Guide to Global Payroll Management - 2020 - D-96

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Guide to Global Payroll Management

(defined under Definitions, earlier) as if
the PAI's direct account holders were its
own. For purposes of chapter 4, a QI
that is a participating FFI, registered
deemed-compliant FFI, 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 the chapter 4 reporting
pool code 47 to allocate payments
made to the PAI's payees that are
nonparticipating FFIs, and may treat the
PAI as the recipient on Form 1042-S
with respect to each such pool. For
chapter 3 purposes, if the payment is
made directly by the PAI to the recipient,
the QI may report the payment on a
pooled basis. A separate Form 1042-S
is required for each withholding rate
pool of each PAI (unless the QI is acting
as a QDD with respect to the payment).
However, the QI must include the name
and address of the PAI and use
reporting pool code 29 or 30 (PAI
withholding rate pool - general and
PAI-withholding rate pool-exempt
organization) as the chapter 3 status
code. If the PAI is providing recipient
information from an NQI or flow-through
entity, the QI may not report the
payments on a pooled basis for
chapter 3 purposes. Instead, it must
follow the same procedures as a U.S.
withholding agent making a payment to
an NQI or flow-through entity.
Example 13. QI, a qualified
intermediary, pays U.S. source
dividends to direct account holders that
are foreign persons and beneficial
owners. It also pays a part of the U.S.
source dividends to two private
arrangement intermediaries, PAI1 and
PAI2. The private arrangement
intermediaries pay the dividends they
receive from QI to foreign persons that
are beneficial owners and direct
account holders of PAI1 or PAI2. All
payees are exempt from chapter 4
withholding based on their respective
chapter 4 statuses and the dividends
paid are subject to a 15% rate of
withholding. QI must file a Form 1042-S
for the dividends paid to its own direct
account holders that are beneficial
owners. QI also must file two Forms
1042-S, one for the dividends paid to
the direct account holders of each of
PAI1 and PAI2. Each of the Forms
1042-S that QI files for payments made
to PAI1 and PAI2 must contain the
name and address of PAI1 or PAI2,
recipient code 29 (PAI withholding rate
pool - general) as the chapter 3 status
code, and a blank chapter 4 status
code, and should use chapter 4

exemption code 15 (payee not subject
to chapter 4 withholding) in Box 4a.

Amounts Paid to
Certain Partnerships
and Trusts

A QI that is applying the special pool
reporting allowance provided in the QI
agreement for certain partnerships or
trusts (Agency Option) must file
separate Forms 1042-S reflecting
reporting pools for each partnership or
trust that has provided reporting pool
information in its withholding statement.
For purposes of chapter 4, a QI that is
an FFI may use the chapter 4 reporting
pool code 47 to allocate payments
made to the partnership's or trust's
payees that are nonparticipating FFIs
and should report the partnership or
trust as the recipient on Form 1042-S.
For chapter 3 purposes, if the payment
is made directly by the partnership or
trust to the recipient, the QI may use
reporting pool code 31 (Agency
withholding rate pool - general) or 32
(Agency withholding rate pool - exempt
organization) as the chapter 3 status
code (unless the QI is acting as a QDD
with respect to the payment). However,
to the extent required in the QI
agreement, the QI must file separate
Forms 1042-S for partners,
beneficiaries, or owners of such
partnership or trust that are indirect
partners, beneficiaries, or owners, and
for direct partners, beneficiaries, or
owners of such partnership or trust that
are intermediaries or flow-through
entities.

Recipient-by-Recipient
Reporting

If a QI is not permitted to report on the
basis of reporting pools, it must follow
the same rules that apply to a U.S.
withholding agent. For chapter 3
purposes, a QI may not report the
following payments on a reporting pool
basis, but rather must complete Form
1042-S for each appropriate recipient
and must provide the applicable
chapter 4 exemption code.

Payments made to another QI, QDD,
QSL, WP, or WT. The QI must
complete a Form 1042-S treating the
other QI, QDD (when a QI is acting as a
QDD with respect to a payment), QSL,
WP, or WT as the recipient.

Payments made to an NQI (including
an NQI that is an account holder of a
PAI). For chapter 3 purposes, the QI
must complete a Form 1042-S for each
recipient who receives the payment
from the NQI. A QI that is completing
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D-96

Form 1042-S for a recipient that
receives a payment through an NQI
must include in Boxes 15a through 15i
the name, country code, address, TIN (if
any), GIIN (if any), and status codes of
the NQI from whom the recipient directly
receives the payment. In the case of an
NQI that is a participating FFI or
registered deemed-compliant FFI, the
QI must complete a Form 1042-S for the
chapter 4 withholding rate pool of the
NQI provided in a withholding statement
associated with its Form W-8IMY and
must report the NQI as the recipient. In
such a case, the QI must include the
name and address of the NQI as the
recipient and use chapter 4 pool
reporting codes 42 through 48 as the
chapter 4 status code and chapter 3
status code 25 (nonqualified
intermediary). If the NQI fails to provide
sufficient allocation information with
respect to a withholdable payment, the
QI must complete a Form 1042-S with
the recipient as "Unknown Recipient"
using reporting pool code 29 (unknown
recipient) and must include the NQI's
information in Boxes 15a through 15i.
Example 14. QI, a qualified
intermediary, has NQI, a nonqualified
intermediary that is a participating FFI,
as an account holder. NQI has two
account holders, A and B, both
recalcitrant account holders with U.S.
indicia who receive a withholdable
payment of U.S. source dividends from
QI. NQI provides QI with a valid Form
W-8IMY and a complete withholding
statement that allocates the dividends
paid to NQI to recalcitrant pool - U.S.
indicia for both A and B. QI must
complete one Form 1042-S reporting
NQI as the recipient and using reporting
pool code 43 (recalcitrant pool - U.S.
indicia) as the chapter 4 status code.

Example 15. QI has NQI, a
nonqualified intermediary that is a
reporting Model 2 FFI, as an account
holder. NQI has two account holders, A
and B, who receive a withholdable
payment of U.S. source dividends from
QI. A is a nonparticipating FFI. NQI
treats B as a nonconsenting U.S.
account under the applicable IGA and is
not required to withhold on payments to
B under chapter 4. NQI provides QI with
a valid Form W-8IMY and a complete
withholding statement that allocates
50% of the dividends paid to A and 50%
to B. NQI designates B as an individual
exempt from withholding under an IGA
but cannot include B in a chapter 4
withholding rate pool of U.S. payees
because the payment is subject to
chapter 3 withholding and under the
presumption rules of Regulations
Instructions for Form 1042-S (2020)

Guide to Global Payroll Management - 2020

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