Guide to Global Payroll Management - 2020 - D-92

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Guide to Global Payroll Management

a statement with the following
information.
* The recipient of the substitute
dividend is a QSL.
* With respect to the substitute
dividend it receives from the withholding
agent, the QSL states that it will
withhold and remit or pay the proper
amount of U.S. gross-basis tax.
If the withholding agent receives a
certificate from the QSL that includes a
statement that contains the above
information, use chapter 3 exemption
code 11.
If the QSL is also a QI with primary
withholding responsibility, use chapter 3
exemption code 11 and not exemption
code 06 for chapter 3 purposes.

Amounts paid to certain U.S. branches. A U.S. withholding agent making a
payment to a U.S. branch of an FFI or
NFFE completes Form 1042-S as
follows.
* If a withholding agent makes a
payment to a U.S. branch that has
provided the withholding agent with a
Form W-8IMY stating that it has agreed
to be treated as a U.S. person, the U.S.
withholding agent treats the U.S. branch
as the recipient using chapter 3
recipient code 05 (U.S. branch - treated
as a U.S. person) and chapter 4
recipient code 17 (U.S. branch - treated
as a U.S. person).
* If a withholding agent makes a
payment to a U.S. branch that has
provided a Form W-8IMY to transmit
information regarding its chapter 4
reporting pools when the payment is a
withholdable payment or the branch
provides a chapter 4 withholding rate
pool of U.S. payees and, to the extent
applicable, recipient specific information
for chapter 3 purposes, the U.S.
withholding agent must complete a
separate Form 1042-S for each
chapter 4 reporting pool treating the
U.S. branch as the recipient or, for
chapter 3 purposes, for each recipient
that is a foreign person whose
documentation is associated with the
U.S. branch's Form W-8IMY. If a
payment cannot be reliably associated
with recipient documentation, the U.S.
withholding agent must complete Form
1042-S in accordance with the
presumption rules. If a U.S. branch not
treated as a U.S. person fails to certify
that it will meet the requirements under
Regulations section 1.1471-4(d)(2)(iii)
(C), a withholding agent must report the
branch as an NPFFI.
* If a withholding agent cannot reliably
associate a payment with a Form
W-8IMY from a U.S. branch, and if a

withholding agent has an EIN for the
branch, then the payment may be
reported on a single Form 1042-S
treating the U.S. branch as the recipient
and reporting the income as effectively
connected income.

Amounts paid to a foreign estate. If
a U.S. withholding agent makes a
payment to a foreign estate, a Form
1042-S must be completed showing the
estate as the recipient. Use recipient
code 17 (estate) as the chapter 3 status
code and the applicable recipient code
for the chapter 4 status code.

Dual claims. A U.S. withholding agent
may make a payment to a foreign entity
(for example, a hybrid entity) that is
simultaneously claiming an exemption
from chapter 4 withholding and a
reduced rate of tax under chapter 3 on
its own behalf for a part of the payment
and an exemption from chapter 4
withholding and a reduced rate of tax
under chapter 3 on behalf of persons in
their capacity as interest holders in that
entity on the remaining part. If the
claims are consistent and the
withholding agent has accepted the
multiple claims, a separate Form
1042-S must be filed for the entity for
those payments for which the entity is
treated as claiming a reduced rate of
withholding, and separate Forms
1042-S must be filed for each of the
interest holders for those payments for
which the interest holders are claiming a
reduced rate of withholding. The Forms
1042-S must include the chapter 4
status of the payee (including the
applicable chapter 4 exemption). If the
claims are consistent but the
withholding agent has not chosen to
accept the multiple claims, or if the
claims are inconsistent, a separate
Form 1042-S must be filed for the
person(s) being treated as the
recipient(s).
Special instructions for U.S. trusts
and estates. Report the entire amount
of income subject to reporting,
regardless of estimates of distributable
net income.

Payments Made to Persons
Who Are Not Recipients

Disregarded entities and hybrid entities. If a U.S. withholding agent makes
a payment to a disregarded entity that is
not a hybrid entity making a treaty claim,
and receives a valid Form W-8BEN-E or
W-8ECI from a foreign person that is the
single owner of the disregarded entity,
the withholding agent must file a Form
1042-S in the name of the foreign single
owner. The taxpayer identification
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D-92

number (TIN) on the Form 1042-S, if
required, must be the foreign single
owner's TIN. However, in Box 13h,
include the GIIN of the disregarded
entity provided in Part II of Form
W-8BEN-E if the owner is an FFI.

Example 5. WA, a withholding
agent, makes a withholdable payment
of interest to LLC, a foreign limited
liability company that is not an FFI. LLC
is wholly owned by FC, a foreign
corporation that is an excepted
nonfinancial foreign entity. LLC is
treated as a disregarded entity. WA has
a Form W-8BEN-E from FC on which it
states that it is the beneficial owner of
the income paid to LLC. WA reports the
interest payment on Form 1042-S
showing FC as the recipient. The result
would be the same if LLC was a
domestic entity.
A disregarded entity can, however,
claim to be the beneficial owner of a
payment if it is a hybrid entity claiming
treaty benefits. See Form W-8BEN-E
and its instructions for more information.
If a disregarded entity claims on a valid
Form W-8BEN-E to be the beneficial
owner, the U.S. withholding agent must
complete a Form 1042-S treating the
disregarded entity as a recipient and
using recipient code 26 (hybrid entity
making treaty claim) as the chapter 3
status code and the applicable recipient
code for the chapter 4 status code of the
single owner when the payment is a
withholdable payment and chapter 4
withholding does not apply.
A hybrid entity with multiple owners
may also claim treaty benefits. See
Form W-8BEN-E and its instructions for
more information on documentation
requirements that apply in such cases. If
a hybrid entity treated as a resident of a
treaty country claims treaty benefits on
a valid Form W-8BEN-E associated with
a withholdable payment (and chapter 4
withholding does not apply with respect
to any of its owners to such payment or
portion of such payment), the U.S.
withholding agent should complete a
Form 1042-S treating the hybrid entity
as a recipient, use code 26 (hybrid
entity making treaty claim) as the
chapter 3 recipient status code, and
leave blank the chapter 4 recipient
status code. To the extent, however,
that a portion of a withholdable payment
is allocated to an owner of the hybrid
entity for which chapter 4 withholding
must be applied, the U.S. withholding
agent must issue a separate Form
1042-S to such owner using the
applicable recipient codes for the
owner's chapters 3 and 4 status codes
Instructions for Form 1042-S (2020)

Guide to Global Payroll Management - 2020

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