Guide to Global Payroll Management - 2020 - D-97

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Appendix D--Federal Forms and Instructions

section 1.1441-1(b)(3) the payment is
presumed made to an unknown,
undocumented foreign payee. QI must
complete two Forms 1042-S. One Form
1042-S must show NQI as the recipient
and use reporting pool code 47
(nonparticipating FFI pool). The second
Form 1042-S must show the recipient
as "Unknown Recipient," NQI's
information in Boxes 15a through 15i,
chapter 4 exemption code 19 (exempt
from withholding under IGA), chapter 4
status code 34 (nonconsenting U.S.
account), chapter 3 status code 21
(unknown recipient), and 30%
withholding under chapter 3 for the
payment allocated to B as a presumed
foreign person under chapter 3.

Payments made to a flow-through
entity. The QI must complete a Form
1042-S for each recipient who receives
the payment from the flow-through
entity. A QI that is completing a Form
1042-S for a recipient that receives a
payment through a flow-through entity
must include in Boxes 15a through 15i
the name, country code, address, TIN (if
any), GIIN (if any), and status codes of
the flow-through entity from which the
recipient directly receives the payment.
For chapter 4 purposes and in the
case of a flow-through entity that is a
participating FFI or registered
deemed-compliant FFI (other than a WP
or WT), the QI must complete a Form
1042-S for each chapter 4 withholding
rate pool provided in the withholding
statement associated with the Form
W-8IMY of the flow-through entity. The
QI must include the name, address, and
GIIN of the flow-through entity as the
recipient and the applicable chapter 3
status code for the flow-through entity
and use pooled reporting codes 42
through 48 as the chapter 4 status code.
Example 16. QI, a qualified
intermediary, has FP, a nonwithholding
foreign partnership that is a registered
deemed-compliant FFI, as an account
holder. QI pays interest that is a
withholdable payment described by
income code 01 (interest paid by U.S.
obligors - general) to FP. FP has three
partners, A, B, and C, all of whom are
exempt from withholding under
chapter 4 based on their respective
chapter 4 statuses. FP provides QI with
a Form W-8IMY with which it associates
the Forms W-8BEN from each of A, B,
and C. In addition, FP provides a
complete withholding statement in
association with its Form W-8IMY that
allocates the interest payments among
A, B, and C. QI must file three Forms
1042-S, one each for A, B, and C. The
Instructions for Form 1042-S (2020)

Forms 1042-S must show information
relating to FP in Boxes 15a through 15i
along with the chapter 3 and 4 status
codes and chapter 4 exemption code 15
(payee not subject to chapter 4
withholding) for A, B, and C.

Amounts Paid by
Withholding Foreign
Partnerships and Trusts

In general. For chapter 4 purposes,
payments that are made by a
withholding foreign partnership (WP) or
withholding foreign trust (WT) that is a
participating FFI or a registered
deemed-compliant FFI directly to its
partners, owners, or beneficiaries that
are recalcitrant account holders, payees
that are nonparticipating FFIs, and
payees that are U.S. persons may be
reported on the basis of chapter 4
reporting pools. A WP or WT 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 provides its
chapter 4 withholding rate pools on its
withholding statement when the WP or
WT applies section 9.03 of its
agreement to such entity. In such case,
the WP or WT must include the NQI,
NWP, or NWT as the recipient in Box
13a. If a WP or WT has not made a
pooled reporting election for chapter 3
purposes, a WP or WT must file a
separate Form 1042-S for each direct
partner, beneficiary, or owner that is
exempt from chapter 4 withholding and
to whom the WP or WT distributes, or in
whose distributive share is included, an
amount subject to withholding under
chapter 3, in the same manner as a U.S.
withholding agent. However, if the WP
or WT has made a pooled reporting
election in its WP or WT agreement, the
WP or WT may instead report payments
to such direct partners, beneficiaries, or
owners on the basis of chapter 3
reporting pools and file a separate Form
1042-S for each reporting pool. For
payments not subject to chapter 4
withholding, a WP or WT 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 chapter 3 reporting pools,
except for amounts paid to foreign
tax-exempt recipients for which a
separate recipient code 28 must be
used. For this purpose, a foreign
tax-exempt recipient includes any
organization that is not subject to

withholding and is not liable to tax in its
country of residence because it is a
charitable organization, pension fund, or
foreign government. See the WP and
WT agreements for when a WP and WT
can pool report payments to an indirect
partner, a beneficiary, or an owner. See
section 9 of the WP or WT agreement.

Amounts Paid
by Nonqualified
Intermediaries and
Flow-Through Entities

An NQI and a flow-through entity are
withholding agents and must file Forms
1042-S for amounts paid to recipients.
However, an NQI or flow-through entity
is not required to file Form 1042-S if it is
not required to file Form 1042-S under
the Multiple Withholding Agent Rule,
later. An NQI or flow-through entity may
report payments made to recipients to
the extent it has failed to provide to
another withholding agent the
appropriate documentation and
complete withholding statement for
either chapter 3 or 4 purposes. If the
NQI or flow-through entity chooses to or
must file Form 1042-S, as described
above, the NQI or flow-through entity
must also file Form 1042 and, if
applicable, attach the Form 1042-S it
received from the withholding agent to
establish any credit for amounts
withheld by the withholding agent. See
the Instructions for Form 1042.
If another withholding agent has
withheld tax on an amount that should
have been exempt (for example, where
the withholding agent applied the
presumption rules because it did not
receive proper documentation or other
required information from the NQI or
flow-through entity), and the payee or
beneficial owner will make a claim for
refund, the NQI or flow-through entity
must report on Form 1042-S the correct
tax rate and the combined amount of
U.S. federal tax withheld with respect to
all recipients and should enter the
applicable chapter 3 and 4 exemption
codes.

If another withholding agent
underwithholds, regardless of whether it
received proper documentation from the
NQI or flow-through entity, the NQI or
flow-through entity must withhold
additional amounts to bring the total
withholding to the correct amount.

Multiple Withholding
Agent Rule

A withholding agent is not required to
file Form 1042-S if a return is filed by

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Guide to Global Payroll Management - 2020

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