Page 20 - Withholding Taxes for Foreign Entities

10:50 - 14-Feb-2020
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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.
Model 1 IGA FFI, as defined in the WT with the certification described in section amounts, the withholding certificates or docu-
agreement), an owner-documented FFI, an 8.03 of the WT agreement and providing mentary evidence of the beneficiaries or own-
exempt beneficial owner, or an NFFE the WT with documentation or other infor- ers, and the information shown earlier under
(other than a WP or WT). mation for review. Withholding statement under Nonqualified Inter-
• It is a direct beneficiary or owner of the • It agrees to comply with the documentation mediary (NQI).
WT. requirements of a WT in the WT agree-
• None of its partners, beneficiaries, or own- ment. Standards of Knowledge
ers is a flow-through entity or intermediary. For more information on applying these
• None of the partnership’s or trust’s part- rules, see section 9.02 of the WT agreement in for Purposes of Chapter 3
ners, beneficiaries, or owners is a U.S. section 7 of Revenue Procedure 2017-21, avail-
person or is subject to withholding or re- able at IRS.gov/irb/2017-06_IRB#RP-2017-21. You must withhold in accordance with the pre-
porting under Chapter 4. sumption rules (discussed later) if you know or
• It agrees to make available upon request to WT acting for indirect beneficiaries or own- have reason to know that a withholding certifi-
the WT (or the WT’s auditor) records that ers. A WT may act as a WT with respect to an cate or documentary evidence provided by a
establish it has provided the WT with docu- indirect beneficiary or owner of the WT that is payee is unreliable or incorrect to establish the
mentation for purposes of Chapters 3 and not a U.S. nonexempt recipient. However, a WT payee's status for Chapter 3 purposes. If you
4 for all of its partners, beneficiaries, or may act as a WT for an indirect beneficiary or rely on an agent to obtain documentation, you
owners. owner that is a U.S. nonexempt recipient if the are considered to know, or have reason to
For more information on applying these indirect beneficiary or owner is included in a know, the facts that are within the knowledge of
your agent for this purpose.
rules, see section 9.01 of the WT agreement pass-through beneficiary’s or owner’s Chap-
found in section 7 of Revenue Procedure ter 4 withholding rate pool of recalcitrant ac-
2017-21, available at IRS.gov/irb/ count holders or U.S. payees. A WT acting as a Reason To Know
2017-06_IRB#RP-2017-21. WT for an indirect beneficiary or owner is not re-
quired to forward to its withholding agent the In general, you are considered to have reason
Agency option. A WT may apply the agency documentation and the withholding statement to know that a claim of foreign status or of a re-
option to a partnership or trust under which the of the pass-through beneficiary or owner and in- duced rate of withholding is incorrect if state-
partnership or trust agrees to act as an agent of direct beneficiary or owner that the WT would ments contained in the withholding certificate or
the WT and to apply the provisions of the WT have otherwise been required to provide under other documentation, or other relevant facts of
agreement to its partners, beneficiaries, or own- the requirements of a nonwithholding foreign which you have knowledge, would cause a rea-
ers. A WT that applies the agency option must trust. See Not acting as a WT, later. However, a sonably prudent person in your position to
elect to perform pool reporting for amounts sub- WT must provide the withholding agent with question the claims made.
ject to Chapter 3 withholding that either are not documentation and any other information from
withholdable payments or are withholdable pay- any pass-through beneficiary or owner whose For an obligation that is not a preexisting ob-
ments for which no Chapter 4 withholding is re- direct or indirect partner, beneficiary, or owner ligation (that is, an obligation, including an ac-
quired and that the WT distributes to, or in- is a U.S. nonexempt recipient unless the recipi- count, held by an individual that is outstanding
cludes in the distributive share of, a foreign ent is included in the pass-through beneficiary’s on June 30, 2014, or an obligation, including an
direct beneficiary or owner. A WT and a part- or owner’s Chapter 4 withholding rate pool of account, held by an entity that is opened, exe-
nership or trust may only apply the agency op- recalcitrant account holders or U.S. payees. If a cuted, or issued before January 1, 2015), you
tion if the partnership or trust meets the follow- WT is making a payment that is a withholdable have reason to know that an account holder’s
ing conditions. payment, the pass-through beneficiary’s or Chapter 3 claim is unreliable or incorrect if any
• It is a nonwithholding foreign partnership or owner’s withholding statement must meet the information contained in your account opening
nonwithholding foreign trust that is either a requirements of Regulations section files or other account information conflicts with
simple or grantor trust. 1.1471-3(c)(3)(iii)(B). The pass-through benefi- the account holder’s claim. For an obligation
• It is either a direct beneficiary or owner of ciary’s or owner’s withholding statement must other than a preexisting obligation, you will not
the WT or an indirect beneficiary or owner include the account holders or interest holders be considered to have reason to know that a
of the WT that is a direct partner, benefi- of the pass-through beneficiary or owner in person’s Chapter 3 claim is unreliable or incor-
ciary, or owner of a partnership or trust to Chapter 4 withholding rate pools (to the extent rect based on documentation collected for
which the WT also applies the agency op- permitted), and, for an amount subject to Chap- anti-money laundering (AML) purposes until 30
tion. ter 3 withholding that is not a withholdable pay- days after the obligation is executed, or 30 days
• It is an FFI that is a certified deemed-com- ment or is a withholdable payment for which after the account is opened for such person,
pliant FFI (other than a registered Chapter 4 withholding is not required, valid doc- whichever is applicable.
deemed-compliant Model 1 IGA FFI, as umentation provided by the account holders or
defined in the WT agreement), an interest holders of the pass-through beneficiary Financial institutions, insurance companies,
owner-documented FFI, an NFFE, or an or owner that are not themselves QIs or or brokers or dealers in securities have reason
exempt beneficial owner. flow-through entities. to know that documentation provided by a di-
• None of its partners, beneficiaries, or own- For more information on applying these rect account holder is unreliable or incorrect
ers is a WT, WP, participating FFI, regis- rules, see section 9.03 of the WT agreement in only in the circumstances discussed next. If the
tered deemed-compliant FFI, registered section 7 of Revenue Procedure 2017-21, avail- documentation is considered unreliable or in-
deemed-compliant Model 1 IGA FFI (as able at IRS.gov/irb/2017-06_IRB#RP-2017-21. correct, you must get new documentation to
defined in the WT agreement), or a QI act- support the payee’s claimed status or may rely
ing as an intermediary for a payment made Not acting as a WT. A foreign trust that is not on the original documentation if you receive the
by the WT to the partnership or trust. acting as a WT is a nonwithholding foreign trust. additional statements and/or documentation
• The WT may not act as a withholding for- This occurs if a WT is not acting in that capacity discussed later and are a withholding agent de-
eign trust with respect to any direct or indi- for some or all of the amounts it receives from scribed above with respect to a direct account
rect beneficiary or owner of the partnership you. holder (defined in Regulations section
or trust that is a U.S. nonexempt recipient, In most cases, you must treat payments 1.1441-7(b)(3)(i)). Such documentation is de-
unless the U.S. nonexempt recipient is a made to a nonwithholding foreign trust as made scribed in Regulations section 1.1471-3(c)(5)(i).
beneficiary or owner of an owner-docu- to the beneficiaries of a simple trust or the own-
mented FFI or passive NFFE to which the ers of a grantor trust. The trust must provide The circumstances, discussed next, also
WT applies the agency option and is inclu- you with a Form W-8IMY (with Part VIII comple- apply to other withholding agents. However,
ded in the WT’s U.S. payee pool. ted), a withholding statement identifying the these withholding agents are not limited to
• It agrees to comply with the compliance these circumstances in determining if they have
procedures described in section 8.05 of reason to know that documentation is unreliable
the WT agreement by providing the WT or incorrect. These withholding agents cannot
Page 18 Publication 515 (2020)