Guide to Global Payroll Management - 2020 - D-95

Page 17 of 37

10:31 - 9-Mar-2020

Fileid: ... ons/I1042S/2020/A/XML/Cycle05/source

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Appendix D--Federal Forms and Instructions

through 13d, include the name and the
address of the foreign person withheld
upon. If known, include the TIN (if any)
in Box 13e.

Amounts Paid by
Qualified Intermediaries

In general. For purposes of chapter 4,
a QI must complete a Form 1042-S for
payments withheld under chapter 4
determined in accordance with the
income codes used to file Form 1042-S.
A QI that is a participating FFI or
registered deemed-compliant FFI may
use the chapter 4 pooled reporting
codes 42 through 48 to allocate
payments made to its recalcitrant
account holders, payees that are
nonparticipating FFIs, and payees that
are U.S. persons. A QI should not use
chapter 4 reporting pool 49 (QIRecalcitrant Pool-General) to report its
accounts but may use it to report
accounts maintained by another QI. A
QI that is an NFFE or an FFI treated as
deemed-compliant under an applicable
IGA (as described in Regulations
section 1.1441-1(e)(5)(ii)(A)) may use
chapter 4 reporting pool code 47 to
report payments allocable to a pool of
nonparticipating FFIs. A QI may also
use the chapter 4 pooled reporting
codes to report payments allocable to
account holders, payees, or owners of
another participating FFI or registered
deemed-compliant FFI that is an NQI,
NWP, or NWT, and it must provide its
chapter 4 withholding rate pools on its
withholding statement. In such case, the
QI must include the NQI, NWP, or NWT
as the recipient in Box 13a and the
applicable recipient code for such entity
as the chapter 3 status code. For
payments that are exempt from
chapter 4 withholding and made by the
QI directly to foreign beneficial owners
(or that are treated as paid directly to
beneficial owners), the QI may report on
the basis of chapter 3 reporting pools, in
most cases. A QI may not report on the
basis of reporting pools in the
circumstances described in
Recipient-by-Recipient Reporting, later.
For payments not subject to chapter 4
withholding, a QI may use a single
chapter 4 exemption code 15 (payee
not subject to chapter 4 withholding)
and a single chapter 3 reporting pool
code 27 (withholding rate pool -
general) as the chapter 3 status code
for all reporting pools, except for
amounts paid to foreign tax-exempt
recipients for which chapter 3 reporting
pool code 28 should be used. Note,
however, that a QI should use recipient
Instructions for Form 1042-S (2020)

code 28 only for pooled account holders
that have claimed an exemption based
on their tax-exempt status and not some
other exemption (tax treaty or other
Code section). If a QI uses a chapter 3
pooled reporting code (because
chapter 4 withholding does not apply
and the QI is not allocating the payment
to a U.S. pool of payees), it should leave
blank the recipient code for the
chapter 4 status code.
Example 11. QI, a qualified
intermediary and participating FFI, has
four direct account holders, A and B,
foreign individuals, and X and Y, foreign
corporations. The withholdable
payments made to these direct account
holders are exempt from chapter 4
withholding because of the chapter 4
status of each account holder. A and X
are residents of a country with which the
United States has an income tax treaty
and have provided documentation that
establishes that they are entitled to a
lower treaty rate of 15% on withholding
of dividends from U.S. sources. B and Y
are not residents of a treaty country and
are subject to 30% withholding on
dividends. QI receives U.S. source
dividends on behalf of its four
customers. QI must file one Form
1042-S for the 15% withholding rate
pool. This Form 1042-S must show
income code 06 (dividends paid by U.S.
corporations - general) in Box 1, "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), "Withholding rate pool" in Box 13a
(recipient's name), chapter 3 reporting
pool code 27 (withholding rate pool -
general) as the chapter 3 status code,
and a blank chapter 4 status code. QI
also must file one Form 1042-S for the
30% withholding rate pool that contains
the same information as the Form
1042-S filed for the 15% withholding
rate pool, except that it will show "30.00"
in Box 3b (chapter 3 tax rate).

Example 12. The facts are the same
as in Example 11, except that Y is an
organization that has tax-exempt status
in the United States and in the country in
which it is located, and B is a
recalcitrant account holder with U.S.
indicia. QI must file three Forms 1042-S.
One Form 1042-S (for amounts
allocable to A and X) will contain the
same information as in Example 11. The
second Form 1042-S (for amounts
allocable to Y) will contain information
for the withholding rate pool consisting
of the amounts paid to Y. This Form
1042-S will show income code 06

(dividends paid by U.S. corporations -
general) in Box 1, exemption code 02
(exempt under IRC (other than portfolio
interest)) in Box 3a, "00.00" 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),
"Zero rate withholding pool-exempt
organizations" or similar designation in
Box 13a (recipient's name), chapter 3
code 28 (withholding rate pool - exempt
organization) in Box 13f, and a blank
chapter 4 status code in Box 13g. The
third Form 1042-S will contain
information for the recalcitrant pool
consisting of amounts paid to B. This
Form 1042-S will show income code 06
(dividends paid by U.S.
corporations-general) in Box 1, code 12
(payee subjected to chapter 4
withholding) in Box 3a (chapter 3
exemption code), "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), "recalcitrant
pool - U.S. indicia" or similar
designation in Box 13a (recipient's
name), chapter 4 recipient code 43
(recalcitrant pool-U.S. indicia) as the
chapter 4 status code in Box 13g, and a
blank chapter 3 status code in Box 13f.

Under the terms of its Qualified
Intermediary (QI) agreement
CAUTION with the IRS, a QI that is an FFI
may be required to report the amounts
paid to U.S. nonexempt recipients on
Form 1099 or Form 8966 using the
name, address, and TIN of the payee to
the extent those items of information are
known. These amounts must be
reported on Form 1042-S if allocated to
a chapter 4 withholding rate pool of U.S.
payees.

A QI acting as a QDD must
separately report on Forms 1042-S
payments that it makes in its QDD
capacity. The QI should report the name
of the QDD that makes the payment as
the withholding agent in Box 12d
(following the naming protocol used for
applying to be a QDD) and should use
withholding agent code 35 as the
chapter 3 status code.
A QI acting as a QDD with
respect to a payment may only
CAUTION use chapter 3 pooled reporting
codes 27 and 28.

Amounts Paid to Private
Arrangement Intermediaries
In most cases, a QI must report
payments made to each private
arrangement intermediary (PAI)

-17-

D-95

Guide to Global Payroll Management - 2020

Table of Contents for the Digital Edition of Guide to Global Payroll Management - 2020