Guide to Global Payroll Management - 2020 - D-91

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Appendix D--Federal Forms and Instructions

withholding responsibility and that is a
participating FFI. QI provides WA with a
valid Form W-8IMY with which it
associates a withholding statement that
allocates 95% of the payment to a
chapter 3, 15% withholding rate pool
with a single chapter 4 exemption code,
and 5% of the payment to a chapter 4,
30% withholding rate pool of recalcitrant
account holders. WA must complete a
Form 1042-S for the dividends allocated
to the chapter 3, 15% withholding rate
pool, showing "3" in Box 3, "00" in Box
3a (chapter 3 exemption code), "15.00"
in Box 3b (chapter 3 tax rate), chapter 4
exemption code 15 (payee not subject
to chapter 4 withholding) in Box 4a,
"00.00" in Box 4b (chapter 4 tax rate)
and QI as the recipient in Box 13a along
with recipient code 12 (qualified
intermediary) as the chapter 3 status
code, and recipient code 05
(participating FFI-other) as the chapter 4
status code. WA must also complete a
Form 1042-S for the dividends allocated
to the chapter 4, 30% withholding rate
pool, showing "4" in Box 3, chapter 3
exemption code 12 (payee subjected to
chapter 4 withholding) in Box 3a,
"00.00" in Box 3b (chapter 3 tax rate),
"00" in Box 4a (chapter 4 exemption
code), and "30.00" in Box 4b with QI as
the recipient in Box 13a, and recipient
code 12 (qualified intermediary) as the
chapter 3 status code, and recipient
code 49 (QI-Recalcitrant Pool-General)
as the chapter 4 status code.

Payments allocated, or presumed
made, to U.S. nonexempt recipients.
A QI may provide Forms W-9 or other
information regarding U.S. nonexempt
recipients that the QI (or other entity
maintaining the account) is required to
report under chapter 61 and for which
the QI does not assume primary Form
1099 reporting responsibility. A QI may
also provide information regarding U.S.
nonexempt recipients on whom the QI
elects to backup withhold under section
3406 instead of withholding under
chapter 4 on payments made to an
account holder. If Forms W-9 or other
information is provided together with
information allocating all or a part of the
payment to U.S. nonexempt recipients,
you must report income allocable to the
U.S. nonexempt recipients on the
appropriate Form 1099 and not on Form
1042-S even though you are paying that
income to a QI. The QI may also provide
information regarding U.S. nonexempt
recipients in a chapter 4 withholding rate
pool that the withholding agent must
report on Form 1042-S.

Instructions for Form 1042-S (2020)

You also may be required under the
presumption rules to treat a payment
made to a QI as made to a payee that is
a U.S. nonexempt recipient from which
you must withhold on the payment
under the backup withholding provisions
of the Code. In this case, you must
report the payment on the appropriate
Form 1099. See the General
Instructions for Certain Information
Returns, available at IRS.gov/
1099GeneralInstructions.
Example 3. WA, a U.S. withholding
agent, makes a withholdable payment
of U.S. source dividends to QI, a
qualified intermediary and registered
deemed-compliant FFI that is a local FFI
described in Regulations section
1.1471-5(f)(1)(i)(A). QI provides WA
with a valid Form W-8IMY certifying that
it is transmitting Forms W-9 for U.S.
nonexempt recipients and with which it
associates a withholding statement that
allocates 95% of the payment to a
chapter 3, 15% withholding rate pool
with a single chapter 4 exemption code,
and 5% of the payment to C, a U.S.
individual. QI also provides WA with C's
Form W-9. C is a direct account holder
of QI and a U.S. citizen that is a resident
of QI's local jurisdiction that QI is not
required to report under chapter 4 (see
Regulations section 1.1471-5(f)(1)(i)(A))
and thus cannot be included in a
chapter 4 withholding rate pool of U.S.
payees. See Regulations section
1.6049-4(c)(4). WA must complete a
Form 1042-S, showing QI as the
recipient in Box 13a, and WA should
use recipient code 12 (qualified
intermediary) as the chapter 3 status
code and recipient code 09 (registered
deemed-compliant FFI - other) as the
chapter 4 status code for the dividends
allocated to the 15% withholding rate
pool. WA also must complete a Form
1099-DIV issued to C reporting the part
of the dividend allocated to C.
Example 4. WA, a withholding
agent, makes a withholdable payment
of U.S. source dividends to QI, a
qualified intermediary that is a reporting
Model 1 FFI. QI provides WA with a
valid Form W-8IMY with which it
associates a withholding statement that
allocates 40% of the payment to a
chapter 3, 15% withholding rate pool
and 40% to a chapter 3, 30%
withholding rate pool. QI does not
provide any withholding rate pool
information regarding the remaining
20% of the payment. WA must apply the
presumption rule to the part of the
payment (20%) that has not been
allocated. Under the presumption rules

of Regulations section 1.1471-3(f) for a
withholdable payment made to an
entity, 20% of the payment is treated as
paid to a nonparticipating FFI. WA must
complete three Forms 1042-S. First, a
Form 1042-S for dividends subject to
15% withholding, showing "3" in Box 3,
"00" in Box 3a (chapter 3 exemption
code), "15.00" in Box 3b (chapter 3 tax
rate), chapter 4 exemption code 15
(payee not subject to chapter 4
withholding) in Box 4a, "00.00" in Box
4b (chapter 4 tax rate), QI as the
recipient in Box 13a, recipient code 12
(qualified intermediary) as the chapter 3
status code, and recipient code 07
(registered deemed-compliant
FFI-reporting Model 1 FFI) as the
chapter 4 status code (because the
payment is a withholdable payment).
Second, a Form 1042-S for dividends
subject to 30% withholding, showing "3"
in Box 3, "00" in Box 3a (chapter 3
exemption code), "30.00" in Box 3b
(chapter 3 tax rate), chapter 4
exemption code 15 (payee not subject
to chapter 4 withholding) in Box 4a,
"00.00" in Box 4b (chapter 4 tax rate), QI
as the recipient in Box 13a, recipient
code 12 (qualified intermediary) as the
chapter 3 status code, and recipient
code 07 (registered deemed-compliant
FFI - reporting Model 1 FFI) as the
chapter 4 status code. Third, a Form
1042-S for dividends subject to 30%
withholding, showing "4" in Box 3,
chapter 3 exemption code 12 (payee
subjected to chapter 4 withholding) in
Box 3a, "00.00" in Box 3b (chapter 3 tax
rate), "00" in Box 4a (chapter 4
exemption code), "30.00" in Box 4b
(chapter 4 tax rate), "Unknown
Recipient" as the recipient name in Box
13a, recipient code 21 (unknown
recipient) as the chapter 3 status code,
and recipient code 29 (unknown
recipient) as the chapter 4 status code.
Also, QI's name, status codes, country
code, address, GIIN, and QI-EIN must
be entered in Boxes 15a through 15i.

Substitute dividends paid to qualified securities lenders (QSLs). A
withholding agent that makes payments
of substitute dividends to a QSL should
complete Form 1042-S treating the QSL
as the recipient. Use income code 34.
Use recipient code 13 or 14 (qualified
securities lender - qualified intermediary
or qualified securities lender - other) as
the chapter 3 status code and include
the applicable chapter 4 status code of
the QSL.
The withholding agent is not required
to withhold on a substitute dividend
payment if it receives, at least annually,
a certificate from the QSL that includes

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Guide to Global Payroll Management - 2020

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