Definitions

Amounts exempt from tax under section 895. Section 895 generally excludes from gross income and exempts from U.S. taxation income a foreign central bank of issue receives from obligations of the United States (or of any agency or instrumentality thereof) or from interest on deposits with persons carrying on the banking business unless such obligations or deposits are held for, or used in connection with, the conduct of commercial banking functions or other commercial activities of the foreign central bank of issue.

Amounts exempt from tax under section 892. Only a foreign government or an international organization as defined below qualifies for exemption from taxation under section 892. Section 892 generally excludes from gross income and exempts from U.S. taxation income a foreign government receives from investments in the United

States in stocks, bonds, or other domestic securities; financial instruments held in the execution of governmental financial or monetary policy; and interest on deposits in banks in the United States of monies belonging to the foreign government. Income of a foreign government from any of the following sources is not exempt from U.S. taxation.

• The conduct of any commercial activity.

• A controlled commercial entity.

• The disposition of any interest in a controlled commercial entity. For the definition of “commercial activity,” see Temporary Regulations section 1.892-4T.

Section 892 also generally excludes from gross income and exempts from U.S. taxation income of an international organization received from investments in the United States in stocks, bonds, or other domestic securities and interest on deposits in banks in the United States of monies belonging to the international organization or from any other source within the United States.

Amounts subject to withholding. Generally, an amount subject to withholding under sections 1441 through 1443 is an amount from sources within the United States that is fixed or determinable annual or periodical (FDAP) income. FDAP income is all income included in gross income, including interest (as well as OID), dividends, rents, royalties, and compensation. FDAP income does not include most gains from the sale of property (including market discount and option premiums), as well as other specific items of income described in Regulations section 1.1441-2 (such as interest on bank deposits and short-term OID).

For purposes of sections 1445 and 1446(f), the amount subject to withholding is generally the transferor's amount realized.

For purposes of section 1446(a), the amount subject to withholding is the foreign partner’s allocable share of the partnership’s ECTI.

An amount subject to chapter 4 withholding is an amount of U.S. source FDAP income that is also a withholdable payment as defined in Regulations section 1.1473-1(a) to which an exception does not apply under chapter 4. The exemptions from withholding or taxation provided for under chapter 3 are not applicable when determining whether withholding applies under chapter 4. For exceptions applicable to the definition of a withholdable payment, see Regulations section 1.1473-1(a)(4) (exempting, for example, certain nonfinancial payments).

Beneficial owner. For payments other than those for which a reduced rate of, or exemption from, withholding is claimed under an income tax treaty, the beneficial owner of income is generally the person who is required under U.S. tax principles to include the payment in gross income on a tax return. A person is not a beneficial owner of income, however, to the extent that person is receiving the income as a nominee, agent, or custodian, or to the extent the person is a conduit whose participation in a transaction is disregarded. In the case of amounts paid that do not constitute income, beneficial ownership is determined as if the payment were income.

Chapter 3. Chapter 3 means chapter 3 of the Internal Revenue Code (Withholding of Tax on Nonresident Aliens and Foreign Corporations) under sections 1441 through 1464.

Chapter 4. Chapter 4 means chapter 4 of the Internal Revenue Code (Taxes to Enforce Reporting on Certain Foreign Accounts). Chapter 4 contains sections 1471 through 1474.

Commercial activities. For purposes of chapter 4, commercial activities are financial activities of a type engaged in by an insurance company, custodial institution, or depository institution (including the act of accepting deposits). An exempt beneficial owner will not be considered exempt for chapter 4 purposes with respect to payments derived from an obligation held in connection with a commercial financial activity. See Regulations section 1.1471-6(h), including limitations on the scope of a commercial financial activity. For purposes of chapter 3, commercial activities are described in Temporary Regulations section 1.892-4T.

Controlled commercial entity. A controlled commercial entity is an entity engaged in commercial activities described in Temporary Regulations section 1.892-4T (whether conducted within or outside the United States) if the foreign government holds (directly or indirectly):

• Any interest in the entity which (by value or voting power) is 50% or more of the total of such interests in the entity, or

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Foreign partnerships, foreign simple trusts, and foreign grantor trusts are not the beneficial owners of income paid to the partnership or trust. The beneficial owners of income paid to a foreign partnership are generally the partners in the partnership, provided that the partner is not itself a partnership, foreign simple or grantor trust, nominee, or other agent. The beneficial owners of income paid to a foreign simple trust (that is, a foreign trust that is described in section 651(a)) are generally the beneficiaries of the trust, if the beneficiary is not a foreign partnership, foreign simple or grantor trust, nominee, or other agent. The beneficial owners of income paid to a foreign grantor trust (that is, a foreign trust to the extent that all or a portion of the income of the trust is treated as owned by the grantor or another person under sections 671 through 679) are the persons treated as the owners of the trust. The beneficial owners of income paid to a foreign complex trust (that is, a foreign trust that is not a foreign simple trust or foreign grantor trust) is the trust itself.

The beneficial owner of income paid to a foreign estate is the estate itself.

These beneficial owner rules apply primarily for purposes of withholding under sections 1441 and 1442. The rules also generally apply for purposes of section 1446, with a few exceptions. See Regulations section 1.1446-1 for instances where the documentation requirements of sections 1441 and 1442 differ from section 1446.

For purposes of completing Form W-8EXP, a foreign partnership that is a withholding qualified holder under section 1445 should be identified as the beneficial owner.

• A sufficient interest (by value or voting power) or any other interest in the entity which provides the foreign government with effective practical control of the entity.

For this purpose, an entity means a corporation, a partnership, a trust (including a pension trust), and an estate. A partnership’s commercial activities are attributable to its general and, subject to Proposed Regulations section 1.892-5(a)(5), limited partners for purposes of determining whether the partner is a controlled commercial entity for purposes of section 892. The partnership’s commercial activities will result in the partnership having to withhold tax under section 1446 on commercial income that is the ECTI allocable to a foreign government partner.

Note. A foreign central bank of issue will be treated as a controlled commercial entity only if it engages in commercial activities within the United States.

Chapter 4 status. The term chapter 4 status means a person’s status as a U.S. person, specified U.S. person, foreign person, participating FFI, deemed-compliant FFI, restricted distributor, exempt beneficial owner, nonparticipating FFI, territory financial institution, excepted nonfinancial foreign entity (NFFE), or passive NFFE. See Regulations section 1.1471-1(b) for the definitions of these terms.

Deemed-compliant FFI. Under section 1471(b)(2), certain FFIs are deemed to comply with the regulations under chapter 4 without the need to enter into an FFI agreement with the IRS. However, certain deemed-compliant FFIs are required to register with the IRS and obtain a Global Intermediary Identification Number (GIIN). These FFIs are referred to as registered deemed-compliant FFIs . See Regulations section 1.1471-5(f).

Exempt beneficial owner. An exempt beneficial owner means a person that is described in Regulations section 1.1471-6 and includes a foreign government, a political subdivision of a foreign government, a wholly owned instrumentality or agency of a foreign government or governments, an international organization, a wholly owned agency or instrumentality of an international organization, a foreign central bank of issue, a government of a U.S. territory, certain retirement funds, and certain entities wholly owned by one or more exempt beneficial owners. In addition, an exempt beneficial owner includes any person treated as an exempt beneficial owner under an applicable Model 1 IGA or Model 2 IGA (defined later).

Financial institution. A financial institution generally means an entity that is a depository institution, custodial institution, investment entity, or an insurance company (or holding company of an insurance company) that issues cash value insurance or annuity contracts. See Regulations section 1.1471-5(e).

Foreign central bank of issue. A foreign central bank of issue is a bank that is by law or government sanction the principal authority, other than the government itself, to issue instruments intended to circulate as currency. Such a bank is generally the custodian of the banking reserves of the country under whose law it is organized. The Bank

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of International Settlements is treated as though it were a foreign central bank of issue.

A foreign central bank of issue must provide Form W-8EXP to establish eligibility for exemption from withholding for payments exempt from tax under either section 892 or section 895.

Foreign financial institution (FFI). An FFI generally means a foreign entity that is a financial institution.

Foreign person. A foreign person includes a nonresident alien individual, foreign corporation, foreign partnership, foreign trust, foreign estate, foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U.S. territory, and any other person that is not a U.S. person. It also includes a foreign branch or office of a U.S. financial institution or U.S. clearing organization if the foreign branch is a qualified intermediary. Generally, a payment to a U.S. branch of a foreign person is a payment to a foreign person.

Foreign government. For chapter 3 purposes, a foreign government includes only the integral parts or controlled entities of a foreign sovereign as defined in Temporary Regulations section 1.892-2T. See Regulations section 1.1471-6(b) for definitions of integral part and controlled entity that apply for chapter 4 purposes.

An integral part of a foreign sovereign, in general, is any person, body of persons, organization, agency, bureau, fund, instrumentality, or other body, however designated, that constitutes a governing authority of a foreign country. The net earnings of the governing authority must be credited to its own account or to other accounts of the foreign sovereign, with no portion benefiting any private person.

A controlled entity of a foreign sovereign is an entity that is separate in form from the foreign sovereign or otherwise constitutes a separate juridical entity only if:

• It is wholly owned and controlled by the foreign sovereign directly or indirectly through one or more controlled entities.

• It is organized under the laws of the foreign sovereign by which it is owned.

• Its net earnings are credited to its own account or to other accounts of the foreign sovereign, with no portion of its income inuring to the benefit of any private person.

• Its assets vest in the foreign sovereign upon dissolution. A controlled entity of a foreign sovereign also includes a pension trust defined in Temporary Regulations section 1.892-2T(c) and may include a foreign central bank of issue to the extent that it is wholly owned by a foreign sovereign.

A foreign government must provide Form W-8EXP to establish eligibility for exemption from withholding for payments exempt from tax under section 892 or for purposes of establishing its status as an exempt beneficial owner.

Intergovernmental agreement (IGA). An IGA means a Model 1 IGA or a Model 2 IGA. For a list of jurisdictions treated as having in effect a Model 1 or Model 2 IGA, see

the list of jurisdictions at home.treasury.gov/Policy-Issues/ Tax-Policy/Foreign-Account-Tax-Compliance-Act .

A Model 1 IGA means an agreement between the United States or the Treasury Department and a foreign government or one or more agencies to implement FATCA through reporting by FFIs to such foreign government or agency thereof, followed by automatic exchange of the reported information with the IRS. An FFI in a Model 1 IGA jurisdiction that performs account reporting to the jurisdiction’s government is referred to as a reporting Model 1 FFI .

A Model 2 IGA means an agreement or arrangement between the United States or the Treasury Department and a foreign government or one or more agencies to implement FATCA through reporting by FFIs directly to the IRS in accordance with the requirements of an FFI agreement, supplemented by the exchange of information between such foreign government or agency thereof and the IRS. An FFI in a Model 2 IGA jurisdiction that has entered into an FFI agreement with respect to a branch is a participating FFI, but may be referred to as a reporting Model 2 FFI .

pension fund) or a qualified controlled entity that satisfies the requirements of either Regulations section 1.897(l)-1(d)(2) or Regulations section 1.897(l)-1(d)(3).

Qualified investment entity. A qualified investment entity is a person described in section 897(h)(4).

Specified U.S. person. A specified U.S. person is any U.S. person other than a person identified in Regulations section 1.1473-1(c).

Substantial U.S. owner. A substantial U.S. owner (as described in Regulations section 1.1473-1(b)) means any specified U.S. person that:

• Owns, directly or indirectly, more than 10% (by vote or value) of the stock of any foreign corporation;

• Owns, directly or indirectly, more than 10% of the profits interests or capital interests in a foreign partnership;

• Is treated as an owner of any portion of a foreign trust under sections 671 through 679; or

• Holds, directly or indirectly, more than a 10% beneficial interest in a trust.

International organization. For purposes of chapter 3, an international organization is any public international organization entitled to enjoy privileges, exemptions, and immunities as an international organization under the International Organizations Immunities Act (22 U.S.C. 288-288(f)). In general, to qualify as an international organization, the United States must participate in the organization pursuant to a treaty or under the authority of an Act of Congress authorizing such participation.

Any organization that qualifies as an international organization under chapter 3 also qualifies as an international organization under chapter 4.

For purposes of chapter 4, an international organization also includes any intergovernmental or supranational organization that is comprised primarily of foreign governments, that is recognized as an intergovernmental or supranational organization under a foreign law similar to 22 U.S.C. 288-288(f) or that has in effect a headquarters agreement with a foreign government, and whose income does not inure to the benefit of private persons.

Participating FFI. A participating FFI is an FFI that has agreed to comply with the terms of an FFI agreement with respect to all branches of the FFI, other than a branch that is a reporting Model 1 FFI or a U.S. branch. The term participating FFI also includes a reporting Model 2 FFI and a QI branch of a U.S. financial institution, unless such branch is a reporting Model 1 FFI.

Qualified controlled entity. A qualified controlled entity is a trust or corporation created or organized under the laws of a foreign jurisdiction, all of the interests of which are held by one or more qualified foreign pension funds directly or indirectly through one or more qualified controlled entities.

Qualified foreign pension fund. A qualified foreign pension fund is a person that satisfies the requirements of section 897(l) and Regulations section 1.897(l)-1.

Qualified holder. A qualified holder is a qualified foreign pension fund (including a part of a qualified foreign

Territory financial institution. The term territory financial institution means a financial institution that is incorporated or organized under the laws of any U.S. territory. However, an investment entity that is not also a depository institution, custodial institution, or specified insurance company is not a territory financial institution.

Withholdable payment. The term withholdable payment means an amount subject to withholding for purposes of chapter 4 as described in Amounts subject to withholding, earlier. Also see Regulations section 1.1473-1(a) for the definition of withholdable payment.

Withholding agent. Any person, U.S. or foreign, that has control, receipt, custody, disposal, or payment of U.S. source FDAP income subject to chapter 3 or 4 withholding is a withholding agent. The withholding agent may be an individual, corporation, partnership, trust, association, or any other entity, including (but not limited to) any foreign intermediary, foreign partnership, and U.S. branches of certain foreign banks and insurance companies.

Withholding qualified holder. The term withholding qualified holder means a qualified holder (under Regulations section 1.897(l)-1(d)), and a foreign partnership all of the interests of which are held by qualified holders (under Regulations section 1.897(l)-1(d)), including through one or more partnerships.