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Publication 515
taxmap/pubs/p515-002.htm#en_us_publink1000224819

Documentation(p7)

rule
In most cases, you must withhold 30% from the gross amount paid to a foreign payee unless you can reliably associate the payment with valid documentation that establishes either of the following. In most cases, you must get the documentation before you make the payment. The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. See Standards of Knowledge, later.
If you cannot reliably associate a payment with valid documentation, you must use the presumption rules discussed later. For example, if you do not have documentation or you cannot determine the part of a payment that is allocable to specific documentation, you must use the presumption rules.
The specific types of documentation are discussed in this section. However, see Withholding on Specific Income, later, as well as the instructions to the particular forms. As the withholding agent, you also may want to see the Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY.
taxmap/pubs/p515-002.htm#en_us_publink1000224820

Section 1446 withholding.(p7)

rule
Under section 1446 of the Code, a partnership must withhold tax on its effectively connected income allocable to a foreign partner. In most cases, a partnership determines if a partner is a foreign partner and the partner's tax classification based on the withholding certificate provided by the partner. This is the same documentation that is filed for NRA withholding, but may require additional information as discussed under each of the forms in this section.
taxmap/pubs/p515-002.htm#en_us_publink1000224821

Joint owners.(p7)

rule
If you make a payment to joint owners, you need to get documentation from each owner.
taxmap/pubs/p515-002.htm#en_us_publink1000224822

Form W-9.(p7)

rule
In most cases, you can treat the payee as a U.S. person if the payee gives you a Form W-9. The Form W-9 can be used only by a U.S. person and must contain the payee's taxpayer identification number (TIN). If there is more than one owner, you may treat the total amount as paid to a U.S. person if any one of the owners gives you a Form W-9. See U.S. Taxpayer Identification Numbers, later. U.S. persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding.
taxmap/pubs/p515-002.htm#en_us_publink1000224823

Form W-8.(p7)

rule
In most cases, a foreign person that is a beneficial owner of the income should give you a Form W-8. Until further notice, you can rely upon Forms W-8 that contain a P.O. box as a permanent residence address provided you do not know, or have reason to know, that the person providing the form is a U.S. person and that a street address is available. You may rely on Forms W-8 for which there is a U.S. mailing address provided you received the form prior to December 31, 2001.
If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8. You can rely on documentary evidence in lieu of a Form W-8 for a payment made in a U.S. possession.
taxmap/pubs/p515-002.htm#en_us_publink1000224824

Other documentation.(p7)

rule
Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. The nonresident alien individual may have to give you a Form W-4 or a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. These forms are discussed in Pay for Personal Services Performed under Withholding on Specific Income.
taxmap/pubs/p515-002.htm#en_us_publink1000224825

Beneficial Owners(p7)

rule
If all the appropriate requirements have been established on a Form W-8BEN, W-8ECI, W-8EXP or, if applicable, on documentary evidence, you may treat the payee as a foreign beneficial owner.
taxmap/pubs/p515-002.htm#en_us_publink1000224826

Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding.(p7)

rule
This form is used by a foreign person to:
Form W-8BEN also may be used to claim that the foreign person is exempt from Form 1099 reporting and backup withholding for income that is not subject to NRA withholding. For example, a foreign person may provide a Form W-8BEN to a broker to establish that the gross proceeds from the sale of securities are not subject to Form 1099 reporting or backup withholding.
taxmap/pubs/p515-002.htm#en_us_publink1000224827
Claiming treaty benefits.(p7)
You may apply a reduced rate of withholding to a foreign person that provides a Form W-8BEN claiming a reduced rate of withholding under an income tax treaty only if the person provides a U.S. TIN and certifies that:
If the foreign beneficial owner claiming a treaty benefit is related to you, the foreign beneficial owner also must certify on Form W-8BEN that it will file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), if the amount subject to NRA withholding received during a calendar year exceeds, in the aggregate, $500,000.
An entity derives income for which it is claiming treaty benefits only if the entity is not treated as fiscally transparent for that income. See Fiscally transparent entity discussed earlier under Flow-Through Entities.
Limitations on benefits provisions generally prohibit third country residents from obtaining treaty benefits. For example, a foreign corporation may not be entitled to a reduced rate of withholding unless a minimum percentage of its owners are citizens or residents of the United States or the treaty country.
The exemptions from, or reduced rates of, U.S. tax vary under each treaty. You must check the provisions of the tax treaty that apply. Tables at the end of this publication show the countries with which the United States has income tax treaties and the rates of withholding that apply in cases where all conditions of the particular treaty articles are satisfied.
If you know, or have reason to know, that an owner of income is not eligible for treaty benefits claimed, you must not apply the treaty rate. You are not, however, responsible for misstatements on a Form W-8, documentary evidence, or statements accompanying documentary evidence for which you did not have actual knowledge, or reason to know, that the statements were incorrect.
taxmap/pubs/p515-002.htm#en_us_publink1000224828
Exceptions to TIN requirement.(p8)
A foreign person does not have to provide a TIN to claim a reduced rate of withholding under a treaty if the requirements for the following exceptions are met.
taxmap/pubs/p515-002.htm#en_us_publink1000224829
Marketable securities.(p8)
A Form W-8BEN provided to claim treaty benefits does not need a U.S. TIN if the foreign beneficial owner is claiming the benefits on income from marketable securities. For this purpose, income from a marketable security consists of the following items.
taxmap/pubs/p515-002.htm#en_us_publink1000224830
Offshore accounts.(p8)
If a payment is made outside the United States to an offshore account, a payee may give you documentary evidence, rather than Form W-8BEN.
In most cases, a payment is made outside the United States if you complete the acts necessary to effect the payment outside the United States. However, an amount paid by a bank or other financial institution on a deposit or account usually will be treated as paid at the branch or office where the amount is credited. An offshore account is an account maintained at an office or branch of a U.S. or foreign bank or other financial institution at any location outside the United States.
You may rely on documentary evidence given to you by a nonqualified intermediary or a flow-through entity with its Form W-8IMY. This rule applies even though you make the payment to a nonqualified intermediary or flow-through entity in the United States. In most cases, the nonqualified intermediary or flow-through entity that gives you documentary evidence also will have to give you a withholding statement, discussed later.
taxmap/pubs/p515-002.htm#en_us_publink1000224831
Documentary evidence.(p8)
You may apply a reduced rate of withholding to income from marketable securities (discussed earlier) paid outside the United States to an offshore account if the beneficial owner gives you documentary evidence in place of a Form W-8BEN. To claim treaty benefits, the documentary evidence must be one of the following:
  1. A certificate of residence that:
    1. Is issued by a tax official of the treaty country of which the foreign beneficial owner claims to be a resident,
    2. States that the person has filed its most recent income tax return as a resident of that country, and
    3. Is issued within 3 years prior to being presented to you.
  2. Documentation for an individual that:
    1. Includes the individual's name, address, and photograph,
    2. Is an official document issued by an authorized governmental body, and
    3. Is issued no more than 3 years prior to being presented to you.
  3. Documentation for an entity that:
    1. Includes the name of the entity,
    2. Includes the address of its principal office in the treaty country, and
    3. Is an official document issued by an authorized governmental body.
In addition to the documentary evidence, a foreign beneficial owner that is an entity must provide a statement that it derives the income for which it claims treaty benefits and that it meets one or more of the conditions set forth in a limitation on benefits article, if any, (or similar provision) contained in the applicable treaty.
taxmap/pubs/p515-002.htm#en_us_publink1000224832

Form W-8ECI, Certificate of Foreign Person's Claim That Income Is Effectively Connected With the Conduct of a Trade or Business in the United States.(p8)

rule
This form is used by a foreign person to:
Effectively connected income for which a valid Form W-8ECI has been provided is generally not subject to NRA withholding.
If a partner submits this form to a partnership, the income claimed to be effectively connected with the conduct of a U.S. trade or business is subject to withholding under section 1446. If the partner has made, or will make, an election under section 871(d) or 882(d), the partner must submit Form W-8ECI, and attach a copy of the election, or a statement of intent to elect, to the form.
EIC
If the partner's only effectively connected income is the income allocated from the partnership and the partner is not making the election under section 871(d) or 882(d), the partner should provide Form W-8BEN to the partnership.
taxmap/pubs/p515-002.htm#en_us_publink1000224834

Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding.(p8)

rule
This form is used by a foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U.S. possession to:
If the government or organization is a partner in a partnership carrying on a trade or business in the United States, the effectively connected income allocable to the partner is subject to withholding under section 1446.
See Foreign Governments and Certain Other Foreign Organizations, later.
taxmap/pubs/p515-002.htm#en_us_publink1000224835

Foreign Intermediaries
and Foreign
Flow-Through Entities(p8)

rule
Payments made to a foreign intermediary or foreign flow-through entity are treated as made to the payees on whose behalf the intermediary or entity acts. The Form W-8IMY provided by a foreign intermediary or flow-through entity must be accompanied by additional information for you to be able to reliably associate the payment with a payee. The additional information required depends on the type of intermediary or flow-through entity and the extent of the withholding responsibilities it assumes.
taxmap/pubs/p515-002.htm#en_us_publink1000224836

Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding.(p9)

rule
This form is used by foreign intermediaries and foreign flow-through entities, as well as certain U.S. branches, to:
taxmap/pubs/p515-002.htm#en_us_publink1000224837

Qualified Intermediaries(p9)

rule
In most cases, a QI is any foreign intermediary that has entered into a QI withholding agreement (discussed earlier) with the IRS. A foreign intermediary that has received a QI employer identification number (QI-EIN) may represent on Form W-8IMY that it is a QI before it receives a fully executed agreement. The intermediary can claim that it is a QI until the IRS revokes its QI-EIN. The IRS will revoke a QI-EIN if the QI agreement is not executed and returned to the IRS within a reasonable period of time after the agreement was sent to the intermediary for signature.
taxmap/pubs/p515-002.htm#en_us_publink1000224838

Responsibilities.(p9)

rule
Payments made to a QI that does not assume NRA withholding responsibility are treated as paid to its account holders and customers. However, a QI is not required to provide you with documentation it obtains from its foreign account holders and customers. Instead, it provides you with a withholding statement that contains withholding rate pool information. A withholding rate pool is a payment of a single type of income, determined in accordance with the categories of income reported on Form 1042-S that is subject to a single rate of withholding. A qualified intermediary is required to provide you with information regarding U.S. persons subject to Form 1099 reporting and to provide you withholding rate pool information separately for each such U.S. person unless it has assumed Form 1099 reporting and backup withholding responsibility. For the alternative procedure for providing rate pool information for U.S. non-exempt persons, see the Form W-8IMY instructions.
The withholding statement must:
  1. Designate those accounts for which it acts as a qualified intermediary,
  2. Designate those accounts for which it assumes primary NRA withholding responsibility and/or primary Form 1099 and backup withholding responsibility, and
  3. Provide sufficient information for you to allocate the payment to a withholding rate pool.
The extent to which you must have withholding rate pool information depends on the withholding and reporting obligations assumed by the QI.
taxmap/pubs/p515-002.htm#en_us_publink1000224839
Primary responsibility not assumed.(p9)
If a QI does not assume primary NRA withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for the payment, you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to each withholding rate pool for foreign payees. Unless the alternative procedure applies, the qualified intermediary must provide you with a separate withholding rate pool for each U.S. person subject to Form 1099 reporting and/or backup withholding. The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person.
taxmap/pubs/p515-002.htm#en_us_publink1000224840
Primary NRA withholding responsibility assumed.(p9)
If you make a payment to a QI that assumes primary NRA withholding responsibility (but not primary Form 1099 reporting and backup withholding responsibility), you can reliably associate the payment with valid documentation only to the extent you can reliably determine the part of the payment that relates to the withholding rate pool for which the QI assumes primary NRA withholding responsibility and the part of the payment attributable to withholding rate pools for each U.S. person, unless the alternative procedure applies, subject to Form 1099 reporting and/or backup withholding. The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person.
taxmap/pubs/p515-002.htm#en_us_publink1000224841
Primary NRA and Form 1099 responsibility assumed.(p9)
If you make a payment to a QI that assumes both primary NRA withholding responsibility and primary Form 1099 reporting and backup withholding responsibility, you can reliably associate a payment with valid documentation provided that you receive a valid Form W-8IMY. It is not necessary to associate the payment with withholding rate pools.
taxmap/pubs/p515-002.htm#en_us_publink1000224842

Example.(p9)

You make a payment of dividends to a QI. It has five customers: two are foreign persons who have provided documentation entitling them to a 15% rate of withholding on dividends; two are foreign persons subject to a 30% rate of withholding on dividends; and one is a U.S. individual who provides it with a Form W-9. Each customer is entitled to 20% of the dividend payment. The QI does not assume any primary withholding responsibility. The QI gives you a Form W-8IMY with which it associates the Form W-9 and a withholding statement that allocates 40% of the dividend to a 15% withholding rate pool, 40% to a 30% withholding rate pool, and 20% to the U.S. individual. You should report on Forms 1042-S 40% of the payment as made to a 15% rate dividend pool and 40% of the payment as made to a 30% rate dividend pool. The part of the payment allocable to the U.S. individual (20%) is reportable on Form 1099-DIV.
taxmap/pubs/p515-002.htm#en_us_publink1000224843

Smaller partnerships and trusts.(p9)

rule
A QI may apply special rules to a smaller partnership or trust (Joint Account Provision) only if the partnership or trust meets the following conditions.
For information on these rules, see section 4A.01 of the QI agreement. This is found in Appendix 3 of Revenue Procedure 2003-64. Also see Revenue Procedure 2004-21.
taxmap/pubs/p515-002.htm#en_us_publink1000224844

Related partnerships and trusts.(p9)

rule
A QI may apply special rules to a related partnership or trust only if the partnership or trust meets the following conditions.
  1. It is a foreign partnership or foreign simple or grantor trust.
  2. It is either:
    1. A direct account holder of the QI, or
    2. An indirect account holder of the QI that is a direct partner, beneficiary, or owner of a partnership or trust to which the QI has applied this rule.
For information on these rules, see section 4A.02 of the QI agreement. This is found in Appendix 3 of Revenue Procedure 2003-64. Also see Revenue Procedure 2005-77.
taxmap/pubs/p515-002.htm#en_us_publink1000224845

Nonqualified Intermediaries(p9)

rule
If you are making a payment to an NQI, foreign flow-through entity, or U.S. branch that is using Form W-8IMY to transmit information about the branch's account holders or customers, you can treat the payment (or a part of the payment) as reliably associated with valid documentation from a specific payee only if, prior to making the payment:
The NQI, flow-through entity, or U.S. branch must give you certain information on a withholding statement that is associated with the Form W-8IMY. A withholding statement must be updated to keep the information accurate prior to each payment.
taxmap/pubs/p515-002.htm#en_us_publink1000224846

Withholding statement.(p10)

rule
In most cases, a withholding statement must contain the following information.
  1. The name, address, and TIN (if any, or if required) of each person for whom documentation is provided.
  2. The type of documentation (documentary evidence, Form W-8, or Form W-9) for every person for whom documentation has been provided.
  3. The status of the person for whom the documentation has been provided, such as whether the person is a U.S. exempt recipient (U.S. person exempt from Form 1099 reporting), U.S. non-exempt recipient (U.S. person subject to Form 1099 reporting), or a foreign person. For a foreign person, the statement must indicate whether the person is a beneficial owner or a foreign intermediary, flow-through entity, or a U.S. branch.
  4. The type of recipient the person is, based on the recipient codes used on Form 1042-S.
  5. Information allocating each payment, by income type, to each payee (including U.S. exempt and U.S. non-exempt recipients) for whom documentation has been provided.
  6. The rate of withholding that applies to each foreign person to whom a payment is allocated.
  7. A foreign payee's country of residence.
  8. If a reduced rate of withholding is claimed, the basis for a reduced rate of withholding (for example, portfolio interest, treaty benefit, etc.).
  9. In the case of treaty benefits claimed by entities, whether the applicable limitation on benefits statement and the statement that the foreign person derives the income for which treaty benefits are claimed, have been made.
  10. The name, address, and TIN (if any) of any other NQI, flow-through entity, or U.S. branch from which the payee will directly receive a payment.
  11. Any other information a withholding agent requests to fulfill its reporting and withholding obligations.
taxmap/pubs/p515-002.htm#en_us_publink1000224847

Alternative procedure.(p10)

rule
Under this alternative procedure the NQI can give you the information that allocates each payment to each foreign and U.S. exempt recipient by January 31 following the calendar year of payment, rather than prior to the payment being made as otherwise required. To take advantage of this procedure, the NQI must: (a) inform you, on its withholding statement, that it is using the alternative procedure; and (b) obtain your consent. You must receive the withholding statement with all the required information (other than item 5) prior to making the payment.
EIC
This alternative procedure cannot be used for payments to U.S. non-exempt recipients. Therefore, an NQI must always provide you with allocation information for all U.S. non-exempt recipients prior to a payment being made.
taxmap/pubs/p515-002.htm#en_us_publink1000224849
Pooled withholding information.(p10)
If an NQI uses the alternative procedure, it must provide you with withholding rate pool information, as opposed to individual allocation information, prior to the payment of a reportable amount. A withholding rate pool is a payment of a single type of income (as determined by the income categories on Form 1042-S) that is subject to a single rate of withholding. For example, an NQI that has foreign account holders receiving royalties and dividends, both subject to the 15% rate, will provide you with information for two withholding rate pools (one for royalties and one for dividends). The NQI must provide you with the payee specific allocation information (information allocating each payment to each payee) by January 31 following the calendar year of payment.
taxmap/pubs/p515-002.htm#en_us_publink1000224850
Failure to provide allocation information.(p10)
If an NQI fails to provide you with the payee specific allocation information for a withholding rate pool by January 31, you must not apply the alternative procedure to any of the NQI's withholding rate pools from that date forward. You must treat the payees as undocumented and apply the presumption rules, discussed later in Presumption Rules. An NQI is deemed to have failed to provide specific allocation information if it does not give you such information for more than 10% of any one withholding rate pool.
However, if you receive such information by February 14, you may make the appropriate adjustments to repay any excess withholding incurred between February 1 and on or before February 14.
If the NQI fails to allocate more than 10% of the payment to a withholding rate pool by February 14 following the calendar year of payment, you must file a Form 1042-S for each account holder in the pool on a pro-rata basis. For example, if there are four account holders in a withholding rate pool that receives a $100 payment and the NQI fails to allocate more than $10 of the payment, you must file four Forms 1042-S, one for each account holder in the pool, showing $25 of income to each. You must also check the "Pro-rata Basis Reporting" box at the top of each form. If, however, the nonqualified intermediary provides allocation information for 90% or more of the payment to a withholding rate pool, the pro-rata reporting method is not required. Instead, you must file a Form 1042-S for each account holder for whom you have allocation information and report the unallocated part of the payment on a Form 1042-S issued to "unknown recipient."
taxmap/pubs/p515-002.htm#en_us_publink1000224851

Withholding Foreign Partnerships(p10)

rule
If you are making payments to a WP, you do not have to withhold if the WP is acting in that capacity. The WP must assume NRA withholding responsibility for amounts (subject to NRA withholding) that are distributed to, or included in the distributive share of, any direct partner. The WP must withhold the amount required to be withheld. A WP must provide you with a Form W-8IMY that certifies that the WP is acting in that capacity and a written statement identifying the amounts for which it is so acting. The Form W-8IMY must contain the WP-EIN.
taxmap/pubs/p515-002.htm#en_us_publink1000224852

Responsibilities of WP.(p10)

rule
The WP must withhold on the date it makes a distribution of an amount subject to NRA withholding to a direct foreign partner based on the Forms W-8 or W-9 it receives from its partners. If the partner's distributive share has not been distributed, the WP must withhold on the partner's distributive share on the earlier of the date that the partnership must mail or otherwise provide to the partner a Schedule K-1 (Form 1065) or the due date for furnishing the statement (whether or not the WP is required to furnish the statement).
The WP may determine the amount of withholding based on a reasonable estimate of the partner's distributive share of income subject to withholding for the year. The WP must correct the estimated withholding to reflect the actual distributive share on the earlier of the dates mentioned in the preceding paragraph. If that date is after the due date (including extensions) for filing the WP's Forms 1042 and 1042-S for the calendar year, the WP may withhold and report any adjustments in the following calendar year.
taxmap/pubs/p515-002.htm#en_us_publink1000224853
Form 1042 filing.(p10)
The WP must file Form 1042 even if no amount was withheld. In addition to the information that is required for the Form 1042, the WP must attach a statement showing the amounts of any over- or under-withholding adjustments and an explanation of those adjustments.
taxmap/pubs/p515-002.htm#en_us_publink1000224854
Form 1042-S reporting.(p10)
The WP can elect to report payments made to its direct partners on a pooled basis rather than reporting payments to each direct partner. This election must be made when the WP withholding agreement is executed. If the election was not made, the WP must file separate Forms 1042-S for each direct partner whose distributive share included an amount subject to NRA withholding.
taxmap/pubs/p515-002.htm#en_us_publink1000224855

Smaller partnerships and trusts.(p10)

rule
Under a special rule, a WP that has made a pooled reporting election can treat partners of certain smaller partnerships and beneficiaries or owners of certain smaller trusts (Joint Account Provision) as direct partners. These rules only apply to a partnership or trust that meets the following conditions. For more information on applying these rules, see section 10.01 of the WP agreement found in Appendix 1 of Revenue Procedure 2003-64. Also see Revenue Procedure 2004-21.
taxmap/pubs/p515-002.htm#en_us_publink1000224856

Related partnerships and trusts.(p10)

rule
Under a special rule, a WP that has made a pooled reporting election can treat direct partners of certain related partnerships and direct beneficiaries or owners of certain related trusts as direct partners. These rules only apply to a partnership or trust that meets the following conditions.
  1. It is a foreign partnership or foreign simple or grantor trust.
  2. It is either:
    1. A direct partner of the WP, or
    2. An indirect partner of the WP that is a partner, beneficiary, or owner of a partnership or trust to which the WP has applied this rule.
For more information on applying these rules see section 10.02 of the WP agreement found in Appendix 1 of Revenue Procedure 2003-64. Also see Revenue Procedure 2005-77.
taxmap/pubs/p515-002.htm#en_us_publink1000224857

Not acting as WP.(p11)

rule
A foreign partnership that is not acting as a WP is a nonwithholding foreign partnership. This occurs if a WP is not acting in that capacity for some or all of the amounts it receives from you. Also, a WP generally is a nonwithholding foreign partnership for amounts distributed to, or included in the distributive share of, pass-through partners or indirect partners.
You must treat payments made to a nonwithholding foreign partnership as made to the partners of the partnership. The partnership must provide you with a Form W-8IMY (with Part VI completed), a withholding statement identifying the amounts, the withholding certificates or documentary evidence of the partners, and the information shown earlier under Withholding statement under Nonqualified Intermediaries.
taxmap/pubs/p515-002.htm#en_us_publink1000224858

Withholding Foreign Trusts(p11)

rule
If you are making payments to a WT, you do not have to withhold if the WT is acting in that capacity. The WT must assume NRA withholding responsibility for amounts (subject to NRA withholding) that are distributed to, or included in the distributive share of, any direct beneficiary or owner. The WT must withhold the amount required to be withheld. A WT must provide you with a Form W-8IMY that certifies that the WT is acting in that capacity and a written statement identifying the amounts for which it is so acting. The Form W-8IMY must contain the WT-EIN.
taxmap/pubs/p515-002.htm#en_us_publink1000224859

Responsibilities of WT.(p11)

rule
The WT must withhold on the date it makes a distribution of an amount subject to NRA withholding to a direct foreign beneficiary or owner. If the beneficiary's or owner's distributive share has not been distributed, the WT must withhold on the beneficiary's or owner's distributive share on the earlier of the date that the trust must mail or otherwise provide to the beneficiary or owner a Schedule K-1 (Form 1041) or the due date for furnishing the statement (whether or not the WT is required to furnish the statement).
The WT may determine the amount of withholding based on a reasonable estimate of the beneficiary's or owner's distributive share of income subject to withholding for the year. The WT must correct the estimated withholding to reflect the actual distributive share on the earlier of the dates mentioned in the preceding paragraph. If that date is after the due date (including extensions) for filing the WT's Forms 1042 and 1042-S for the calendar year, the WT may withhold and report any adjustments in the following calendar year.
taxmap/pubs/p515-002.htm#en_us_publink1000224860
Form 1042 filing.(p11)
The WT must file Form 1042 even if no amount was withheld. In addition to the information that is required for the Form 1042, the WT must attach a statement showing the amounts of any over- or under-withholding adjustments and an explanation of those adjustments.
taxmap/pubs/p515-002.htm#en_us_publink1000224861
Form 1042-S reporting.(p11)
A WT can elect to report payments made to its direct beneficiaries or owners on a pooled basis rather than reporting payments to each direct beneficiary or owner. This election must be made when the WT withholding agreement is executed. If the election was not made, the WT must file separate Forms 1042-S for each direct beneficiary or owner whose distributive share included an amount subject to NRA withholding.
taxmap/pubs/p515-002.htm#en_us_publink1000224862

Smaller partnerships and trusts.(p11)

rule
Under a special rule, a WT that has made a pooled reporting election can treat partners of certain smaller partnerships and beneficiaries or owners of certain smaller trusts (Joint Account Provision) as direct beneficiaries or owners. These rules only apply to a partnership or trust that meets the following conditions. For more information on applying these rules, see section 10.01 of the WT agreement found in Appendix 2 of Revenue Procedure 2003-64. Also see Revenue Procedure 2004-21.
taxmap/pubs/p515-002.htm#en_us_publink1000224863

Related partnerships and trusts.(p11)

rule
Under a special rule, a WT that has made a pooled reporting election can treat direct partners of certain related partnerships and direct beneficiaries or owners of certain related trusts as direct beneficiaries or owners. These rules only apply to a partnership or trust that meets the following conditions.
  1. It is a foreign partnership or foreign simple or grantor trust.
  2. It is either:
    1. A direct beneficiary or owner of the WT, or
    2. An indirect beneficiary or owner of the WT that is a partner, beneficiary, or owner of a partnership or trust to which the WP has applied this rule.
For more information on applying these rules, see section 10.02 of the WP agreement found in Appendix 2 of Revenue Procedure 2003-64. Also see Revenue Procedure 2005-77.
taxmap/pubs/p515-002.htm#en_us_publink1000224864

Not acting as WT.(p11)

rule
A foreign trust that is not acting as a WT is a nonwithholding foreign trust. This occurs if a WT is not acting in that capacity for some or all of the amounts it receives from you. Also, a WT generally is a nonwithholding foreign trust for amounts distributed to, or included in the distributive share of, pass-through beneficiaries or owners or indirect beneficiaries or owners.
In most cases, you must treat payments made to a nonwithholding foreign trust as made to the beneficiaries of a simple trust or the owners of a grantor trust. The trust must provide you with a Form W-8IMY (with Part VI completed), a withholding statement identifying the amounts, the withholding certificates or documentary evidence of the beneficiaries or owners, and the information shown earlier under Withholding statement under Nonqualified Intermediaries.
taxmap/pubs/p515-002.htm#en_us_publink1000224865

Standards of Knowledge(p11)

rule
You must withhold in accordance with the presumption rules (discussed later) if you know or have reason to know that a Form W-8 or documentary evidence provided by a payee is unreliable or incorrect. If you rely on an agent to obtain documentation, you are considered to know, or have reason to know, the facts that are within the knowledge of your agent.
taxmap/pubs/p515-002.htm#en_us_publink1000224866

Reason To Know(p11)

rule
In most cases, you are considered to have reason to know that a claim of U.S. status or of a reduced rate of withholding is incorrect if statements contained in the withholding certificate or other documentation, or other relevant facts of which you have knowledge, would cause a reasonably prudent person in your position to question the claims made.
Financial institutions (including a regulated investment company) are treated as having reason to know documentation is unreliable or incorrect for payments on marketable securities only in the circumstances discussed next. If the documentation is considered unreliable or incorrect, you must get new documentation. However, you may rely on the original documentation if you receive the additional statements and/or documentation discussed.
The circumstances, discussed next, also apply to a withholding agent that is not a financial institution or making a payment on marketable securities. However, these withholding agents are not limited to these circumstances in determining if they have reason to know that documentation is unreliable or incorrect. These withholding agents cannot base their determination on the receipt of additional statements or documents. They need to get new documentation.
taxmap/pubs/p515-002.htm#en_us_publink1000224867

Withholding Certificates(p11)

rule
You have reason to know that a Form W-8 provided by a direct account holder that is a foreign person is unreliable or incorrect if:
taxmap/pubs/p515-002.htm#en_us_publink1000224868

Establishment of foreign status.(p12)

rule
You have reason to know that a Form W-8BEN or Form W-8EXP is unreliable or incorrect to establish a direct account holder's status as a foreign person if:
  1. The Form W-8 has a permanent residence address in the United States;
  2. The Form W-8 has a mailing address in the United States;
  3. You have a residence or mailing address as part of your account information that is an address in the United States;
  4. The person providing the certificate notifies you of a new residence or mailing address in the United States; or
  5. If the Form W-8 is provided with respect to an offshore account, the account holder has standing instructions directing you to pay amounts from its account to an address or account maintained in the United States.
Note.Items (2) and (3) do not apply if the U.S. mailing address is provided on a Form W-8 received before December 31, 2001.
You may, however, rely on a Form W-8 as establishing the account holder's foreign status if any of the following apply:
  1. You receive the Form W-8 from an individual and:
    1. You possess or obtain documentary evidence (that does not contain a U.S. address) that was provided within the last three years, was valid when provided, supports the claim of foreign status, and the beneficial owner provides you with a reasonable explanation in writing supporting the account holder's foreign status; or
    2. If the account is maintained at your office outside the United States, you are required to report annually a payment to the account holder on a tax information statement filed with the tax authority of the country in which your office is located and that country has an income tax treaty in effect with the United States.
  2. You receive the Form W-8 from an entity that is not a flow-through entity and:
    1. You have in your possession or obtain documentation that substantiates that the entity is organized or created under foreign law, or
    2. If the account is maintained at your office outside the United States, you are required to report annually a payment to the account holder on a tax information statement filed with the tax authority of the country in which your office is located and that country has an income tax treaty in effect with the United States.
  3. The account holder has provided standing instructions to make payments with respect to its offshore account to a U.S. account or U.S. address if the account holder provides a reasonable explanation in writing that supports the account holder's foreign status.
taxmap/pubs/p515-002.htm#en_us_publink1000224870

Claim of reduced rate of withholding under treaty.(p12)

rule
You have reason to know that a Form W-8BEN provided by a direct account holder to claim a reduced rate of withholding under a treaty is unreliable or incorrect for purposes of establishing the account holder's residency in a treaty country if:
You may, however, rely on a Form W-8BEN as establishing an account holder's claim of a reduced rate of withholding under a treaty if any of the following apply.
  1. The permanent residence address is not in the treaty country and:
    1. The account holder provides a reasonable explanation for the permanent residence address outside the treaty country, or
    2. You possess or obtain documentary evidence that establishes residency in a treaty country.
  2. The mailing address is not in the treaty country and:
    1. You possess or obtain additional documentation (that does not contain an address outside the treaty country) supporting the beneficial owner's claim of residence in the treaty country,
    2. You possess or obtain documentation that establishes that the beneficial owner is an entity organized in a treaty country,
    3. You know that the address outside the treaty country is a branch of a bank or insurance company that is a resident of the treaty country, or
    4. You obtain a written statement from the beneficial owner that reasonably establishes its entitlement to treaty benefits.
  3. You have instructions to pay amounts outside the treaty country and the account holder gives you a reasonable explanation, in writing, establishing residence in the applicable treaty country.
taxmap/pubs/p515-002.htm#en_us_publink1000224871

Documentary Evidence(p12)

rule
You have reason to know that documentary evidence provided by a direct account holder that is a foreign person is unreliable or incorrect if:
taxmap/pubs/p515-002.htm#en_us_publink1000224872

Establishment of foreign status.(p12)

rule
You have reason to know that documentary evidence is unreliable or incorrect to establish a direct account holder's status as a foreign person if:
You may, however, rely on documentary evidence as establishing an account holder's foreign status if any of the following apply.
  1. The mailing or residence address is in the United States, you receive the documentary evidence from an individual, and
    1. You possess or obtain additional documentary evidence (that 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,
    2. You possess or obtain a Form W-8 that contains a permanent residence address and mailing address 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 the Form W-8 was received before December 31, 2001), or
    3. The account is maintained at your office outside the United States and you are required to report annually a payment to the account holder on a tax information statement filed with the tax authority of the country in which your office is located and that country has an income tax treaty in effect with the United States.
  2. The mailing or residence address is in the United States, you receive the documentary evidence from an entity (other than a flow-through entity) and:
    1. You possess or obtain documentation to substantiate that the entity is actually organized under the laws of a foreign country,
    2. You obtain a valid Form W-8 that contains a permanent residence address and mailing address 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 the Form W-8 was received before December 31, 2001), or
    3. The account is maintained at an office outside the United States and you are required to report annually a payment to the account holder on a tax information statement filed with the tax authority of the country in which your office is located and that country has an income tax treaty in effect with the United States.
  3. You have instructions to pay amounts to an address or an account in the United States and the account holder provides you with a reasonable explanation, in writing, that supports the account holder's foreign status.
taxmap/pubs/p515-002.htm#en_us_publink1000224873

Claim of reduced rate of withholding under treaty.(p13)

rule
You have reason to know that documentary evidence provided by a direct account holder to claim a reduced rate of withholding under a treaty is unreliable or incorrect for purposes of establishing the account holder's residency in a treaty country if:
You may, however, rely on documentary evidence as establishing an account holder's claim of a reduced rate of withholding under a treaty if any of the following apply.
  1. The mailing or residence address is outside the treaty country and:
    1. You possess or obtain additional documentary evidence supporting the account holder's claim of residence in the treaty country (and the documentary evidence does not contain an address outside the treaty country, a P.O. box, an in-care-of address, or the address of a financial institution),
    2. You possess or obtain documentary evidence that establishes that the account holder is an entity organized in a treaty country, or
    3. You obtain a valid Form W-8BEN that contains a permanent residence address and a mailing address in the applicable treaty country.
  2. You have instructions to pay amounts outside the treaty country and the account holder gives you a reasonable explanation, in writing, establishing residence in the applicable treaty country.
taxmap/pubs/p515-002.htm#en_us_publink1000224874

Indirect Account Holders(p13)

rule
A financial institution that receives documentation from a payee through an NQI, a flow-through entity, or a U.S. branch of a foreign bank or insurance company subject to U.S. or state regulatory supervision has reason to know that the documentary evidence is unreliable or incorrect if a reasonably prudent person in the financial institution's position would question the claims made. This standard requires, but is not limited to, compliance with the following rules.
taxmap/pubs/p515-002.htm#en_us_publink1000224875

Withholding statement.(p13)

rule
You must review the withholding statement provided with Form W-8IMY and may not rely on information in the statement to the extent the information does not support the claims made for a payee. You may not treat a payee as a foreign person if a U.S. address is provided for the payee. You may not treat a person as a resident of a country with which the United States has an income tax treaty if the address for the person is outside the treaty country.
You may, however, treat a payee as a foreign person and may treat a foreign person as a resident of a treaty country if a reasonable explanation is provided, in writing, by the NQI, flow-through entity, or U.S. branch.
taxmap/pubs/p515-002.htm#en_us_publink1000224876

Withholding certificate.(p13)

rule
If you receive a Form W-8 for a payee in association with a Form W-8IMY, you must review each Form W-8 and verify that the information is consistent with the information on the withholding statement. If there is a discrepancy, you may rely on the Form W-8, if valid, and instruct the NQI, flow-through entity, or U.S. branch to correct the withholding statement, or, alternatively, you may apply the presumption rules, discussed later in Presumption Rules, to the payee.
taxmap/pubs/p515-002.htm#en_us_publink1000224877

Documentary evidence.(p13)

rule
If you receive documentary evidence for a payee in association with a Form W-8IMY, you must review the documentary evidence provided by the NQI, flow-through entity, or U.S. branch to determine that there is no obvious indication that the payee is a U.S. person subject to Form 1099 reporting or that the documentary evidence does not establish the identity of the person who provided the documentation (for example, the documentary evidence does not appear to be an identification document).
taxmap/pubs/p515-002.htm#en_us_publink1000224878

Presumption Rules(p13)

rule
If you cannot reliably associate a payment with valid documentation, you must apply certain presumption rules or you may be liable for tax, interest, and penalties. If you comply with the presumption rules, you are not liable for tax, interest, and penalties even if the rate of withholding that should have been applied based on the payee's actual status is different from that presumed.
The presumption rules apply to determine the status of the person you pay as a U.S. or foreign person and other relevant characteristics, such as whether the payee is a beneficial owner or intermediary, and whether the payee is an individual, corporation, partnership, or trust. You are not permitted to apply a reduced rate of NRA withholding based on a payee's presumed status if documentation is required to establish a reduced rate of withholding. For example, if the payee of interest is presumed to be a foreign person, you may not apply the portfolio interest exception or a reduced rate of withholding under a tax treaty since both exceptions require documentation.
If you rely on your actual knowledge about a payee's status and withhold an amount less than that required under the presumption rules or do not report a payment that is subject to reporting under the presumption rules, you may be liable for tax, interest, and penalties. You should, however, rely on your actual knowledge if doing so results in withholding an amount greater than would apply under the presumption rules or in reporting an amount that would not be subject to reporting under the presumption rules.
The presumption rules, in the absence of documentation, for the subject matter are discussed in the regulation section indicated on Chart A.

Chart A. Presumption Rules in the Absence of Documentation

For the presumption rules related to:See regulations section:
Payee's status1.1441-1(b)(3); 1.6049-5(d)
Effectively connected income1.1441-4(a)(2)
Partnership and its partners1.1441-5(d); 1.1446-1(c)(3)
Estate or trust and its beneficiaries or owner1.1441-5(e)(6)
Foreign tax-exempt organizations
(including private foundations)
1.1441-9(b)(3)