SECTION 4. SIGNIFICANT

CHANGES TO THE WP AND WT AGREEMENTS

This section summarizes the significant changes to the WP and WT agreements. Several of these changes are made to conform with the final and temporary chapter 3 regulations, the final and temporary chapter 4 regulations, Notice 2016–42, 2016–29 I.R.B. 67, and Revenue Procedure 2017–15.

.01 Compliance Procedures (In Gen- eral) . Notice 2016–42 sets forth a draft qualified intermediary (QI) agreement with proposed updates and modifications, and announced that the proposed changes to the QI compliance review are intended, with appropriate modifications, to be incorporated in the WP and WT agreements. Revenue Procedure 2017–15 sets forth the final QI agreement for QIs with a QI agreement effective on or after January 1, 2017 (the 2017 QI agreement). Accordingly, the compliance procedures in the WP and WT agreements are updated to include compliance review procedures similar to the compliance procedures in the 2017 QI agreement. For example, the WP and WT agreements allow the responsible officer to make the certification of internal controls based on, in addition to the periodic review (if required), any other reasonable processes, procedures, reviews, or certifications made by other persons that the responsible officer has determined are necessary in order to make the responsible officer’s periodic certification of compliance. The WP and WT agreements also provide that the periodic review may be conducted for any calendar year covered by the certification period, rather than the most recent calendar year. If a WP or WT chooses to review the last year of the certification period for its periodic review, the WP or WT will also have an extended six-month period of time to make the certification on or before December 31 of the calendar year following the certification period (rather than July 31 of the calendar year following the certification period). The WP and WT agreements also permit certain WPs and WTs that meet the requirements in section 8.07 of the WP or WT agreement to apply for a waiver from the periodic review requirement. A WP or WT that is a NFFE

and a WP that is a member of a consolidated compliance program may not apply for a waiver from the periodic review requirement. As in the 2017 QI agreement, the WP and WT agreements require that the reviewer have sufficient independence to objectively conduct the review and cannot review his or her own work. See the preamble to the 2017 QI agreement for additional discussion of the standard of independence required of a reviewer, which also applies to the WP and WT agreements. The Appendix to the WP and WT agreements provides the certification of internal controls, waiver request, and factual information.

Under the 2014 WP and WT agreements, the initial certification period of the WP or WT agreement is the period ending on the third full calendar year that the WP or WT agreement is in effect, and subsequent certification periods are every three years following the initial certification period, other than for a WP or WT that is a NFFE or a retirement fund that does not make a pooled reporting election under section 6.02(D) of the WP or WT agreement, in which case subsequent certification periods are every six years for such NFFE or retirement fund. To make the WP and WT agreements more administrable for the IRS, the WP and WT agreements are revised to provide a three-year subsequent certification period for all WPs or WTs. In addition, the WP and WT agreements are revised to clarify that the certification period under the WP or WT agreement may not necessarily be the same as the certification period that applies to the WP’s or WT’s FATCA requirements as a participating FFI or registered deemed-compliant FFI. Therefore, a WP or WT may have a different review cycle and certification due date for the certification required under its FATCA requirements than under its WP or WT agreement, and should comply with the requirements for both. In the certification of internal controls in the Appendix to the WP and WT agreements, a WP or WT must certify that it has maintained its chapter 4 status during the certification period under the WP or WT agreement (not the WP’s or WT’s certification period under its FATCA requirements, if any).

The 2017 QI agreement allows the use of statistical sampling of a QI’s accounts

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for purposes of the periodic review for certain QIs, and includes a safe harbor method in Appendix II of the 2017 QI agreement for determining a statistical sample of accounts for the periodic review. Section 8.05 of the WP and WT agreements provides that if a WP or WT has more than 60 partners, beneficiaries, or owners for which the WP or WT acts for the year of the periodic review, the WP’s or WT’s reviewer may use statistical sampling procedures by applying the principles set forth in Appendix II of the 2017 QI Agreement in Revenue Procedure 2017–15 for its periodic review.

.02 Consolidated Compliance Pro- gram . In response to a comment to the 2014 WP agreement, section 8.02(C) of the WP agreement provides an allowance for consolidated compliance program for WPs, similar to the allowance for QIs. Under this option, a Compliance Entity must implement a compliance program that includes uniform practices, procedures, and systems, subject to uniform monitoring and control, with respect to all WPs in the consolidated compliance program for purposes of meeting the requirements of section 8 of the WP agreement. The Compliance Entity must agree to be jointly and severally liable for each WP’s obligations under its WP agreement. A WP in a consolidated compliance program may not request a waiver of the periodic review requirement. The responsible officer of the Compliance Entity must perform a consolidated periodic review described in sections 8.04 and 8.05 of the WP agreement that includes each WP in the consolidated compliance program, but is permitted to make one certification for all WPs in the consolidated compliance program. The responsible officer of the Compliance Entity must submit factual information (described in Part IV of the Appendix to the WP agreement) for each WP. The Compliance Entity must be the sponsoring entity for chapter 4 purposes for each WP in the consolidated compliance program unless the IRS Foreign Intermediaries Program approves the use of a different entity.

A comment to Notice 2016–42 suggested that a consolidated compliance program for WPs should not include a requirement that the program have “uniform” practices, procedures, and systems

because this may be interpreted to mean “identical” practices, procedures, and systems. This comment is not adopted because “uniform” does not necessarily mean identical, but can also mean “consistent in approach,” which is the intended meaning here.

.03 Foreign Reverse Hybrid Entities . The WP agreement is revised to include requirements for a WP that is a foreign reverse hybrid entity. Under the 2014 WP agreement, a foreign reverse hybrid entity could only act as a WP if it obtained a rider that modified the terms of the WP agreement. A foreign reverse hybrid entity is defined in section 2.31 of the WP agreement as an entity organized or incorporated outside of the United States that is treated as a corporation for U.S. federal income tax purposes but is fiscally transparent (within the meaning of § 1.894– 1(d)(3)(ii)) under the laws of the country in which it is organized with respect to the items of income paid to the entity. A WP that is a foreign reverse hybrid entity must be a participating FFI, registered deemedcompliant FFI, or registered deemedcompliant Model 1 IGA FFI. The WP agreement only allows a foreign reverse hybrid entity to obtain reduced rates of withholding under tax treaties for foreign interest holders, and requires the foreign reverse hybrid entity to comply with the requirements in section 6.03(C) of the WP agreement. Since a foreign reverse hybrid entity is treated as a corporation for U.S. tax purposes, and therefore is not required to file Form 1065 or Schedule K–1, section 6.03(C) of the WP agreement does not require a WP that is a foreign reverse hybrid entity to file a Form 1065 or Schedule K–1, and instead the WP must prepare the reconciliation statement described in section 6.03(C)(3) of the WP agreement to support the WP’s allocations of U.S. source FDAP income to each partner that claims treaty benefits and issue PFIC Annual Information Statements to the extent required in section 6.03(C)(4) of the WP agreement. The reconciliation statement and the PFIC Annual Information Statements must be reviewed for accuracy as part of a WP’s periodic review.

.04 Additional Changes to Coordinate with the 2017 QI Agreement and the Tem- porary Chapter 3 Regulations . The WP and WT agreements are updated consis

tent with the 2017 QI agreement and the temporary chapter 3 regulations. For example, the WP and WT agreements require a WP or WT to obtain information regarding limitation on benefits on a treaty statement obtained from an entity that is a beneficial owner claiming treaty benefits. A transitional rule permits a WP or WT to obtain the information on limitation on benefits for certain partners, beneficiaries, or owners by January 1, 2019. In addition, section 6.02(B)(6) of the 2014 WP and WT agreements, which required specific reporting of each partnership or trust to which the joint account option is applied, is removed because section 9.01(B)(3) of the WP and WT agreements permits a WP or WT to report amounts distributed to, or included in the distributive share of, the partnership’s or trust’s direct partners, beneficiaries, or owners in chapter 3 reporting pools on Form 1042–S. See the preamble to the 2017 QI agreement for additional information on these changes.

.05 Changes to Coordinate with the Temporary and Final Chapter 4 Regula- tions . In section 2 of the WP and WT agreements, the definition of participating FFI is revised to cross-reference § 1.1471– 1(b)(91) to incorporate the definition in the final chapter 4 regulations, and the definition of U.S. person is updated to incorporate revisions to the definition in the final chapter 4 regulations. Section 6.05(A)(2) of the WP agreement incorporates rules in the temporary chapter 4 regulations regarding account reporting requirements for participating FFIs that are partnerships. A WP that is a participating FFI or registered deemed-compliant FFI (other than a reporting Model 1 FFI) reporting a U.S. account or an account held by an owner-documented FFI on Form 8966 must report the partner’s distributive share of the partnership’s income or loss for the calendar year, without regard to whether any such amount is distributed to the partner during the year, and any guaranteed payments for the use of capital. The amount required to be reported with respect to a partner may be determined based on the WP’s tax returns or, if the tax returns are unavailable by the due date for filing Form 8966, the WP’s financial statements or any other reasonable method used by the WP for calculating the part

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ner’s share of partnership income and loss by such date.

.06 Additional Changes and Correc- tions . The 2014 WP and WT agreements provide that a WP or WT that is an FFI may obtain documentary evidence in accordance with the know-your-customer (KYC) rules set forth in an attachment to the WP or WT agreement. The KYC rules that have been approved for each jurisdiction are available at http://www.irs.gov/ Businesses/International-Businesses/Listof-Approved-KYC-Rules. Because the KYC rules are readily accessible online, and because the IRS no longer provides signed copies of a WP or WT agreement, the applicable KYC rules will no longer be attached to a WP or WT agreement and references to an attachment to the WP or WT agreement are removed.

The WP and WT agreements include revisions and corrections to several definitions in section 2 of the WP or WT agreement. The definition of financial institution is revised to correct a crossreference and conform to the definition in § 1.1471–1(b)(50), and the definition of foreign financial institution is revised to conform to the definition in § 1.1471– 1(b)(47). Definitions of the terms nonqualified intermediary, nonreporting Model 1 FFI, nonreporting Model 2 FFI, and (in the WP agreement only) foreign reverse hybrid entity are added. The definition of certified deemed-compliant FFI is moved to section 2.08 of the WP or WT agreement and revised to exclude registered deemed-compliant Model 1 IGA FFIs because when the term certified deemedcompliant FFI was used in the 2014 WP and WT agreements, registered deemedcompliant Model 1 IGA FFIs were excluded by a parenthetical. The definition of registered deemed-compliant FFI is moved to section 2.63 of the WP agreement and section 2.61 of the WT agreement and revised to exclude registered deemed-compliant Model 1 IGA FFIs providing a chapter 4 withholding rate pool of U.S. payees. The inclusion of registered deemed-compliant Model 1 IGA FFIs in the definition of registered deemed-compliant FFI was unnecessary because section 6.02(C) of the 2014 WP or WT agreement already specifically identified registered deemed-compliant Model 1 IGA FFIs as a category of FFIs

that may provide a U.S. payee pool. Finally, the definition of registered deemedcompliant Model 1 IGA FFI is moved to section 2.64 of the WP agreement and section 2.62 of the WT agreement.

In the 2014 WP and WT agreements, a passthrough partner or passthrough beneficiary or owner is defined as a direct or indirect partner, beneficiary, or owner of a WP or WT that is a foreign intermediary or foreign flow-through entity, and an intermediary is defined as any person that acts as a custodian, broker, nominee, or agent with respect to a payment. However, a passthrough partner or passthrough beneficiary or owner should not include a QI that assumes primary chapters 3 and 4 withholding responsibility with respect to payments of U.S. source FDAP income or assumes primary Form 1099 reporting and backup withholding responsibility. Therefore, the definition of passthrough partner or passthrough beneficiary or owner is corrected to exclude a QI that assumes primary chapters 3 and 4 withholding responsibility with respect to payments of U.S. source FDAP income or primary Form 1099 reporting and backup withholding responsibility.

Section 3.03 of the WP and WT agreements provides the general rule for withholding on amounts subject to chapter 3 withholding and withholdable payments that are distributed to, or included in the distributive share of, a foreign partner, beneficiary, or owner. The 2014 WP and WT agreements do not provide a rule for when to report withholding on a distributive share when the withholding occurs after the due date (including extensions) for filing Forms 1042–S. Section 3.03 of the WP and WT agreements is revised to provide that if the date that is the earlier of the due date for filing Schedule K–1 (or the statement required under section 6048(b)) or the date that the Schedule K–1 (or the statement required under section 6048(b)) is actually furnished to the partner, beneficiary, or owner, is after the due date (including extensions) for filing the WP’s or WT’s Forms 1042–S for the calendar year, the WP or WT must withhold and report the withholding on the distributive share that relates to the prior calendar year as if it arises in the subsequent calendar year.

Under section 3.04 of the WP and WT agreements, a WP or WT may determine the amount of withholding on a distribution based on an estimate of a partner’s, beneficiary’s, or owner’s distributive share of income, provided that the WP or WT corrects the withholding to reflect the partner’s, beneficiary’s, or owner’s actual distributive share on the earlier of the due date for filing Schedule K–1 (or the statement required under section 6048(b)) or the date that the Schedule K–1 (or the statement required under section 6048(b)) is actually furnished to the partner, beneficiary, or owner. Section 3.04 of the WP and WT agreements is revised to require a WP or WT that makes corrections after the earlier of the due date (including extensions) for filing Forms 1042–S or the date that Forms 1042–S are actually filed to report such corrections on Forms 1042–S for the subsequent calendar year. This revision is made to ensure that a WP or WT that has already filed Forms 1042–S reports the corrections for the subsequent year rather than amending the prior year Forms 1042–S.

.07 Effective Date and Term of the WP and WT Agreements . In Revenue Procedure 2017–15, the Treasury Department and the IRS announced that because the updated WP and WT agreements would not be published before December 31, 2016, WPs and WTs with agreements in effect on December 31, 2016, may continue to treat those agreements as in effect until the updated WP and WT agreements are issued.

Section 12.01(A) of the WP and WT agreements provides that, in general, the effective date of a WP or WT agreement depends on when the WP or WT application is submitted. If a WP or WT applies on or before March 31 of the calendar year and is approved for WP or WT status, the WP or WT agreement will be effective January 1 of such calendar year. If a WP or WT applies after March 31 and is approved in the same calendar year and receives reportable amounts between January 1 of the year in which the application is submitted and the date of approval, the WP or WT agreement will be effective January 1 of the following calendar year. If a WP or WT that applies after March 31 does not receive any reportable amounts between January 1 of the year in which

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the application is submitted and the date of approval, the WP or WT agreement will be effective on the date the WP or WT is issued a WP-EIN or WT-EIN.

A special rule for calendar year 2017 provides that if a WP or WT is approved for WP or WT status during calendar year 2017, the rules described in section 12.01(A) of the WP or WT agreement apply, except that the terms of the WP or WT agreement effective from January 1, 2017, to the date of issuance of this revenue procedure will be the terms in the WP or WT agreement in Revenue Procedure 2014–47, and the terms of the WP or WT agreement provided in this revenue procedure will apply beginning on the date of issuance of this revenue procedure.

The WP and WT agreements in sections 6 and 7 of this revenue procedure expire upon the earlier of the date the WP or WT terminates under its partnership agreement or trust instrument (as applicable) or the end of the sixth full calendar year the WP or WT agreement is in effect, unless the WP or WT agreement is terminated under section 10.02 or 10.03 of the WP or WT agreement.