SECTION 4. WITHHOLDING

REQUIREMENTS

.01 Withholding Requirements. (A) In General. A participating FFI is generally required to deduct and withhold a tax equal to 30 percent of any withholdable payment made to an account maintained by such participating FFI that is held by a recalcitrant account holder or a nonparticipating FFI. A participating FFI is also generally required to deduct and withhold a tax equal to 30 percent of any withholdable payment made to a payee that is (or is presumed to be) a nonparticipating FFI with respect to an offshore obligation that is not an account. There is no requirement to withhold on foreign passthru payments for payments made before January 1, 2017 and therefore this requirement is not addressed in this agreement. See section 7.03 of this agreement for the requirements of a participating FFI that is prohibited by law from withholding as required under this section 4.01.

(B) Modification of Withholding Re- quirements for a Reporting Model 2 FFI. Notwithstanding the withholding requirements described in section 4.01(A) of this agreement, a reporting Model 2 FFI is not required to deduct and withhold tax on any withholdable payment made to its non-consenting U.S. accounts, provided that the conditions under the applicable Model 2 IGA regarding the suspension of withholding relating to non-consenting U.S. accounts are met. If such conditions are not met, the reporting Model 2 FFI is required to treat its non-consenting U.S. accounts as held by recalcitrant account holders and is required to deduct and withhold a tax equal to 30 percent of any withholdable payment made to such accounts in accordance with section 4.02 of

this agreement. In addition, a reporting Model 2 FFI is required to withhold in accordance with section 4.02 of this agreement on any withholdable payment made to a nonparticipating FFI that is an account holder or a payee other than an account holder.

(C) Special Withholding Require- ments of U.S. Branch of a Participating FFI treated as a U.S. Person. A U.S. branch of a participating FFI that is treated as a U.S. person and that satisfies its backup withholding obligations under section 3406(a) with respect to accounts it maintains that are held by U.S. non-exempt recipients (or presumed U.S. non-exempt recipients) will be treated as satisfying its withholding requirements under this section 4 and § 1.1471–4(b) with respect to such account holders. For all other payees of a withholdable payment, a U.S. branch of a participating FFI must withhold to the extent required under sections 1471(a) and 1472. See section 3.01(B) of this agreement for special due diligence rules and section 6 of this agreement for special reporting rules applicable to such U.S. branches.

(D) Election to Withhold under Sec- tion 3406 on Recalcitrant Account Holders. With respect to recalcitrant account holders that receive a withholdable payment and that are subject to backup withholding under section 3406, a participating FFI (including a U.S. branch of a participating FFI that is not treated as a U.S. person) may elect to satisfy its withholding obligation under this section 4 and § 1.1471–4(b) by applying backup withholding under section 3406 to such withholdable payments. Nothing in this section 4 or § 1.1471–4(b) relieves a participating FFI of its requirement to backup withhold under section 3406 with respect to reportable payments that are not withholdable payments (e.g., payments with respect to grandfathered obligations). See section 4.04(D) of this agreement for the coordination of backup withholding under section 3406 for a participating FFI that does not make the election described in this section 4.01(D) and that withholds under section 1471(b) with respect to a withholdable payment that is also a reportable payment made to a recalcitrant account holder that is subject to backup withholding under section 3406.

.02 General Rules for Withholding.

(A) Withholding Determination in General. A participating FFI that makes a withholdable payment is required to determine whether withholding under this section 4 applies at the time the withholdable payment is made by applying the requirements of § 1.1471–4(b) to determine the payee of the payment and to reliably associate the payment with valid documentation to establish the payee’s chapter 4 status. The exceptions to withholding described in § 1.1471–2, including the exceptions for payments made under a grandfathered obligation and payments made to certain excepted accounts, apply for purposes of determining whether withholding is required under this section 4. A participating FFI is not required to withhold under this section 4 on payments made to an account holder of a preexisting account prior to the expiration of the applicable time period described in section 3.02(A) of this agreement for identifying the account (or applying the presumption rules), unless the account is documented as held by a nonparticipating FFI.

(B) Withholding Requirements for a Participating FFI that is an NQI, NWP, or NWT. A participating FFI that is an NQI, NWP, or NWT is generally not required to withhold with respect to a withholdable payment of U.S. source FDAP income that it receives as an intermediary, provided that it provides its withholding agent with an FFI withholding statement with sufficient information for such withholding agent to establish the portion of the payment (if any) that is allocable to recalcitrant account holders (in each of the chapter 4 withholding rate pools described in section 9.02(B) of this agreement), to payees that are nonparticipating FFIs, and to payees that are U.S. persons (U.S. payee pool) in accordance with § 1.1471– 4(b)(3). If a participating FFI elects to backup withhold under section 3406 with respect to recalcitrant account holders as described in section 4.01(D) of this agreement, the participating FFI must provide its withholding agent with an FFI withholding statement with sufficient information for such withholding agent to establish the portion of the payment allocable to such account holders in accordance with § 1.6049–4(c)(4)(iii) and to apply backup withholding. See § 1.1471–

Bulletin No. 2014–3 425 January 13, 2014

3(c)(iii) and section 9 of this agreement for the requirements applicable to a participating FFI’s withholding certificate, withholding statement, and associated documentation. If the withholdable payment is exempt from chapter 4 withholding, the information provided by the participating FFI to the withholding agent must also include the payee’s chapter 4 status when specific payee information is required for purposes of chapter 3. A participating FFI must also provide the withholding agent with information regarding any account holders or payees of an intermediary or flow-through entity that hold an account with the participating FFI, other than a QI, WP, or WT.

A participating FFI is required to withhold under § 1.1471–4(b)(3) when it fails to provide sufficient information to its withholding agent or when it knows or has reason to know that the withholding agent has not withheld to the extent required under § 1.1471–2(a)(i) with respect to its account holders. For example, if a participating FFI provides the documentation described in § 1.1471–3(c)(3)(iii) to its withholding agent and, based on the amount of the payment that it receives from the withholding agent, it knows or has reason to know that the withholding agent has underwithheld on the payment, it is required to deduct and withhold tax from the payment to the extent of the underwithheld tax. A participating FFI is also required to withhold when it applies the dormant account procedures described in section 5.02 of this agreement.

(C) Withholding Requirements with Respect to Limited Branches and Lim- ited FFIs. A participating FFI is required to withhold on a withholdable payment it makes to, or receives on behalf of, a limited branch or limited FFI to the extent required under § 1.1471–4(b)(5), including when a participating FFI has reason to know that a withholdable payment was made to a limited branch of a participating FFI or registered deemed-compliant FFI. A participating FFI making a withholdable payment to another participating FFI on to a registered deemed-compliant FFI will have reason to know that a withholdable payment is made to a limited branch of such other FFI when the participating FFI is directed to make the payment to an address of such other FFI in a jurisdiction

other than that of the participating FFI or registered deemed-compliant FFI (or branch of such FFI) that is identified as the FFI (or branch of such FFI) that is supposed to receive the payment. For example, if a participating FFI identifies Branch A, located in Jurisdiction A, as its branch to receive withholdable payments on a withholding certificate described in § 1.1471–3(e)(3)(ii), but subsequently directs the participating FFI to which the withholding certificate was provided to make the payment to an address of the FFI in Jurisdiction B, then the participating FFI making the withholdable payment will have reason to know that the payment is made to a limited branch, unless the participating FFI making the withholdable payment obtains documentation that allows it to treat the payment made to the address in Jurisdiction B as made to a payee that is a participating FFI or deemed-compliant FFI. See § 1.1471–3(e)(3)(i).

.03 Liability for Failure to Withhold. A participating FFI that fails to withhold any tax under chapter 4 as required under section 4.02 of this agreement is liable for the amount of tax not withheld and any interest, additions to tax, and penalties that may apply under a relevant provision of the Code.

.04 Coordination with Other With- holding Provisions

(A) In General. A participating FFI is a withholding agent for purposes of chapter 4, a withholding agent under chapter 3 with respect to a payment subject to withholding under § 1.1441–2(a) or under sections 1445 or 1446, and a payor for purposes of withholding under section 3406. Except to the extent provided in this section 4.04, no provision of this agreement otherwise limits the requirement of a participating FFI to withhold as a withholding agent for purposes of chapters 3 and 4 or as a payor for purposes of backup withholding under section 3406 to the extent required.

(B) Coordination of Withholding un- der Sections 1471(a) and 1472(a). A participating FFI that complies with the withholding requirements of this agreement is deemed to satisfy its chapter 4 withholding obligations under sections 1471(a) and 1472(a) with respect to its account holders and entity payees.

(C) Coordination with Withholding under Chapter 3. In the case of a with

holdable payment that is also subject to withholding under section 1441, 1442, or 1443, a participating FFI may credit the tax withheld under section 4.02 of this agreement against its liability under section 1441, 1442, or 1443 as described in § 1.1474–6(b). In the case of a withholdable payment that is also subject to withholding under section 1445, withholding under section 1445 applies to the payment to the extent described under § 1.1474– 4(6)(c), and withholding is not required under section 4.02 of this agreement. In the case of a withholdable payment that is also subject to withholding under section 1446, withholding under section 1446 applies to the extent described under § 1.1474–6(d), and withholding is not required under section 4.02 of this agreement.

(D) Coordination with Backup With- holding. In the case of a withholdable payment that is also a reportable payment made by the participating FFI to a recalcitrant account holder, withholding under section 3406 will not apply to the reportable payment if tax is withheld on the payment under section 4.02 of this agreement, unless the participating FFI elects to apply backup withholding under section 3406 to recalcitrant account holders as described in section 4.01(D) of this agreement.