SECTION 3. WITHHOLDING — Internal Revenue Bulletin 2022-20

RESPONSIBILITY AND QDD TAX LIABILITY

Sec. 3.01. Withholding Responsibili- ties under Chapters 3 and 4 and With- holding with respect to PTP Interests.

(C) Withholding under section 1446(f) and on PTP Distributions. (1) Withholding on Amount Real- ized. If QI acts as a broker with respect to a payment of an amount realized from a transfer of a PTP interest, QI is required to withhold under section 1446(f) 10-percent of the amount realized paid to an account holder of QI that is the transferor and is (or is presumed to be) a foreign partner when QI assumes primary withholding responsibility for the payment under section 3.03(C)(1) of this Agreement. QI is further required to withhold on a payment of an amount realized made to a foreign broker to the extent provided in §1.1446(f)-4(a)(2). QI is not required to withhold on a payment of an amount realized when an exception to withholding under §1.1446(f)-4(b) applies. Thus, for example, QI is not required to withhold under section 1446(f) when it may rely on a qualified notice that states the applicability of the exception under §1.1446(f)4(b)(3). See section 5 of this Agreement regarding documentation requirements for other exceptions to withhold under §1.1446(f)-4(b).

(2) Withholding under chapter 3, chapter 4, section 1446(a), and section 1446(f) on PTP distribution. If QI acts as a nominee for a PTP distribution under section 3.03(C)(2) of this Agreement, QI is a withholding agent for purposes of the distribution and is required to withhold as described in this section 3.01(C)(2). For an amount subject to withholding under section 1446(a) identified on a qualified notice for a PTP distribution, QI is required to withhold on the amount paid to

an account holder that is (or is presumed to be) a foreign partner except when an exception to withholding applies to an account holder that is a foreign entity described in section 501(c)(3) or that claims an exemption from withholding under an income tax treaty. See sections 5.03 and 5.06(A) of this Agreement for documentation requirements for these exceptions and section 1446(b) for the rate of withholding that applies under section 1446(a). For an amount subject to withholding under chapter 3 and 4 on a PTP distribution, QI is required to withhold under sections 3.01(A) and (B) of this Agreement to the extent such amounts are identified on a qualified notice for the distribution. For an amount realized on a PTP distribution, QI’s requirement to withhold under section 1446(f) is limited to the amount identified on a qualified notice as in excess of the PTP’s cumulative net income. If QI does not receive a qualified notice for a distribution or to the extent the qualified notice for the distribution does not specify an amount subject to withholding, QI is required to withhold only to the extent provided in the default rules in §1.14464(d)(1). Sec. 3.02. Primary Withholding Re- sponsibility Not Assumed under Chap- ters 3 and 4 or with respect to PTP interests. Notwithstanding anything in sections 1.01 and 3.01 of this Agreement to the contrary, QI is not required to withhold to the extent provided in this section 3.02. (A) Withholding under Chapters 3 and 4 . QI is not required to withhold with respect to a payment of U.S. source FDAP income if it: (a) does not assume primary withholding responsibility under section 3.03(A) of this Agreement by electing to be withheld upon under §1.1471-2(a)(2)(iii) for purposes of chapter 4, (b) provides the withholding agent from which QI receives the payment with a valid withholding certificate that indicates that QI does not assume primary withholding responsibility for chapters 3 and 4 purposes, and (c) provides correct withholding statements (including information regarding any account holders or interest holders of an intermediary or flow-through entity that holds an account with QI, other than a QI that assumes primary withholding responsibility, or a WP

or WT) as described in section 6.02 of this Agreement.

(B) Withholding with respect to PTP interest. QI is not required to withhold on a payment of a PTP distribution or an amount realized from the sale of a PTP interest except when QI assumes primary withholding responsibility for either of those payments under section 3.03(C) (1) or (2) of this Agreement. QI does not assume primary withholding responsibility for a payment of a PTP distribution or amount realized from the sale of a PTP interest by providing to its withholding agent or broker a valid withholding certificate indicating that it is a QI that does not assume primary withholding responsibility for the payment and provides correct withholding statements as described in section 6.02 of this Agreement. See section 3.05(C) of this Agreement for when QI is not responsible for primary Form 1099 reporting and backup withholding for broker proceeds that are an amount realized.

(C) Residual Withholding Require- ment. Notwithstanding its election not to assume primary withholding responsibility for a payment as described in section 3.02(A) or (B) of this Agreement, QI shall, however, withhold the difference between the amount of withholding required and the amount actually withheld by another withholding agent if QI—

(1) Actually knows that the appropriate amount has not been withheld by another withholding agent or broker; or

(2) Made an error which results in the withholding agent or broker’s failure to withhold the correct amount due ( e.g ., QI fails to provide an accurate withholding statement with respect to the payment, including a failure to provide information regarding any account holders or interest holders of an intermediary or flowthrough entity that holds an account with QI to the extent required in section 6 of this Agreement), and QI has not corrected the underwithholding under section 9.05 of this Agreement.

Sec. 3.03. Assumption of Primary Withholding Responsibilities under chapters 3 and 4 (including by QDDs) or with respect to PTP interest.

(A) Withholding Assumed under Chapters 3 and 4. QI may assume primary withholding responsibility for

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purposes of chapters 3 and 4 by providing a valid withholding certificate described in section 6 of this Agreement to a withholding agent that makes a payment of U.S. source FDAP income to QI and by designating on the withholding statement associated with such certificate the account(s) for which QI assumes primary withholding responsibility (if required). QI is not required to assume primary withholding responsibility for all accounts it holds with a withholding agent. If QI assumes primary withholding responsibility for any account, it must assume that responsibility under chapters 3 and 4 for all withholdable payments and amounts subject to chapter 3 withholding made by the withholding agent to that account. Notwithstanding the preceding sentence, QI assumes primary withholding responsibility on a PTP distribution (which includes an amount subject to withholding under chapter 3 or 4 on the distribution) only as provided in section 3.03(C)(2) of this Agreement.

- To the extent that QI assumes primary withholding responsibility under this section 3.03(A), QI shall withhold as described in section 3.01(A) and (B) of this Agreement. QI is not required to withhold on amounts it pays to another QI that has assumed primary withholding responsibility with respect to the payment under chapters 3 and 4 (including a QI acting as a QDD except for all payments with respect to underlying securities, other than dividend equivalents, paid to a QDD for which withholding is required) or to a WP or a WT.
- (C) Withholding Assumed with re- spect to PTP Interest.

(1) Withholding Assumed on Amount Realized. QI may assume primary withholding responsibility for a payment of an amount realized from the sale of a PTP interest only when the QI provides to the broker making the payment to QI a valid withholding certificate described in section 6 of this Agreement stating that it assumes primary responsibility for the payment. In such a case, QI is required to withhold on the payment as described in section 3.01(C)(1) of this Agreement, excluding an amount realized paid to another QI that has assumed primary withholding

responsibility with respect to the amount realized.

(2) Withholding Assumed on PTP Distribution. QI may assume primary withholding responsibility for a payment of a PTP distribution only when the QI provides to the PTP or nominee paying the distribution to QI a valid withholding certificate described in section 6 of this Agreement stating that QI assumes primary responsibility by acting as a nominee for the distribution under §1.14464(b)(3). QI may act as a nominee for a PTP distribution only when QI assumes primary withholding responsibility for all of the amounts subject to withholding on the PTP distribution under sections 1446(a) and (f) and chapters 3 and 4. When acting as a nominee, QI is required to withhold on a PTP distribution as required under section 3.01(C)(2) of this Agreement, excluding a PTP distribution paid to another QI that has assumed primary withholding responsibility as a nominee with respect to the distribution or to a WP or WT with respect to an amount subject to withholding under chapter 3 or 4 on the distribution.

Sec. 3.05. Primary Form 1099 Re- porting and Backup Withholding Re- sponsibility for Reportable Payments Other Than Reportable Amounts.

(C) Special Procedure for Broker Proceeds.

Notwithstanding the preceding provisions, for a payment of broker proceeds that is an amount realized from the sale of a PTP interest, QI will not be excepted from responsibility for primary Form 1099 reporting and backup withholding (as otherwise permitted in this section 3.05(C)) if QI also provides a valid withholding certificate to the broker paying the proceeds to QI that indicates that QI assumes primary withholding responsibility for the amount realized.

Sec. 3.08. Deposit Requirements.

The deposit requirements of this section 3.08 that apply to amounts that QI withholds under chapter 3 and 4 also apply to the extent that QI assumes primary withholding responsibility for a payment

of a PTP distribution or amount realized from the sale of a PTP interest.