Page 25 - 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.
in your records conflicts with the Chapter 4 sta- FFI must classify the account holder under the unidentified U.S. person. If any of the joint pay-
tus claimed, you have reason to know that the requirements (as applicable) of the FFI agree- ees does not appear, by its name or other infor-
Chapter 4 status claimed is unreliable or incor- ment, Regulations section 1.1471-5(f), or an ap- mation in its account file, to be an individual,
rect. However, you are not required to verify the plicable IGA. Whether withholding applies to then the entire payment is treated as made to a
information contained in the documentation that payments made to such account holders classi- nonparticipating FFI. However, if you receive
is not facially incorrect, and you are generally fied as recalcitrant account holders (including from one of the joint payees a Form W-9, the
not required to obtain supporting documenta- payments to intermediaries or flow-through enti- payment shall be treated as made to that
tion for the payee. You may determine the re- ties allocating payments to such account hold- payee.
cipient code of a payee for Chapter 4 purposes ers on an applicable withholding statement) dif-
(for filing Form 1042-S) that is not identified on fers under these requirements.
a withholding statement when you are able to Income Subject
The presumption rules, in the absence of
do so based on other information included on or documentation, for the subject matter are dis- to Withholding
with the withholding statement or in your re-
cords with respect to the payee. cussed in the regulations section indicated on
Chart A. This section explains how to determine if a pay-
Preexisting obligation of entities. If you ment is subject to Chapter 3 withholding or is a
make a withholdable payment with respect to a Chart A. Presumption Rules in the withholdable payment.
preexisting obligation to an entity, the scope of Absence of Documentation
review is limited with respect to the time in
which you must determine the entity’s Chap- For the See Regulations Amounts Subject to
ter 4 status. For more information, see Regula- presumption section: Chapter 3 Withholding
tions section 1.1471-3(e)(4)(vii) or, if you are a rules related to:
reporting Model 1 FFI or a reporting Model 2 A payment is subject to Chapter 3 withholding if
FFI, the requirements of the applicable IGA. 1.1441-1(b)(3); it is from sources within the United States, and it
1.6049-5(d); is fixed or determinable annual or periodical
Presumption Rules 1.1471-3(f) (FDAP) income. Generally, excluding gains but
Payee's status (Chapter 4 payees) including certain gains from the disposal of tim-
If you cannot reliably associate a payment with Effectively ber, coal, and iron ore, or from the sale or ex-
change of patents, copyrights, and similar intan-
valid documentation, you must apply certain connected income 1.1441-4(a)(2) gible property.
presumption rules or you may be liable for tax,
interest, and penalties. If you comply with the Partnership and its 1.1441-5(d); In addition, a payment is subject to Chap-
presumption rules, you are not liable for tax, in- partners 1.1446-1(c)(3) ter 3 withholding if withholding is specifically re-
terest, and penalties even if the rate of withhold- Estate or trust and quired, even though it may not constitute U.S.
ing that should have been applied based on the source income or FDAP income. For example,
payee's actual status is different from that pre- its beneficiaries or corporate distributions may be subject to Chap-
sumed. owner 1.1441-5(e)(6) ter 3 withholding even though a part of the dis-
Foreign tribution may be a return of capital or capital
The presumption rules apply to determine gain that is not FDAP income.
the status of the person you pay as a U.S. or tax-exempt
foreign person and other relevant characteris- organizations Amounts not subject to Chapter 3 withhold-
tics, such as whether the payee is a beneficial (including private ing. The following amounts are not subject to
owner or intermediary, and whether the payee foundations) 1.1441-9(b)(3) Chapter 3 withholding.
is an individual, corporation, partnership, or • Portfolio interest paid on obligations that
trust. In the case of a withholdable payment you meet certain requirements. See Interest,
make to an entity, you must apply the presump- Presumption Rules for Chapter 4 later.
tion rules for Chapter 4 purposes to treat the en- • Bank deposit interest that is not effectively
tity as a nonparticipating FFI when you cannot If you determine that you are making a withhold- connected with the conduct of a U.S. trade
reliably associate the payment with documenta- able payment to an entity and cannot reliably or business. See Interest, later.
tion permitted for Chapter 4 purposes. You are associate the payment with a valid Form W-8 or • Original issue discount on certain short-
not permitted to apply a reduced rate of Chap- other documentation that you are permitted to term obligations. See Original issue dis-
ter 3 withholding based on a payee's presumed rely upon and that is sufficient to determine the count, later.
status if documentation is required to establish Chapter 4 status of the entity, you are required • Nonbusiness gambling income of a non-
a reduced rate of withholding. For example, if to treat the entity payee as a nonparticipating resident alien playing blackjack, baccarat,
the payee of interest is presumed to be a for- FFI such that withholding applies. For purposes craps, roulette, or big-6 wheel in the United
eign person, you may not apply the portfolio in- of determining whether the payment is made to States. See Gambling winnings, later.
terest exception or a reduced rate of withhold- an individual or an entity, or to a U.S. person or • Amounts paid as part of the purchase price
ing under a tax treaty since both exceptions a foreign person, if you cannot reliably asso- of an obligation sold between interest pay-
require documentation. ciate a payment with a valid Form W-8 or other ment dates. See Interest, later.
documentation that you are permitted to rely
If you rely on your actual knowledge about a upon and from which you are able to determine • Original issue discount paid on the sale of
payee's status and withhold an amount less the payee’s status as an individual or entity, or an obligation other than a redemption. See
than that required under the presumption rules U.S. or foreign status, you must apply the pre- Original issue discount, later.
or do not report a payment that is subject to re- sumption rules of Regulations section • Insurance premiums paid on a contract is-
porting under the presumption rules, you may 1.1441-1(b)(3)(ii) to determine the payee’s sta- sued by a foreign insurer.
be liable for tax, interest, and penalties. You tus as an individual or entity and Regulations • U.S. source transportation income subject
should, however, rely on your actual knowledge section 1.1441-1(b)(3)(iii) to determine the to a 4 percent tax on gross income.
if doing so results in withholding an amount payee’s U.S. or foreign status.
greater than would apply under the presumption Amounts Subject to
rules or in reporting an amount that would not If you are making a withholdable payment to
be subject to reporting under the presumption joint payees and cannot reliably associate the Chapter 4 Withholding
rules. payment with valid documentation from each
payee and each of the payees appears to be an U.S. source FDAP income for purposes of
In the case of a participating FFI or regis- individual, the payment is presumed made to an Chapter 4 is similar to U.S. source FDAP in-
tered deemed-compliant FFI that cannot report come for purposes of Chapter 3, subject to cer-
with respect to an individual account holder, the tain modifications such as the exclusion of
Publication 515 (2020) Page 23