SECTION 4. PRIVATE ARRANGEMENT INTERMEDIARIES

Sec. 4.01. In General. QI may enter into a private arrangement with another intermediary under which the other intermediary agrees to perform all of the obligations of QI under this Agreement, except as provided in section 4.02 of this Agreement. Such agreement shall be between the QI and all the offices of the other intermediary located in a specified country. The specified country must be one for which there is a model qualified intermediary agreement available. Such an intermediary is referred to in this Agreement as a private arrangement intermediary (“PAI”). By entering into a PAI agreement, QI is not assigning its liability for the performance of any of its obligations under this Agreement. Therefore, QI shall remain liable for any tax, penalties, interest, and any other sanction that may result from the failure of the PAI to meet any of the obligations imposed by its agreement with QI. QI shall assert no defenses against the IRS for the failures of the PAI that the PAI may assert against QI. For purposes of this Agreement, the PAI’s actual knowledge or reason to know of facts relevant to withholding or reporting shall be imputed to QI. QI’s liability for the failures of the PAI shall apply even though the PAI is itself a withholding agent under chapter 3 of the Code and a payor under chapter 61 and section 3406 and is itself separately liable for its failure to meet its obligations under the Internal Revenue Code. The PAI is not required to enter into an agreement with the IRS. For purposes of this Agreement, an intermediary shall be considered a PAI only if the following conditions are met:

(A) The PAI is, pursuant to a written agreement between QI and the PAI, subject to all the obligations of QI under this Agreement, except to the extent modified by section 4.02 of this Agreement;

(B) QI files a notice with the Assistant Commissioner (International), at the address set forth in section 14.06 of this Agreement, before the first payment for which the intermediary acts as a PAI giving the name, address, taxpayer identification number, if any, of the intermediary, and the name of the country or countries in which the offices of the PAI are located;

(C) The PAI is subject to the identical external audit procedures that apply to QI under this Agreement and the PAI uses the same external auditor designated as QI’s external auditor in Appendix B of this Agreement, or another auditor approved by the IRS for that PAI, before the agreement between QI and the PAI is executed; and

(D) The PAI furnishes QI with a Form W-8IMY described in paragraph (C) of section 5.09 of this Agreement.

Sec. 4.02. Modification of Obligations for PAI Agreements. The agreement between QI and the PAI must provide that QI shall include in its Forms 945, 1042, 1099, and 1042-S all payments made by QI to designated accounts the PAI has with QI as if QI had

2This language is to be used by a foreign QI with a U.S. branch. 3This language is to be used by a QI that is a foreign branch of a U.S. person.

February 1, 1999 38 1999–5 I.R.B.

made those payments directly to the PAI’s account holders. QI shall require the PAI to provide QI with all the information necessary for QI to meet its withholding and reporting obligations under chapters 3, 61, and section 3406 of the Code. 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, 61, and section 3406 to the extent that underwithholding, penalties, and interest have not been collected from QI. QI’s agreement with the PAI must require the PAI to disclose any beneficial owner or payee information that QI is required to disclose to the IRS or a withholding agent under this Agreement. Nothing in the agreement between QI and the PAI shall permit the PAI to assume primary withholding responsibility under chapter 3 or assume Form 1099 reporting and section 3406 withholding obligations.

Sec. 4.03. Termination of Arrangement. QI shall cease to treat an intermediary as a PAI within 90 days of learning 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.