SECTION 2. BACKGROUND

.01 Withholding and reporting on pay- ments to foreign persons. Under sections 1441 and 1442 of the Internal Revenue Code (Code), a person that makes a payment of U.S. source interest, dividends, royalties, and certain other types of income to a foreign person must generally deduct and withhold 30 percent from the payment. A lower rate of withholding may apply under the Code (e.g., section 1443), the regulations, or an income tax treaty. Generally, a payor of these types of income must also report the payments on Form 1042–S. See §1.1461–1(c).

Under sections 6042, 6045, 6049, and 6050N of the Code (the Form 1099 reporting provisions), payors of dividends, gross proceeds, interest, and royalties must report the payments on Form 1099 unless an exception applies. If a payor must report a payment on Form 1099, it must obtain a Form W–9 from the payee. If the payor does not receive the Form W–9, it must backup withhold at a 31percent rate under section 3406 of the Code. One exception to the Form 1099 reporting provisions applies if the payee is a foreign person. A payor can treat a person as foreign if the payor can reliably associate the payment with documentation that establishes that the person is a foreign beneficial owner of the income or a foreign payee. See §§1.6042–3(b)(1)(iii), 1.6045–1(g)(1)(i), 1.6049–5(b)(12), and 1.6050N–1(c)(1)(i). Moreover, a payor does not have to backup withhold on payments to foreign beneficial owners or foreign payees because backup withholding applies only to amounts that the payor must report on Form 1099.

.02 Proof of foreign status. The regulations under section 1441 and the Form 1099 reporting provisions of the Code prescribe the manner in which a beneficial owner or payee certifies to a payor that it is a foreign or U.S. person and, if foreign, whether a reduced rate of withholding applies. For proof of foreign status, a payor or a withholding agent may rely on a Form W–8 or on documentary

evidence for payments made outside the United States to an offshore account or, in the case of broker proceeds, a sale effected outside the United States.

In addition, a payor or withholding agent may rely on a QI’s certifications (as described in §1.1441–1(e)(3)(ii) and section 5.02 of this revenue procedure) to determine whether a beneficial owner or payee is foreign, and to determine the applicable rate of withholding and the appropriate type of reporting. The QI provides its certifications on a Form W–8. By furnishing its own Form W–8 to a payor or withholding agent, a QI may, for example, act on behalf of its foreign account holders to claim a reduction of the 30-percent withholding rate without having to document or identify to the withholding agent each foreign account holder individually.