The IRS intends that the information collection requirements in these regulations will be satisfied by submitting a new reporting form, Form 8975, Country-by-Country Report, with an income tax return. For purposes of the Paperwork Reduction Act, the reporting burden associated with the collection of information in these regulations will be reflected in the OMB Form 83–1, Paperwork Reduction Act Submission, associated with Form 8975.

This document contains amendments to 26 CFR part 1. On December 23, 2015, a notice of proposed rulemaking (REG–109822–15) relating to the furnishing of country-by-country (CbC) reports by certain United States persons (U.S. persons) was published in the Federal Register (80 FR 79795). A public hearing was requested and was held on May 13, 2016. Comments responding to the notice of proposed rulemaking were received. After consideration of the comments, the proposed regulations are adopted as amended by this Treasury decision. The public comments and revisions are discussed below.

Certain IRS regulations, including these, are exempt from the requirements of Executive Order 12866, as supplemented and reaffirmed by Executive Order 13563. Therefore, a regulatory impact assessment is not required. It also has been determined that section 553(b) and (d) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations.

It is hereby certified that this regulation will not have a significant economic impact on a substantial number of small entities within the meaning of section 601(6) of the Regulatory Flexibility Act (5 U.S.C. chapter 6). Accordingly, a regulatory flexibility analysis is not required. This certification is based on the fact that these regulations will only affect U.S. corporations, partnerships, and business trusts that have foreign operations with respect to a taxable year when the combined annual revenue of the business entities owned by the U.S. person meets or exceeds $850,000,000 for the previous reporting period. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Accordingly, 26 CFR part 1 is amended as follows:

Paragraph 1. The authority citation for part 1 is amended by adding the following entry in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

*****

Section 1.6038–4 also issued under 26 U.S.C. 6001, 6011, 6012, 6031, and 6038.

*****

Par. 2. Section 1.6038–4 is added to read as follows:

.01 Qualified Derivatives Dealers and Section 871(m). On September 18, 2015, final and temporary regulations under section 871(m) and sections 1441, 1461, and 1473 (collectively, the 871(m) regulations) were published in T.D. 9734 addressing the treatment of dividend equivalents from U.S. sources. Section 871(m) treats “dividend equivalent” payments as U.S. source dividends for purposes of chapters 3 and 4 and sections 871(a), 881, and 4948(a). As a result, dividend equivalent payments are amounts subject to withholding (as defined in § 1.1441–2(a)) for purposes of sections 1441 through 1443 and withholdable payments (as defined in § 1.1473–1(a)) for purposes of sections 1471 and 1472. Accordingly, a withholding agent generally is required to deduct and withhold a tax equal to 30 percent on any dividend equivalent payment unless an exception from, or lower rate of, withholding applies.

(A) In general. This Notice proposes new provisions to the QI agreement that will permit a QI that is an eligible entity to act as a qualified derivatives dealer (QDD) and provides the requirements and obligations that will apply to a QDD. When a QDD provides a valid withholding certificate to a withholding agent, the withholding agent will not be required to withhold on certain payments made to the QDD when the QDD is acting as a principal (that is, not as an intermediary). Under the proposed QI agreement, these payments are payments with respect to potential section 871(m) transactions (as defined in § 1.871–15(a)(12)) and payments with respect to underlying securities (as defined in § 1.871–15(a)(15)). The requirements and obligations applicable to QDDs will be effective for QDDs when they enter into QI agreements after the proposed QI agreement in this Notice is finalized (with effective dates on or after January 1, 2017).

(B) Requirements and scope of QDD status. To be a QDD, an entity must enter into a QI agreement and be an eligible entity. Pursuant to § 1.1441–1T(e)(6)(ii), a QI is an “eligible entity” if it is one of the three following types of entities: (1) a dealer in securities that is subject to regulatory supervision as a dealer by a governmental authority in the jurisdiction in which it is organized or operates; (2) a bank subject to regulatory supervision as a bank by a governmental authority in the jurisdiction in which it is organized or operates and that issues potential section 871(m) transactions to customers and receives dividends or dividend equivalent payments pursuant to potential section 871(m) transactions to hedge those transactions issued to customers; or (3) an entity that is wholly-owned by a bank subject to regulatory supervision as a bank by a governmental authority in the jurisdiction in which it is organized or operates and that issues potential section 871(m) transactions to customers and receives dividends or dividend equivalent payments pursuant to potential section 871(m) transactions to hedge those transactions issued to customers.

If a foreign branch of a U.S. financial institution meets the requirements of an eligible entity, the foreign branch may enter into a QI agreement to act as a QDD. That foreign branch will be permitted to document and report recipients of those payments in reporting pools consistent with the provisions of sections 5 and 8 of the proposed QI agreement and to use the collective refund procedure, if otherwise permitted under section 9.04 of the proposed QI agreement.

Under the proposed QI agreement, a QI may only act as a QDD for payments with respect to potential section 871(m) transactions or underlying securities that it receives and payments with respect to potential section 871(m) transactions that it makes as a principal, whether or not the payments are received or made in its dealer capacity. A QI that acts as a QDD generally will be required to act as a QDD for (a) all payments with respect to potential section 871(m) transactions and underlying securities that it receives as a principal, and (b) all payments with respect to potential section 871(m) transactions that it makes as a principal. However, to the extent the payment received by a QI as a principal is treated as income effectively connected with QI’s trade or business in the United States, then the QI is not allowed to act as a QDD for such payment. Similarly, when a QI makes a payment with respect to a potential section 871(m) transaction that is a deduction properly allocated to the QI’s gross income that is effectively connected with the conduct of such trade or business within the United States, that payment may not be included in the QDD’s offsetting payments (as described below) for purposes of determining its “section 871(m) amount” (as defined in section 2.79 of the proposed QI Agreement and described in section 2.01(D), below).

A QI, however, may not act as a QDD when it receives or makes a payment with respect to a potential section 871(m) transaction as an intermediary as opposed to as a principal (for example, when the QI acts as a custodian of a structured note with a payment referencing a dividend of a domestic corporation). As a result, the QI may, but is not required to, act as a QI for those payments. The QI may treat the payments in the same manner as it would other withholdable payments or reportable amounts it receives, and thus it may either act as a QI (and choose whether or not to assume primary withholding responsibility), or it may act as a nonqualified intermediary (NQI) for such payments.

(C) Reporting and withholding responsibilities of a QDD. When a QI acts as a QDD, it must assume primary chapters 3 and 4 withholding responsibility and primary Form 1099 reporting and section 3406 backup withholding responsibility for all payments made with respect to potential section 871(m) transactions as a principal. A QDD will be required to withhold on the dividend payment date for the applicable dividend. If a QDD makes any payment with respect to a potential section 871(m) transaction that is not a dividend equivalent payment but is an amount subject to chapter 3 or 4 withholding or a reportable payment, the QDD must also assume primary chapters 3 and 4 withholding responsibility and primary Form 1099 reporting and section 3406 backup withholding responsibility for all of those payments. Under the proposed QI agreement, a QDD’s reporting responsibilities also include specific payee (rather than pooled) reporting on Form 1042–S, Foreign Person’s U.S. Source Income Subject to Withholding, for payments to other QDDs to which the QDD makes a payment of an amount subject to chapter 3 withholding.

Among the other information reporting obligations described in sections 7 and 8 of the proposed QI agreement, a QDD will be required to report on separate Forms 1042–S the amount of qualifying dividend equivalent offsetting payments (as defined in section 2.70 of the proposed QI agreement and described in section 2.01(D), below) that represent (a) the aggregate amount of payments made to a United States person that would be dividend equivalent payments if made to a person who was not a United States person (as described in section 2.70(A)(1) of the proposed QI agreement); and (b) the aggregate amount of payments of effectively connected income (as described in section 2.70(A)(2) of the proposed QI agreement). In addition, a QDD will be required to provide specific information (for example, name, address, and U.S. TIN) upon request of the IRS about U.S. non-exempt recipients that receive qualifying dividend equivalent offsetting payments described in section 2.70(A)(1) of the proposed QI agreement. To the extent necessary, a QDD must obtain a waiver from each U.S. non-exempt recipient described in the preceding sentence of any limitation on providing such information to the IRS. If the QDD does not obtain a waiver or collect and maintain such information about a U.S. non-exempt recipient, any payment made to that U.S. non-exempt recipient is not a qualifying dividend equivalent offsetting payment. A QI will be required to report these payments in a pool on a separate Form 1042–S. The maintenance of such information by QDDs will assist the IRS in ensuring the compliance of these U.S. non-exempt recipients with their reporting of income associated with these transactions and of QDDs with their obligations under the QI agreement.

(D) Tax liability of a QDD. A QDD (other than a foreign branch of a U.S. financial institution acting as a QDD) must determine and pay any “QDD tax liability.” A QDD tax liability is the sum of a QDD’s liability under sections 871(a) and 881 for (a) its “section 871(m) amount” (as defined in section 2.79 of the proposed QI agreement); (b) its dividends that are not on underlying securities associated with potential section 871(m) transactions and its dividend equivalent payments received as a QDD in its non-dealer capacity; and (c) any other U.S. source FDAP payments received as a QDD with respect to potential section 871(m) transactions or underlying securities that are not dividend or dividend equivalent payments. For purposes of determining the QDD tax liability, payments received by a QDD acting as a proprietary trader are treated as payments received in its non-dealer capacity, while transactions properly reflected in a QDD’s dealer book are presumed to be held by a dealer in its dealer capacity. For purposes of determining the QDD tax liability, dealer activity is limited to its activity as a derivatives dealer.

Even though a QDD may act as a QDD for payments received in a non-dealer capacity, only payments made and received in its dealer capacity may be used for purposes of calculating its section 871(m) amount. In its dealer capacity, a QDD may hold underlying securities that are associated with potential section 871(m) transactions. An underlying security is associated with a potential section 871(m) transaction when the QDD holds that underlying security to manage the risk of price changes with respect to a potential section 871(m) transaction that the QDD entered into in the normal course of its business as a dealer. If a QDD holds stock in its non-dealer capacity (for example, as a proprietary trader), the QDD cannot treat that stock as an underlying security associated with a potential section 871(m) transaction for purposes of calculating its section 871(m) amount.

A QDD remains liable for tax on any dividends and dividend equivalents it receives in its dealer capacity to the extent the QDD is not contractually obligated to make offsetting payments that reference the same dividend or dividend equivalent that it received as a dealer. To determine its tax liability on dividends and dividend equivalents that it receives, a QDD may aggregate all dividends on underlying securities associated with potential section 871(m) transactions and dividend equivalent payments that it receives that reference the same dividend and all dividend equivalent payments that it is contractually obligated to make as a dealer that reference the same dividend. Transactions properly reflected in a QDD’s dealer book are presumed to be held by the QDD in its dealer capacity for purposes of determining the QDD’s tax liability. The net amount of the payments received and the offsetting payments made is referred to as the QDD’s “section 871(m) amount.” See section 2.79 of the proposed QI agreement. Under the proposed QI agreement, the amount of offsetting payments includes any dividend equivalent payment and any qualifying dividend equivalent offsetting payment that the QDD makes or is contractually obligated to make with respect to the same dividend. A “qualifying dividend equivalent offsetting payment” is defined in section 2.70 of the proposed QI agreement as (a) any payment made or contractually obligated to be made to a United States person that would be a dividend equivalent payment if made to a person who was not a United States person and (b) any payment made to a foreign person that would be a dividend equivalent payment if the payment were not treated as income effectively connected with the conduct of a U.S. trade or business. As discussed in section 2.01(C), above, to the extent a QDD does not obtain a waiver from a U.S. non-exempt recipient of a payment described in (a) in the preceding sentence of any limitation on providing its name, address, and TIN (if any) to the IRS and does not collect and maintain such information, payments made to that U.S. non-exempt recipient are not qualifying dividend equivalent offsetting payments.

A QDD will report its QDD tax liability on a Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons. The QDD’s payment and deposit requirements with respect to any taxes due with respect to its QDD tax liability on Form 1042 are described in sections 3.08 and 3.09(C) of the proposed QI agreement. When a foreign branch of a U.S. financial institution acts as a QDD, the branch is not required to report a QDD tax liability for income relating to potential section 871(m) transactions and underlying securities on Form 1042. Instead, the U.S. financial institution must file the appropriate U.S. income tax return (for example, Form 1120, U.S. Corporation Income Tax Return) for the tax year covered by the QI agreement to report and pay its tax liability under chapter 1.

(E) Accounts for purposes of section 871(m) transactions. Generally, an “account” for purposes of the QI agreement means any account for which QI acts as a qualified intermediary. See section 2.01 of the proposed QI agreement. QIs and taxpayers, however, do not always hold section 871(m) transactions in an account relationship. Section 2.01 of the proposed QI agreement therefore defines “account,” when applied to a QI acting as a QDD, as any potential section 871(m) transaction or underlying security where the QI receives payments as a principal and any potential section 871(m) transaction where the QI makes payments as a principal. However, section 5 of the proposed QI agreement does not require a QI that is acting as a QDD to document each account; rather it limits a QDD’s obligation to document only an account holder of an account to which the QDD makes a reportable payment or qualifying dividend equivalent offsetting payment (or payment that otherwise would have been a qualifying dividend equivalent offsetting payment but for the QDD’s failure to obtain a waiver or collect and maintain information about a U.S. non-exempt recipient account holder as required by section 8.03(C) of the proposed QI agreement).

(F) Qualified securities lenders. Once implemented, the QDD regime is intended to replace the qualified securities lender (QSL) regime described in Notice 2010–46, 2010–25 I.R.B. 757. The proposed QI agreement will require a QI to act as a QDD for all securities lending and sale-repurchase transactions the QDD enters into that are section 871(m) transactions, in addition to acting as a QDD for payments with respect to other potential section 871(m) transactions and underlying securities as a principal. All securities lending and sale-repurchase transactions the QI enters into that are section 871(m) transactions will be deemed to be entered into by the QI as a principal and therefore within the QDD regime. Until the QDD regime is implemented, the QSL rules (including the credit-forward rules described in Notice 2010–46) will continue to apply for substitute dividend payments made pursuant to a securities lending or a sale-repurchase transaction. For more information about the QSL regime, see Notice 2010–46.

(G) Coordination with 871(m) regulations. The Treasury Department (Treasury) and the IRS intend to modify, to the extent necessary, the section 871(m) regulations to coordinate with provisions of the QI agreement relevant to the requirements of QDDs and withholding agents making payments to QDDs (as those provisions are finalized).

(A) In General. For purposes of a QI that is acting as a QDD, a “qualifying dividend equivalent offsetting payment” means:

(1) Any payment made with respect to a potential section 871(m) transaction to a U.S. person that would be a dividend equivalent payment if the payment were made to a foreign person or

(2) Any payment made with respect to a potential section 871(m) transaction to a foreign person that would be a dividend equivalent payment if the payment was not treated as income effectively connected with the conduct of a trade or business within the United States within the meaning of section 864.

(B) Exception. To the extent a QI acting as a QDD does not obtain a waiver and collect and maintain information, as required by section 8.03(C) of this Agreement, from a U.S. non-exempt recipient described in section 2.70(A)(1), any payment made to such person is not a qualifying dividend equivalent offsetting payment.

Sec. 2.71. Recalcitrant Account Holder. A “recalcitrant account holder” means an account holder described in § 1.1471–5(g).

Sec. 2.72. Reduced Rate of Withholding. A “reduced rate of withholding” means a rate of withholding under chapter 3 that is less than 30 percent, including an exemption from withholding.

Sec. 2.73. Reliably Associating a Payment With Documentation. See section 5.13(B) of this Agreement to determine whether QI can reliably associate a payment with documentation.

Sec. 2.74. Reportable Amount. A “reportable amount” means U.S. source FDAP income that is an amount subject to chapter 3 withholding (as defined in section 2.04 of this Agreement), U.S. source deposit interest (as defined in section 2.18 of this Agreement), and U.S. source interest or original issue discount paid on the redemption of short-term obligations (as defined in section 2.81 of this Agreement). The term does not include payments on deposits with banks and other financial institutions that remain on deposit for two weeks or less. It also does not include amounts of original issue discount arising from a sale and repurchase transaction completed within a period of two weeks or less, or amounts described in § 1.6049–5(b)(7), (10), or (11) (relating to certain foreign targeted registered obligations and certain obligations issued in bearer form).

Sec. 2.75. Reportable Payment. For purposes of this Agreement, a “reportable payment” means an amount described in section 2.75(A) of this Agreement, in the case of a U.S. payor, and an amount described in section 2.75(B) of this Agreement, in the case of a non-U.S. payor.

(A) U.S. Payor. If QI is a U.S. payor, a “reportable payment” means, unless an exception to reporting applies under chapter 61,—

(1) Any reportable amount;

(2) Any broker proceeds from a sale reportable under § 1.6045–1(c); and

(3) Any foreign source interest, dividends, rents, royalties, or other fixed and determinable income.

(B) Non-U.S. Payor. If QI is a non-U.S. payor, a “reportable payment” means, unless an exception to reporting applies under chapter 61, —

(1) Any reportable amount;

(2) Any broker proceeds from a sale effected at an office inside the United States, as defined in § 1.6045–1(g)(3)(iii); and

(3) Any foreign source interest, dividends, rents, royalties, or other fixed and determinable income if such income is not paid outside the United States as described under section 5.13(C)(1) of this Agreement.

Sec. 2.76. Reporting Model 1 FFI. A “reporting Model 1 FFI” means an FFI with respect to which a foreign government or agency thereof agrees to obtain and exchange information pursuant to a Model 1 IGA, other than an FFI that is treated as a nonreporting Model 1 FFI (including a registered deemed-compliant Model 1 IGA FFI) or a nonparticipating FFI under an applicable Model 1 IGA.

Sec. 2.77. Reporting Pool. A “reporting pool” is defined in section 8 of this Agreement.

Sec. 2.78. Responsible Officer. A “responsible officer” of a QI means an officer of the QI with sufficient authority to fulfill the duties of a responsible officer as described in section 10 of this Agreement, including the requirements to periodically certify and to respond to requests by the IRS for additional information to review the QI’s compliance (or that of a PAI).

Sec. 2.79. Section 871(m) Amount. A “section 871(m) amount” means the sum of the amounts by which, for each dividend on each underlying security, (A) the dividends on underlying securities associated with potential section 871(m) transactions and dividend equivalent payments that QI acting as a QDD receives in its dealer capacity exceed (B) the dividend equivalent payments and the qualifying dividend equivalent offsetting payments that QI acting as a QDD makes or is contractually obligated to make with respect to the same dividend in its dealer capacity.

For purposes of determining the QDD tax liability, a dividend or dividend equivalent is treated as received by a QDD acting in its non-dealer capacity if the dividend or dividend equivalent is received by a QDD acting as a proprietary trader. Transactions properly reflected in a QDD’s dealer book are presumed to be held by a dealer in its dealer capacity for purposes of determining the QDD tax liability. In addition, for purposes of determining whether a dealer is acting in its dealer capacity, only the dealer’s activities as a derivatives dealer are taken into account.

Sec. 2.80. Section 871(m) Transaction. A “section 871(m) transaction” is any securities lending or sale-repurchase transaction, specified NPC, or specified ELI described in § 1.871–15(a)(13), (d), and (e), respectively.

Sec. 2.81. Short-Term Obligation. A “short-term obligation” is any obligation described in section 871(g)(1)(B)(i).

Sec. 2.82. Substitute Interest. “Substitute interest” means a substitute interest payment described in § 1.861–2(a)(7).

Sec. 2.83. Territory FI. A “territory FI” means a financial institution that is incorporated or organized under the laws of any U.S. territory, excluding a territory entity that is an investment entity but is not a depository institution, custodial institution, or specified insurance company (as defined in § 1.1471–5(e)(1)(i), (ii), and (iv), respectively).

Sec. 2.84. Underlying Security. For purposes of a QI acting as a QDD or any determination relating to section 871(m), “underlying security” has the meaning provided in § 1.871–15(a)(15).

Sec. 2.85. Underlying Security Associated with Potential Section 871(m) Transactions. For purposes of a QI acting as a QDD, “underlying security associated with potential section 871(m) transactions” means any underlying security held by a QDD to manage risk of price changes with respect to a potential section 871(m) transactions that the QDD entered into in the normal course of its business as a dealer.

Sec. 2.86. Underwithholding. “Underwithholding” means the excess of the amount required to be withheld under chapter 3 or 4 or section 3406 over the amount actually withheld.

Sec. 2.87. Undocumented Account Holder. An “undocumented account holder” is an account holder for whom QI does not hold valid documentation.

Sec. 2.88. U.S. Account. A “U.S. account” is any financial account maintained by an FFI that is held by one or more specified U.S. persons or U.S.-owned foreign entities that such FFI reports or elects to report under the FFI Agreement or § 1.1471–5(f), as applicable.

Sec. 2.89. U.S. Branch Treated as a U.S. Person. A “U.S. branch treated as a U.S. person” means a U.S. branch of a participating FFI, registered deemed-compliant FFI, or NFFE that is treated as a U.S. person under § 1.1441–1(b)(2)(iv)(A).

Sec. 2.90. U.S. Payor. The term “U.S. payor” has the same meaning as in § 1.6049–5(c)(5).

Sec. 2.91. U.S. Person. A “U.S. person” (or “United States person”) is a person described in section 7701(a)(30), the U.S. government (including an agency or instrumentality thereof), a State of the United States (including an agency or instrumentality thereof), or the District of Columbia (including an agency or instrumentality thereof). An individual will not be treated as a U.S. person for purposes of this section for a taxable year or any portion of a taxable year that the individual is a dual resident taxpayer (within the meaning of § 301.7701(b)–7(a)(1)) who is treated as a nonresident alien pursuant to § 301.7701(b)–7 for purposes of computing his or her U.S. tax liability. The term “U.S. person” or “United States person” also means a foreign insurance company that has made an election under section 953(d), provided that either the foreign insurance company is not a specified insurance company (as described in § 1.1471–5(e)(1)(iv)), or the foreign insurance company is a specified insurance company and is licensed to do business in any State of the United States.

Sec. 2.92. U.S. Reportable Account. A “U.S. reportable account” means a financial account maintained by a reporting Model 1 FFI or registered deemed-compliant Model 1 IGA FFI that such FFI reports or elects to report under the applicable domestic law for compliance with and implementation of FATCA.

Sec. 2.93. U.S. Source FDAP. “U.S. source FDAP” means amounts from sources within the United States that constitute fixed or determinable annual or periodical income, as defined in § 1.1441–2(b)(1).

Sec. 2.94. U.S. TIN. A “U.S. TIN” means a U.S. taxpayer identification number assigned under section 6109.

Sec. 2.95. Withholding Agent. A “withholding agent” has the same meaning as set forth in § 1.1441–7(a) for purposes of chapter 3 and as set forth in § 1.1473–1(d) for purposes of chapter 4, and includes a payor (as defined in section 2.61 of this Agreement). As used in this Agreement, the term generally refers to the person making a payment to a qualified intermediary.

Sec. 2.96. Withholding Foreign Partnership. A “withholding foreign partnership” or “WP” means a partnership, described in § 1.1441–5(c)(2), that has entered into a withholding agreement with the IRS to be treated as a withholding foreign partnership.

Sec. 2.97. Withholding Foreign Trust. A “withholding foreign trust” or “WT” means a trust, described in § 1.1441–5(e)(5)(v), that has entered into a withholding agreement with the IRS to be treated as a withholding foreign trust.

Sec. 2.98. Withholdable Payment. A “withholdable payment” means an amount described in § 1.1473–1(a).

Sec. 2.99. Withholding Rate Pool. A “withholding rate pool” is defined in section 6.03 of this Agreement and includes a chapter 3 withholding rate pool and a chapter 4 withholding rate pool.

Sec. 2.100. Withholding Statement. The term “withholding statement” is defined in section 6.02 of this Agreement.

Sec. 2.101. Other Terms. Any term not defined in this section has the same meaning that it has under the Code, including the income tax regulations under the Code, any applicable income tax treaty, or any applicable Model 1 or Model 2 IGA with respect to a QI’s FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI. Except as expressly provided in this Agreement, any term relating to a QDD or section 871(m) has the same meaning given to the term in § 1.871–15.

(A) Chapter 4 Withholding. QI is a withholding agent for purposes of chapter 4 and subject to the withholding and reporting provisions applicable to withholding agents under sections 1471 and 1472 with respect to its accounts. QI is required to withhold 30 percent of any withholdable payment made after June 30, 2014, to an account holder that is an FFI unless either QI can reliably associate the payment (or portion of the payment) with documentation upon which it is permitted to rely to treat the payment as exempt from withholding under § 1.1471–2(a)(4) or the payment is made under a grandfathered obligation described in § 1.1471–2(b). See § 1.1471–2(b)(2)(i)(A)(2) for the definition of grandfathered obligation with respect to an obligation giving rise to a dividend equivalent. QI is also required to withhold 30 percent of any withholdable payment made after June 30, 2014, to an account holder that is an NFFE unless either QI can reliably associate the payment (or portion of the payment) with a certification described in § 1.1472–1(b)(1)(ii) or an exception to withholding under § 1.1472–1 otherwise applies.

If QI is a participating FFI or registered deemed-compliant FFI (other than a reporting Model 1 FFI), QI will satisfy its requirement to withhold under sections 1471(a) and 1472(a) with respect to direct account holders that are entities by withholding on withholdable payments made to nonparticipating FFIs and recalcitrant account holders to the extent required under its FATCA requirements as a participating FFI or registered deemed-compliant FFI. See the FFI Agreement, § 1.1471–5(f)(1), or the applicable Model 2 IGA for the withholding requirements that apply to withholdable payments made to account holders of the FFI that are individuals treated as recalcitrant account holders or non-consenting accounts. If QI is a reporting Model 1 FFI or a registered deemed-compliant Model 1 IGA FFI, QI will satisfy its requirement to withhold under section 1471(a) with respect to direct account holders by withholding on withholdable payments made to nonparticipating FFIs to the extent required under its FATCA requirements as a registered deemed-compliant FFI or registered deemed-compliant Model 1 IGA FFI. QI must, however, withhold in the manner described in sections 3.02 and 3.03 of this Agreement for when QI assumes or does not assume primary withholding responsibility for purposes of chapters 3 and 4 regardless of its chapter 4 status.

(B) Chapter 3 Withholding. To the extent that QI makes a payment of an amount subject to chapter 3 withholding, QI is required to withhold 30 percent of the gross amount of any such payment made to an account holder that is (or is presumed) a foreign person unless QI can reliably associate the payment with documentation upon which it can rely to treat the payment as made to a payee that is a U.S. person or as made to a beneficial owner that is a foreign person entitled to a reduced rate of withholding. See section 5 of this Agreement regarding documentation requirements. With respect an amount subject to chapter 4 withholding that is also an amount subject to chapter 3 withholding, QI may credit any tax withheld under chapter 4 against its liability for any tax due under chapter 3 with respect to the payment so that no additional withholding is required on the payment for purposes of chapter 3. Nothing in chapter 4 or the regulations thereunder (including the FFI Agreement) or any applicable IGA relieves QI of its requirements to withhold under chapter 3 to the extent required in this Agreement.

Sec. 3.02. Primary Chapters 3 and 4 Withholding Responsibility Not Assumed. Notwithstanding sections 1.01 and 3.01 of this Agreement, QI is not be required to withhold with respect to a payment of U.S. source FDAP income if it (a) does not assume primary withholding responsibility under section 3.03 of this Agreement by electing to be withheld upon under § 1.1471–2(a)(2)(iii) for purposes of chapter 4, (b) provides the withholding agent from which QI receives the payment with a valid withholding certificate that indicates that QI does not assume primary withholding responsibility for chapters 3 and 4 purposes, and (c) provides correct withholding statements (including information regarding any account holders or interest holders of an intermediary or flow-through entity that holds an account with QI, other than a qualified intermediary that assumes primary withholding responsibility, withholding foreign partnership, or withholding foreign trust) as described in section 6.02 of this Agreement. However, QI that is acting as a QDD must assume primary withholding responsibility to the extent required under section 3.03(B) of this Agreement. Notwithstanding its election not to assume primary withholding responsibility under chapters 3 and 4, QI shall, however, withhold the difference between the amount of withholding required under chapter 3 or 4 and the amount actually withheld by another withholding agent if QI—

(A) In General. QI, upon notification to a withholding agent, may assume primary withholding responsibility for purposes of chapters 3 and 4 by providing a valid withholding certificate described in section 6 of this Agreement to a withholding agent that makes a payment of U.S. source FDAP income to QI and by designating on the withholding statement associated with such certificate the account(s) for which QI assumes primary withholding responsibility. QI may assume primary withholding responsibility without informing the IRS. QI is not required to assume primary withholding responsibility for all accounts it holds with the withholding agent. If QI assumes primary withholding responsibility for any account, it must assume that responsibility under chapters 3 and 4 for all withholdable payments and amounts subject to chapter 3 withholding made by the withholding agent to that account. QI may assume primary withholding responsibility for U.S. source FDAP payments of substitute interest as described in § 1.861–2(a)(7). If QI assumes primary withholding responsibility for payments of substitute interest (as described in this paragraph), it must assume primary withholding responsibility with respect to all such payments. QI assumes primary withholding responsibility for payments of substitute interest for purposes of this Agreement when it assumes such responsibility for payments of interest and substitute interest it receives in connection with a sale-repurchase or similar agreement, a securities lending transaction, or collateral that it holds in connection with its activities as a dealer in securities. As a result, QI may represent its status as a qualified intermediary on the withholding certificate described in section 6.01 of this Agreement with respect to payments it receives of interest and substitute interest described in the preceding sentence regardless of whether it acts as an intermediary or as a principal with respect to these payments.

To the extent that QI assumes primary withholding responsibility, QI shall withhold as described in section 3.01 of this Agreement. QI is not required to withhold on amounts it pays to another qualified intermediary that has assumed primary withholding responsibility with respect to the payment (including a qualified intermediary acting as a QDD) or to a withholding foreign partnership or a withholding foreign trust. See section 8 of this Agreement regarding QI’s responsibility to report amounts subject to withholding on Form 1042–S.

(B) Assumption of Withholding Responsibility by a QDD. If QI is acting as a QDD, it must assume primary chapters 3 and 4 withholding responsibility for any dividend equivalent payment that it makes and must withhold with respect to a dividend equivalent payment on the dividend payment date for the applicable dividend (as determined in § 1.1441–2(e)(4)). A QDD must also assume primary chapter 3 and chapter 4 withholding responsibility for payments made with respect to a potential section 871(m) transaction even if the payment is not a dividend equivalent if the amount paid is an amount subject to chapter 3 or 4 withholding. A QDD is not required to withhold under chapter 3 or 4 on amounts it pays to another qualified intermediary that has assumed primary withholding responsibility with respect to the payment, or to a withholding foreign partnership or a withholding foreign trust. See section 8 of this Agreement regarding QDD’s responsibility to report dividend equivalent payments and other amounts subject to withholding on Form 1042–S.

(A) Backup Withholding. QI is a payor under section 3406 with respect to reportable payments. Under section 3406, unless an exception to backup withholding applies, a payor is required to deduct and withhold 28^[2] percent from a reportable payment to an account holder that is a U.S. non-exempt recipient if the U.S. non-exempt recipient has not provided its U.S. TIN in the manner required under that section; the IRS notifies the payor that the U.S. TIN furnished by the payee is incorrect; there has been a notified payee under-reporting described in section 3406(c); or there has been a payee certification failure described in section 3406(d).

(B) Coordination of Chapter 4 Withholding and Backup Withholding. With respect to a withholdable payment that is also a reportable payment subject to backup withholding under section 3406, QI is not required to withhold under section 3406 if QI withheld on such payment under chapter 4. See § 31.3406(g)–1(e). Alternatively, if QI is a participating FFI or a registered deemed-compliant FFI (other than a reporting Model 1 FFI), it may elect to satisfy its obligation to withhold under chapter 4 (or the FFI Agreement) on a withholdable payment made to a recalcitrant account holder that is a U.S. non-exempt recipient by satisfying its backup withholding obligation under section 3406 provided that the payment is also a reportable payment. See section 4 of the FFI Agreement. Nothing in chapter 4 (including the FFI Agreement) or any applicable IGA relieves QI of its requirements to backup withhold under section 3406 to the extent required by this Agreement.

(C) Form 1099 Reporting. If QI applies backup withholding (as described in section 3.04(B) of this Agreement), it must report the amount subject to backup withholding on Form 1099 and not on Form 1042–S.

Sec. 3.05. Primary Form 1099 Reporting and Backup Withholding Responsibility for Reportable Payments Other Than Reportable Amounts. QI is responsible for reporting on Form 1099 and backup withholding on reportable payments other than reportable amounts to the extent required under this section 3.05 and section 8.06 of this Agreement, whether or not QI assumes primary Form 1099 reporting and backup withholding responsibility with respect to reportable amounts under section 3.07 of this Agreement. Further, no provision of this Agreement which requires QI to provide another withholding agent with information regarding reportable amounts shall be construed as relieving QI of its Form 1099 reporting and backup withholding obligations with respect to reportable payments that are not reportable amounts.

See, however, § 31.3406(g)–1(e) providing that a payor (irrespective of whether the payor is a U.S. or non-U.S. payor) is not required to backup withhold under section 3406 on a reportable payment that is paid and received outside the United States with respect to an offshore obligation or on gross proceeds from a sale effected outside the United States, unless the payor has actual knowledge that the payee is a U.S. person.

(A) U.S. Payor. Except as provided in section 3.05(C) of this Agreement, if QI is a U.S. payor, QI has primary Form 1099 reporting and backup withholding responsibility for reportable payments other than reportable amounts. For example, if QI is a U.S. payor, it has primary Form 1099 reporting and backup withholding responsibility for payments of foreign source income as well as all broker proceeds paid to account holders that are, or are presumed to be, U.S. non-exempt recipients.

(B) Non-U.S. Payor. If QI is a non-U.S. payor, QI has primary Form 1099 reporting and backup withholding responsibility for broker proceeds described in section 2.75(B)(2) of this Agreement and foreign source fixed and determinable income other than income paid and received outside United States as described in section 2.75(B)(3) of this Agreement, if such payments are made (or presumed made) to U.S. non-exempt recipients.

(C) Special Procedure for Broker Proceeds. If QI is a U.S. payor, QI may request another payor that is either a U.S. financial institution or another qualified intermediary to report on Form 1099 and, if required, backup withhold with respect to broker proceeds from a sale that is effected at an office outside the United States (as defined in § 1.6045–1(g)(3)(iii)) that QI is otherwise required to report under section 3.05(A) and section 8.05 of this Agreement, provided the other payor actually receives the broker proceeds. In such a case, QI will not be responsible for primary Form 1099 reporting and backup withholding with respect to broker proceeds, provided that the other payor agrees to do the reporting and backup withholding and QI provides all of the information necessary for the other payor to properly report and backup withhold. QI, however, remains responsible for primary Form 1099 reporting and backup withholding if the other payor does not agree to report and backup withhold, or if QI knows that the other payor failed to do so. If, however, QI is a participating FFI or registered deemed-compliant FFI (other than a reporting Model 1 FFI) that reports an account on Form 1099 in order to satisfy its U.S. account reporting requirement under chapter 4, as described in section 8.04 of this Agreement, QI is responsible for reporting on Form 1099 with respect to reportable payments made to such U.S. account and must report in the manner described in the FFI Agreement.

(D) Special Procedure for QDDs. QI acting as a QDD must assume primary Form 1099 reporting and backup withholding responsibility for any payments made with respect to a potential section 871(m) transaction that are reportable payments. Thus, for example, if QI acts as a QDD with respect to an NPC that is a potential section 871(m) transaction and makes a payment pursuant to the NPC to a U.S. person that is a U.S. non-exempt recipient, QI must backup withhold and report any amount paid to the U.S. person to the extent required under section 3406 and § 1.6041–1(d)(5). See also section 8.03(C) of this Agreement for a QDD’s Form 1042–S reporting requirements for a qualifying dividend equivalent offsetting payment (notwithstanding the limitation in section 2.70(B) of this Agreement).

Sec. 3.06. Primary Form 1099 Reporting and Backup Withholding Responsibility For Reportable Amounts Not Assumed. Notwithstanding sections 1.01 and 3.04 of this Agreement, QI shall not be required to report on Form 1099 and, if required, backup withhold with respect to a reportable amount if QI does not assume primary Form 1099 reporting and backup withholding responsibility and it provides a payor from which it receives a reportable amount the Forms W–9 of its U.S. non-exempt recipient account holders (or, if a U.S. non-exempt recipient fails to provide a Form W–9, information regarding the account holder’s name, address, and U.S. TIN, if a U.S. TIN is available) together with the withholding rate pools (as defined in section 6.03(D) of this Agreement) attributable to U.S. non-exempt recipient account holders so that such payor may report on Form 1099 and, if required, backup withhold. If QI elects to backup withhold on withholdable payments that are also reportable amounts made to recalcitrant account holders that are also U.S. non-exempt recipients, QI shall not be required to report on Form 1099 and backup withhold with respect to a reportable amount if it provides a payor from which it receives a reportable amount information regarding such recalcitrant account holders. See section 6.03 of this Agreement and section 4 of the FFI Agreement. If QI reports its U.S. accounts on Forms 1099 under its FATCA requirements as a participating FFI or registered deemed-compliant FFI, see section 8.04(A) of this Agreement providing that QI cannot delegate to a withholding agent its requirement to report its U.S. accounts. See sections 3.04 and 8.06 of this Agreement for QI’s obligations regarding Form 1099 reporting and backup withholding with respect to reportable amounts and see also section 6.03 of this Agreement for when QI may provide a chapter 4 withholding rate pool of U.S. payees. If QI elects not to assume primary Form 1099 reporting and backup withholding responsibility, QI must provide the withholding agent with such information regarding any account holders or interest holders of an intermediary or flow-through entity that holds an account with QI. See also sections 3.05(D) and 3.07 of this Agreement requiring a QI acting as a QDD for payments with respect to potential section 871(m) transactions to assume primary Form 1099 and backup withholding responsibility for such amounts. Notwithstanding its election not to assume primary Form 1099 reporting and backup withholding responsibility, QI shall backup withhold and report a reportable amount to the extent required under sections 3.04 and 8.06 of this Agreement if—

QI is not required to backup withhold, however, on a reportable amount that QI makes to a withholding foreign partnership, withholding foreign trust, or another qualified intermediary that has assumed primary Form 1099 reporting and backup withholding responsibility with respect to the payment. QI is also not required to backup withhold on a reportable amount that QI makes to an intermediary or flow-through entity that is a participating FFI, registered deemed-compliant FFI, or another qualified intermediary that does not assume primary Form 1099 reporting and backup withholding responsibility with respect to the payment provided that such intermediary or flow-through entity allocates the payment on its withholding statement to a chapter 4 withholding rate pool of U.S. payees and the withholding statement is associated with a valid Form W–8IMY that provides the applicable certification(s) for allocating the payment to this pool or allocates the payment on its withholding statement to a chapter 4 withholding rate pool of recalcitrant account holders. See section 3.05 of this Agreement for backup withholding responsibility for reportable payments other than reportable amounts. See section 8.06 of this Agreement regarding QI’s responsibility to report reportable payments on Form 1099.

Sec. 3.07. Assumption of Primary Form 1099 Reporting and Backup Withholding Responsibility. QI may assume primary Form 1099 reporting responsibility and primary backup withholding responsibility with respect to reportable amounts without approval from the IRS. See sections 3.04 and 8.06 of this Agreement for QI’s obligations regarding Form 1099 reporting and backup withholding with respect to reportable amounts. QI that assumes such responsibility is subject to all of the obligations imposed by chapter 61 and section 3406, as modified by this Agreement, and QI shall be subject to any applicable penalties for failure to meet those obligations. QI shall inform a payor from which it receives a reportable amount that it has assumed primary Form 1099 reporting and backup withholding responsibility by providing the payor with a valid withholding certificate described in section 6 of this Agreement and by designating on the withholding statement associated with such certificate the account(s) for which QI assumes primary Form 1099 reporting and backup withholding responsibility. QI may assume primary Form 1099 reporting and backup withholding responsibility without informing the IRS.

QI is not required to assume primary Form 1099 reporting and backup withholding responsibility for all accounts it holds with a payor. However, if QI assumes primary Form 1099 reporting and backup withholding responsibility for any account, it must assume that responsibility for all reportable amounts made by a payor to that account.

If QI is acting as a QDD, it must assume primary Form 1099 reporting and backup withholding responsibility with respect to any payment made with respect to a potential section 871(m) transaction, provided that the amount is a reportable payment. In addition, if QI is assuming primary withholding responsibility for payments of substitute interest (as described in section 3.03(A) of this Agreement), it must assume primary Form 1099 reporting and backup withholding responsibility with respect to all such payments.

QI shall not be required to backup withhold on a reportable amount it makes to a withholding foreign partnership, withholding foreign trust, or another qualified intermediary that has assumed primary Form 1099 reporting and backup withholding responsibility with respect to the reportable amount. QI is also not required to backup withhold on a reportable amount that QI makes to an intermediary or flow-through entity that is a participating FFI, registered deemed-compliant FFI, or another qualified intermediary that does not assume primary Form 1099 reporting and backup withholding responsibility with respect to the payment provided that such intermediary or flow-through entity allocates the payment on its withholding statement to a chapter 4 withholding rate pool of U.S. payees and the withholding statement is associated with a valid Form W–8IMY that provides the applicable certification(s) for allocating the payment to this pool or allocates the payment on its withholding statement to a chapter 4 withholding rate pool of recalcitrant account holders. See section 8 of this Agreement regarding QI’s responsibility to report reportable payments on Form 1099.

Sec. 3.08. Deposit Requirements. If QI assumes primary withholding responsibility under chapters 3 and 4 or primary Form 1099 reporting and backup withholding responsibility, it must deposit amounts withheld under chapter 3 or 4 or section 3406 at the time and in the manner provided under section 6302 (see § 1.6302–2) by electronic funds transfer as provided under § 31.6302–1(h). If QI is a non-U.S. payor that does not assume primary withholding responsibility under chapters 3 and 4 or primary Form 1099 reporting and section 3406 backup withholding responsibility, QI must deposit amounts withheld by the 15th day following the month in which the withholding occurred.

If QI is acting as a QDD, it must also make deposits with respect to its QDD tax liability. At the time the QDD determines that it has a QDD tax liability (as described in section 3.09(D) of this Agreement), it must deposit any tax for which it is liable at the time and in the manner provided under section 6302 (see § 1.6302–2) (substituting the term “QDD” for “withholding agent” and “sections 871(a) and 881” for “chapter 3” and “due under sections 871 and 881” for “withheld pursuant to chapter 3”) by electronic funds transfer as provided in § 31.6302–1(h). See section 3.09(D) of this Agreement for the timing for determining the QDD tax liability. The deposit requirements under section 6302 and § 1.6302–2 apply separately to amounts due for a QDD’s QDD tax liability and any amounts withheld under chapters 3 and 4.

Sec. 3.09. QDD Tax Liability. In addition to satisfying its withholding tax liability as described in this Agreement, a QDD must satisfy its QDD tax liability. The QDD’s QDD tax liability is the sum of its tax liability under sections 871(a) and 881, if any, for:

(A) its section 871(m) amount (as defined in section 2.79 of this Agreement) for amounts received and made as a QDD in its dealer capacity;

(B) its dividends that are not on underlying securities associated with potential section 871(m) transactions and its dividend equivalent payments received as a QDD in its non-dealer capacity; and

(C) any payments, such as interest, received as a QDD with respect to potential section 871(m) transactions or underlying securities that are not dividend or dividend equivalent payments.

A QDD that is a foreign branch of a U.S. financial institution does not have a QDD tax liability and is not required to report such liability on Form 1042. Instead, such a QDD must determine and report its tax liability in accordance with chapter 1 and the appropriate income tax return filing obligations for the U.S. corporation.

(D) Timing for Determining QDD Tax Liability. A QDD must determine its QDD tax liability due under sections 3.09(A) and (B) for each underlying security and section 871(m) transaction on the date that a dividend is paid on the underlying security, as provided in § 1.1441–2(e)(4). A QDD must determine its QDD tax liability due under section 3.09(C) at the time such payments are made, as provided in § 1.1441–2(e).

See section 7.01(C) of this Agreement regarding QI that is acting as a QDD’s responsibility to report on Form 1042 its QDD tax liability and to maintain a reconciliation schedule for its section 871(m) amount and other amounts related to its QDD tax liability.

(A) Payments Reportable under Chapters 3 and 4. The agreement between QI and a PAI must provide that QI shall report all payments of amounts subject to chapter 3 or 4 withholding made by the PAI on QI’s Forms 1042 and 1042–S as if QI had made the payments directly to the PAI’s account holders. Therefore, QI shall report payments made to each of the following types of a PAI’s account holders as follows:

(B) Form 1099 Reporting and Backup Withholding. The agreement between QI and a PAI must also provide that QI shall report all reportable payments made by the PAI on QI’s Forms 945 and 1099 to the extent required under this section 4.02(B). QI shall file Forms 1099 and backup withhold, if required, on reportable payments made by QI (including by a PAI) to U.S. non-exempt recipients that are direct or indirect account holders of a PAI in accordance with the terms of this Agreement.

(C) Form 8966 Reporting. The agreement between QI and a PAI must also provide that QI shall report all withholdable payments made by the PAI on Form 8966 to the extent required under this section 4.02(C). QI shall file Forms 8966 to report withholdable payments made by QI (including by a PAI) to passive NFFEs with one or more substantial U.S. owners (or one or more controlling persons that is a specified U.S. person) that are direct or indirect account holders of a PAI in accordance with section 8.05 of this Agreement.

Sec. 4.03. Other Requirements of PAI Agreement. QI shall require a PAI to provide QI with all the information necessary for QI to meet its obligations under this Agreement. No provisions shall be contained in the agreement between QI and a PAI that preclude, and no provisions of this Agreement shall be construed to preclude, the PAI’s joint and several liability for tax, penalties, and interest under chapters 3, 4, and 61 and section 3406 to the extent that underwithholding, penalties, and interest have not been collected from QI and the underwithholding or failure to report amounts correctly on Forms 945, 1042, 1042–S, 1099, or Form 8966 are due to a PAI’s failure to properly perform its obligations under its agreement with QI. Nothing in the agreement between QI and a PAI shall be construed to limit the PAI’s requirements under chapter 4 or an applicable IGA. Further, nothing in the agreement between QI and a PAI shall permit the PAI to assume primary chapters 3 and 4 withholding responsibility or assume primary Form 1099 reporting and backup withholding responsibility.

Sec. 4.04. Termination of Arrangement. Except as otherwise provided in section 4.01(H) of this Agreement, QI shall cease to treat an intermediary as a PAI within 90 days from the day QI knows that the PAI is in default of its agreement with QI unless the PAI has cured the event of default prior to the expiration of such 90-day period. QI must provide the IRS with notice of any PAI agreement that has been terminated within 30 days of the termination by removing the intermediary as a PAI on the FATCA registration website.

(A) In General. If QI is an FFI, QI may enter an agreement with a nonwithholding foreign partnership or nonwithholding foreign trust that is either a simple or grantor trust described in this section 4.05(A) to apply the simplified joint account documentation, reporting, and withholding procedures provided in section 4.05(B) of this Agreement. QI, however, when acting as a QDD, may not enter into an agreement under this section 4.05 with a nonwithholding foreign partnership or nonwithholding foreign trust account holder for which it acts as a QDD. QI and a partnership or trust that apply this section 4.05 to any calendar year must apply these rules to the calendar year in its entirety. QI and the partnership or trust may not apply this section 4.05 to any calendar year in which the partnership or trust has failed to make available to QI or QI’s reviewer the records described in this section 4.05(A) within 90 days after these records are requested, and the partnership or trust must waive any legal prohibitions against providing such records to QI. If the partnership or trust has failed to make these records available within the 90-day period, or if QI and the partnership or trust fail to comply with any other requirements of this section 4.05, QI must apply the provisions of §§ 1.1441–1(c) and 1.1441–5(e) to the partnership or trust as a nonwithholding foreign partnership or nonwithholding foreign trust, must correct its withholding for the period during which the failure occurred in accordance with section 9.05 of this Agreement, and cannot apply this section 4.05 to subsequent calendar years. QI and a partnership or trust that apply this section 4.05 to any calendar year are not required to apply this section 4.05 to subsequent calendar years.

A partnership or trust is described in this section 4.05(A) of this Agreement if the following conditions are met:

(1) QI may rely on a valid Form W–8IMY provided by the partnership or trust and may rely on a withholding statement that meets the requirements of § 1.1441–5(c)(3)(iv) or (e)(5)(iv), and § 1.1471–3(c)(3)(iii)(B), if the payment is a withholdable payment, and that provides information for all partners, beneficiaries, or owners together with valid Forms W–8 or, in the case of a partnership or trust that is a certified deemed-compliant FFI, documentary evidence listed in the know-your-customer (KYC) attachment to this Agreement from each partner, beneficiary, or owner, and, for a withholdable payment, documentation that meets the requirements of § 1.1471–3(d) to establish the partner’s, beneficiary’s, or owner’s chapter 4 status. The withholding statement need not provide any allocation information.

(2) QI must treat payments to the partnership or trust as allocated solely to a partner, beneficiary, or owner that is subject to the highest rate of withholding under chapter 3 and must withhold at that rate.

(3) QI may pool report amounts distributed to, or included in the distributive share of, the partnership’s or trust’s direct partners, beneficiaries, or owners in chapter 3 reporting pools on Form 1042–S as described in section 8.03(B) of this Agreement.

(4) After QI has withheld in accordance with section 4.05(B)(2) of this Agreement, it may file a separate Form 1042–S for any partner, beneficiary, or owner who requests that it do so. If QI issues a separate Form 1042–S for any partner, beneficiary, or owner, it cannot include such partner, beneficiary, or owner in QI’s chapter 3 reporting pool. If QI has already filed a Form 1042–S and included the partner, beneficiary, or owner in a chapter 3 reporting pool, it must file an amended return to reduce the amount of the payment reported to reflect the amount allocated to the recipient on the recipient’s specific Form 1042–S. QI may file a separate Form 1042–S for a partner, beneficiary, or owner only if the partnership or trust provides a withholding statement that includes allocation information for the requesting partner, beneficiary, or owner and only if the partnership or trust has agreed in writing under section 4.05(A)(5) of this Agreement to make available to QI or QI’s reviewer the records that substantiate the allocation information included in its withholding statement.

(5) QI may not include any payments made to a partnership or trust to which QI is applying the rules of this section 4.05 in any collective refund claim made under section 9.04 of this Agreement.

Sec. 4.06. Agency Option for Certain Partnerships and Trusts. QI may enter an agreement with a nonwithholding foreign partnership or nonwithholding foreign trust that is either a simple or grantor trust described in section 4.06(A) of this Agreement under which the partnership or trust agrees to act as an agent of QI with respect to its partners, beneficiaries, or owners, and, as QI’s agent, to apply the provisions of the QI Agreement to the partners, beneficiaries, or owners. QI, however, when acting as a QDD may not enter an agreement under this section 4.06 with any account holder for which it acts as a QDD. By entering into an agreement with a partnership or trust as described in this section 4.06, QI is not assigning its liability for the performance of any of its obligations under this Agreement. QI and the partnership or trust to which QI applies the rules of this section 4.06 are jointly and severally liable for any tax, penalties, and interest that may result from the failure of the partnership or trust to meet any of the obligations imposed by its agreement with QI. QI and a partnership or trust that applies the agency option to any calendar year must apply these rules to the calendar year in its entirety. Generally, QI and a partnership or trust that applies the agency option to any calendar year is not required to apply the agency option to subsequent calendar years. If, however, QI withholds and reports any adjustments required by corrected information in a subsequent calendar year under section 4.06(B)(2) of this Agreement, QI must apply the agency option to that calendar year in its entirety. QI and a partnership or trust may not apply the agency option to any calendar year when the partnership or trust has failed to make available to QI or QI’s reviewer the records described in section 4.06 of this Agreement within 90 days after these records are requested, and the partnership or trust must waive any legal prohibitions against providing such records to QI. If, for any calendar year, the partnership or trust has failed to make these records available within the 90-day period, or if QI and the partnership or trust fail to comply with any other requirement of this section 4.06, QI must apply §§ 1.1441–1(c) and 1.1441–5(e) to the partnership or trust as a nonwithholding foreign partnership or nonwithholding foreign trust, must correct its withholding for the period in which the failure occurred in accordance with section 9.05 of this Agreement, and cannot apply the agency option to subsequent calendar years.

(A) A partnership or trust is described in this section 4.06(A) of this Agreement if the following conditions are met:

(1) QI may rely on a valid Form W–8IMY provided by the partnership or trust, together with a withholding statement described in § 1.1441–5(c)(3)(iv) or (e)(5)(iv) and § 1.1471–3(c)(3)(iii)(B), if the payment is a withholdable payment, that includes all information necessary for QI to fulfill its withholding, reporting, and filing obligations under this Agreement. The withholding statement may include chapter 3 withholding rate pools described in section 6.03 of this Agreement for partners, beneficiaries, or owners that are not intermediaries, flow-through entities (or persons holding interests in the partnership or trust through such entities), U.S. persons, or passive NFFEs with one or more substantial U.S. owners (or one or more controlling persons that is a specified U.S. person), and the partnership or trust need not provide to QI documentation for these partners, beneficiaries, or owners. The withholding statement may also include a chapter 4 withholding rate pool of nonparticipating FFIs described in section 6.03 of this Agreement for payments of amounts subject to chapter 4 withholding. Notwithstanding the preceding sentences of this section 4.06(B)(1), the partnership or trust is required to disclose to QI any interest holder that is a passive NFFE with substantial U.S. owners (or controlling persons that are specified U.S. persons) or that is a U.S. non-exempt recipient, as well as the account holders or interest holders of any nonqualified intermediary or flow-through entity, respectively, which has an interest in the partnership or trust, and to provide all of the documentation and other information relating to those account holders and interest holders that is required for the QI, or another withholding agent, to report the payments made to those account holders and interest holders to the extent required by sections 8.02(B) and 8.05 of this Agreement.

(2) Timing of Withholding. QI must withhold on the date it makes a payment to the partnership or trust based on a withholding statement provided by the partnership or trust on which QI is permitted to rely. The amount allocated to each partner, beneficiary, or owner in the withholding statement may be based on a reasonable estimate of the partner’s, beneficiary’s, or owner’s distributive share of income subject to withholding for the year. The partnership or trust must correct the estimated allocations to reflect the partner’s, beneficiary’s, or owner’s actual distributive share and must provide this corrected information to QI on the earlier of the date that the statement required under section 6031(b) (i.e., Schedule K-1) or the Beneficiary Statement or Owner Statement is mailed or otherwise provided to the partner, beneficiary, or owner, or the due date for furnishing the statement (whether or not the partnership or trust is required to prepare and furnish the statement). If that date is after the due date (without regard to extensions) for QI’s Forms 1042 and 1042–S for the calendar year, QI may withhold and report any adjustments required by the corrected information in the following calendar year.

(3) Payments Reportable Under Chapters 3 and 4. QI shall report on Form 1042–S all amounts subject to chapters 3 and 4 withholding distributed to, or included in the distributive share of, the partnership or trust as follows:

(4) Form 1099 Reporting and Backup Withholding. The agreement between QI and the partnership or trust must also provide that QI shall include all reportable payments made by the partnership or trust in QI’s Forms 945 and 1099 to the extent required under this section 4.06(B)(4). QI shall file Forms 1099 and backup withhold, if required, on reportable payments made by QI to U.S. non-exempt recipient that are direct or indirect partners, beneficiaries, owners of the partnership or trust in accordance with the terms of this Agreement.

(5) Form 8966 Reporting Requirements. The agreement between QI and the partnership or trust must also provide that QI shall report all withholdable payments made by the partnership or trust on Form 8966 to the extent required under this section 4.06(B)(5). If the partnership or trust is itself a passive NFFE and if any of its partners, beneficiaries, or owners is a passive NFFE with one or more substantial U.S. owners (or one or more controlling persons that is a specified U.S. person), QI shall file Forms 8966 to report all withholdable payments made by QI to any such passive NFFE in accordance with sections 8.04 and 8.05 of this Agreement.

(C) Other Requirements of Agency Agreement. QI shall require the partnership or trust to provide QI with all the information necessary for QI to meet its obligations under this Agreement. No provisions shall be contained in the agreement between QI and the partnership or trust that preclude, and no provisions of this Agreement shall be construed to preclude, the partnership or trust’s joint and several liability for tax, penalties, and interest under chapters 3, 4, and 61 and section 3406, to the extent that the underwithholding, penalties, and interest have not been collected from QI and the underwithholding or failure to report amounts correctly on Forms 945, 1042, 1042–S, 1099, or 8966 is due to the partnership’s or trust’s failure to properly perform its obligations under its agreement with QI. Nothing in the agreement between QI and the partnership or trust shall be construed to limit the partnership’s or trust’s requirements under chapter 4 as a certified deemed-compliant FFI, owner-documented FFI, NFFE, or exempt beneficial owner. Further, nothing in the agreement between QI and the partnership or trust shall permit the partnership or trust to assume primary chapters 3 and 4 withholding responsibility or primary Form 1099 reporting and backup withholding responsibility.

(A) Coordination of Documentation Requirements with Chapter 4.(1) QI that is an FFI. If QI is an FFI, QI is required to perform the due diligence procedures for each account holder for whom QI is acting under its FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI to determine if the account is a U.S. account (or U.S. reportable account) and each account holder that is a nonparticipating FFI and, if applicable, recalcitrant account holder (or non-consenting U.S. account). See QI’s FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI to perform due diligence with respect to each account that it maintains. If an account holder receiving the payment is not the payee, QI is also required to establish the chapter 4 status of the payee or payees to determine whether withholding applies under chapter 4. See section 5.13(B)(1) of this Agreement for the requirements for QI to reliably associate a withholdable payment with a Form W–8IMY for chapter 4 purposes. To the extent an account holder receives a payment with respect to which QI has determined that withholding is not required under chapter 4, QI shall obtain, unless already collected, documentation that meets the requirements of this section 5 to determine whether the account holder is a foreign person for which QI is required to withhold under chapter 3 or a U.S. payee for which QI is required to backup withhold under section 3406 or report on Form 1099 under chapter 61. See, however, section 8.06 of this Agreement providing the circumstances in which reporting of U.S. accounts (or U.S. reportable accounts) under its FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI satisfies QI’s Form 1099 reporting responsibilities. See Notice 2014–33, 2014–21 I.R.B. 1033, which modifies the time in which QI is required to implement the applicable due diligence procedures under its FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI with respect to an obligation held by an entity that is opened, issued, or executed on or after July 1, 2014, and before January 1, 2015.

(2) QI that is an NFFE. If QI is an NFFE, QI is required to document the chapter 4 status of each account holder for whom QI is acting to determine if withholding and reporting apply under section 1471 or 1472 on withholdable payments made to the account holder. QI is required to obtain, unless already collected, a valid Form W–8 or Form W–9 from each account holder to determine whether QI is required to withhold under chapter 3 or 4 or report on Form 1099 under chapter 61. Thus, the allowance in this section 5 for QI to obtain documentary evidence does not apply if QI is an NFFE. QI may, however, obtain appropriate documentary evidence as additional documentation to establish the foreign status of an account holder. See § 1.1471–3(e)(4) for when QI will have reason to know that an entity’s claim of chapter 4 status is unreliable or incorrect and § 1.1471–3(c)(6)(ii)(E) for QI’s requirements following a change in circumstances.

(B) General Documentation Requirements. QI agrees to use its best efforts to obtain documentation from account holders that receive a reportable payment to determine whether withholding applies or whether a payment is reportable under this Agreement. If QI is an FFI obtaining documentary evidence, QI also agrees to adhere to the know-your-customer rules that apply to QI with respect to the account holder from whom the documentary evidence is obtained. Unless QI can reliably associate a reportable payment with valid documentation from the account holder under section 5.13(B) of this Agreement, QI shall apply the presumption rules described in section 5.13(C) of this Agreement to any account holder that receives a reportable payment to determine if withholding is required under chapter 3 or 4 or if backup withholding is required under section 3406. As set forth in section 11.06 of this Agreement, failure to obtain documentation from a significant number of direct account holders constitutes an event of default. QI agrees to review and maintain documentation in accordance with this section 5 and, in the case of documentary evidence obtained from direct account holders, in accordance with the know-your-customer rules set forth in the Attachments to this Agreement. QI also agrees, if the performance of an external review is requested by IRS as described in section 10.08(D) of this Agreement, to make documentation (together with any associated withholding statements and other documents or information) available upon request for inspection by QI’s external reviewer. QI represents that none of the laws to which it is subject prohibits disclosure of the identity of any account holder or account information to QI’s external reviewer. QI may rely on the documentation it obtains under this section 5 as the basis for the information it provides to another withholding agent under section 6 of this Agreement, as well as to determine its own withholding, tax, and reporting obligations.

(C) QI that is a QDD. If QI is acting as a QDD, QI is required to apply the rules of this section 5 to each account holder of an account for which it is acting as a QDD and to which it makes a reportable payment or a payment of a qualifying dividend equivalent offsetting payment (notwithstanding the limitation in section 2.70(B) of this Agreement) in accordance with the applicable requirements in section 5.01(A) and (B) of this Agreement.

Sec. 5.02. Documentation for Foreign Account Holders. QI may treat an account holder as a foreign beneficial owner of an amount if the account holder provides a valid Form W–8 (other than Form W–8IMY unless provided by a QI that is acting as a QDD or assuming primary withholding responsibility for a substitute interest payment) or valid documentary evidence, as described in section 2.20 of this Agreement, that supports the account holder’s status as a foreign person. QI may not treat an account holder that provides documentation indicating that it is a bank, broker, intermediary, or agent (such as an attorney) as a beneficial owner unless QI receives a statement, in writing and signed by a person with authority to sign such a statement, stating that such account holder is the beneficial owner of the income. Further, QI may not reduce the rate of withholding with respect to an indirect account holder that is a foreign beneficial owner unless the certification provided by the direct account holder is a valid Form W–8IMY, and then only to the extent that QI can reliably associate the payment with valid documentation that establishes the indirect account holder’s entitlement to a reduced rate of withholding under chapter 3 and establishes that withholding does not apply under chapter 4 in the case of a withholdable payment made to the account holder. See section 5.13(B) of this Agreement for rules regarding reliable association with documentation.

Sec. 5.03. Beneficial Owner’s Claim of Treaty Benefits. To the extent an account holder receives a payment that is not subject to withholding under chapter 4, QI may not reduce the rate of withholding under chapter 3 based on a beneficial owner’s claim of treaty benefits unless QI obtains the documentation required by section 5.03(A) of this Agreement. In addition, QI agrees to establish procedures to inform account holders of the terms of limitation on benefits provisions of a treaty (whether or not those provisions are contained in a separate article entitled Limitation on Benefits) under which the account holder is claiming benefits. For accounts held by an entity opened or documented on or after January 1, 2017, QI is required to obtain a Form W–8BEN-E with the appropriate limitation on benefits certification or, if QI is allowed to and obtains documentary evidence, the written certification accompanying the treaty statement as described in section 5.03(B) of this Agreement. For accounts maintained by QI prior to January 1, 2017 that were documented with documentary evidence and for which treaty benefits are being claimed, QI is required to obtain the appropriate limitation on benefits statement prior to January 1, 2019.

(A) Treaty Documentation. The documentation required by this section 5.03(A) is as follows:

(B) Treaty Statement. The treaty statement required by an entity account holder under this section 5.03(B) is as follows:

[Name of entity account holder] meets all provisions of the applicable treaty that are necessary to claim a reduced rate of withholding, including any limitation on benefits provisions, and derives the income within the meaning of section 894, and the regulations thereunder, as the beneficial owner.

The treaty statement must also include a written certification that the entity meets the appropriate limitation on benefits certification as described on Form W–8BEN-E and its accompanying instructions and that specifies the category of the limitation on benefits provision that the entity meets. QI is only required to obtain the treaty statement required by this section 5.03(B) from an account holder that is an entity. QI shall not be required to obtain a treaty statement required by this section 5.03(B) from an individual who is a resident of an applicable treaty country or from the government, or its political subdivisions, of a treaty country.

Sec. 5.04. Documentation for International Organizations. To the extent an account holder receives a payment that is not subject to withholding under chapter 4, QI may not treat the account holder as an international organization entitled to an exemption from withholding under section 892 unless the name provided on the documentation (including a Form W–8EXP) is the name of an entity designated as an international organization by executive order pursuant to 22 United States Code 288 through 288(f) and the documentation is valid under section 5.10 of this Agreement. If an international organization is not claiming benefits under section 892 but under another Code exception, the provisions of section 5.02 of this Agreement shall apply rather than the provisions of this section 5.04.

(A) Documentation From a Foreign Government or Foreign Central Bank of Issue Claiming an Exemption From Withholding Under Section 892 or Section 895. To the extent an account holder receives a payment that is not subject to withholding under chapter 4, QI may not treat an account holder as a foreign government or foreign central bank of issue exempt from withholding under section 892 or 895 unless—

(B) Treaty Exemption. To the extent an account holder receives a payment that is not subject to withholding under chapter 4, QI may treat an account holder as a foreign government or foreign central bank of issue entitled to a reduced rate of withholding under an income tax treaty for purposes of chapter 3 if it has valid documentation that is sufficient to obtain a reduced rate of withholding under a treaty as described in section 5.03 of this Agreement.

(C) Other Code Exception. If a foreign government or foreign central bank of issue is not claiming benefits under section 892 or under an income tax treaty but under another Code exception (e.g., the portfolio interest exception under section 871(h) or 881(c)), the provisions of section 5.02 of this Agreement apply rather than the provisions of this section 5.05.

Sec. 5.06. Documentation for Foreign Tax-Exempt Organizations. To the extent an account holder receives a payment that is not subject to withholding under chapter 4, QI may not treat an account holder as a foreign tax-exempt organization and reduce the rate of or exempt the account holder from withholding for purposes of chapter 3 unless it satisfies the requirements provided in section 5.06(A), (B), or (C) of this Agreement.

(A) Reduced Rate of Withholding Under Section 501. QI may not treat an account holder as a foreign organization described under section 501(c), and therefore exempt from withholding under chapter 3 (or, if the account holder is a foreign private foundation, subject to withholding at a 4-percent rate under section 1443(b)) unless QI obtains a valid Form W–8EXP on which Part IV of the form is completed.

(B) Reduced Rate of Withholding Under Treaty. QI may not treat an account holder as a foreign organization that is tax-exempt on an item of income pursuant to an income tax treaty unless QI obtains valid documentation as described under section 5.03 of this Agreement that is sufficient for obtaining a reduced rate of withholding under the treaty and the documentation establishes that the account holder is an organization exempt from tax under the treaty on that item of income.

(C) Other Exceptions. If a tax-exempt entity is not claiming a reduced rate of withholding because it is a foreign organization described under section 501(c) or under a treaty article that applies to exempt certain foreign organizations from tax, but is claiming a reduced rate of withholding under another Code or income tax treaty exception, the provisions of section 5.02 or 5.03 (as applicable) of this Agreement shall apply rather than the provisions of this section 5.06.

Sec. 5.07. Documentation from Intermediaries or Flow-Through Entities. QI must apply the presumption rules to a reportable payment made to a nonqualified intermediary or flow-through entity that is a direct account holder of QI to the extent QI fails to obtain the documentation set forth below. If QI receives documentation for the account holders or interest holders of an intermediary or flow-through entity, as described in this section 5.07, QI must apply the rules of this section 5 to determine the validity of such documentation.

(A) Withholdable Payments Made to Nonqualified Intermediaries and Flow-Through Entities. With respect to a withholdable payment made to a nonqualified intermediary or flow-through entity—

(B) Reportable Payments Other than Withholdable Payments Made to Nonqualified Intermediaries and Flow-Through Entities. With respect to a reportable payment that is not a withholdable payment made to a nonqualified intermediary or flow-through entity (other than a withholding foreign partnership or withholding foreign trust)—

(C) Reportable Payments Made to Qualified Intermediaries and Withholding Foreign Partnerships and Withholding Foreign Trusts. With respect to a reportable payment made to a qualified intermediary, a withholding foreign partnership, or a withholding foreign trust, QI receives a valid Form W–8IMY provided by the qualified intermediary, withholding foreign partnership, or withholding foreign trust that includes the entity’s chapter 4 status for a payment that is a withholdable payment and, for those payments for which a qualified intermediary has not assumed primary chapters 3 and 4 withholding responsibility or primary Form 1099 reporting and backup withholding responsibility, QI can reliably associate the payment with withholding rate pools, as described in section 6.03 of this Agreement.

(D) Payments Made to Qualified Intermediaries Acting as QDDs. For payments with respect to potential section 871(m) transactions or underlying securities made to a qualified intermediary acting as a QDD, if QI receives a valid Form W–8IMY provided by the qualified intermediary acting as a QDD that includes the qualified intermediary’s chapter 4 status and the required certification that the qualified intermediary is acting as a QDD and assumes primary withholding responsibility for such payments, then QI can reliably associate the payments as made to the qualified intermediary acting as a QDD.

(E) Private Arrangement Intermediaries. If QI has an agreement with a PAI (see section 4.01 of this Agreement), QI obtains from the PAI a Form W–8IMY completed as if the PAI were a QI that is an FFI (with the exception that the PAI must not provide a QI-EIN on the Form W–8IMY) and QI can reliably associate the payment with a withholding statement, as described in section 4.01(G) of this Agreement and the information described in this section 5.07 for any account holders of the PAI that are intermediaries or flow-through entities and the documentation for any passive NFFE with one or more substantial U.S. owners (or one or more controlling persons that is a specified U.S. person if QI is a reporting Model 1 or reporting Model 2 FFI).

(F) Partnership or Trusts to which QI Applies the Agency Option. If QI has an agreement with a partnership or trust under which the partnership or trust agrees to act as an agent of QI (see section 4.06 of this Agreement), QI obtains from the partnership or trust a Form W–8IMY completed as if the partnership or trust were a QI (with the exception that the partnership or trust must not provide a QI-EIN on the Form W–8IMY) and QI can reliably associate the payment with a withholding statement, as described in section 4.06(B)(1) of this Agreement and the information described in this section 5.07 for any account holders that are intermediaries or flow-through entities and the documentation for any passive NFFE with one or more substantial U.S. owners (or one or more controlling persons that is a specified U.S. person if QI is a reporting Model 1 or reporting Model 2 FFI).

Sec. 5.08. Documentation for U.S. Exempt Recipients. QI shall not treat an account holder as a U.S. exempt recipient unless QI obtains from the account holder—

Sec. 5.09. Documentation for U.S. Non-Exempt Recipients. QI shall not treat an account holder as a U.S. non-exempt recipient unless QI obtains a valid Form W–9 from the account holder, QI knows an account holder is a U.S. non-exempt recipient, or QI must presume a person is a U.S. non-exempt recipient to the extent required under section 5.13(C)(3) or (4) of this Agreement.

(A) In General. QI may not rely on documentation if QI has actual knowledge, or reason to know as described in section 5.10(B) or 5.10(C) of this Agreement, that there is a change in circumstances with respect to the information or statements contained in the documentation or account information that affects the reliability of the account holder’s claim. See § 1.1441–1(e)(4)(ii)(D) for the definition of change in circumstances for chapter 3 purposes. A change in circumstances affecting withholding information, including allocation information or withholding rate pools contained in a withholding statement, will also cause the documentation provided with respect to that information to no longer be reliable. Once QI knows, or has reason to know, that documentation provided by an account holder is unreliable or incorrect to establish foreign status or residency for purposes of claiming benefits under an applicable income tax treaty, it can no longer reliably associate a payment with valid documentation unless QI obtains the additional documentation described in this section 5.10. With respect to a beneficial owner claiming benefits under an applicable income tax treaty, QI cannot rely on the account holder’s claim of which limitation on benefits provision it satisfies if QI has actual knowledge that such claim is incorrect. QI will be considered to have reason to know that a claim for treaty benefits is unreliable or incorrect if the documentation provided by the account holder claims benefits under a treaty that does not exist or is not in force (i.e., if the country is not included on the list maintained at https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z). The rule in the preceding sentence will apply to pre-existing accounts for which QI held valid documentation upon a change in circumstances or, with respect to a pre-existing entity account, when it provides a written limitation on benefits statement (as described in section 5.03(B) of this Agreement). For all new accounts, this rule will apply on account opening. For purposes of this section 5.10(A), a “pre-existing account” or “pre-existing entity account” is an account documented by QI prior to January 1, 2017, for a QI with a QI Agreement in effect prior to that date. For a QI that did not have a QI Agreement in effect prior to January 1, 2017, a “pre-existing account” or “pre-existing entity account” means an account maintained (and for which QI has valid documentation) prior to the effective date of its QI Agreement.

In addition, if QI becomes aware of information resulting in the documentation no longer being reliable or correct and QI has not assumed primary withholding responsibility under chapters 3 and 4, QI agrees that it will promptly provide a withholding agent with corrected information (e.g., corrected withholding rate pools, corrected Forms W–9, or corrected U.S. TINs) within 30 days after QI knows or has reason to know that the documentation upon which it has relied is unreliable or incorrect. If QI receives notification from the IRS that documentation provided by an account holder is unreliable or incorrect (e.g., that the U.S. TIN provided by an account holder is incorrect), QI shall follow the procedures set forth in § 31.3406(d)–5. See also QI’s FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI or an NFFE’s requirements as a withholding agent under sections 1471 and 1472 following a change in circumstances.

(B) Reason to Know-Direct Account Holders. If QI is a financial institution as defined in § 1.1471–5(e), an insurance company (without regard to whether such company is a specified insurance company), or a broker or dealer in securities, QI shall be considered to have reason to know that documentation provided by a direct account holder is unreliable or incorrect only if one or more of the circumstances described in this section 5.10(B) applies. If an account holder has provided documentation that is unreliable or incorrect under the rules of this section 5.10(B), QI must request new documentation. Notwithstanding the preceding sentence, QI may rely on the documentation originally provided if the rules of this section 5.10(B) permit such reliance and QI obtains the additional statements and documentation described in this section 5.10(B). If QI is an NFFE that is required to collect Forms W–8, see § 1.1441–7(b)(2) for when QI shall be considered to have reason to know that a withholding certificate provided by a direct account holder is unreliable or incorrect.

(i) QI shall not rely on a Form W–9 if it is not permitted to do so under the rules of § 31.3406(h)–3(e) and shall not rely on a Form W–8 if it is not permitted to do so under the rules of § 1.1441–7(b)(4) through (6) except as otherwise provided in this section 5.10(B).

(ii) QI shall not treat documentary evidence provided by an account holder as valid if the documentary evidence does not reasonably establish the identity of the person presenting the documentary evidence. For example, documentary evidence is not valid if it is provided in person by an account holder that is a natural person and the photograph on the documentary evidence, if any, does not match the appearance of the person presenting the document.

(iii) QI may not rely on documentation to reduce the withholding rate that would otherwise apply if—

For example, if an account holder is an entity and provides documentary evidence to claim treaty benefits and the documentary evidence establishes the account holder’s status as a foreign person and a resident of a treaty country but fails to provide the treaty statement in section 5.03 of this Agreement, the documentary evidence does not establish the account holder’s entitlement to a reduced rate of withholding. However, for purposes of establishing an account holder’s status as a foreign person or residency under an income tax treaty, documentation shall be considered inconsistent only if it is unreliable or incorrect under the rules of section 5.10(B)(2) or (3) of this Agreement.

(2) Rules Regarding Establishment of Foreign Status.

(i) QI shall not treat documentary evidence provided by an account holder before January 1, 2001, as valid for purposes of establishing an account holder’s status as a foreign person if QI has actual knowledge that the account holder is a U.S. person or if it has a current mailing or current residence address for the account holder in the United States.

(ii) QI shall not treat documentation provided by an account holder after December 31, 2000, as valid for purposes of establishing the account holder’s foreign status if QI classified the account holder as a U.S. person in its account information, or if it does not have a permanent residence address for the account holder. Further, QI shall not treat documentation provided with respect to an account as valid for purposes of establishing an account holder’s status as a foreign person if QI has a current mailing or permanent residence address (whether or not on the documentation) for the account holder in the United States, or if QI has a current telephone number for the person in the United States and has no telephone number for the person outside of the United States (except with respect to a preexisting obligation (as defined in § 1.1441–1(c)(54)) to the extent the QI documented the foreign status of the account holder for purposes of chapter 3 or 61 before July 1, 2014). The limit on reason to know described in the preceding sentence with respect to a preexisting account documented before July 1, 2014, shall not apply, however, if QI is notified of a change in circumstances and as of the date of such notification QI shall not treat such documentation as valid for purposes of establishing the account holder’s foreign status.

If QI has classified the account holder as a U.S. person or has an address or sole telephone number for the account holder in the United States, QI may nevertheless treat an account holder that is an individual as a foreign person if QI—

(a) Has in its possession, or obtains, additional documentary evidence (which does not contain a U.S. address) supporting the claim of foreign status and a reasonable explanation in writing supporting the account holder’s foreign status (as defined in § 1.1441–7(b)(12));

(b) Obtains a valid Form W–8, and the Form W–8 contains a permanent residence address outside the United States and a mailing address, if any, outside the United States (or if a mailing address is inside the United States, the account holder provides a reasonable explanation in writing supporting the account holder’s foreign status); or

(c) Has classified the account holder as a resident of the country in which the account is maintained; QI is required to report a payment made to the account holder annually on a tax information statement that is filed with the tax authority of the country in which the office that maintains the account is located as part of the country’s resident reporting requirements; and that country has a tax information exchange agreement or an income tax treaty in effect with the United States.

If QI has classified the account holder as a U.S. person or has an address or sole telephone number for the account holder in the United States, QI may nevertheless treat an account holder that is an entity (other than a flow-through entity) as a foreign person if QI—

(d) Has in its possession, or obtains, documentary evidence that substantiates that the entity is actually organized or created under the laws of a foreign country;

(e) Obtains a valid Form W–8, and the Form W–8 contains a permanent residence outside the United States and a mailing address, if any, outside the United States (or if a mailing address is inside the United States, the account holder provides additional documentary evidence sufficient to establish the account holder’s foreign status); or

(f) Has classified the entity as a resident of the country where the account is maintained; QI is required to report a payment made to the account holder annually on a tax information statement filed with the tax authority of the country in which the office that maintains the account is located as part of the country’s resident reporting requirements; and that country has a tax information exchange agreement or an income tax treaty in effect with the United States.

(iii) With respect to an account other than a preexisting obligation (defined in § 1.1441–1(c)(54)) that QI has documented the foreign status of the account holder for purposes of chapter 3 or 61 before July 1, 2014, QI shall not treat documentation as valid for purposes of establishing an account holder’s status as a foreign person if it has, either on the documentary evidence or in its current customer account files, an unambiguous indication of place of birth for the individual in the United States. The limit on reason to know described in the preceding sentence with respect to a preexisting obligation documented before July 1, 2014, shall not apply, however, if QI either reviews documentation that contains a U.S. place of birth or is notified of a change in circumstances, and, as of the date of such review or notification, QI shall not treat such documentation as valid for purposes of establishing the account holder’s foreign status.

QI may nevertheless treat the account holder with a U.S. place of birth as a foreign person if QI—

(iv) QI shall not treat documentation as valid for purposes of establishing an account holder’s status as a foreign person if the account holder has standing instructions directing QI to pay amounts from its account to an address or an account maintained in the United States. QI may treat documentation as valid for establishing foreign status even though the account holder has such standing instructions if the account holder provides a reasonable explanation in writing supporting the account holder’s foreign status (as defined in § 1.1441–7(b)(12)) or has both a valid Form W–8 establishing foreign status and documentary evidence establishing foreign status.

(i) QI shall not treat an account holder as a resident under an income tax treaty if the permanent residence address on a Form W–8 is not in the applicable treaty country or if the account holder notifies QI of a new permanent residence address that is not in the treaty country. QI may, however, rely on the Form W–8 if the account holder provides a reasonable explanation for the permanent residence address outside the treaty country or if QI has in its possession, or obtains, documentary evidence that establishes the claim of residency in a treaty country.

(ii) QI shall not treat an account holder as a resident under an income tax treaty if the permanent residence address on a Form W–8 is in the applicable treaty country but the Form W–8 contains a mailing address outside the treaty country or QI has a current mailing address for the account holder outside the applicable treaty country in its account information. A mailing address that is a P.O. Box, in-care-of address, or address at a financial institution (if the financial institution is not a beneficial owner) shall not preclude QI from treating the account holder as a resident of an applicable treaty country if such address is in the applicable treaty country. If QI has a current mailing address for the account holder outside the applicable treaty country (whether or not contained on the Form W–8), QI may nevertheless treat the account holder as a resident of the applicable treaty country if QI—

(a) Has in its possession, or obtains, additional documentary evidence supporting the account holder’s claim of residence in the applicable treaty country (and the additional documentation does not contain an address outside the treaty country);

(b) Has in its possession, or obtains, documentary evidence that establishes that the account holder is an entity organized in a treaty country (or an entity managed and controlled in a treaty country, if the applicable treaty so requires);

(c) Knows that the address outside the applicable treaty country (other than a P.O. Box, or in-care-of address) for an entity that is a resident of the applicable treaty country is the address of a branch of such entity; or

(d) Obtains a written statement from the account holder that reasonably establishes entitlement to treaty benefits.

(iii) QI shall not treat documentary evidence as valid for purposes of establishing residency in a treaty country if QI has a current mailing or current permanent residence address for the account holder (whether or not on the documentary evidence) that is outside of the applicable treaty country, or QI has no permanent residence address for the account holder. If QI has a current mailing or current permanent residence address for the account holder outside of the applicable treaty country, QI may nevertheless rely on the documentary evidence if QI—

(iv) QI shall not treat documentation as valid for purposes of establishing an account holder’s residence in an applicable treaty country if the account holder has standing instructions for QI to pay amounts from its account to an address or an account outside the treaty country unless the account holder provides a reasonable explanation in writing establishing the direct account holder’s residence in the applicable treaty country or a valid Form W–8 that contains a permanent residence address and a mailing address in the applicable treaty country, or, if the account holder initially provided a Form W–8, documentary evidence establishing the account holder’s residence in the applicable treaty country.

(C) Reason to Know-Indirect Account Holders. QI shall be considered to have reason to know that relevant information or statements contained in documentation provided by an indirect account holder is unreliable or incorrect if a reasonably prudent person in the position of a qualified intermediary would question the claims made. QI shall have reason to know that documentation provided by a nonqualified intermediary or a flow-through entity is unreliable or incorrect if the nonqualified intermediary or flow-through entity does not provide QI with, to the extent required, the names of the indirect account holders, their addresses, allocation information allocating payments to each indirect account holder, and sufficient information for QI to report payments on Forms 1042–S and 1099. In addition, QI shall have reason to believe that an indirect account holder is not entitled to a reduced rate of withholding under an income tax treaty if the nonqualified intermediary or flow-through entity has not provided sufficient information so that QI can verify that the indirect account holder has provided a U.S. TIN or foreign TIN, if required, and made the necessary statements regarding limitations on benefits provisions and deriving the income under section 894 and the regulations thereunder. See § 1.1441–7(b)(10) and section 5.03 of this Agreement.

(A) Documentation Other than Form W–9. QI may rely on valid documentary evidence obtained from account holders in accordance with applicable know-your-customer rules as long as the documentary evidence remains valid under those rules or until QI knows, or has reason to know, that the information contained in the documentary evidence is incorrect. QI may rely on the representations described in section 5.03 of this Agreement obtained in connection with such documentation for the same period of time as the documentation. For establishing an account holder’s chapter 3 status (as defined in § 1.1441–1(c)(45)) or foreign status for chapter 61 purposes, QI may rely on a Form W–8 until its validity expires under § 1.1441–1(e)(4)(ii) and may rely on documentary evidence (other than documentary evidence obtained pursuant to applicable know-your-customer rules) until its validity expires under § 1.6049–5(c).

(B) Form W–9. QI may rely on a valid Form W–9 as long as it has not been informed by the IRS or another withholding agent that the form is unreliable or incorrect. If QI has primary Form 1099 reporting and backup withholding responsibility, it may rely on a Form W–9 unless one of the conditions of § 31.3406(h)–3(e)(2)(i) through (v) apply.

(A) Maintaining Documentation. QI shall maintain documentation by retaining the original documentation, a certified copy, a photocopy, a scanned copy, a microfiche, or other means that allow reproduction (provided that the QI has recorded receipt of the documentation and is able to produce a hard copy). For a direct account, if QI is not required to retain copies of documentary evidence under its know-your-customer rules, QI may instead retain a notation of the type of documentation reviewed, the date the documentation was reviewed, the document’s identification number (if any) (e.g., a passport number), and whether such documentation contained any U.S. indicia. For direct accounts opened prior to January 1, 2001, if QI was not required under its know-your-customer rules to maintain originals or copies of documentation, QI may rely on its account information if it has complied with all other aspects of its know-your-customer rules regarding establishment of an account holder’s identity, it has a record that the documentation required under the know-your-customer rules was actually examined by an employee of QI in accordance with the know-your-customer rules, and it has no information in its possession that would require QI to treat the documentation as invalid under the rules of section 5.10(B) of this Agreement.

(B) Retention Period. QI shall retain a record of the account holder’s documentation obtained under this section 5 for as long as the documentation is relevant to the determination of QI’s tax liability or reporting responsibilities under sections 871, 881, 1461, 1474(a), and 3406.

(A) In General. QI shall apply the presumption rules of section 5.13(C) of this Agreement if QI cannot reliably associate a payment with valid documentation from an account holder. The presumption rules cannot be used to grant a reduced rate of withholding. For example, the portfolio interest exception of sections 871(h) and 881(c) shall not apply to a person that is presumed to be foreign. Further, QI must apply the presumption rules when required and may not rely on its actual knowledge regarding an account holder’s chapter 4 status or status as a U.S. or foreign person to apply a reduced rate of withholding. Notwithstanding the preceding sentence, QI must rely on its actual knowledge regarding an account holder rather than what is presumed under section 5.13(C) of this Agreement if, based on such knowledge, it should withhold an amount greater than the withholding rate under the presumption rules or it should report on Form 1042–S or Form 1099 an amount that would otherwise not be reported. Failure to follow the presumption rules may result in liability for underwithholding, penalties, and interest.

(B) Reliably Associating a Payment with Documentation. A payment can be reliably associated with documentation if it is considered reliably associated with documentation under the rules of § 1.1441–1(b)(2)(vii) and, for a withholdable payment, § 1.1471–3(c). Generally, QI can reliably associate a payment with documentation if, for that payment, it holds valid documentation, as described in this section 5, from the account holder; it can reliably determine how much of the payment relates to the valid documentation provided by such account holder; and it has no actual knowledge or reason to know, under the requirements of section 5.10 of this Agreement, that any of the information, certifications, or statements in or associated with the documentation are incorrect. Sections 5.13(B)(1) through (5) of this Agreement describe when a payment is reliably associated with documentation if the payment is made to an account holder that is an intermediary or flow-through entity (other than a nonparticipating FFI that is not acting on behalf of exempt beneficial owners).

(1) Reliably Associating a Payment with Documentation Provided by a Nonqualified Intermediary or Flow-Through Entity. Generally, QI can reliably associate a payment with documentation provided by a nonqualified intermediary or flow-through entity if it can reliably associate the payment with a valid Form W–8IMY provided by the nonqualified intermediary or flow-through entity, and it can determine the portion of the payment that relates to valid documentation associated with the Form W–8IMY for an account holder or interest holder of the nonqualified intermediary or flow-through entity that is not itself a nonqualified intermediary or flow-through entity; and the nonqualified intermediary or flow-through entity provides sufficient information for QI to report the payments on Form 1042–S, Form 1099, or Form 8966 if reporting is required.

If the payment is a withholdable payment, the Form W–8IMY must provide the nonqualified intermediary’s or flow-through entity’s chapter 4 status to the extent required for chapter 4 purposes. In lieu of the nonqualified intermediary or flow-through entity providing documentation for an account holder that is subject to chapter 4 withholding, QI can reliably associate a withholdable payment with valid documentation associated with the Form W–8IMY from the nonqualified intermediary or flow-through entity if it can determine the portion of the payment allocable to a chapter 4 withholding rate pool (to the extent permissible under § 1.1471–3(c)(3)(iii)(B)).

If the payment is a reportable amount, QI can reliably associate such payment with valid documentation provided by a nonqualified intermediary or a flow-through entity that is a participating FFI or registered deemed-compliant FFI if, in lieu of providing documentation for its account holders that are U.S. persons, such nonqualified intermediary or flow-through entity allocates the payment to a chapter 4 withholding rate pool of U.S. payees and also certifies on a valid Form W–8IMY that it meets the requirements of § 1.6049–4(c)(4)(iii) with respect to any account holder of an account it maintains within the meaning of § 1.1471–5(d)(5) (i.e., a direct account holder) that receives a payment included in this pool or allocates a payment that is a withholdable payment to a chapter 4 withholding rate pool of recalcitrant account holders.

Notwithstanding the preceding sentences in this section 5.13(B)(1), to the extent a payment is not subject to reporting on Form 1042–S, Form 1099, or Form 8966, QI can reliably associate the payment with valid documentation if it can determine the portion of the payment that is allocable to a group of documented account holders (other than nonqualified intermediaries or flow-through entities) for whom withholding and reporting is not required. For example, QI can treat a payment of short term OID allocable to a group of documented foreign account holders as reliably associated with valid documentation. Further, if the documentation attached to a nonqualified intermediary’s or flow-through entity’s Form W–8IMY is documentation from another nonqualified intermediary or flow-through entity, then QI must apply the rules of this paragraph to that other nonqualified intermediary or flow-through entity.

(2) Reliably Associating a Payment with a Withholding Certificate Provided by Another Qualified Intermediary that Does Not Assume Primary Chapters 3 and 4 Withholding or Primary Form 1099 Reporting and Backup Withholding Responsibility. Generally, QI can reliably associate a payment with documentation provided by another qualified intermediary that does not assume either primary chapters 3 and 4 withholding responsibility or primary Form 1099 reporting and backup withholding responsibility if it can reliably associate the payment with a valid Form W–8IMY and, if the form is associated with a withholdable payment, it includes the qualified intermediary’s chapter 4 status to the extent required for chapter 4 purposes. Additionally, the Form W–8IMY must be associated with a withholding statement that allocates the withholdable payment among the chapter 4 withholding rate pools (to the extent permissible under § 1.1471–3(c)(3)(iii)(B)), and with respect to a payment of an amount subject to chapter 3 withholding that is either not a withholdable payment or a withholdable payment for which no chapter 4 withholding is required, that allocates such payment among chapter 3 withholding rate pools for foreign account holders as described in section 6.03(C) of this Agreement.

If the payment is a reportable amount, QI can reliably associate the payment with documentation provided by another qualified intermediary if the withholding statement allocates the payment to withholding rate pools attributable to U.S. non-exempt recipients and the documentation includes a valid Form W–9 for each U.S. non-exempt recipient account holder for which the other qualified intermediary is required to report on Form 1099 and, if required, backup withhold. QI can also reliably associate a reportable amount with valid documentation provided by another qualified intermediary that is a participating FFI or registered deemed-compliant FFI if, in lieu of providing documentation for each U.S. non-exempt recipient account holder, the qualified intermediary allocates the payment to a chapter 4 withholding rate pool of U.S. payees and provides the applicable certification(s) on a valid Form W–8IMY for allocating the payment to this pool or allocates a payment that is a withholdable payment to a chapter 4 withholding rate pool of recalcitrant account holders. Notwithstanding the preceding sentences in this section 5.13(B)(2), the presumption rules shall not apply if a payment cannot be allocated to each U.S. non-exempt recipient account holder or to a chapter 4 withholding rate pool of U.S. payees to the extent the alternative procedures of section 6.03(D) of this Agreement apply.

(3) Reliably Associating a Payment with Documentation Provided by a Qualified Intermediary that Assumes Primary Chapters 3 and 4 Withholding Responsibility and Does Not Assume Primary Form 1099 Reporting and Backup Withholding Responsibility. Generally, QI can reliably associate a payment with valid documentation provided by another qualified intermediary that assumes primary chapters 3 and 4 withholding responsibility, but not primary Form 1099 reporting and backup withholding responsibility, if it can associate the payment with a valid Form W–8IMY from the qualified intermediary and, if the form is associated with a withholdable payment, it includes the qualified intermediary’s chapter 4 status to the extent required for chapter 4 purposes. Additionally, the Form W–8IMY must be associated with a withholding statement that allocates a payment that is a withholdable payment or an amount subject to chapter 3 withholding that is not a withholdable payment among a single withholding rate pool for all account holders with respect to which the qualified intermediary assumes primary chapters 3 and 4 withholding responsibility.

If the payment is a reportable amount, QI can reliably associate the payment with documentation provided by another qualified intermediary if the withholding statement allocates the payment to withholding rate pools attributable to each U.S. non-exempt recipient, as described in section 6.03(D), and the documentation includes a valid Form W–9 for each U.S. non-exempt recipient account holder for which the other qualified intermediary is required to report on Form 1099 and, if required, backup withhold. QI can also reliably associate such payment with valid documentation provided by another qualified intermediary that is a participating FFI or registered deemed-compliant FFI if, in lieu of providing documentation for each U.S. non-exempt recipient account holder, the qualified intermediary allocates the payment made to the U.S. non-exempt recipient to a chapter 4 withholding rate pool of U.S. payees and provides the applicable certifications on a valid Form W–8IMY for allocating the payment to this pool or allocates a payment that is a withholdable payment to a chapter 4 withholding rate pool of recalcitrant account holders. Notwithstanding the preceding sentences in this section 5.13(B)(3), the presumption rules shall not apply if a payment cannot be allocated to each U.S. non-exempt recipient account holder or to a chapter 4 withholding rate pool of U.S. payees to the extent the alternative procedures of section 6.03(D) of this Agreement apply.

(4) Reliably Associating a Payment With Documentation Provided by a Qualified Intermediary that Assumes Primary Form 1099 Reporting and Backup Withholding Responsibility. Generally, QI can reliably associate a payment with valid documentation provided by another qualified intermediary that assumes primary Form 1099 reporting and backup withholding responsibility, but not primary chapters 3 and 4 withholding responsibility, to the extent it can associate the payment with a valid Form W–8IMY from the qualified intermediary that, if the payment is a withholdable payment, includes the qualified intermediary’s chapter 4 status to the extent required for chapter 4 purposes. Additionally, the Form W–8IMY must be associated with a withholding statement that allocates a payment that is a withholdable payment among chapter 4 withholding rate pools (other than a pool of U.S. payees and to the extent permissible under § 1.1471–3(c)(3)(iii)(B)) and, with respect to a payment that is an amount subject to chapter 3 withholding but is either not a withholdable payment or a withholdable payment for which no chapter 4 withholding is required, allocates the payment among chapter 3 withholding rate pools for foreign account holders as described in section 6.03(C) of this Agreement, and identifies the portion of the payment for which QI assumes primary Form 1099 reporting and backup withholding responsibility.

(5) Reliably Associating a Payment with Documentation Provided by a Qualified Intermediary that Assumes Both Primary Chapters 3 and 4 Withholding Responsibility and Primary Form 1099 Reporting and Backup Withholding Responsibility. Generally, QI can reliably associate a payment with valid documentation provided by another qualified intermediary that assumes both primary chapters 3 and 4 withholding responsibility and primary Form 1099 reporting and backup withholding responsibility if QI can associate the payment with a valid Form W–8IMY from the qualified intermediary that, if the payment is a withholdable payment, includes the qualified intermediary’s chapter 4 status. Additionally, the Form W–8IMY must also designate the accounts for which the other qualified intermediary is acting as a qualified intermediary and is assuming primary chapters 3 and 4 withholding and primary Form 1099 reporting and backup withholding responsibility. If the other qualified intermediary is acting as a QDD, the Form W–8IMY (or withholding statement) must also designate those accounts for which the QDD is receiving payments with respect to potential section 871(m) transactions or underlying securities as a QDD. If the qualified intermediary receiving a payment assumes both primary chapters 3 and 4 withholding responsibility and primary Form 1099 reporting and backup withholding responsibility for substitute interest payments as described in section 3.03(A), the Form W–8IMY must indicate that the qualified intermediary is assuming primary withholding responsibility for all such payments.

(C) Presumption Rules. With respect to a withholdable payment made to a foreign entity, if QI is an NFFE, it must follow the presumption rules of § 1.1471–3(f) when it cannot reliably associate a withholdable payment with valid documentation. If QI is an FFI, it must follow its FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI to determine the chapter 4 status of an account holder when it cannot reliably associate a withholdable payment with valid documentation.

With respect to a payment that is an amount subject to chapter 3 withholding that is either not a withholdable payment or a withholdable payment for which no chapter 4 withholding is required, the presumption rules are the rules under § 1.1441–1(b)(3) that a withholding agent must follow to determine the status of a beneficial owner (i.e., as a U.S. person or foreign person and as an individual or entity (and the entity’s classification)) when it cannot reliably associate a payment with valid documentation. With respect to a reportable payment (including a withholdable payment made to an entity) that is not an amount subject to chapter 3 withholding, the presumption rules are the rules of § 1.6049–5(d) that a payor must follow to determine the status of a payee (e.g., as a non-exempt recipient) when it cannot reliably associate a payment with valid documentation. The presumption rules are as follows:

(1) Certain Withholdable Payments Made with Respect to an Offshore Obligation. A withholdable payment paid outside of the United States as defined under § 1.6049–5(e) with respect to an offshore obligation (as defined in § 1.1471–1(b)(88)) that is made to an entity is presumed made to a nonparticipating FFI for purposes of chapter 4. A withholdable payment that is not an amount subject to chapter 3 withholding, that is paid outside the U.S. with respect to an offshore obligation, and that is treated as made to a payee that is an individual is presumed made to a U.S. person when the payee has any of the indicia of U.S. status that are described in section 5.10(B)(2) of this Agreement. If QI is a participating FFI or registered deemed-compliant FFI (other than a reporting Model 1 FFI), see the rules under its FATCA requirements as a participating FFI or registered deemed-compliant FFI for classifying account holders as recalcitrant account holders. If QI is an FFI, see also section 8.06 of this Agreement for whether QI is required to report such payments on Form 1099.

(2) Amounts Subject to Withholding under Chapter 3 that are Paid with Respect to an Offshore Obligation. An amount that is subject to chapter 3 withholding that is not a withholdable payment is presumed made to an undocumented foreign account holder if the payment is made outside of the United States with respect to an offshore obligation. If QI is an NFFE or an FFI that is not required to withhold on recalcitrant account holders pursuant to the terms of an applicable Model 1 or Model 2 IGA, an amount subject to chapter 3 withholding that is a withholdable payment and that is treated as made to a payee that is an individual is also presumed made to an undocumented foreign account holder if the payment is made outside of the United States with respect to an offshore obligation. QI must treat an amount described in this section 5.13(C)(2) as subject to withholding under chapter 3 at a rate of 30 percent on the gross amount of the payment and must report the payment as made to an unknown recipient on Form 1042–S.

(3) Payments on Certain Short-Term Obligations and Bank Deposit Interest. An amount of U.S. source original issue discount on the redemption of a short-term obligation or U.S. source bank deposit interest not subject to chapter 4 withholding is presumed made to an undocumented U.S. non-exempt recipient account holder regardless of whether paid to an individual or entity. QI must report an amount described in this section 5.13(C)(3) on Form 1099. QI must backup withhold at 28 percent^[3] and report such amounts on Form 1099 unless it provides sufficient information to another payor from which it receives such amounts to backup withhold and report the payments and QI does not know that the other payor has failed to backup withhold or report.

(4) Foreign Source Income, Broker Proceeds, and Certain Other Amounts Made with Respect to an Offshore Obligation. A payment of an amount that is not a withholdable payment and is not an amount subject to chapter 3 withholding (other than payments of short-term OID and bank deposit interest described in section 5.13(C) of this Agreement) that is paid outside the United States with respect to an offshore obligation and that is made to a payee that is an individual is presumed made to a U.S. non-exempt recipient when the payee has any of the indicia of U.S. status that are described in section 5.10(B) of this Agreement. If the payment is made to a payee that is an entity, QI must apply the principles of § 1.1441–1(b)(3)(ii), § 1.1441–5(d)(2), or § 1.1441–5(e)(6) (as applicable) without regard to § 1.1441–1(b)(3)(ii)(D) for purposes of this paragraph 5.13(C)(4). For a payment of gross proceeds for which QI is a broker under § 1.6045–1, similar rules apply to a payment made with respect to a sale that is effected at an office outside the United States under § 1.6045–1(g)(1)(ii). QI must report an amount described in this section 5.13(C)(3) as paid to a presumed U.S. non-exempt recipient on Form 1099 to the extent required under section 8.06 of this Agreement. Backup withholding shall not be required, however, if the exception provided in § 31.3406(g)–1(e) applies.

(5) Other Payments. For any payment not covered in sections 5.13(C)(1), (2), (3), or (4) of this Agreement, see the presumption rules provided in § 1.1441–1(b)(3) or § 1.6049–5(d)(2) (as applicable).

(A) In General. QI agrees to provide to each withholding agent from which QI receives reportable amounts as a qualified intermediary a written statement (withholding statement) described in this section 6.02. A withholding statement shall not be provided to a withholding agent if QI assumes both primary chapters 3 and 4 withholding responsibility and primary Form 1099 reporting and backup withholding responsibility for all of its accounts. For example, if QI is only acting as a QDD, it does not have to provide a withholding statement . QI may act as a QDD only with respect to payments made and received as a principal with respect to potential section 871(m) transactions and underlying securities. The withholding statement forms an integral part of the Form W–8IMY. The withholding statement may be provided in any manner, and in any form, to which QI and the withholding agent mutually agree. For example, QI and the withholding agent may agree to establish a procedure to furnish withholding statement information electronically provided that the procedure meets the requirements of § 1.1441–1(e)(3)(iv). In addition, QI and the withholding agent must be capable of providing upon request a hard copy of all withholding statements provided by QI. The withholding statement shall be updated as often as necessary for the withholding agent to meet its reporting and withholding obligations under chapters 3, 4, and 61 and section 3406.

(B) Content of Withholding Statement. The withholding statement must contain sufficient information for a withholding agent to apply the correct rate of withholding on payments allocable to the accounts identified on the statement and to properly report such payments on Forms 1042–S and Forms 1099, as applicable. The withholding statement must—

(A) In General. QI shall provide as part of its withholding statement withholding rate pool information in a manner sufficient for the withholding agent to meet its chapters 3 and 4 and backup withholding responsibilities and its Form 1042–S and Form 1099 reporting responsibilities.

(B) Chapter 4 Withholding Rate Pools. If QI receives a withholdable payment on behalf of its account holders, QI may allocate the payment to a chapter 4 withholding rate pool. A chapter 4 withholding rate pool is a payment of a single type of income (e.g., interest or dividends) that is allocated to payees that are nonparticipating FFIs. If QI is a participating FFI or registered deemed-compliant FFI (other than reporting Model 1 FFI), it may also allocate a witholdable payment to a chapter 4 withholding rate pool of recalcitrant account holders (if applicable). If QI is a participating FFI or registered deemed-compliant FFI receiving a reportable amount that is excepted from reporting under section 8.06(A) of this Agreement (excluding sections 8.06(A)(2) and (A)(3) of this Agreement when the payment is subject to chapter 4 withholding and section 8.06(A)(4) of this Agreement), QI may allocate the payment to a chapter 4 withholding rate pool of U.S. payees. See section 6.03(D) of this Agreement for the alternative procedures that may be used in this case. Except as otherwise provided in this section 6.03(B), if QI receives a withholdable payment, QI must provide the information required under § 1.1471–3(c)(3)(iii)(B)(2).

Further, if QI elects under its FATCA requirements as a participating FFI or registered deemed-compliant FFI to backup withhold instead of withholding under chapter 4 with respect to certain recalcitrant account holders, QI’s withholding statement must indicate the portion of such payment subject to backup withholding under section 3406 that is allocated to such account holders and must provide all other information relating to such account holders that is required under chapter 61 for the withholding agent to report with respect to the payment.

If QI has an account holder that is another intermediary (whether a qualified intermediary, a nonqualified intermediary, or a private arrangement intermediary) or a flow-through entity, QI may combine the account holder information provided by the intermediary or flow-through entity with QI’s direct account holder information to determine the amounts allocable to each of QI’s chapter 4 withholding rate pools described in this section 6.03(B). If QI is an NFFE that has an account holder that is another intermediary or flow-through entity that is a participating FFI or registered deemed-compliant FFI, QI may provide the account holder’s chapter 4 withholding rate pools of recalcitrant account holders and U.S. payees to the extent applicable.

(C) Chapter 3 Withholding Rate Pools. With respect to any portion of the payment that is attributable to payees for which no chapter 4 withholding is required but is an amount subject to chapter 3 withholding, a chapter 3 withholding rate pool is a payment of a single type of income that is subject to a single rate of withholding (e.g., 0%, 10%, 15%, or 30%) and that is reported under a single chapter 4 exemption code on Form 1042–S. QI shall determine chapter 3 withholding rate pools based on valid documentation obtained under section 5 of this Agreement or, if a payment cannot be reliably associated with valid documentation, on the presumption rules of section 5.13(C) of this Agreement. If QI has an account holder that is another intermediary (whether a qualified intermediary, a nonqualified intermediary, or a private arrangement intermediary) or a flow-through entity (other than a nonparticipating FFI that is not acting on behalf of any exempt beneficial owners), QI may combine the account holder information provided by the intermediary or flow-through entity with QI’s direct account holder information to determine the amounts allocable to each of QI’s chapter 3 withholding rate pools with respect to the portion of the payment allocable to an account holder to which chapter 4 withholding does not apply.

(D) U.S. Non-Exempt Recipients Subject to Backup Withholding or Form 1099 Reporting and Alternative Procedures for Allocating Payments on Withholding Statements. To the extent QI does not assume primary Form 1099 reporting and backup withholding responsibility and is not excepted from reporting on Form 1099 under section 8.04 of this Agreement, QI’s withholding statement must establish a separate withholding rate pool for each U.S. non-exempt recipient account holder that QI is required to report on Form 1099 and has disclosed to the withholding agent. QI may, by mutual agreement with the withholding agent, establish a single withholding rate pool (not subject to backup withholding) for all U.S. non-exempt recipient account holders for whom QI is required to report on Form 1099 and has provided Forms W–9 prior to the withholding agent paying any reportable amounts or, if applicable, designated broker proceeds to which backup withholding does not apply. QI must establish a separate withholding rate pool for all U.S. non-exempt recipient account holders subject to backup withholding prior to the withholding agent paying any reportable amounts or, if applicable, designated broker proceeds.

Alternatively, QI may include U.S. non-exempt recipients in a zero rate withholding pool that includes U.S. exempt recipients and foreign persons for which no withholding is required under chapters 3 and 4 and section 3406 and may include payments allocated to a chapter 4 withholding rate pool of U.S. payees in this pool to the extent permitted to be provided by QI under section 6.03(B) of this Agreement. If QI chooses the alternative procedure of this paragraph, QI must provide sufficient information to the withholding agent no later than January 15 of the year following the year in which the reportable amounts and designated broker proceeds, if applicable, are paid in order to allocate to each U.S. non-exempt recipient account holder or to a chapter 4 withholding rate pool of U.S. payees (when applicable). Failure to provide such information will result in the application of penalties to QI under sections 6721 and 6722 and shall constitute an event of default under section 11.06 of this Agreement.

(A) In general. QI shall file a return on Form 1042, whether or not QI withheld any amounts under chapter 3 or 4, on or before March 15 of the year following any calendar year in which QI acts as a qualified intermediary and makes a payment of an amount subject to chapter 3 or 4 withholding when acting as a qualified intermediary under this Agreement. A separate Form 1042 must be filed by each legal entity that is a qualified intermediary covered by this Agreement. Form 1042 shall be filed at the address indicated on the form, at the address at which the IRS notifies QI to file the return under the provisions of section 12.06 of this Agreement, or in accordance with the instructions to file Form 1042 electronically. In addition to the information specifically requested on Form 1042 and the accompanying instructions, if QI made any overwithholding or underwithholding adjustments under §§ 1.1461–2 and 1.1474–2 and sections 9.02 and 9.05 of this Agreement, QI must attach a statement setting forth the amounts of any overwithholding or underwithholding adjustments and an explanation of the circumstances that resulted in the over- or underwithholding.

(B) Extensions for Filing Returns. QI may request an extension of the time for filing Form 1042, or any of the information required to be attached to the form, by submitting Form 7004, Application for Automatic Extension of Time to File Certain Business Income Tax, Information, and Other Returns, on or before the due date of the return.

(C) QDD Tax Liability Requirements for QDDs. In addition to its requirements under section 7.01(A) of this Agreement, a QI that is acting as a QDD (other than a foreign branch of a U.S. financial institution) also must report on Form 1042 its QDD tax liability, including separately identifying each part of the QDD tax liability described in section 3.09(A) through (C) of this Agreement. For its section 871(m) amount, a QDD is also required to separately report the amount of dividends on underlying securities associated with potential section 871(m) amounts and dividend equivalent payments it received in its dealer capacity and the amount of dividend equivalent payments and qualifying dividend equivalent offsetting payments that it makes or is contractually obligated to make in its dealer capacity. A QDD must also report any other information required by Form 1042 with respect to its QDD tax liability (including any part thereof).

A QDD must also maintain, and make available to the IRS upon request, a reconciliation schedule that tracks across calendar years the section 871(m) amount for each dividend with respect to each underlying security associated with potential section 871(m) transactions or underlying security referenced by a potential section 871(m) transaction. The reconciliation schedule must separately state total amounts received as a QDD, as well as the dividends, dividend equivalents, and qualifying dividend equivalent offsetting payments for each dividend with respect to each underlying security associated with potential section 871(m) transactions, each dividend that is not with respect to an underlying security associated with potential section 871(m) transactions, or each dividend with respect to each underlying security referenced by a potential section 871(m) transaction received as a QDD or payments that the QDD makes or is contractually obligated to make, and any adjustments thereto, separated by payments made as a dealer and as a non-dealer. The reconciliation schedule may be maintained in any manner or format that permits the IRS to reconcile the amount reported by the QDD for the calendar year.

Sec. 7.02. Form 945 Filing Requirement. QI shall file a return on Form 945 on or before January 31 following the calendar year in which QI backup withheld an amount under section 3406. Separate Forms 945 must be filed by each legal entity that is a qualified intermediary covered by this Agreement. The form must be filed at the address specified in the instructions for Form 945, at the address at which the IRS notifies QI to file the return under the provisions of section 12.06 of this Agreement, or in accordance with the instructions to file Form 945 electronically.

Sec. 7.03. Retention of Returns. QI shall retain Forms 945 and 1042 (including, with respect to QI acting as a QDD, its reconciliation schedule) for the applicable statute of limitations on assessment under section 6501.

(A) Chapter 4 Reporting Pools. Except for amounts required to be reported under section 8.02 of this Agreement, if QI is an FFI, QI shall report all amounts subject to chapter 4 withholding by reporting pools on a Form 1042–S if those amounts are paid to direct account holders of QI. A separate Form 1042–S shall be filed for each type of reporting pool. A chapter 4 reporting pool is a payment of a single type of income (e.g., interest, dividends), determined in accordance with the categories of income reported on Form 1042–S, that is allocable to a chapter 4 withholding rate pool consisting of either recalcitrant account holders or payees that are nonparticipating FFIs. QI must report recalcitrant account holders in pools based upon a recalcitrant account holder’s particular status described in § 1.1471–4(d)(6), with a separate Form 1042–S issued for each such pool.

If QI is an FFI, it may report in a chapter 4 withholding rate pool of U.S. payees an account holder that is (or is presumed) a U.S. person and that QI reports as a U.S. account under its applicable FATCA requirements as a participating FFI or registered deemed-compliant FFI provided that QI is excepted from Form 1099 reporting with respect to the payment under section 8.06(A)(1) of this Agreement or section 8.06(A)(2) and (A)(3) of this Agreement if the payment is both excepted from Form 1099 reporting and not subject to withholding under chapter 4.

If QI is an NFFE, QI shall report all amounts subject to chapter 4 withholding by reporting pools on a Form 1042–S if those amounts are paid to direct account holders that are nonparticipating FFIs in a chapter 4 reporting pool of nonparticipating FFIs.

(B) Chapter 3 Reporting Pools. Except for amounts required to be reported under section 8.02 of this Agreement, QI shall report an amount subject to chapter 3 withholding that is either not a withholdable payment or a withholdable payment for which no chapter 4 withholding is required and that is paid to a foreign account holder by reporting pools on a Form 1042–S if those amounts are paid to direct account holders of QI or to direct account holders of a PAI of QI or a partnership or trust described in section 4 of this Agreement. A separate Form 1042–S shall be filed for each type of reporting pool. A chapter 3 reporting pool is a payment of a single type of income that falls within a particular withholding rate, chapter 3 exemption code, and, if the payment is a withholdable payment, chapter 4 exemption code as determined on Form 1042–S. QI may use a single chapter 3 pool reporting code (e.g., QI- withholding rate pool- general) for all reporting pools except for amounts paid to foreign tax-exempt recipients, for which a separate chapter 3 pool reporting code (e.g., QI- withholding rate pool- exempt organization) must be used. For this purpose, a foreign tax-exempt recipient includes any organization that is not subject to chapter 3 withholding and is not liable to tax in its jurisdiction of residence because it is a charitable organization, a pension fund, or a foreign government.

(C) Qualifying Dividend Equivalent Offsetting Payment Reporting Pools. In addition to the reporting required under sections 8.02 and 8.03 of this Agreement for dividend equivalents that are amounts subject to chapter 3 or 4 withholding, a QI acting as a QDD shall report on separate Forms 1042–S (as required by the form and its accompanying instructions) the amount of the qualifying dividend equivalent offsetting payments that represent (a) payments made to U.S. persons that would be dividend equivalent payments if made to foreign persons and (b) the effectively connected income (described in section 2.70(A)(2) of this Agreement). For purposes of determining when a qualifying dividend equivalent offsetting payment is made, apply the timing rule in § 1.1441–2(e)(4) (substituting “qualifying dividend equivalent offsetting payment” for “dividends” and “dividend payment date” for “payment date” in the first sentence).

A QI acting as a QDD must also provide, upon request by the IRS, the name, address, and TIN of any U.S. non-exempt recipient to whom the QI acting as a QDD makes a qualifying dividend equivalent offsetting payment described in section 2.70(A)(1) and shall require such person to waive any prohibition on disclosure of such information to the IRS. If a QI acting as a QDD does not obtain a waiver or collect and maintain such information for any U.S. non-exempt recipient described in the preceding sentence, any payment made to such person is not a qualifying dividend equivalent offsetting payment. A QI acting as a QDD shall report those payments made to U.S. non-exempt recipients that are not qualifying dividend equivalent offsetting payments in a pool on a separate Form 1042–S (as required by the form and its accompanying instructions).

(A) QI that is an FFI. If QI is an FFI, QI is required to report each U.S. account (or, in the case of an FFI that is a reporting Model 1 FFI or a registered deemed-compliant Model 1 IGA FFI, each U.S. reportable account) that it maintains and for whom QI is acting consistent with its FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI. See QI’s FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI to report each account that is a U.S. account (or U.S. reportable account) that it maintains. If QI is a participating FFI or registered deemed-compliant FFI (other than a reporting Model 1 FFI or registered deemed-compliant Model 1 IGA FFI), QI must report its U.S. accounts on Form 8966, FATCA Report, in the time and manner required under its FATCA requirements as a participating FFI or registered deemed-compliant FFI except to the extent QI is reporting under § 1.1471–4(d)(5) on Form 1099 with respect to its U.S. accounts. If QI is a reporting Model 1 FFI or registered deemed-compliant Model 1 IGA FFI, QI must report each U.S. reportable account on Form 8966 as required under the applicable Model 1 IGA. QI cannot delegate to its withholding agent its requirements to report U.S. accounts (or U.S. reportable accounts) under its applicable FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI (regardless of whether QI does or does not assume primary Form 1099 reporting and backup withholding responsibility under section 3 of this Agreement). See section 8.06 of this Agreement for when the reporting described in this section 8.04 satisfies QI’s Form 1099 reporting responsibilities with respect to reportable payments under chapter 61.

(B) QI that is an NFFE. If QI is an NFFE acting as a qualified intermediary on behalf of its shareholders, QI shall file Forms 8966 to report information about any substantial U.S. owners of QI. QI must report on Form 8966 to the extent required of a direct reporting NFFE in the time and manner provided in the instructions to the form. Such report must include the name, address, and U.S. TIN of each substantial U.S. owner of QI; the total of all payments made to each substantial U.S. owner (including gross amounts paid or credited to the substantial U.S. owner with respect to such owner’s equity interest in the QI during the calendar year, which includes payments in redemption or liquidation (in whole or in part) of the substantial U.S. owner’s equity interest in QI); and any other information as required by the form and its accompanying instructions.

If QI is an NFFE acting as a qualified intermediary on behalf of persons other than its shareholders, QI shall file Form 8966 to report withholdable payments made to an account holder that is an NFFE (other than an excepted NFFE) with one or more substantial U.S. owners if the NFFE is the beneficial owner of the withholdable payment received by QI. See § 1.1471–1(b)(8) for the definition of beneficial owner. QI must report on Form 8966 in accordance with the form and its accompanying instructions. Such report must include the name of the NFFE that is owned by a substantial U.S. owner; the name, address, and U.S. TIN of each substantial U.S. owner; the total of all withholdable payments made to the NFFE during the calendar year; and any other information as required by the form and its accompanying instructions. If QI is acting as a sponsoring entity on behalf of an NFFE for chapter 4 purposes, QI is not required to report as described in this paragraph if QI reports the NFFE as part of QI’s requirements as a sponsoring entity. See section 1.1472–1(c)(5)(ii) for the reporting requirements of a sponsoring entity.

Sec. 8.05. Form 8966 Reporting for Payees that are NFFEs. QI shall file Form 8966 to report withholdable payments made to an intermediary or flow-through entity that provides information regarding an account holder (or interest holder) that is an NFFE other than an excepted NFFE with one or more substantial U.S. owners (or one or more controlling persons that is a specified U.S. person under an applicable IGA). QI must report on Form 8966 in the time and manner provided in § 1.1474–1(i)(2). Such report must include the name of the NFFE that is owned by a substantial U.S. owner (or controlling person); the name, address, and U.S. TIN of each substantial U.S. owner; the total of all withholdable payments made to the NFFE during the calendar year (or reportable period under the applicable IGA); and any other information as required by the form and its accompanying instructions. QI is not required to report, however, if such information is reported pursuant to section 8.04 of this Agreement or if the intermediary or flow-through entity certifies on its withholding statement that it is reporting the account holder (or interest holder) as a U.S. account pursuant to its FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI.

Sec. 8.06. Form 1099 Reporting Responsibility. QI shall file Forms 1099 and, unless filing magnetically, Form 1096, Annual Summary and Transmittal of U.S. Information Returns, for reportable payments made to persons described in this section 8.06. Forms 1099 shall be filed on or before the date prescribed for the particular Form 1099 under chapter 61 and in the manner required by regulations under chapter 61 and the instructions to the forms (including the requirements for filing the forms magnetically or electronically). Extensions of the time to file Forms 1099 may be requested by submitting Form 8809 in the manner required by the form. If QI is required to file Forms 1099, it must file the appropriate form for the type of income paid (e.g., Form 1099–DIV for dividends, Form 1099–INT for interest, Form 1099–B for broker proceeds). QI must file Forms 1099 to report a reportable payment other than in the situations listed in sections 8.06(A) and (B) of this Agreement.

(A) Reportable Amount. QI must file a Form 1099 in accordance with the instructions to the form for the aggregate amount of a particular type of reportable amount paid to an account holder that is (or is presumed) a U.S. non-exempt recipient (whether a direct or indirect account holder). However, QI is not required to file a Form 1099 on a reportable amount if—

(B) Reportable Payments other than Reportable Amounts. QI must file a Form 1099 for a reportable payment (other than a reportable amount) paid to each U.S. non-exempt recipient (whether a direct or indirect account holder), or to any account holder that is presumed to be a U.S. non-exempt recipient under section 5.13(C) of this Agreement. Notwithstanding the previous sentence, QI is not required to file a Form 1099 for a reportable payment (other than a reportable amount) paid to a direct account holder that is (or is presumed) a U.S. non-exempt recipient if—

(A) In General. QI is required to adopt a compliance program under the authority of a responsible officer or, if QI adopts a consolidated compliance program, under the authority of a responsible officer of a Compliance QI (as described in section 10.02(B) of this Agreement). QI’s compliance program must include policies, procedures, and processes sufficient for QI to satisfy the documentation, reporting, and withholding requirements of this Agreement and sufficient for a responsible officer of QI (or Compliance QI) to make the certifications required under section 10.03 of this Agreement. If QI is acting as a QDD, QI’s compliance program must also include policies, procedures, and processes sufficient for it to satisfy and report its QDD tax liability and other reporting required as a condition of its status as a QDD. QI must also perform or arrange for the performance of a periodic review described in section 10.04 of this Agreement to the extent required by that section. As part of the responsible officer’s certification, QI must provide to the IRS the factual information referenced in sections 10.04 and 10.05 of this Agreement and in Appendix I to this Agreement. QI must also satisfy the requirements of section 10.06 of this Agreement with respect to the report covering the periodic review, and must comply with the IRS review described in section 10.08 of this Agreement. With respect to QI that, prior to January 1, 2017, was a limited FFI (as defined in § 1.1471–1(b)(77) (or a limited branch, as defined in § 1.1471–1(b)(76)), references in this section 10 (and in Appendix I to this Agreement) to QI’s FATCA Requirements as a Participating FFI, Registered Deemed-Compliant FFI, or Registered Deemed-Compliant Model 1 IGA FFI include its requirements under § 1.1471–4(e)(4) for purposes of its initial certification period.

(B) Coordination with FATCA Requirements as a Participating FFI, Registered Deemed-Compliant FFI, or Registered Deemed-Compliant Model 1 IGA FFI and, for a Direct Reporting NFFE, the Requirements of § 1.1472–1(c)(3). As a condition for maintaining QI status, QI must comply with its FATCA requirements as applicable to its chapter 4 status (including any applicable compliance procedure) with respect to each branch of QI operating under this Agreement. Therefore, QI must, as part of the compliance procedures described in this section 10 (including in conducting the periodic review described in section 10.04 of this Agreement and in making the periodic certification described in section 10.03 of this Agreement) determine whether it is compliant with its FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472–1(c)(3), with respect to accounts for which it acts as a qualified intermediary. See the compliance procedures, if any, applicable to QI’s FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI and, in the case of a direct reporting NFFE with respect to all accounts that it maintains or all of its shareholders. If QI is a participating FFI or direct reporting NFFE, QI will be able to make the certification described in section 10.03 of this Agreement, and the certification described in the FFI Agreement, to the extent provided in future published guidance or other instructions.

10.02. Responsible Officer. QI must appoint an individual as a responsible officer as defined in section 2.78 of this Agreement. The responsible officer must be identified on the FATCA registration website as QI’s responsible party, and such person may, but is not required to, be the same responsible officer for purposes of compliance with QI’s FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472–1(c)(3). The responsible officer (or the responsible officer’s designee) must establish a compliance program that meets the requirements of this section 10.02 and must make the periodic certifications to the IRS described in section 10.03 of this Agreement. The responsible officer of QI must be an officer of QI with sufficient authority to fulfill the duties of a responsible officer described in this section 10. The responsible officer (or a delegate appointed by the responsible officer) must also serve as the point of contact for the IRS for all issues related to this Agreement and for complying with IRS requests for information or additional review procedures under section 10.07 of this Agreement.

(A) Compliance Program. The responsible officer (or the responsible officer’s designee) must establish a program for QI to comply with the requirements of this Agreement that includes the following—

(1) Written Policies and Procedures. The responsible officer (or designee) must ensure the drafting and updating, as necessary, of written policies and procedures sufficient for QI to satisfy the documentation, withholding, reporting, and other obligations of this Agreement, including, with respect to QI that is acting as a QDD, its QDD tax liability. Such written policies and procedures must include a process for employees of QI to raise issues to the responsible officer (or the responsible officer’s designee) that concern QI’s compliance with this Agreement.

(2) Training. The responsible officer (or designee) must communicate such policies and procedures to any line of business of QI that is responsible for obtaining, reviewing, and retaining a record of documentation under the requirements of section 5 of this Agreement; making payments subject to withholding under section 3 of this Agreement; reporting payments and accounts as required under sections 7 and 8 of this Agreement; or entering into potential section 871(m) transactions in the case of QI that is acting as a QDD.

(3) Systems. The responsible officer (or designee) must ensure that systems and processes are in place that will allow QI to fulfill its obligations under this Agreement. For example, in order to fulfill QI’s obligations to report on Forms 1042–S, 1099, and 8966 under section 8 of this Agreement, QI must establish systems for documenting account holders and for recording the information with respect to each such account that QI is required to report under that section.

(4) Monitoring of Business Changes. The responsible officer (or designee) must monitor business practices and arrangements that affect QI’s compliance with this Agreement, including, for example, QI’s acquisition of lines of businesses or accounts that give rise to documentation, withholding, or reporting obligations under this Agreement.

(5) QDD Tax Liability Determinations. If QI is acting as a QDD, the responsible officer must ensure that the QDD has appropriate systems in place to make the necessary determinations and calculations to identify section 871(m) transactions, potential section 871(m) transactions, underlying securities associated with potential section 871(m) transactions, the amount of dividend or dividend equivalent payments received, and the amount of dividend equivalent or qualifying dividend equivalent offsetting payments made and contractually obligated to be made by the QDD, as well as whether a transaction is as a principal or non-principal and in a dealer or non-dealer capacity. This includes appropriate systems to, where required, calculate the delta for a potential section 871(m) transaction, perform the substantial equivalence test described in § 1.871–15(h), calculate the amount of a dividend equivalent or qualifying dividend equivalent offsetting payment, determine any QDD tax liability amount (or part thereof) and its timing, and determine what payments are received, made, or contractually obligated to be made with respect to potential section 871(m) transactions, underlying securities associated with potential section 871(m) transactions, and other underlying securities as a principal and whether in its dealer capacity or non-dealer capacity. The systems must also take into account information received pursuant to § 1.871–15(p).

(6) Periodic Review. Unless QI receives a waiver (the requirements of which are described in section 10.07(B) of this Agreement), the responsible officer (or designee) must designate a reviewer that meets the qualifications described in section 10.04(A) of this Agreement to perform the periodic review as described in section 10.05 of this Agreement, to the extent required by that section.

(7) Certification of Internal Controls. The responsible officer (or designee) must make the periodic certification as described in section 10.03 of this Agreement, including ensuring that corrective actions are taken in response to any material failures (as defined in section 10.03(D) of this Agreement) of QI’s compliance with this Agreement and its FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472–1(c)(3). The responsible officer may rely on any reasonable procedure, process, or review that enables the responsible officer to make the certification described in this section 10.03.

(B) Consolidated Compliance Program. The IRS, in its discretion, may permit a consolidated compliance program that includes two or more QIs that are members of a group of entities under common ownership when the QIs: (i) operate under a uniform compliance program for purposes of this Agreement; (ii) share practices, procedures, and systems subject to uniform monitoring and control; and (iii) are subject to a consolidated periodic review that includes a review of internal controls and testing of transactions relevant to this Agreement with respect to each QI in the consolidated compliance program. Each QI that is a member of a consolidated compliance program must designate a Compliance QI to act on its behalf, and the responsible officer of the Compliance QI must identify itself as such when making its periodic certification and must comply with the identification, certification of internal controls, and periodic review requirements for the QI consolidated compliance program as the IRS may prescribe. The Compliance QI must also agree to be jointly and severally liable for the obligations and liabilities of any QI in its consolidated compliance program relating to the QI’s obligations under this Agreement.

10.03. Certification of Internal Controls by Responsible Officer. On or before July 1 of the calendar year following the certification period, QI must make the certification described in either section 10.03(A) or (B) of this Agreement. The initial certification period is the period ending on the third full calendar year that this Agreement is in effect (including renewals of this Agreement). Subsequent certification periods will be every three calendar years following the initial certification period (including renewals of this Agreement). The certification of internal controls required by this section 10.03 applies only to the internal controls related to QI’s compliance with this Agreement and its FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472–1(c)(3), with respect to accounts for which it acts as a qualified intermediary, and does not relate to any other obligations or requirements. The responsible officer may rely on any reasonable procedure, process, or review that enables the responsible officer to make the certification described in this section 10.03. If the responsible officer relies on an internal or external review for this purpose, the internal or external reviewer must be independent, as described in section 10.04 of this Agreement. The responsible officer must document the procedure, process, or review relied upon in making the certification. QI (or its Compliance QI) must make the certifications of compliance in such manner as the IRS may prescribe.

(A) Certification of Effective Internal Controls. The responsible officer must certify to the following and disclose any material failures that occurred during the certification period or during any prior period if the material failure was not disclosed as part of a prior certification or written disclosure made by QI to the IRS—

(B) Qualified Certification. If the responsible officer has identified an event of default or a material failure that QI has not corrected as of the date of the certification, the responsible officer must certify to the following statements—

(1) The responsible officer (or designee) has identified an event of default as defined in section 11.06 of the QI Agreement, or has determined that, as of the date of the certification, there are one or more material failures as defined in section 10.03(D) of the QI Agreement with respect to QI’s compliance, its PAI’s compliance, or the compliance of a partnership or trust to which QI applies the agency option and that appropriate actions will be taken to prevent such failures from reoccurring;

(2) With respect to any failure to withhold, deposit, or report to the extent required under the QI Agreement, or with respect to QI that is acting as a QDD, a failure to pay its QDD tax liability, QI will correct such failure by paying any taxes due (including interest and penalties) and filing the appropriate return (or amended return); and

(3) The responsible officer (or an officer of the PAI or partnership or trust to which QI applies the agency option if the PAI or partnership or trust performs its own periodic review) will respond to any notice of default (if applicable) or will provide (either directly or through QI) to the IRS, to the extent requested, a description of each material failure and a written plan to correct each such failure.

(C) PAIs and Partnership or Trust to which QI applies the Agency Option. Unless QI has received a waiver of the periodic review requirement, any PAI with which QI has an agreement and any partnership or trust to which QI applies the agency option must provide its documentation and other information to QI for inclusion in QI’s periodic review or conduct an independent periodic review and provide a written certification to QI as described in section 10.03 of this Agreement regarding its compliance with the requirements of the PAI or agency agreement. Such certification must be available to the IRS upon a request made as part of the review described in section 10.07 of this Agreement (with a certified translation into English if the certification is not in English).

(1) Material Failures Defined. A material failure is generally a failure of QI to fulfill the requirements of this Agreement or its FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472–1(c)(3). For purposes of the certifications described in section 10.03(A) and (B) of this Agreement, a material failure is limited to the following:

(a) Withhold an amount that QI was required to withhold under chapter 3 or 4 or under section 3406 as required under section 3 of this Agreement or, if QI is acting as a QDD, failing to timely pay its QDD tax liability;

(b) Provide information sufficient for another withholding agent to perform withholding and reporting to the extent required when QI does not assume primary chapters 3 and 4 withholding responsibility or primary Form 1099 reporting and backup withholding responsibility;

(c) Provide allocation information as described in section 6.03(D) of this Agreement (regarding U.S. non-exempt recipient account holders) by January 15 as required by that section when QI applies the alternative withholding rate pool procedures;

(d) Make deposits in the time and manner required by section 3.08 of this Agreement or make adequate deposits to satisfy its withholding obligations, or, if QI is acting as a QDD, satisfy its QDD tax liability, taking into account the procedures under section 9 of this Agreement;

(e) Report or report accurately on Forms 1099 as required under section 8.06 of this Agreement or provide information to the extent QI does not assume primary Form 1099 reporting and backup withholding responsibilities;

(f) Report or report accurately on Forms 1042 and 1042–S under sections 7 and 8 of this Agreement, or, if QI is acting as a QDD, obtain any necessary waiver from reporting or maintain the name, address, and TIN of a significant number of U.S. non-exempt recipients to whom the QDD makes a payment that otherwise would be a qualifying dividend equivalent offsetting payment but for the limitation in section 2.70(B) of this Agreement; or

(g) Report or report accurately on Form 8966 under sections 8.04 and 8.05 of this Agreement.

(2) Limitations on Material Failures. A failure described in section 10.03(D)(1)(iv) of this Agreement is a material failure only if the failure was the result of a deliberate action on the part of one or more employees of QI to avoid the requirements of this Agreement with respect to one or more account holders of QI, or was an error attributable to a failure of QI to establish or implement internal controls sufficient for QI to meet the requirements of this Agreement. Regardless of these limitations for certification purposes, QI is required to correct a failure to withhold or deposit tax under section 3 of this Agreement, or to report under section 7 or 8 of this Agreement, or, for a QI that is acting as a QDD, to pay its QDD tax liability, by depositing the amount of tax required to have been withheld and by filing the appropriate return (or amended return).

Sec. 10.04. Periodic Review Absent Waiver. Unless the QI receives a waiver (the requirements of which are described in section 10.07(B) of this Agreement), at the time QI provides the certification of internal controls, provided in section 10.03 of this Agreement, QI must also provide certain factual information regarding its accounts, withholdable payments, amounts subject to chapter 3 withholding, and, if QI is acting as a QDD, section 871(m) transactions, potential section 871(m) transactions, and its QDD tax liability based on the results of a periodic review. The factual information requested is included in Appendix I to this Agreement. The IRS will prescribe the manner in which the information must be reported in additional published guidance or other instructions.

(A) Independent Reviewer. The periodic review may be performed by an internal reviewer (such as an internal auditor) that is an employee of QI (“internal reviewer”), an internal reviewer that is an employee of a Compliance QI in the case of a consolidated compliance program, or a certified public accountant, attorney, or third-party consultant (“external reviewer”), or any combination thereof.

(1) Internal Reviewer. QI may designate an internal reviewer to perform the periodic review (or a portion of the periodic review) only when the internal reviewer is competent with respect to the requirements of this Agreement. The internal reviewer must also be able to report findings that reflect the independent judgment of the reviewer. The internal reviewer must not be reviewing its own work, procedures, or results (e.g., the internal reviewer, in reviewing QI’s documentation cannot be part of the team primarily responsible for collecting and validating documentation). The results of the periodic review and the internal reviewer’s reporting of such results to the responsible officer cannot influence or affect the compensation, bonus, employment status, or employee review of the internal reviewer. The IRS has the right to request the performance of the periodic review by an alternative reviewer if the IRS, in its sole discretion, reasonably believes that the reviewer selected by QI was not independent, as described in this Agreement, or did not perform an effective periodic review under this Agreement.

(2) Internal Reviewer of the Compliance QI. The Compliance QI may designate an internal reviewer to perform the consolidated periodic review (or a portion of the consolidated periodic review). See section 10.02(B) of this Agreement. The internal reviewer of the Compliance QI must meet the requirements of section 10.04(A)(1) of this Agreement with respect to both the Compliance QI and each QI that is a member of the consolidated compliance program.

(3) External Reviewer. QI may engage an external reviewer that is a certified public accountant, attorney, or third-party consultant that is regularly engaged in the practice of performing reviews of clients’ policies, procedures, and processes for complying with accounting, tax, or regulatory requirements (including assisting clients in determining such compliance). The external reviewer cannot be reviewing systems, policies, or procedures or the results thereof that it was involved in designing, implementing, or maintaining. The external reviewer must be in good standing with and comply with any applicable professional standards for maintaining its license as an accountant or attorney (or other third-party consultant). The external reviewer is not required to make an attestation or render an opinion regarding QI’s compliance with this Agreement or QI’s compliance with its FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472–1(c)(3), but the reviewer must be able to perform the periodic review as specified in section 10.05 of this Agreement. QI must permit the external reviewer to have access to all relevant records of QI for purposes of performing the review, including information regarding specific account holders. Additionally, the engagement between the external reviewer and QI must impose no restrictions on QI’s ability to provide the results of the review to the IRS. However, the external reviewer is not required to divulge the identity of QI’s account holders to the IRS, except as otherwise provided under QI’s FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI. QI must permit the IRS to communicate directly with the external reviewer, and any legal prohibitions that prevent the IRS from communicating directly with the reviewer must be waived.

Sec. 10.05. Scope and Timing of Review. The responsible officer of QI (or of the Compliance QI) must require the reviewer to test accounts related to QI’s documentation, withholding, reporting, and other obligations under this Agreement, including its QDD tax liability with respect to QI that is acting as a QDD, and its FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472–1(c)(3) for accounts for which it is acting as a qualified intermediary, and to identify deficiencies in meeting these obligations. Any PAI with which QI has an agreement and any partnership or trust to which QI applies the agency option must provide the information necessary for QI to test accounts and transactions of such entity as part of QI’s periodic review unless such entity conducts an its own periodic review and provides QI with the report documenting the results of such review as described in section 10.06 of this Agreement. Unless otherwise approved by the IRS, the review must include the steps described in section 10.05(A) of this Agreement.

QI is required to arrange for the performance of one review for the certification period to evaluate QI’s documentation, withholding, and reporting practices. If QI is acting as a QDD, this should also include a review of its determination as to whether transactions are section 871(m) transactions, its computations and determinations of dividend equivalent amounts and qualifying dividend equivalent offsetting payments, and its calculation of its QDD tax liability. The review may be conducted for any calendar year covered by the certification period. However, all results of the review must relate to one calendar year. If QI is acting as a QDD and has an initial certification period ending December 31, 2017, it must use calendar year 2017 for its review of its QDD accounts and activities for the initial certification period. QI may conduct a review for a particular calendar year if, on the due date for reporting the factual information relating to the periodic review (provided in section 10.04 of this Agreement), there are 15 or more months available on the period for assessment under section 6501(a) of the calendar year for which the review is to be conducted or the QI’s submits, upon request, a Form 872, Consent to Extend the Time to Assess Tax, that will satisfy the 15-month requirement. The Form 872 must be submitted to the IRS at the address provided in section 12.06 of this Agreement.

QI may use a sample to test accounts if there are more than 50 accounts to review. If QI has fewer than 50 accounts, it must review all accounts and cannot use a sample to test accounts. To the extent applicable, the reviewer must separately review its QI activities (when not acting in its QDD capacity), QI acting as a QDD activities, and substitute interest payments for which QI assumed primary withholding responsibility (as described in section 3.03(A) of this Agreement). The reviewer is required to record its sampling procedures and to maintain the ability to reconstruct the sample. Further, the review is not required to include statistical sampling procedures for testing transactions, but the reviewer must document its methodology for sampling determinations. A safe harbor methodology and additional information on the use of statistical sampling is provided in Appendix II to this Agreement.

If the reviewer determines that underwithholding has occurred, QI shall report and pay any amount due. QI must also notify the IRS Foreign Intermediaries Team at the address provided in section 12.06 of this Agreement of the underwithholding discovered as a result of the review. If the reviewer used a sampling method for its review, see Appendix II to this Agreement for an allowance in certain cases to use a projection method to determine the amount of underwithholding.

(A) Documentation. The reviewer must—

(1) Review QI’s accounts, to ensure that QI obtained documentation that meets the requirements described in sections 5.01 through 5.09 of this Agreement;

(2) Review QI’s accounts for which treaty benefits are claimed, to ensure that QI obtained the treaty statements and limitation on benefits information required by section 5.03(B) of this Agreement;

(3) Review information contained in account holder files to determine if the documentation validity standards of section 5.10 of this Agreement have been met. For example, the reviewer must verify that changes in account holder information (e.g., a change of address to a U.S. address or change of account holder status from foreign to U.S. or a change in chapter 4 status from participating FFI to non-participating FFI) are being conveyed to QI’s withholding agents;

(4) Review the accounts for which QI is acting as a QI to ensure that QI is obtaining, reviewing, and maintaining documentation in accordance with its FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472–1(c)(3);

(5) Review accounts held by U.S. non-exempt recipient account holders, to determine if QI obtained Forms W–9, and, if QI does not assume primary Form 1099 reporting and backup withholding responsibility, that QI transmitted those forms to a withholding agent consistent with this Agreement;

(6) For a QI that is a QDD, review accounts for which QI is acting as a QDD and that received a reportable payment or a qualified dividend equivalent offsetting payment (notwithstanding the limitation in section 2.70(B) of this Agreement) to determine whether QI has documented the status of account holders under the requirements described in sections 5.01 through 5.09 of this Agreement; and

(7) For a QI that makes payments of U.S. source substitute interest and assumes primary chapters 3 and 4 withholding responsibility for such amounts, review accounts of persons to which QI pays U.S. source substitute interest to determine whether QI has documented the status of such persons under the requirements described in sections 5.01 through 5.09 of this Agreement.

(B) Withholding Rate Pools. The reviewer must—

(1) Perform checks using account holders assigned to each withholding rate pool, and cross check that assignment against the documentation provided by, or the presumption rules applied to, the account holder, the type of income earned, and the withholding rate applied;

(2) Verify, if QI is using the procedure for U.S. non-exempt recipients described in section 6.03(D) of this Agreement, that QI is providing sufficient and timely information to withholding agents that allocates reportable payments to U.S. non-exempt recipients; and

(3) With respect to a partnership or trust described in section 4.05 of this Agreement, if applicable, perform test checks, using account holder documentation for the selected partners, beneficiaries, or owners and records of each type of reportable amount paid by QI to the entity, to determine whether the highest rate of withholding applicable to each type of reportable amount was applied.

(C) Withholding Responsibilities. The reviewer must—

(1) To the extent QI has assumed primary chapters 3 and 4 withholding responsibilities, perform test checks, using recalcitrant account holders and nonparticipating FFIs, to verify that QI withheld the proper amounts under chapter 4;

(2) To the extent QI has assumed primary chapters 3 and 4 withholding responsibility, perform test checks, using foreign account holders for which no withholding is required under chapter 4 based on the payees chapter 4 status, to verify that QI withheld the proper amounts under chapter 3 and properly applied the exemptions from chapter 4 withholding;

(3) To the extent QI has not assumed primary chapters 3 and 4 withholding responsibility, verify that QI has fulfilled its responsibilities under section 3.02 of this Agreement (including withholding if QI failed to provide the required information to a withholding agent to withhold on payments);

(4) To the extent QI has assumed primary Form 1099 reporting and backup withholding responsibility, perform checks using U.S. non-exempt recipient account holders to verify that QI backup withheld when required;

(5) To the extent QI has not assumed primary Form 1099 reporting and backup withholding responsibility, perform test checks using U.S. non-exempt account holders to verify that QI fulfilled its backup withholding responsibilities under sections 3.04 through 3.06 of this Agreement;

(6) Verify that amounts withheld by QI were timely deposited in accordance with section 3.08 of this Agreement;

(7) To the extent that QI is acting as a QDD, determine that QI withheld when required on payments that it made with respect to potential section 871(m) transactions; and

(8) To the extent that QI makes payments of U.S. source substitute interest and assumes chapter 3 and 4 withholding responsibility for such amounts, determine that QI withheld when required on such payments.

(D) Return Filing and Information Reporting. The reviewer must—

(1) Obtain copies of original and amended Forms 1042 and 945, and any schedules, statements, or attachments required to be filed with those forms, verify that the forms have been filed, and determine whether the amounts of income, taxes, and other information reported on those forms are accurate by—

(i) Reviewing copies of Forms 1042–S that withholding agents have provided QI to determine whether QI properly reported the amount of taxes withheld by other withholding agents on Form 1042;

(ii) Reviewing account statements and correspondence from withholding agents;

(iii) Determining that adjustments to the amount of tax shown on Form 1042 (and any claim by QI for refund or credit) properly reflect the adjustments to withholding made by QI using the reimbursement or set off procedures under section 9.02 of this Agreement and are supported by sufficient documentation;

(iv) Reconciling amounts shown on Forms 1042 with amounts shown on Form 1042–S (including the amount of taxes reported as withheld);

(v) If QI is acting as a QDD, reviewing the reconciliation schedule described in section 7.01(c) of this Agreement and any information used to prepare such schedule or compute its QDD tax liability, including information received pursuant to § 1.871–15(p), reviewing the amounts required to determine its section 871(m) amounts and its QDD tax liability over the applicable period, and reviewing such information to determine whether the section 871(m) amounts and QDD tax liability have been properly calculated;

(vi) If QI is acting as a QDD, reviewing amounts shown on Forms 1042 (including the reconciliation schedule) and Forms 1042–S, as well as any information received pursuant to § 1.871–15(p), to determine whether the QDD properly took the information into account (e.g., to calculate its QDD tax liability);

(vii) In the case of collective credits or refunds, reviewing the statements attached to amended Forms 1042 filed to claim a collective refund, determine whether those forms are accurate, and—

(a) Determine the causes of any overwithholding reported and ensure QI did not issue Forms 1042–S to persons whom it included as part of its collective credit or refund;

(b) Determine that QI repaid the appropriate account holders and that the amount of the claim is accurate and supported by adequate documentation; and

(c) Determine that QI did not include payments made to a partnership or trust described in section 4.05 of this Agreement.

(2) Obtain copies of original and corrected Forms 1042–S and Forms 1099 filed by QI together with the work papers used to prepare those forms, and determine whether the amounts reported on those forms are accurate by—

(i) Reconciling payments and tax reported on Forms 1042–S received from withholding agents with amounts (including characterization of income) and taxes reported by QI as withheld on Forms 1042–S and determining the reason(s) for any variance;

(ii) Reviewing the Forms W–8IMY, and the associated withholding statements, that QI has provided withholding agents;

(iii) Reviewing account statements issued by QI to account holders;

(iv) Determining, in the case in which QI utilized the reimbursement or set-off procedure, that QI satisfied the requirements of section 9.02 of this Agreement and that the adjusted amounts of tax withheld are properly reflected on Forms 1042–S.

(3) Obtain copies of original and amended Forms 8966 of accounts for which QI is acting as a qualified intermediary, and determine whether the amounts of income and other information reported on Forms 8966 are accurate by—

(i) Reviewing U.S. accounts (or U.S. reportable accounts for which QI acts as a qualified intermediary) to determine that such accounts were reported in accordance with QI’s FATCA requirements as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI;

(ii) If QI is an NFFE acting as a qualified intermediary on behalf of its shareholders, confirming that any direct or indirect shareholders that are substantial U.S. owners were reported in accordance with § 1.1472–1(c)(3);

(iii) If QI is an NFFE acting as a qualified intermediary on behalf of persons other than its shareholders, confirming that if QI is acting on behalf of a passive NFFE with substantial U.S. owners, withholdable payments made to the passive NFFE and the information regarding its substantial U.S. owners were reported;

(iv) Confirming with respect to any nonqualified intermediary or flow-through entity that provides information regarding an account holder (or interest holder) that is an NFFE (other than an excepted NFFE) with one or more substantial U.S. owners that such substantial U.S. owners were reported to the extent required under section 8.04(B) of this Agreement;

(v) Reviewing the documentation provided by a PAI or a partnership or trust to which QI applied the agency option to determine that QI reported on Form 8966 to the extent required under section 4 of this Agreement; and

(vi) Reviewing work papers used to prepare these forms.

(4) If QI is acting as a QDD, the reviewer must also review accounts designated as accounts for which QI acted as a QDD to determine whether QI is acting as a QDD with respect to all potential section 871(m) transactions and underlying securities for which it is required to act as a QDD and not any other transactions or underlying securities and whether the section 871(m) amount includes the amounts in its dealer capacity and not amounts in its non-dealer capacity.

(E) Significant Change in Circumstances. The reviewer must verify that in the course of the review it has not discovered any significant change in circumstances, as described in section 11.04(A), (D), (E), or (J) of this Agreement.

(A) In General. The results of the periodic review must be documented in a written report addressed to the responsible officer of QI and must be available to the IRS upon request (with a certified translation into English if the report is not in English). The report must describe the scope of the review and the actions performed to satisfy each requirement of section 10.05(A) through (E), including the methodology for sampling determinations. The report may include explanatory footnotes to clarify the results of the report. Recommendations may be included but are not required to be provided in the report. The periodic review report should form the basis for the factual information provided by QI that is set forth in Appendix I.

In addition to the findings of section 10.05 of this Agreement, the periodic review report should also include details regarding the documentation and tax deposit and payment failures identified by the reviewer but then cured before the periodic review report is finalized. While the curing of inadequate documentation is permissible, the factual information reported (as set forth in Appendix I) should report the results upon initial review (i.e., not reflecting the results after curing) and the curing process should not delay certification of internal controls or factual information required in Appendix I to this Agreement. To the extent necessary, the periodic review report should include the dates on (or time period during) which curative documentation was received for accounts with respect to which the reviewer determined that underwithholding had occurred, the number of accounts for which curative documentation was obtained and a revised calculation of the underwithholding or additional backup withholding.

(B) Periodic Review Report for QDDs. If QI is acting as a QDD, the periodic review report should also include the number of accounts that were not correctly treated as (i) principal accounts (except accounts that are effectively connected with the conduct or a trade or business within the United States within the meaning of section 864), (ii) non-principal accounts, (iii) principal accounts that are effectively connected with the conduct or a trade or business within the United States within the meaning of section 864, (iv) dealer accounts, and (v) non-dealer accounts. The report should also include any other issues related to the QDD tax liability (e.g., incorrect determination of whether an account is a potential section 871(m) transaction or a section 871(m) transaction, the dividend equivalent payment amount, the qualifying dividend equivalent offsetting payment amount, the amount of such payments made or contractually obligated to be made, or any other amounts subject to tax (or required to compute the tax liability) under section 871(a) and 881 (including the QDD tax liability)).

(C) PAI Certification and Partnership or Trust to which QI Applies the Agency Option. Any PAI with which QI has an agreement and any partnership or trust to which QI applies the agency option that does not provide its documentation and other information to QI for inclusion in QI’s periodic review described in section 10.04 of this Agreement, must conduct an independent periodic review in accordance with the compliance procedures described in section 10.05 of this Agreement. The performance results of the periodic review must be documented in a written report addressed to the responsible officer of QI and must be available to the IRS upon request (with a certified translation into English if the report is not in English).

(D) Retention of Report and Certifications. The report and certifications described in this section 10.06 must be retained by QI (or the Compliance QI) for as long as this Agreement is in effect.

(A) In General. A QI that is not acting as a QDD and that is an FFI that meets the requirements of section 10.07(B) may apply for a waiver of the periodic review requirement. QI must request a waiver of the periodic review requirement under this section 10.07 at the time the responsible officer makes the periodic certification of internal controls described in section 10.03 of this Agreement. QI’s application for such a waiver must be approved by the IRS, and the waiver does not apply automatically. QI must apply for a waiver for each certification period for which a waiver is requested. If QI’s request for a waiver of the periodic review requirement is granted, such approval is only to waive QI’s obligations under sections 10.04 and 10.05 of this Agreement. The approval does not relieve QI of making the certification of internal controls described in section 10.03 of this Agreement. The approval also does not preclude the IRS from requesting information or conducting a correspondence review as described in section 10.07 of this Agreement. QI must include the information of any PAI with which QI has an agreement and any partnership or trust to which QI applies the agency option in its waiver application which is set forth in Part III of Appendix I to this Agreement.

(B) Eligibility. QI is eligible to apply for a waiver of the periodic review requirement if it meets the following requirements—

(C) Documentation Required with Waiver Application. When applying for a waiver under this section 10.07, QI must include the information described in Appendix I to this Agreement using the most recent calendar year covered by the certification period and reporting such results as of QI’s initial review (not following any subsequent remediation).

(D) Approval. If QI’s request for a waiver of the periodic review requirement is approved, the IRS will notify QI. If QI requests a waiver but such request is not approved, QI will be granted a six month extension from the date of denial of the waiver to complete the periodic review. Such extension will not be granted if QI has made the request for waiver in bad faith.

(A) In General. Based upon the certifications made by the responsible officer and the disclosure of material failures, the information reported on Forms 945, 1042, 1042–S, 1099, and 8966 filed with the IRS during the certification period, or otherwise at the IRS’s discretion for compliance purposes, the IRS may initiate requests of QI under this section 10.08. The IRS may preemptively request remediation or the conduct of a limited periodic review earlier than the time period provided in section 10.03 of this Agreement if, based upon the information described above, the IRS identifies, in its discretion, a presence of factors indicating systemic or significant compliance failures by QI. The IRS may also request that QI designate a replacement responsible officer if QI’s responsible officer has not complied with its responsibilities (including responding to requests by the IRS for additional information) or the IRS has information that indicates the responsible officer may not be relied upon to comply with its responsibilities.

(B) Periodic Review Report. The IRS may request, through written correspondence to the responsible officer of QI (or the Compliance QI), a copy of the results of QI’s periodic review for any prior certification period or the periodic review report of any PAI or partnership or trust to which QI applied the agency option that QI has an agreement during the current certification period (with a certified translation into English if the report is not in English). QI is required to provide the results within 30 calendar days of such request.

(C) Correspondence Review. The IRS may, in its discretion, conduct additional fact finding through a correspondence review. In such a review, the IRS will contact the responsible officer of QI (or the Compliance QI) in writing and request information about QI’s compliance with this Agreement or the compliance of a PAI or a partnership or trust to which QI applied the agency option, including, for example, information about documentation, withholding, or reporting processes, its periodic review, and information about any material failures that were disclosed to the IRS (including remediation plans). The IRS may request phone or video interviews with employees of QI (and the Compliance QI), PAI, or a partnership or trust to which QI applied the agency option as part of the IRS’s correspondence review. QI is required to respond in a reasonable time to any such requests.

(D) Additional Review Procedures. In limited circumstances, the IRS may direct QI (or the Compliance FFI) or any PAI, partnership, or trust described in section 4 of this Agreement with which QI has an agreement to perform additional, specified review procedures. The IRS reserves the right to require QI (or the Compliance QI) or a PAI, or a partnership or trust to which QI applied the agency option to engage an external reviewer to perform the additional review procedures regardless of whether such reviewer performed the periodic review. The IRS will provide the responsible officer of the QI with a written plan describing the additional review procedures and will provide a due date of not more than 120 days for the QI to provide to the IRS a report covering the reviewer’s findings.

1. For the most recent certification period under the QI Agreement, QI certified as required under Treas. Reg. § 1.1471–5(f)(1)(ii)(B) or Annex II of an applicable Model 2 IGA that it has satisfied the requirements for the deemed-compliant FFI status claimed.

1. For the most recent certification period under the QI Agreement, QI (or a branch of QI) has been resident in or organized under the laws of a jurisdiction that has in place a Model 1 IGA with the United States (or in the case of a branch of QI, the branch operates in the jurisdiction) and has met the requirements under the IGA to be treated as a deemed-compliant FFI.

1. For the most recent certification period under the QI Agreement, QI has been a direct reporting NFFE and has met the requirements of Treas. Reg. § 1.1472–1(c)(3).

Caution: On the due date for reporting the factual information relating to the periodic review (provided in section 10.04 of the QI Agreement), there must be 15 or more months available on the statutory period for assessment for taxes reportable on Form 1042 of the calendar year for which the review was conducted or the QI must submit, upon request by the IRS, a Form 872, Consent to Extend the Time to Assess Tax, that will satisfy the 15-month requirement. The Form 872 must be submitted to the IRS at the address provided in section 12.06 of the QI Agreement.

For Parts B through F, while the curing of inadequate documentation is permissible, unless otherwise indicated, the information reported shall be based on the initial review and not the results obtained after curing. For purposes of this Part, “account” means, unless otherwise specified, any account for which QI acts as a QI. However, do not include accounts for which QI is acting as a QDD or accounts receiving substitute interest payments for which QI has assumed primary withholding responsibility.

Complete only if QI is acting as a QDD and only for accounts for which QI is acting in its QDD capacity. See section 2.01 of the QI Agreement for the definition of “account” with respect to QI acting as a QDD. If QI is acting as a QDD and is a foreign branch of a U.S. financial institution, it is not required to complete questions in this Part relating to the QDD tax liability (Parts A.3, A.5, and D).

Complete only if a qualified intermediary that has assumed primary withholding responsibility for payments of substitute interest (as described in section 3.03(A) of the QI Agreement).