SECTION 3. BACKGROUND –

WITHHOLDING AND REPORTING REQUIREMENTS UNDER CHAPTERS 3, 4, AND 61 AND SECTION 3406

.01 Withholding and Reporting under Chapter 4 on Payments Made to FFIs and Other Payees. Section 1471(a) requires a withholding agent to deduct and withhold a tax equal to 30 percent on any withholdable payment made to an FFI, unless the FFI agrees to and complies with the terms of the FFI agreement to satisfy the obligations specified in section 1471(b) (a participating FFI); is deemed to meet the requirements under section 1471(b) (a deemed-compliant FFI), or is treated as an

1Unless otherwise provided, all citations in this Revenue Procedure and the QI agreement included in this Revenue Procedure are to the Internal Revenue Code of 1986, as amended (Code) and the Income Tax Regulations thereunder.

Bulletin No. 2017–3 437 January 17, 2017

exempt beneficial owner under §1.1471– 6. Section 1472(a) requires a withholding agent to deduct and withhold a tax equal to 30 percent on any withholdable payment made to an NFFE (other than an excepted NFFE) unless such entity provides a certification that it does not have any substantial U.S. owners or provides information regarding its substantial U.S. owners.

A participating FFI (including a reporting Model 2 FFI) or registered deemedcompliant FFI (other than a reporting Model 1 FFI) will satisfy its requirement to withhold under sections 1471(a) and 1472(a) on withholdable payments made to accounts held by entities by withholding on accounts that the FFI is required to treat as held by nonparticipating FFIs and recalcitrant account holders under the FFI agreement, §1.1471–5(f), or an applicable Model 2 IGA. A participating FFI (including a reporting Model 2 FFI) or registered deemed-compliant FFI (other than a reporting Model 1 FFI) is also required to withhold on withholdable payments made to accounts held by individuals that the FFI is required to treat as recalcitrant account holders to the extent required under the FFI agreement, §1.1471–5(f), or an applicable Model 2 IGA. See, however, the Model 2 IGA for the suspension of withholding on non-consenting U.S. accounts. A QI that is a reporting Model 1 FFI or a registered deemed-compliant Model 1 IGA FFI will satisfy its requirement to withhold under section 1471(a) on withholdable payments made to accounts held by entities by withholding on accounts that the FFI is required to treat as held by nonparticipating FFIs.

A participating FFI (including a reporting Model 2 FFI), a registered deemedcompliant FFI, and a registered deemedcompliant Model 1 IGA FFI must report certain account information regarding each U.S. account (or U.S. reportable account) that it maintains to the extent required under the FFI agreement, §1.1471– 5(f), or a Model 1 or Model 2 IGA. A participating FFI (including a reporting Model 2 FFI) or a registered deemedcompliant FFI (other than a reporting Model 1 FFI) must report certain information about accounts that it maintains that are held by recalcitrant account holders (or non-consenting U.S. accounts). A

withholding agent making payments to an NFFE that is not reported by an FFI as a U.S. account (or U.S. reportable account) is also required to report withholdable payments made to an NFFE (other than an excepted NFFE) with substantial U.S. owners on Form 8966, FATCA Report . See §§1.1472–1(b)(1)(iii) and 1.1474– 1(i). A withholding agent (including a participating FFI or registered deemedcompliant FFI) that is required to withhold on a withholdable payment must report the payment on Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding .

.02 Withholding and Reporting under Chapter 3 on Payments to Foreign Persons. Sections 1441 and 1442 require a withholding agent to deduct and withhold a tax equal to 30 percent on any payment of U.S. source fixed or determinable annual or periodical (FDAP) income that is an amount subject to withholding (as defined in §1.1441–2(a)) made to a foreign person. A lower rate of withholding may apply under the Code (for example, section 1443), the regulations, or an income tax treaty. Generally, a withholding agent must also report the payments on Form 1042-S regardless of whether withholding was required. See §1.1461–1(c).

.03 Backup Withholding under Section 3406 and Reporting on Payments to Certain U.S. Persons under Chapter 61. Under sections 6041, 6042, 6045, 6049, and 6050N (chapter 61 or the Form 1099 reporting provisions), payors of interest, dividends, royalties, gross proceeds from the sales of securities, and other fixed or determinable income must report payments made to certain U.S. persons (that is, U.S. non-exempt recipients or presumed U.S. non-exempt recipients) on the appropriate Form 1099 unless an exception to reporting applies. See §§1.6041–4(a); 1.6042–3(b)(1)(iii); 1.6045–1(g)(1)(i); 1.6049–5(b)(12); and 1.6050N–1(c)(1)(i). Under section 3406, a payor must generally obtain a Form W-9, Request for Taxpayer Iden- tification Number and Certification, from a U.S. non-exempt recipient receiving a payment reportable on a Form 1099 or must otherwise backup withhold under section 3406 and report the payment on Form 1099.

.04 Coordination of Withholding and Reporting Requirements under Chapters 3 and 4. With respect to a withholdable payment that is subject to withholding under chapter 4, a withholding agent may credit any tax withheld under chapter 4 against its liability for any tax due with respect to the payment under chapter 3. A withholding agent is required to report on a single Form 1042-S the information required under both chapters 3 and 4 with respect to a payment subject to withholding under both chapters 3 and 4. With respect to a withholdable payment that is not subject to withholding under chapter 4 and that is an amount subject to withholding under chapter 3, a withholding agent is also required to report on Form 1042-S the applicable chapter 4 exemption code for the payment and the recipient’s chapter 4 status.

.05 Responsibilities of Intermediaries that Enter into QI Agreements. When the IRS enters into a QI agreement with a foreign person (or foreign branch of a U.S. person), that foreign person (or foreign branch of a U.S. person) becomes a QI. A QI is a withholding agent under chapters 3 and 4 and a payor under chapter 61 and section 3406 for amounts that it pays to its account holders. The general obligations of a QI as a withholding agent and payor are described in section 1.01 of the QI agreement and are relevant to whether an event of default occurs under section 11.04 of the QI agreement.