Foreign Intermediaries

 

Generally, the payees of payments made to a foreign intermediary are the persons for whom the foreign intermediary collects the payment, such as account holders or customers, not the intermediary itself. This rule applies for purposes of Chapter 3 withholding and for Form 1099 reporting and backup withholding and Chapter 4 withholding, provided the intermediary is not a nonparticipating foreign financial institution (FFI) to which you make a withholdable payment to which Chapter 4 withholding applies.

You may, however, treat a qualified intermediary (QI) that has assumed primary withholding responsibility for a payment as the payee, and you are not required to withhold.

An intermediary is a custodian, broker, nominee, or any other person that acts as an agent for another person. A foreign intermediary is either a (QI) or a nonqualified intermediary (NQI). Generally, you determine whether an entity is a QI or an NQI based on the representations the intermediary makes on Form W-8IMY.

For purposes of Chapter 3, you must determine whether the customers or account holders of a foreign intermediary are U.S. or foreign persons, and, if the account holder or customer is foreign, whether a reduced rate of, or exemption from, Chapter 3 withholding applies. For purposes of Chapter 4, you must generally determine the Chapter 4 status of the account holders of a foreign intermediary if the payment is a withholdable payment. The determination for Chapter 3 purposes is not required when withholding applies under Chapter 4 (that is, when the Chapter 4 status of the foreign intermediary is a nonparticipating FFI or an entity or branch treated as a nonparticipating FFI under an applicable IGA). You make these determinations based on the foreign intermediary's Form W-8IMY and associated information and documentation. If you do not have all of the information or documentation that is required to reliably associate a payment with a payee, you must apply the presumption rules of Chapter 3, and must apply the presumption rules of Chapter 4 to the foreign intermediary if the Chapter 4 status of the entity (when required) cannot be determined. Refer to Beneficial Owners and Documentation and Presumption Rules.

Special rule for chapter 4. For purposes of Chapter 4, a foreign person acting as an intermediary is generally not the payee if the foreign person is:

  • A nonfinancial foreign entity (NFFE), unless the NFFE is a QI that has assumed primary Chapters 3 and 4 withholding responsibility; or
  • A participating FFI, deemed-compliant FFI, or restricted distributor, unless such entity is a QI that has assumed primary Chapters 3 and 4 withholding responsibility.

If you make a withholdable payment to one of the types of entities described above, the payee is the person for whom the agent or intermediary collects the payment.

An NQI is any intermediary that is a foreign person and that is not a qualified intermediary. The payees of a payment made to an NQI for both Chapter 3 and Chapter 4 purposes are the customers or account holders on whose behalf the NQI is acting. 

A QI is a foreign intermediary (or foreign branch of a U.S. intermediary) that has entered into a QI agreement with the IRS. Certain entities may also act as QIs even when they are not intermediaries. You may treat a QI as a payee to the extent it assumes primary Chapters 3 and 4 withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for a payment. In this situation, the QI is required to withhold the tax. You can determine whether a QI has assumed responsibility from the Form W-8IMY provided by the QI.

A payment to a QI to the extent it does not assume primary Chapters 3 and 4 withholding responsibility is considered made to the person on whose behalf the QI acts. If a QI does not assume Form 1099 reporting and backup withholding responsibility, you must report on Form 1099 and, if applicable, backup withhold as if you were making the payment directly to the U.S. person.

For a detailed discussion of intermediaries, for both Chapter 3 and Chapter 4 withholding purposes, see “Foreign Intermediaries” under the Identifying the Payee section of Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.

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