S. ternative procedure applies and the QI is per-
pating FFIs. persons subject to Form 1099 information re- mitted to include U.S. nonexempt recipients in a
porting) and to provide you withholding rate Chapter 4 withholding rate pool of U.S. payees,
Qualified Intermediary (QI) pool information separately for each such U.S. the QI must provide you with a separate with-
holding rate pool for each U.S. nonexempt re-
person unless it has assumed primary Form
In most cases, a QI is any foreign intermediary 1099 reporting and backup withholding respon- cipient that must be reported on Form 1099. If
you and the QI agree, the QI may apply the al-
sibility and meets the requirements to include
that has entered into a QI agreement (dis- these recipients in a U.S. payee pool. For the ternative procedures for U.S. nonexempt recipi-
cussed earlier) with the IRS. A foreign entity alternative procedure for providing withholding ents by establishing a single withholding rate
that is a QI acting as a QDD or that is acting rate pool information for U.S. nonexempt per- pool (not subject to backup withholding) for all
with respect to payments of substitute interest sons not included in a Chapter 4 withholding U.S. nonexempt recipient account holders for
(as permitted by the QI agreement) can act as a rate pool of U.S. payees, see the Form W-8IMY whom the QI is required to report on Form 1099
QI even though it is not receiving payments as instructions. and has provided you with Forms W-9 prior to
an intermediary. A foreign entity that has re- The withholding statement must: you making the reportable payment, or, if appli-
ceived a QI employer identification number cable, designated broker proceeds to which
(QI-EIN) may represent on Form W-8IMY that it 1. Designate those accounts for which it acts backup withholding does not apply. The QI
is a QI. The QI can claim that it is a QI until the as a QI; must provide a Form W-9 or, in the absence of
IRS revokes its QI-EIN.
2. Designate those accounts for which it as- the form, the name, address, and TIN, if availa-
sumes primary Chapters 3 and 4 withhold- ble, for each U.S. nonexempt recipient.
A QI can be either an FFI or an NFFE. An ing responsibility and/or primary Form
FFI that is a QI must be a participating FFI (in- 1099 reporting and backup withholding re- Primary Chapters 3 and 4 withholding
cluding a reporting Model 2 FFI), a registered sponsibility; responsibilities assumed. If you make a pay-
deemed-compliant FFI (including a reporting ment to a QI that assumes primary Chapters 3
Model 1 FFI and a nonreporting Model 2 FFI 3. If applicable, designate the accounts for and 4 withholding responsibilities (but not pri-
treated as a registered deemed-compliant FFI), which it acts as a qualified securities mary Form 1099 reporting and backup with-
or an FFI treated as a deemed-compliant FFI lender with respect to any U.S. source holding responsibility), you can reliably asso-
under an applicable Model 1 IGA that is subject substitute dividend payments; ciate the payment with valid documentation only
to similar due diligence and reporting require- 4. If applicable, designate those accounts for to the extent you can reliably determine the part
ments with respect to its U.S. accounts as those which it acts as a QDD; of the payment that relates to the Chapter 4
applicable to a registered deemed-compliant withholding rate pools and Chapter 3 withhold-
FFI (including the requirement to register with 5. Provide sufficient information for you to al- ing rate pools, as applicable, and the part of the
the IRS) (defined in the QI agreement as a “reg- locate the payment, as applicable, to payment attributable to withholding rate pools
istered deemed-compliant Model 1 IGA FFI”). Chapter 3 withholding rate pools and, for for each U.S. nonexempt recipient, unless the
Thus, you must identify the Chapter 4 status of payments that are withholdable payments, alternative procedure applies for Form 1099 re-
an FFI, certifying its status as a QI as one of the Chapter 4 withholding rate pools of non- porting and/or backup withholding purposes.
Chapter 4 statuses referenced in the preceding participating FFIs and recalcitrant account The QI must provide a Form W-9 or, in the ab-
sentence on a Form W-8IMY when a Chapter 4 holders when the QI has not assumed pri- sence of the form, the name, address, and TIN,
status is required for Chapter 4 purposes. mary Chapter 3 or 4 withholding responsi- if available, for such person.
bility; and Primary Chapters 3 and 4 withholding
Responsibilities and documentation. Pay- 6. Provide sufficient information for you to al- responsibilities and Form 1099 reporting
ments made to a QI that does not assume pri- locate payments to each U.S. nonexempt and backup withholding responsibilities as-
mary Chapters 3 and 4 withholding responsibili- recipient or to a pool of U.S. payees to the sumed. If you make a payment to a QI that as-
ties are treated as paid to its account holders. extent described earlier under this head- sumes primary Chapters 3 and 4 withholding re-
However, a QI is not required to provide you ing. sponsibilities and primary Form 1099 reporting
with documentation it obtains from its foreign and backup withholding responsibility, you can
account holders or from U.S. exempt recipients The extent to which you must have withhold- reliably associate the payment with valid docu-
(U.S. persons exempt from Form 1099 report- ing rate pool information depends on the with- mentation provided that you receive a valid
ing). Instead, it provides you with a withholding holding and reporting obligations assumed by Form W-8IMY. It is not necessary to associate
statement that contains either Chapter 3 or the QI. the payment with any Chapter 3 or Chapter 4
Chapter 4 withholding rate pool information. A If a QI that is permitted to do so by the QI withholding rate pools.
Chapter 4 withholding rate pool is a payment of agreement obtains documentary evidence un- If you make a payment to a QI that also is a
a single type of income that is a withholdable der the “know-your-customer” rules that apply QDD, the QI must provide a withholding state-
payment that is allocated to payees that are to the QI under local law, and the documentary ment designating the accounts for which it acts
nonparticipating FFIs or recalcitrant account evidence is of a type specified in an attachment as a QDD even if it assumes primary withhold-
holders (in a single pool). A Chapter 4 withhold- to the QI agreement, the documentary evidence ing responsibility for all payments, unless it is
ing rate pool also means a payment of a single remains valid until there is a change in circum- acting as a QDD for all payments it receives.
type of income that is allocated to U.S. payees stances or the QI knows the information is in-
when the QI provides the certification required correct. A QI may rely on a Form W-8 until its Example. You make a payment of U.S.
on Form W-8IMY for allocating payments to this validity expires under Regulations section source dividends to a QI. It has five customers:
pool and a withholding statement. A QI may in- 1.1441-1(e)(4)(ii) and may rely on documentary two are foreign persons who have provided
clude in its Chapter 4 withholding rate pools its evidence not obtained pursuant to documentation entitling them to a 15% rate of
direct account holders as well as account hold- “know-your-customer” rules until its validity ex- withholding on dividends; two are foreign per-
ers of another QI or a participating FFI or regis- pires under Regulations section 1.6049-5(c). sons subject to a 30% rate of withholding on
tered deemed-compliant FFI. With respect to a dividends; and one is a U.S. individual who pro-
payment to a foreign person for which no Chap- Primary Chapters 3 and 4 withholding vides it with a Form W-9. Each customer is enti-
ter 4 withholding is required, a Chapter 3 with- responsibilities not assumed. If a QI does tled to 20% of the dividend payment. The QI

Publication 515 (2020) Page 13