Page 17 - Withholding Taxes for Foreign Entities

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
nonwithholding foreign trust of an amount sub- 11. Any other information a withholding agent alternative procedure to any of the NQI's with-
ject to Chapter 3 withholding to a Chapter 4 requests to fulfill its reporting and with- holding rate pools from that date forward. You
withholding rate pool of U.S. payees must iden- holding obligations. must treat the payees as undocumented and
tify the payees consistent with the description in apply the presumption rules, discussed later in
Regulations section 1.1471-3(c)(3)(iii)(B)(2)(iii). Alternative procedure. Under this alternative Presumption Rules. An NQI is deemed to have
For Chapter 3 purposes. The withholding procedure, the NQI can give you the informa- failed to provide specific allocation information if
tion that allocates each payment to each foreign
it does not give you such information for more
statement should allocate for Chapter 3 purpo- and U.S. exempt recipient or Chapter 4 with- than 10% of any one withholding rate pool.
ses only the portion of the payment that was not holding rate pool by January 31 following the
allocated to a Chapter 4 withholding rate pool or calendar year of payment, rather than before
to a payee identified on a withholding statement the payment is made as otherwise required. To However, if you receive such information by
to whom withholding was applied under Chap- take advantage of this procedure, the NQI must February 14, you may make the appropriate ad-
ter 4. For Chapter 3 purposes, a withholding (a) inform you, on its withholding statement, that justments to repay any excess withholding in-
statement must include the information descri- it is using the alternative procedure; and (b) ob- curred between February 1 and on or before
bed below for a reportable amount. tain your consent. You must receive the with- February 14.
1. The name, address, and TIN (if any, or if holding statement with all the required informa- If the NQI fails to allocate more than 10% of
required) of each person for whom docu- tion (other than item 5) before the NQI makes the payment to a withholding rate pool by Feb-
mentation is provided. the payment. ruary 14 following the calendar year of pay-
2. The type of documentation (documentary The alternative procedure cannot, how- ment, you must file a Form 1042-S for each ac-
evidence, Form W-8, or Form W-9) for ev- ! ever, be used for payments to U.S. count holder in the pool on a pro-rata basis
ery person for whom documentation has CAUTION nonexempt recipients other than those (treating a Chapter 4 withholding rate pool as
been provided, and, for a withholdable recipients included in a Chapter 4 withholding an account holder for this purpose and exclud-
payment, that the documentation estab- rate pool of U.S. payees. See Chapter 4, later. ing U.S. exempt recipients). For example, if
lishes the payee’s Chapter 4 status to the Therefore, an NQI must provide you with alloca- there are four account holders in a withholding
extent required for Chapter 4 purposes. tion information for any U.S. nonexempt recipi- rate pool that receives a $100 payment and the
3. The status of the person for whom the ents not included in a Chapter 4 withholding NQI fails to allocate more than $10 of the pay-
ment, you must file four Forms 1042-S, one for
rate pool of U.S. payees before the NQI makes
documentation has been provided, such a payment. each account holder in the pool, showing $25 of
as whether the person is a U.S. exempt re- income to each. You also must check the
cipient, U.S. nonexempt recipient, or a for- Pooled withholding information. If an “Pro-rata Basis Reporting” box at the top of
eign person. For a foreign person, the NQI uses the alternative procedure, it must pro- each form. If, however, the NQI provides alloca-
statement must indicate whether the per- vide you with withholding rate pool information, tion information for 90% or more of the payment
son is the beneficial owner or a foreign in- as opposed to individual allocation information, to a withholding rate pool, the pro-rata reporting
termediary, flow-through entity, or a U.S. before the payment of a reportable amount. The method is not required. Instead, you must file a
branch that is not included in a Chapter 4 NQI must provide you with the payee specific Form 1042-S for each account holder for whom
withholding rate pool or in a pool of pay- allocation information (information allocating you have allocation information and report the
ees under the alternative procedures (see each payment to each payee) by January 31 unallocated part of the payment on a Form
Alternative procedure, later). following the calendar year of payment except 1042-S issued to “unknown recipient.”
4. The type of recipient the person is, based as otherwise permitted for Chapter 4 purposes
on the recipient codes used on Form when using this procedure. Withholding Foreign Partnerships
1042-S. Chapter 4. In the case of a reportable (WPs)
5. Information allocating each payment, by amount that also is a withholdable payment, an
income type, to each payee (including NQI may include amounts allocable to a Chap- If you are making payments to a WP, you do not
U.S. exempt and nonexempt recipients) ter 4 withholding rate pool (other than a Chap- have to withhold if the WP is acting in that ca-
for whom documentation has been provi- ter 4 withholding rate pool of U.S. payees) and pacity. The WP must assume primary Chapters
ded that is not included in a Chapter 4 payees subject to Chapter 4 withholding for 3 and 4 withholding responsibility for amounts
withholding rate pool or in a pool of pay- whom the NQI will provide payee-specific infor- that are distributed to, or included in the distrib-
ees under the alternative procedures (see mation in a 30% rate pool together with payees utive share of, any direct partner and may as-
Alternative procedure, later). subject to Chapter 3 withholding at the 30% sume Chapters 3 and 4 withholding responsibil-
ities for certain of its indirect partners. The WP
6. The rate of withholding that applies to rate. For the amount of the payment allocable to must withhold the amount required to be with-
each foreign person to whom a payment is a Chapter 4 withholding rate pool of U.S. pay- held. A WP must provide you with a Form
ees, an NQI may include amounts allocable to
allocated. the pool with other amounts exempt from with- W-8IMY that certifies that the WP is acting in
7. A foreign payee's country of residence. holding (and an NQI may allocate payments to that capacity and provides all other information
and certifications required by the form. The
8. If a reduced rate of withholding is claimed this pool regardless of whether the payment is a Form W-8IMY must contain the WP-EIN and
withholdable payment) and may not otherwise
under Chapter 3, the basis for a reduced apply these provisions for payments made to GIIN (if applicable).
rate of withholding (for example, portfolio U.S. nonexempt recipients. The NQI must iden-
interest, treaty benefit, etc.). tify prior to the payment each Chapter 4 with- A WP can be either an FFI or an NFFE. An
9. In the case of treaty benefits claimed by holding rate pool to be allocated a portion of the FFI (other than a retirement fund) that is a WP
entities, whether the applicable limitation payment, in addition to each payee to be alloca- must be a participating FFI, a registered
on benefits statement and the statement ted the payments that is not included in such a deemed-compliant FFI, or an FFI treated as a
that the foreign person derives the income pool. The NQI must then also allocate, by Janu- deemed-compliant FFI under an applicable
for which treaty benefits are claimed, have ary 31 following the calendar year of the pay- Model 1 IGA that is subject to similar due dili-
been made. ment, the portion of the payment to each such gence and reporting requirements with respect
10. The name, address, and TIN (if any) and, pool in addition to allocating the payment to to its U.S. accounts as those applicable to a
registered deemed-compliant FFI under Regu-
each payee that is not included in the pool.
for a withholdable payment, the Chapter 4 lations section 1.1471-5(f)(1) (including the re-
status (if required) and GIIN (if applicable) Failure to provide allocation informa- quirement to register with the IRS) (defined in
of any other NQI, flow-through entity, or tion. If an NQI fails to provide you with the the WP agreement as a “registered
U.S. branch from which the payee will di- payee specific allocation information for a with- deemed-compliant Model 1 IGA FFI”). Thus, an
rectly receive a payment. holding rate pool or Chapter 4 withholding rate FFI certifying its status as a WP must provide
pool by January 31, you must not apply the you a Form W-8IMY that certifies to one of the
Publication 515 (2020) Page 15