SECTION 10. COMPLIANCE

PROCEDURES

Sec. 10.01. (A) In General. QI is required to adopt a compliance program under the authority of a responsible officer or, if QI adopts a consolidated compliance program, under the authority of a responsible officer of a Compliance QI (as described in section 10.02(B) of this Agreement). QI’s compliance program must include policies, procedures, and processes sufficient for QI to satisfy the documentation, reporting, and withholding requirements of this Agreement and sufficient for a responsible officer of QI (or Compliance QI) to make the certifications required under section 10.03 of this Agreement. QI must also perform or arrange for the performance of a periodic review described in section 10.04 of this Agreement. As part of the responsible officer’s certification, QI must provide to the IRS the factual information referenced in section 10.03(C) of this Agreement. QI must also satisfy the requirements of section 10.06 of this Agreement with respect to the report covering the periodic review, and must comply with the IRS review described in section 10.07 of this Agreement. (B) Coordination with FATCA Re- quirements as a Participating FFI, Reg- istered Deemed-Compliant FFI, Regis- tered Deemed-Compliant Model 1 IGA FFI, or Limited FFI and, for a Direct Reporting NFFE, the Requirements of § 1.1472–1(c)(3). As a condition for maintaining QI status, QI must comply

with its FATCA requirements as applicable to its chapter 4 status (including any applicable compliance procedure) with respect to each branch operating under this Agreement. Therefore, QI must, as part of the compliance procedures described in this section 10 (including the periodic review described in section 10.04 of this Agreement and in making the periodic certification described in section 10.03 of this Agreement) determine whether it is compliant with its FATCA requirements as a participating FFI, registered deemedcompliant FFI, registered deemedcompliant Model 1 IGA FFI, or limited FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472– 1(c)(3), with respect to its QI designated accounts. See the compliance procedure, if any, required under QI’s FATCA requirements as a participating FFI, registered deemed-compliant FFI, registered deemed-compliant Model 1 IGA FFI, or limited FFI and, in the case of a direct reporting NFFE with respect to all accounts that it maintains or all of its shareholders. If QI is a participating FFI or direct reporting NFFE, QI will be able to make the certification described in section 10.03 of this Agreement, and the FFI Agreement, to the extent provided in future published guidance or other instructions.

10.02. Responsible Officer. QI must appoint an individual as a responsible officer as defined in section 2.76 of this Agreement. The responsible officer must be identified on the FATCA registration website as QI’s responsible party and, as the responsible officer for purposes of compliance with its FATCA requirements as a participating FFI, registered deemedcompliant FFI, registered deemedcompliant Model 1 IGA FFI, or limited FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472– 1(c)(3). The responsible officer (or the responsible officer’s designee) must establish a compliance program that meets the requirements of this section 10.02 and must make the periodic certifications to the IRS described in section 10.03 of this Agreement. The responsible officer of QI must be an officer of QI with sufficient authority to fulfill the duties of a responsible officer described in this section 10. The responsible officer (or a delegate ap

pointed by the responsible officer) must also serve as the point of contact for the IRS for all issues related to this Agreement and for complying with IRS requests for information or additional audit procedures under section 10.07 of this Agreement.

(A) Compliance Program. The responsible officer (or the responsible officer’s designee) must establish a program for QI to comply with the requirements of this Agreement that includes the following—

(1) Written Policies and Procedures . The responsible officer (or designee) must ensure the drafting and updating, as necessary, of written policies and procedures sufficient for QI to satisfy the documentation, withholding, reporting, and other obligations of this Agreement with its FATCA requirements as a participating FFI, registered deemed-compliant FFI, registered deemed-compliant Model 1 IGA FFI, or limited FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472–1(c)(3). Such written policies and procedures must include a process for employees of QI to raise issues to the responsible officer (or the responsible officer’s designee) that concern QI’s compliance with this Agreement.

(2) Training. The responsible officer (or designee) must communicate such policies and procedures to any line of business of QI that is responsible for obtaining, reviewing, and retaining a record of documentation under requirements of section 5 of this Agreement; making payments subject to withholding under section 3 of this Agreement; or reporting payments and accounts as required under sections 7 and 8 of this Agreement. This includes any line of business that is responsible for the performance of the due diligence procedures under its FATCA requirements as a participating FFI, registered deemed-compliant FFI, registered deemed-compliant Model 1 IGA FFI, or limited FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472–1(c)(3).

(3) Systems. The responsible officer (or designee) must ensure that systems and processes are in place that will allow QI to fulfill its obligations under this Agreement and its FATCA requirements as a participating FFI, registered deemed

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compliant FFI, registered deemedcompliant Model 1 IGA FFI, or limited FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472– 1(c)(3). For example, in order fulfill QI’s obligations to report on Forms 1042–S, 1099, and 8966 under section 8 of this Agreement, QI must establish systems for documenting account holders and for recording the information with respect to each such account that QI is required to report under that section.

(4) Monitoring of Business Changes. The responsible officer (or designee) must monitor business practices and arrangements that affect QI’s compliance with this Agreement, including, for example, QI’s acquisition of lines of businesses or accounts that give rise to documentation, withholding, or reporting obligations under this Agreement and its FATCA requirements as a participating FFI, registered deemed-compliant FFI, registered deemed-compliant Model 1 IGA FFI, or limited FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472–1(c)(3).

(5) Periodic Review . The responsible officer (or designee) must designate an auditor that meets the qualifications described in section 10.04(A) of this Agreement to perform the periodic review as described in section 10.05 of this Agreement.

(6) Periodic Certification. The responsible officer (or designee) must make the periodic certification as described in section 10.03 of this Agreement, including ensuring that corrective actions are taken in response to any material failures (as defined in section 10.03(D) of this Agreement) of QI’s compliance with this Agreement and its FATCA requirements as a participating FFI, registered deemedcompliant FFI, registered deemedcompliant Model 1 IGA FFI, or limited FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472– 1(c)(3). (B) Election for a Consolidated Compliance Program. The IRS, in its discretion, may permit a consolidated compliance program that includes two or more QIs that are members of a group of entities under common ownership when the QIs: (i) operate under a uniform compliance program for purposes of this

Agreement; (ii) share practices, procedures, and systems subject to uniform monitoring and control; and (iii) are subject to a consolidated periodic review that includes a review of internal controls and testing of transactions relevant to this Agreement with respect to each QI in the consolidated compliance program. Each QI that is a member of a consolidated compliance program must designate a Compliance QI to act on its behalf, and the responsible officer of the Compliance QI must comply with the identification and periodic certification requirements for the QI consolidated compliance program as the IRS may prescribe in future guidance or other instructions.

10.03. Periodic Certification by Re- sponsible Officer. On or before July 1 of the calendar year following the certification period, QI must make either the certification described in section 10.03(A) or (B) of this Agreement. The initial certification period is the period ending on the third full calendar year that this Agreement is in effect (including renewals of this Agreement). Subsequent certification periods will be every three calendar years following the initial certification period (including renewals of this Agreement). QI (or its Compliance QI) must make the certifications of compliance in such manner as the IRS may prescribe in future guidance or other instructions. The responsible officer must consider the results of QI’s periodic review described in section 10.05 of this Agreement in making the periodic certification.

(A) Certification of Effective Inter- nal Controls. The responsible officer must certify to the following and disclose any material failures that occurred during the certification period or during any prior period if the material failure was not disclosed as part of a prior certification or written disclosure made by QI to the IRS—

(1) QI has established a compliance program that meets the requirements described in section 10.02(A) or (B) (if applicable) of the QI Agreement that is in effect as of the date of the certification and during the certification period;

(2) A periodic review was conducted for the certification period in accordance with sections 10.04 through 10.06 of the QI Agreement, and based on the review

and other steps taken by QI, QI maintains effective internal controls over its documentation, withholding, and reporting obligations under the QI Agreement and under its FATCA requirements as a participating FFI, registered deemedcompliant FFI, registered deemedcompliant Model 1 IGA FFI, or limited FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472– 1(c)(3); (3) Based on the periodic review and other information known to the responsible officer, there are no material failures, as defined in section 10.03(D) of the QI Agreement, or, if there are any material failures, such failures are identified as part of this certification as well as the actions taken to remediate such failures and to prevent their reoccurrence by the date of this certification;

(4) With respect to any failure to withhold, deposit, or report to the extent required under the QI Agreement, QI has corrected such failure by paying any taxes due (including interest and penalties) and filing the appropriate return (or amended return); and

(5) All PAIs of QI and partnerships and trusts to which QI applies the agency option have provided the responsible officer of the QI with a certification of effective controls meeting the requirements of this section 10.03(A) of the QI Agreement and have represented to QI that there are no material failures, as defined in section 10.03(D) of the QI Agreement, or have disclosed any such failures to QI and the actions taken by the PAI, partnership, or trust to remediate such failures.

(B) Qualified Certification . If the responsible officer has identified an event of default or a material failure that QI has not corrected as of the date of the certification, the responsible officer must certify to the following statements—

(1) The responsible officer (or designee) has identified an event of default as defined in section 11.04 of the QI Agreement, or has determined that, as of the date of the certification, there are one or more material failures as defined in section 10.03(D) of the QI Agreement with respect to QI’s compliance, its PAI’s compliance, or the compliance of a partnership or trust to which QI applies the agency option and that appropriate actions will be

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taken to prevent such failures from reoccurring;

(2) With respect to any failure to withhold, deposit, or report to the extent required under the QI Agreement, QI will correct such failure by paying any taxes due (including interest and penalties) and filing the appropriate return (or amended return); and

(3) The responsible officer (or an officer of the PAI or partnership or trust to which QI applies the agency option) will respond to any notice of default (if applicable) or will provide to the IRS, to the extent requested, a description of each material failure and a written plan to correct each such failure.

(C) Factual Information. At the same time QI provides the periodic certification, QI must also provide certain factual information regarding its accounts, withholdable payments, and amounts subject to chapter 3 withholding and must certify as to the accuracy of the information. The information requested will be limited to certain account information and payments of reportable amounts reviewed as part of QI’s periodic review procedure described in section 10.05 of this Agreement. The IRS will consider the reportable amounts received by QI during the certification period to determine the extent of the factual information to request. The IRS will prescribe in future published guidance or other instructions the factual information that the QI is required to report with the periodic certification and the manner such information must be reported.

(D) Material Failures. (1) Material Failures Defined. A material failure is generally a failure of QI to fulfill the requirements of this Agreement or its FATCA requirements as a participating FFI, registered deemed-compliant FFI, registered deemed-compliant Model 1 IGA FFI, or limited FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472–1(c)(3). For purposes of the certifications described in section 10.03(A) and (B) of this Agreement, a material failure is limited to the following:

(i) QI’s establishing of, for financial statement purposes, a tax reserve or provision for a potential future tax liability related to QI’s failure to comply with this Agreement or its FATCA requirements as

a participating FFI, registered deemedcompliant FFI, registered deemedcompliant Model 1 IGA FFI, or limited FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472– 1(c)(3). (ii) QI’s failure to establish written policies, procedures, or systems sufficient for the relevant personnel of QI to take actions consistent with QI’s obligations under this Agreement or its FATCA requirements as a participating FFI, registered deemed-compliant FFI, registered deemedcompliant Model 1 IGA FFI, or limited FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472– 1(c)(3). (iii) A criminal or civil penalty or sanction imposed on QI (or any branch or office thereof) by a regulator or other governmental authority or agency with oversight over QI’s compliance with AML/ KYC procedures to which QI (or any branch or office thereof) is subject and that is imposed due to QI’s failure to properly identify account holders under the requirements of those procedures.

(iv) A finding (including a finding noted in the periodic review report described in section 10.06 of this Agreement) that QI failed to, for one or more years covered by this Agreement,—

(a) Withhold an amount that QI was required to withhold under chapter 3 or 4 or under section 3406 as required under section 3 of this Agreement;

(b) Provide information sufficient for another withholding agent to perform withholding and reporting to the extent required when QI does not assume primary chapters 3 and 4 withholding responsibility or primary Form 1099 reporting and backup withholding responsibility;

(c) Provide allocation information as described in section 6.03(D) of this Agreement (regarding U.S. non-exempt recipient account holders) by January 15 required by that section when QI applies the alternative withholding rate pool procedures;

(d) Make deposits in the time and manner required by section 3.08 of this Agreement or fail to make adequate deposits to satisfy its withholding obligations, taking into account the procedures under section 9 of this Agreement;

(e) Report or report accurately on Forms 1099 as required under section 8.06 of this Agreement or provide information to the extent QI assumes primary Form 1099 reporting and backup withholding responsibilities;

(f) Report or report accurately on Forms 1042 and 1042–S under sections 8.02 and 8.03 of this Agreement; (g) Report or report accurately on Form 8966 under sections 8.04 and 8.05 of this Agreement;

(h) Report or report accurately its U.S. accounts (or U.S. reportable accounts) or, in the case of a direct reporting NFFE, its substantial U.S. owners as required under its FATCA requirements as a participating FFI, registered deemed-compliant FFI, registered deemed-compliant Model 1 IGA FFI, or limited FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472–1(c)(3).

(i) Withhold an amount required to be withheld or report accurately with respect to U.S. source substitute dividend payments or make timely and adequate deposits of tax due with respect to such payments for which QI is a QSL and acts as a dealer or intermediary.

(2) Limitations on Material Failures. A failure described in section 10.03(D)(1)(iv) of this Agreement is a material failure only if the failure was the result of a deliberate action on the part of one or more employees of QI to avoid the requirements of this Agreement with respect to one or more account holders of QI or was an error attributable to a failure of QI to establish or implement internal controls sufficient for QI to meet the requirements of this Agreement. Regardless of these limitations for certification purposes, QI is required to correct a failure to withhold or deposit tax under section 3 or to report under section 8 of this Agreement by depositing the amount of tax required to have been withheld and by filing the appropriate return (or amended return).

Sec. 10.04. Requirements for Peri- odic Review.

(A) Independent Auditor. The periodic review may be performed by an internal auditor that is an employee of QI (internal auditor), an internal auditor that is an employee of a Compliance QI in the case of a consolidated compliance program, or a certified public accountant, at

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torney, or third-party consultant (“external auditor”), or any combination thereof.

(1) Internal Auditor. QI may designate an internal auditor to perform the periodic review (or a portion of the periodic review) only when the internal auditor is competent with respect to the requirements of this Agreement and QI’s FATCA requirements as a participating FFI, registered deemed-compliant FFI, registered deemed-compliant Model 1 IGA FFI, or limited FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472–1(c)(3). The internal auditor must also be able to report findings that reflect the independent judgment of the auditor. The internal auditor must not report directly to the responsible officer or any other officer or employee of QI with direct authority over employees performing functions in connection with QI’s obligations under this Agreement and QI’s FATCA requirements as a participating FFI, registered deemed-compliant FFI, registered deemed-compliant Model 1 IGA FFI, or limited FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472–1(c)(3). The IRS has the right to request the performance of the periodic review by an external auditor if the IRS, in its sole discretion, reasonably believes that the auditor selected by QI was not independent or did not perform an effective periodic review under this Agreement.

(2) Internal Auditor of the Compli- ance QI. The Compliance QI may designate an internal auditor to perform the consolidated periodic review (or a portion of the consolidated periodic review). See section 10.02(B) of this Agreement. The internal auditor of the Compliance QI must meet the requirements of section 10.04(A)(1) of this Agreement with respect to both the Compliance QI and each QI that is a member of the consolidated compliance program.

(3) External Auditor. QI may engage an external auditor that is a certified public accountant, attorney, or third-party consultant that is regularly engaged in the practice of performing reviews of client’s policies, procedures, and processes for complying with accounting, tax, or regulatory requirements (including for assisting clients in determining such compliance). The external auditor must be

independent of QI under the standards applicable to a certified public accountant with respect to the engagement or, in the case of an auditor other than a certified public accountant, any standard of independence otherwise applicable to the auditor for such an engagement. The external auditor is not required to make an attestation or render an opinion regarding QI’s compliance with this Agreement or QI’s compliance with its FATCA requirements as a participating FFI, registered deemed-compliant FFI, registered deemed-compliant Model 1 IGA FFI, or limited FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472–1(c)(3), but the auditor must be able to perform the periodic review as specified in section 10.05 of this Agreement and provide the report described in section 10.06 of this Agreement. QI must permit the external auditor to have access to all relevant records of QI for purposes of performing the audit, including information regarding specific account holders. Additionally, the engagement between the external auditor and QI must impose no restrictions on QI’s ability to provide the report described in section 10.06 of this Agreement to the IRS. However, the external auditor is not required to divulge the identity of QI’s account holders to the IRS. QI must permit the IRS to communicate directly with the external auditor, and any legal prohibitions that prevent the IRS from communicating directly with the auditor must be waived.

Sec. 10.05. Scope and Timing of Re- view. The responsible officer of QI (or of the Compliance QI) must require the auditor to perform a review of the QI’s internal controls, test a sample of transactions and accounts related to QI’s documentation, withholding, reporting, and other obligations under this Agreement and its FATCA requirements as a participating FFI, registered deemedcompliant FFI, registered deemedcompliant Model 1 IGA FFI, or limited FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472– 1(c)(3), and identify deficiencies in meeting these obligations. Unless otherwise approved by the IRS, the review must include the steps described in section 10.05(A) of this Agreement. The review may include recommendations for either

corrective actions or enhancements to QI’s compliance program. QI is required to arrange for the performance of one review for the certification period to evaluate QI’s documentation, withholding, and reporting practices for the most recent calendar year. The review is not required to include statistical sampling procedures for testing transactions, but must require that the auditor document its methodology for sampling determinations.

(A) Documentation. The auditor must—

(1) Verify that QI has training materials, manuals, and directives that instruct the appropriate QI employees how to request, collect, review, and maintain documentation in accordance with this Agreement, including procedures for identifying and communicating changes in circumstances;

(2) Review QI’s account opening procedures and interview QI’s employees, to determine if appropriate documentation is requested from account holders and, if obtained, that it is reviewed and maintained in accordance with this Agreement;

(3) Verify that QI follows procedures designed to inform account holders that claim a reduced rate of withholding under an income tax treaty about any applicable limitation on benefits provision;

(4) Review QI’s accounts, using a sample of QI designated accounts, to ensure that QI obtained documentation that meets the general requirements described in sections 5.01 through 5.09 of this Agreement;

(5) Review QI’s accounts, using a sample of QI designated accounts for which treaty benefits are claimed, to ensure that QI obtained the treaty statements required by section 5.03(B) of this Agreement;

(6) Review information, using a sample of QI designated accounts, contained in account holder files to determine if the documentation validity standards of section 5.10 of this Agreement have been met. For example, the auditor must verify that changes in account holder information (e.g., a change of address to a U.S. address or change of account holder status from foreign to U.S.) are being conveyed to QI’s withholding agent;

(7) Review QI’s accounts, using a sample of QI designated accounts, to ensure that QI is obtaining, reviewing, and maintaining documentation in accordance with

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its FATCA requirements as a participating FFI, registered deemed-compliant FFI, registered deemed-compliant Model 1 IGA FFI, or limited FFI and, in the case of a direct reporting NFFE, its requirements under § 1.1472–1(c)(3);

(8) Review accounts, using a valid sample of U.S. non-exempt recipient account holders, to determine if QI obtained Forms W–9, and, if QI does not assume primary Form 1099 reporting and backup withholding responsibility, that QI transmitted those forms to a withholding agent consistent with this Agreement;

(9) Review QI’s agreements with its PAIs and the partnerships or trusts described in section 4 of this Agreement to ensure that the obligations imposed meet the requirements provided in section 4 of this Agreement; and

( 10 ) For a QI that is a QSL, review a sample of transactions for which QI acts as a QSL to determine whether QI has documented the status of persons to which QI pays U.S. source substitute dividends under the general requirements described in sections 5.01 through 5.09 of this Agreement.

(B) Withholding Rate Pools. The external auditor must—

(1) Verify that QI has training materials, manuals, and directives that instruct the appropriate QI employees how to determine chapters 3 and 4 withholding rate pools based on documentation and the presumption rules;

(2) Interview employees responsible for determining chapters 3 and 4 withholding rate pools to ascertain if they are adequately trained to determine those pools and that they follow adequate procedures for determining those pools;

(3) Review QI’s procedures for preparing the withholding statements associated with QI’s Forms W–8IMY and verify that the withholding statements provided to withholding agents convey complete and correct information on a timely basis;

(4) Perform test checks, using a valid sample of account holders assigned to each withholding rate pool, and cross check that assignment against the documentation provided by, or the presumption rules applied to the account holder, the type of income earned, and the withholding rate applied;

(5) Verify, if QI is using the alternative procedure for U.S. non-exempt recipients described in section 6.03(D) of this Agreement, that QI is providing sufficient and timely information to withholding agents that allocates reportable payments to U.S. non-exempt recipients; and

(6) With respect to a partnership or trust described in section 4.05 of this Agreement, if applicable, perform test checks, using a valid sample of account holder documentation for the selected partners, owners, or beneficiaries and records of each type of reportable amount paid by QI to the entity, to determine whether the highest rate of withholding applicable to each type of reportable amount was applied.

(C) Withholding Responsibilities. The auditor must—

(1) To the extent QI has assumed primary chapters 3 and 4 withholding responsibilities, perform test checks, using a valid sample of recalcitrant account holders and nonparticipating FFIs, to verify that QI withheld the proper amounts under chapter 4;

(2) To the extent QI has assumed primary chapters 3 and 4 withholding responsibility, perform test checks, using a valid sample of foreign account holders for which no withholding is required under chapter 4 based on the payees chapter 4 status, to verify that QI withheld the proper amounts under chapter 3 (including properly applying the exemptions from chapter 4 withholding);

(3) To the extent QI has not assumed primary chapters 3 and 4 withholding responsibility, verify that QI has fulfilled its responsibilities under section 3.02 of this Agreement when failing to provide the required information to a withholding agent to withhold on payments;

(4) To the extent QI has assumed primary Form 1099 reporting and backup withholding responsibility, perform test checks using a valid sample of U.S. nonexempt recipient account holders to verify that QI backup withheld when required;

(5) To the extent QI has not assumed primary Form 1099 reporting and backup withholding responsibility, perform test checks using a valid sample of U.S. nonexempt account holders to verify that QI fulfilled its backup withholding responsi

bilities under sections 3.04 through 3.06 of this Agreement;

(6) Verify that amounts withheld by QI were timely deposited in accordance with section 3.08 of this Agreement; and

(7) To the extent that QI acts as a QSL, determine that QI withheld when required on U.S. source payments of substitute dividends.

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

(1) Obtain copies of original and amended Forms 1042 and 945, and any schedules, statements, or attachments required to be filed with those forms, verify that the forms have been filed, and determine whether the amounts of income, taxes, and other information reported on those forms are accurate by—

(i) Reviewing work papers used to prepare these forms;

(ii) Interviewing personnel responsible for preparing these forms;

(iii) Reviewing copies of Forms 1042–S that withholding agents have provided QI to determine whether QI properly reported the amount of taxes withheld by other withholding agents on Form 1042; (iv) Reviewing account statements and correspondence from withholding agents;

(v) Determining that adjustments to the amount of tax shown on Form 1042 (and any claim by QI for refund or credit) properly reflect the adjustments to withholding made by QI using the reimbursement or set off procedures under section 9.02 of this Agreement and are supported by sufficient documentation;

(vi) Reconciling amounts shown on Forms 1042 with amounts shown on Form 1042–S (including the amount of taxes reported as withheld);

(vii) In the case of collective credits or refunds, reviewing the statements attached to amended Forms 1042 filed to claim a collective refund, ascertain their accuracy, and—

(a) Determine the causes of any overwithholding reported and ensure QI did not issue Forms 1042–S to persons whom it included as part of its collective credit or refund;

(b) Determine that QI repaid the appropriate account holders and that the amount of the claim is accurate and supported by adequate documentation; and

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(c) Determine that QI did not include payments made to a partnership or trust described in section 4.05 of this Agreement.

(2) Obtain copies of original and corrected Forms 1042–S and Forms 1099 filed by QI together with the work papers used to prepare those forms, and determine whether the amounts reported on those forms are accurate by—

(i) Reconciling payments and tax reported on Forms 1042–S received from withholding agents with amounts (including characterization of income) and taxes reported by QI as withheld on Forms 1042–S and determining the reason(s) for any variance;

(ii) Reviewing the Forms W–8IMY, and the associated withholding statements, that QI has provided withholding agents;

(iii) Reviewing a valid sample of account statements issued by QI to account holders;

(iv) Interviewing QI’s personnel responsible for preparing the Forms 1042–S and, if applicable, Forms 1099, and the work papers used to prepare those forms; and

(v) Determining, in the case in which QI utilized the reimbursement or set-off procedure, that QI satisfied the requirements of section 9.02 of this Agreement and that the adjusted amounts of tax withheld are properly reflected on Forms 1042–S. (3) Obtain copies of original and amended Forms 8966, and determine whether the amounts of income and other information reported on Forms 8966 are accurate by—

(i) Reviewing a sample of U.S. accounts (or U.S. reportable accounts) to determine that such accounts were reported in accordance with QI’s FATCA requirements as a participating FFI, registered deemed-compliant FFI, registered deemed-compliant Model 1 IGA FFI, or limited FFI;

(ii) If QI is an NFFE acting as a qualified intermediary on behalf of its shareholders, confirming that any direct or indirect shareholders that are substantial U.S. owners were reported in accordance with § 1.1472–1(c)(3);

(iii) If QI is an NFFE acting as a qualified intermediary on behalf of persons

other that its shareholders, confirming that if QI is acting on behalf of a passive NFFE with substantial U.S. owners, withholdable payments made to the passive NFFE and the information regarding its owners were reported;

(iv) Confirming with respect to any nonqualified intermediary or flow-through entity that provides information regarding an account holder (or interest holder) that is an NFFE (other than an excepted NFFE) with one or more substantial U.S. owners (or controlling persons) that such substantial U.S. owners (or controlling persons) were reported to the extent required under section 8.04(B) of this Agreement;

(v) Reviewing a sample of the documentation provided by a PAI or a partnership or trust to which QI applied the agency option to determine that QI reported on Form 8966 to the extent required under section 4 of this Agreement;

(vi) Reviewing work papers used to prepare these forms; and

(vii) Interviewing personnel responsible for preparing these forms.

(E) Significant Change in Circum- stances. The auditor must verify that in the course of the audit it has not discovered any significant change in circumstances, as described in section 11.03(A), (D), or (E) of this Agreement.

Sec. 10.06 Periodic Review Report. (A) In General. The performance of the periodic review must be documented in a written report addressed to the responsible officer of QI and must be available to the IRS upon request (with a certified translation into English if the report is not in English). The report must describe the scope of the review and the steps performed to evaluate internal controls and test transactions, including the methodology for sampling determinations. The report must identify any deficiencies noted by the auditor, including those deficiencies that the auditor concludes are material failures, and may include explanatory footnotes to clarify the results of the report. Recommendations may be included but are not required to be provided in the report.

(B) PAI Certification. Any PAI with which QI has an agreement must provide a written certification to QI as described in section 10.03 of this Agreement regarding

its compliance with the requirements of the PAI agreement. Such certification must be available to the IRS upon a request made as part of the review described in section 10.07 of this Agreement (with a certified translation into English if the certification is not in English).

(C) Partnership or Trust to which QI Applies the Agency Option. Any partnership or trust to which QI applies the agency option must provide a written certification to QI as described in section 10.03 of this Agreement regarding its compliance with the requirements of its agreement with QI. Such certification must be available to the IRS upon a request made as part of the review described in section 10.07 of this Agreement (with a certified translation into English if the certification is not in English).

(D) Retention of Report. The report and certifications described in this section 10.06 must be retained by QI (or the Compliance QI) for as long as this Agreement is in effect.

Sec. 10.07. Compliance Review. (A) In General. Based upon the certifications made by the responsible officer and the disclosure of material failures, the information reported on Forms 945, 1042, 1042–S, 1099, and 8966 filed with the IRS during the certification period, or otherwise at IRS’s discretion for compliance purposes, the IRS may initiate requests of QI under this section 10.07.

(B) Periodic Review Report. The IRS may request through written correspondence to the responsible officer of QI (or the Compliance QI) a copy of QI’s periodic review report that was issued for any prior certification period or the periodic review report of any PAI or partnership or trust to which QI applied the agency option that QI has an agreement during the current certification period (with a certified translation into English if the report is not in English). QI is required to provide the report within 30 calendar days of such request.

(C) Correspondence Review. The IRS may, in its discretion, conduct additional fact finding through a correspondence review. In such a review, the IRS will contact the responsible officer of QI (or the Compliance QI) in writing and request information about QI’s compliance with this Agreement or the compliance of a

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PAI or a partnership or trust to which QI applied the agency option, including, for example, information about documentation, withholding, or reporting processes, its periodic review, and information about any material failures that were disclosed to the IRS (including remediation plans). The IRS may request phone or video interviews with employees of QI (and the Compliance QI), PAI, or a partnership or trust to which QI applied the agency option as part of the IRS’s correspondence review. QI is required to respond in a reasonable time to any such requests.

(D) Additional Review Procedures. In limited circumstances, the IRS may direct QI (or the Compliance FFI) or any PAI, partnership, or trust described in section 4 of this Agreement with which QI has an agreement to perform additional, specified review procedures. The IRS reserves the right to require QI (or the Compliance QI) or a PAI, or a partnership or trust to which QI applied the agency option to engage an external auditor to perform the additional review procedures regardless of whether such auditor performed the periodic review. The IRS will provide the responsible officer of the QI with a written plan describing the additional review procedures and will provide a due date of not more than 120 days for the QI to provide to the IRS a report covering the auditor’s findings.

SECTION 11. EXPIRATION, TERMINATION AND DEFAULT

Sec. 11.01. Term of Agreement. This Agreement begins on the effective date of the QI Agreement and expires on December 31, 2016 unless terminated under section 11.02 of this Agreement. This Agreement may be renewed as provided in section 11.06 of this Agreement.

Sec. 11.02. Termination of Agree- ment. This Agreement may be terminated by either the IRS or QI prior to the end of its term by delivery of a notice, in accordance with section 12.06 of this Agreement, of termination to the other party. The IRS, however, shall not terminate this Agreement unless there has been a significant change in circumstances, as defined in section 11.03 of this Agreement, or an event of default has occurred, as defined in section 11.04 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. The IRS shall not terminate this Agreement if QI 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 QI, in accordance with section 11.05 of this Agreement, that an event of default has occurred and that the IRS intends to terminate the Agreement unless QI cures the default or establishes that no event of default occurred. A notice of termination sent by either party shall take effect on the date specified in the notice, and QI is required to notify its withholding agent of the date that its status as a QI is terminated.

If QI is a limited FFI, this Agreement will terminate upon the termination of QI’s limited FFI status on December 31, 2015, unless QI enters into an FFI agreement or obtains status as a registered deemed-compliant FFI or a registered deemed-compliant Model 1 IGA FFI.

Sec. 11.03. Significant Change in Circumstances. For purposes of this Agreement, a significant change in circumstances includes, but is not limited to—

(A) An acquisition of all, or substantially all, of QI’s assets in any transaction in which QI is not the surviving legal entity;

(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 QI’s ability to perform its obligations under this Agreement;

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

(D) A material change in the knowyour-customer rules and procedures set forth in any Attachment to this Agreement;

(E) A significant change in QI’s business practices that affects QI’s ability to meet its obligations under this Agreement;

(G) If QI is a limited FFI, termination of status as a limited FFI after December 31, 2015 and failure of QI to enter into an FFI Agreement or obtain status as a registered deemed-compliant FFI or regis

tered deemed-compliant Model 1 IGA FFI;

(H) If QI is an FFI, termination of its status as a participating FFI, registered deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI;

(I) If QI is an NFFE acting as a QI on behalf of its shareholders, if it fails to meet its requirements as a direct reporting NFFE under § 1.1472–1(c)(3); or

(J) If QI is acting as a sponsoring entity on behalf of a sponsored FFI or sponsored direct reporting NFFE, if it fails to comply with the due diligence, withholding, reporting, and compliance requirements of a sponsoring entity.

Sec. 11.04. Event of Default. For purposes of this Agreement, an event of default occurs if QI fails to perform any material duty or obligation required under this Agreement and the responsible officer had actual knowledge or should have known the facts relevant to the failure to perform any material duty. An event of default includes, but is not limited to, the occurrence of any of the following:

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

(B) QI underwithholds a material amount of tax that QI is required to withhold under chapter 3 or 4 or backup withhold under section 3406 and fails to correct the underwithholding or to file an amended Form 1042 or 945 reporting, and paying, the appropriate tax;

(C) QI makes excessive refund claims; (D) Documentation described in section 5 of this Agreement is lacking, incorrect, or unreliable for a significant number of direct account holders;

(E) QI files Forms 945, 1042, 1042–S, 1099, or 8966 that are materially incorrect or fraudulent;

(F) If QI is an FFI, QI fails to materially comply with its FATCA requirements as a participating FFI, registered deemedcompliant FFI, registered deemedcompliant Model 1 IGA FFI, or limited FFI;

(G) If QI is an NFFE acting as a QI on behalf of its shareholders, QI fails to materially comply with its requirements as a direct reporting NFFE under § 1.1472– 1(c)(3); or if QI is a sponsoring entity, QI fails to materially comply with the due

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diligence, withholding, reporting, and compliance requirements of a sponsoring entity;

(H) QI fails to materially comply with the requirements of a nonqualified intermediary under chapters 3 and 61, and section 3406 with respect to any non-QI designated account.

(I) QI fails to perform a periodic review when required or document the findings of such review in a written report;

(J) QI fails to cooperate with the IRS on its compliance review described in section 10.07 of this Agreement;

(K) QI fails to inform the IRS of any change in the know-your-customer rules described in any Attachment to this Agreement within 90 days of the change becoming effective;

(L) QI fails to inform the IRS within 90 days of any significant change in its business practices to the extent that change affects QI’s obligations under this Agreement;

(M) QI fails to inform the IRS of any PAI of QI, as described in section 4 of this Agreement;

(N) QI fails to cure a material failure identified in the qualified certification described in section 10.04 of this Agreement or identified by the IRS;

(O) QI makes any fraudulent statement or a misrepresentation of material fact with regard to this Agreement to the IRS, a withholding agent, or QI’s auditor;

(P) The IRS determines that QI’s auditor is not sufficiently independent to adequately perform its audit function and QI fails to arrange for a periodic review conducted by an auditor approved by the IRS;

(Q) An intermediary with which QI has a PAI agreement is in default with that agreement and QI fails to terminate that agreement within the time period specified in section 4.04 of this Agreement; or

(R) A partnership or trust to which QI applies the agency option is in default with that agreement and QI fails to terminate that agreement within the time period specified in section 4.06 of this Agreement

Sec. 11.05. Notice and Cure. Upon the occurrence of an event of default, the IRS will deliver to QI a notice of default specifying each event of default. QI must respond to the notice of default within 60 days (60-day response) from the date of

the notice of default. The 60-day response shall contain an offer to cure the event of default and the time period in which to cure or shall state why QI believes that no event of default occurred. If QI does not provide a 60-day response, the IRS will deliver a notice of termination as provided in section 11.02 of this Agreement. If QI provides a 60-day response, the IRS shall either accept or reject QI’s statement that no default has occurred or QI’s proposal to cure the event of default. If the IRS rejects QI’s contention that no default has occurred or rejects QI’s proposal to cure the event of default, the IRS may offer a counter-proposal to cure the event of default with which QI will be required to comply within 30 days. If QI fails to provide a 30-day response, the IRS will send a notice of termination in accordance with section 11.02 of this Agreement to QI, which QI may appeal within 30 days of the date of the notice by sending a written appeal to the address specified in section 12.06 of this Agreement. If QI appeals the notice of termination, this Agreement shall not terminate until the appeal has been decided. If an event of default is discovered in the course of an audit, the QI may cure the default, without following the procedures of this section 11.05, if the external auditor’s report describes the default and the actions that QI took to cure the default and the IRS determines that the cure procedures followed by QI were sufficient. If the IRS determines that QI’s actions to cure the default were not sufficient, the IRS shall issue a notice of default and the procedures described in this section 11.05 shall be followed.

Sec. 11.06. Renewal. If QI is an FFI, an NFFE acting on behalf of its shareholders, or an NFFE that is a sponsoring entity and intends to renew this Agreement, it must submit a registration for renewal to the IRS on the FATCA registration website in accordance with the instructions to Form 8957 or as otherwise provided in published guidance. This Agreement will be renewed only upon the agreement of both QI and the IRS.

A QI not described in the preceding paragraph must renew its QI agreement by submitting a request for renewal to the Foreign Intermediaries Program at the address provided in section 12.06 of this Agreement.