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 FFI to which you make a withholdable payment to which Chapter 4 withholding applies.
You may, however, treat a qualified intermediary 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 qualified intermediary (QI) or a nonqualified intermediary (NQI). Generally, you determine whether an entity is a qualified intermediary or a nonqualified intermediary based on the representations the intermediary makes on Form W-8IMY.
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.
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.
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.