SECTION 8. EXTERNAL AUDIT

PROCEDURES

Sec. 8.01. In General. Unless WP requests an IRS audit in lieu of an external audit, the IRS agrees not to conduct an on-site audit of WP with respect to withholding and reporting obligations covered by this Agreement provided that an external auditor designated in Appendix A of this Agreement conducts an audit of WP in accordance with this Section 8. WP shall permit the external auditor to have access to all relevant records of WP for purposes of performing the external audit, including information regarding specific partners. WP shall permit the IRS to communicate directly with the external auditor and to review the audit procedures followed by the external auditor. WP represents that there are no legal prohibitions that prevent the external auditor from examining any information relevant to the external audit to be performed under this Section 8 and that there are no legal prohibitions that prevent the IRS from communicating directly with the auditor. WP shall permit the IRS to examine the external auditor's work papers and reports.

Sec. 8.02. Designation of External Auditor. WP's external auditor must be one of the auditors listed in Appendix A of this Agreement, unless WP and the IRS

taxes required to be deposited for a subsequent deposit period exceed the amount actually deposited. An amount overwithheld in a calendar year may be applied to deposit periods in the calendar year following the calendar year of overwithholding only if—

(1) WP states on a Form 1042–S filed by March 15 of the calendar year following the calendar year of overwithholding, the amount of tax withheld and the amount of any actual repayments; and

(2) WP states on a Form 1042, filed by March 15 of the calendar year following the calendar year of overwithholding, that the filing of the Form 1042 constitutes a claim for credit in accordance with Treas. Reg. § 1.6414–1.

(B) Set-Off Procedure. WP may repay its partners by applying the amount overwithheld against any amount which otherwise would be required under chapter 3 of the Code to be withheld by WP before the earlier of March 15 of the calendar year following the calendar year of overwithholding or the date that the Form 1042–S is actually filed with the IRS. For purposes of making a return on Form 1042 or 1042–S for the calendar year of overwithholding, and for purposes of making a deposit of the amount withheld, the reduced amount shall be considered the amount required to be withheld from such income under chapter 3 of the Code.

Sec. 7.02. Collective Credit or Refund Procedures for NRA Overwith- holding. If WP has made a PR election and it has overwithheld under chapter 3 of the Code on amounts subject to NRA withholding paid to WP's direct partners during a calendar year and the amount has not been recovered under the reimbursement or set-off procedures under Sections 7.01 of this Agreement, WP may request a credit or refund of the total amount overwithheld by following the procedures of this Section 7.02. WP shall follow the procedures set forth under sections 6402 and 6414 of the Code, and the regulations thereunder, to claim the credit or refund. No credit or refund will be allowed after the expiration of the statutory period of limitation for refunds under section 6511 of the Code. WP may use the collective refund procedures under this Section 7.02 only if the following conditions are met:

(A) WP must not have issued Forms 1042–S to the direct partners who were subject to overwithholding;

(B) WP must submit, together with its amended return on which it claims a credit or refund, a statement of the reason for the overwithholding;

(C) WP must submit, together with its amended return on which it claims a credit or refund, a statement that it has repaid the amount of overwithholding to the appropriate direct partners prior to filing the claim for credit or refund; and

(D) WP must retain a record showing that it repaid the direct partners the amount of the overwithholding.

Sec. 7.03. Adjustments for NRA Un- derwithholding. If WP knows that an amount should have been withheld under chapter 3 of the Code from a previous payment to a direct partner but was not withheld, WP may either withhold from future payments made to the same direct partner or satisfy the tax from the direct partner's proportionate share of assets over which it has control. The additional withholding or satisfaction of the tax owed may only be made before the due date of the Form 1042 (not including extensions) for the calendar year in which the underwithholding occurred.

Sec. 7.04. NRA Underwithholding after Form 1042 Filed. If, after a Form 1042 has been filed for a calendar year, WP, WP's external auditor, or the IRS determines that, due to WP's failure to carry out its obligations under this Agreement, WP has underwithheld tax for such year, WP shall file an amended Form 1042 to report and pay the underwithheld tax. WP shall pay the underwithheld tax, the interest due on the underwithheld tax, and any applicable penalties, at the time of filing the amended Form 1042. If WP fails to file an amended return, the IRS shall make such return under section 6020 of the Code.

Sec. 7.05. Special Rule Regarding Failure to Deposit Penalties. Solely for purposes of applying section 6656 of the Code (failure to make deposit of taxes), WP will not be considered to have made an underpayment of a deposit of NRA withholding taxes if the conditions of this paragraph are met. The conditions of this paragraph are that—

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determine the causes of any overwithholding reported and ensure WP did not issue Forms 1042–S to persons whom it included as part of its collective credit or refund.

(4) Determine, in the case of collective credits or refunds, that WP repaid the appropriate partners prior to requesting a collective credit or refund.

(E) Change in Circumstances. The external auditor must verify that in the course of the audit it has not discovered any significant change in circumstances, as described in Section 9.05 (A) or (D) of this Agreement.

Sec. 8.06. External Auditor's Report. Upon completion of the audit of WP, the external auditor shall issue a report, or reports, of audit findings directly to the IRS by sending the original report to the IRS at the address set forth in Section 11.06 of this Agreement. This report is due by December 31 following the calendar year being audited, or if that date falls on a Saturday or Sunday, the next U.S. business day. The IRS may, however, upon request by the external auditor, extend the due date of the audit report upon good cause. The report must be in writing, in English, and currency amounts must be stated in U.S. dollars. The report must fully describe the scope of the audit, the methodologies (including sampling techniques) used to determine whether WP is in compliance with the provisions of this Agreement, and the result of each such determination. The report must also specifically address each of the items in Section 8.05 of this Agreement.

Sec. 8.07. Expanding Scope and Timing of External Audit. Upon review of the external auditor's report, the IRS may request, and WP must permit, the external auditor to perform additional audit procedures.

SECTION 9. EXPIRATION, TERMINATION AND DEFAULT

Sec. 9.01. Term of Agreement: Gen- eral Rule. If WP has not made a PR election, this Agreement shall be in effect on

and shall continue in force until the earlier of the date WP terminates under its partnership agreement or the date WP is terminated under 9.03 or 9.04 of this Agreement.

agree, prior to the audit, to substitute another auditor. WP shall not propose an external auditor unless it has a reasonable belief that the auditor is subject to laws, regulations, or rules that impose sanctions for failure to exercise its independence and to perform the audit competently. The IRS has the right to reject a proposed external auditor, or to revoke its acceptance of an external auditor, if the IRS, in its sole discretion, reasonably believes that the auditor is not independent or cannot perform an effective audit under this Agreement.

Sec. 8.03. Timing of External Audits: General Rule. Unless WP has made a PR election, WP shall have the external auditor conduct an external audit only at such time and only for such calendar years as the IRS directs.

Sec. 8.04. Timing of External Audits: Special Rule for PR Election.

(A) If WP has made a PR election and the term of this Agreement is determined under Section 9.02(A), WP shall have the external auditor conduct an audit of the second full calendar year and the fifth full calendar year that this Agreement is in effect.

(B) If WP has made a PR election and the term of this Agreement is determined under Section 9.02(B), WP shall have the external auditor conduct an audit after the close of every other calendar year that this Agreement is in effect. The auditor shall examine the two previous calendar years. For example, the first audit will occur in the third calendar year that the Agreement is in effect and the external auditor will examine calendar years one and two.

Sec. 8.05. Scope of External Au- dit. The external auditor shall verify whether WP is in compliance with this Agreement by conducting an audit that meets the requirements of this Section 8.05. The report, described in Section 8.06 of this Agreement, must disclose that the external auditor has, at a minimum, performed the following checks listed in this Section 8.05, and set forth how each of those checks was performed and the results of the checks. WP's external auditor is encouraged to contact the IRS at the address set forth in Section 11.06 of this Agreement and submit an audit plan (which includes, if relevant, the extent to which the external auditor proposes to rely on WP's internal audit procedures) prior

to performing the audit so that the audit may be conducted in the most efficient and least costly manner possible.

(A) Documentation. The external auditor must review information contained in partner files to determine whether the documentation requirements of Section 4 of this Agreement are being met.

(B) Withholding Responsibilities. The external auditor must—

(1) Perform test checks of direct partners, to verify that WP is withholding the proper amounts.

(2) Verify that amounts withheld were timely deposited in accordance with Section 3.04 of this Agreement.

(C) Return Filing and Information Reporting. The external auditor must—

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

(i) Reviewing work papers; (ii) Reviewing Forms W–8IMY, together with the associated withholding statements, that WP has provided to withholding agents;

(iii) Reviewing copies of Forms 1042–S received from withholding agents;

(iv) Reviewing account statements from withholding agents;

(v) Reviewing correspondence between WP and withholding agents; and

(vi) Interviewing personnel responsible for preparing the Form 1042 and the work papers used to prepare those forms.

(2) Obtain copies of original and amended Forms 1042–S and Schedules K–1 together with the work papers used to prepare those forms and determine whether the amounts reported on those forms are accurate by—

(i) Reviewing the Forms 1042–S received from withholding agents;

(ii) Reviewing the Form 1065, if required;

(iii) Reviewing a valid sample of earnings statements issued by WP to direct partners, if any.

(3) Thoroughly review the statements attached to amended Forms 1042 filed to claim a refund, ascertain their veracity, and

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this Agreement, WP may not act as a withholding foreign partnership, and must so notify any persons to which WP has furnished a withholding foreign partnership certificate. After the date of automatic termination of this Agreement, the IRS may reinstate this Agreement (or the IRS may require WP to enter into a new withholding foreign partnership agreement) on such terms and conditions and with such modifications as the IRS may determine.

Sec. 9.05. Significant Change in Circumstances. For purposes of this Agreement, a significant change in circumstances includes, but is not limited to—

(A) any merger, consolidation or division of WP or any change in circumstances that would result in a termination of WP under section 708 of the Code;

(B) A change in U.S. federal law or policy, or applicable foreign law or policy, that affects the validity of any provision of this Agreement, materially affects the procedures contained in this Agreement, or affects WP's ability to perform its obligations under this Agreement;

(C) A ruling of any court that affects the validity of any provision of this Agreement; or

(D) A significant change in WP's business practices that affects WP's ability to meet its obligations under this Agreement.

Sec. 9.06. Events of Default. For purposes of this Agreement, an event of default occurs if WP fails to perform any material duty or obligation required under this Agreement, and includes, but is not limited to, the occurrence of any of the following:

(A) WP fails to implement adequate procedures, accounting systems, and internal controls to ensure compliance with this Agreement;

(B) WP underwithholds an amount that WP is required to withhold under chapter 3 of the Code and fails to correct the underwithholding or to file an amended Form 1042 reporting, and paying, the appropriate tax;

(C) WP makes excessive refund claims; (D) WP fails to file Forms 1042, 1042–S, 1065 (if required), or Schedules K–1 (if required) by the due date specified on such forms or files forms that are materially incorrect or fraudulent;

Sec. 9.02. Term of Agreement: Special Rule for PR Election.

(A) If WP has made a PR election, unless WP elects the special term pursuant to Section 9.02(B), this Agreement shall be in effect on and shall expire upon the earlier of the date WP terminates under its partnership agreement or December 31 of the fifth full calendar year after the year in which this Agreement first takes effect. This Agreement may be renewed for additional terms as provided in Section 9.08 of this Agreement.

(B) If WP has made a PR election, and WP elects the special term pursuant to this Section 9.02(B), this Agreement shall be in effect on and shall expire upon the earlier of the date WP terminates under its partnership agreement or December 31 of the fourteenth full calendar year after the year in which this Agreement first takes effect. If WP elects the special term, this Agreement is not renewable. WP must make the special term election under this Section 9.02(B) at the time this Agreement is executed by signing the election statement on the signature page of this Agreement.

Sec. 9.03. Termination of Agree- ment. This Agreement may be terminated by either the IRS or WP prior to the end of its term by delivery of a notice of termination to the other party in accordance with Section 11.06 of this Agreement. The IRS, however, shall not terminate the Agreement unless there has been a significant change in circumstances, as defined in Section 9.05 of this Agreement, or an event of default has occurred, as defined in Section 9.06 of this Agreement, and the IRS determines, in its sole discretion, that the significant change in circumstances or the event of default warrants termination of this Agreement. In addition, the IRS shall not terminate this Agreement in the event of default if WP can establish to the satisfaction of the IRS that all events of default for which it has received notice have been cured within the time period agreed upon. The IRS shall notify WP, in accordance with Section 9.07 of this Agreement, that an event of default has occurred and that the IRS intends to terminate the Agreement unless WP cures the default. A notice of termination sent by either party shall take effect on the date specified in the notice.

Sec 9.04. Automatic Termination of Agreement.

(A) Automatic Termination. Notwithstanding Section 9.03 of this Agreement, this Agreement will terminate automatically in the event that the external auditor or the IRS on audit discovers that WP was not in possession of Forms W–8 or W–9, as applicable, for any direct partner at any time that withholding or reporting was required under Section 3.02 of this Agreement. The automatic termination will be effective as of December 31 of the year in which the external auditor or the IRS makes that discovery. The automatic termination rules of this Section 9.04(A) shall not apply in the case of indirect partners that are treated as direct partners of WP under Section 10 of this Agreement.

(B) Cure and Reinstatement. This Agreement will be reinstated, effective the same date it automatically terminated under Section 9.04(A) of this Agreement, if—

(1) WP obtains appropriate Forms W–8 or W–9 (that relate to the time withholding or reporting was required) for each such undocumented partner before March 15 of the year following the year in which the Agreement automatically terminated, or

(2) All such undocumented partners have ceased to be partners in WP before March 15 of the year following the year in which the Agreement automatically terminated.

(C) Payment of Underwithholding and Reporting upon Termination. In the event of automatic termination of this Agreement under this Section 9.04, WP must pay any underwithholding of tax, interest, and penalties that the IRS determines is attributable to each undocumented direct partner for the period during which the partner was undocumented, and, if WP has made a PR election, WP must file Forms 1099, or partner specific Forms 1042–S reporting the names and addresses and other required information, as appropriate, for every undocumented direct partner from the earliest time the Form W–8 or W–9 was required for that undocumented direct partner through the date of termination. WP may, however, continue to report on a pooled basis for documented foreign direct partners through this period.

(D) Reinstatement after Termination. After the date of automatic termination of

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of both WP and the IRS. Either the IRS or WP may seek to negotiate a new withholding foreign partnership agreement rather than renew this Agreement.