Rev. Proc. 2017-15

Qualified Intermediary Agreement

Revenue Procedure 2017-15

SECTION 1. PURPOSE

.01 In General. This Revenue Procedure sets forth the final qualified intermediary

(QI) withholding agreement (QI agreement) entered into under §1.1441-1(e)(5).1 In

general, the QI agreement allows foreign persons to enter into an agreement with the

Internal Revenue Service (IRS) to simplify their obligations as withholding agents under

chapters 3 and 4 and as payors under chapter 61 and section 3406 for amounts paid to

their account holders. The QI agreement also allows certain foreign persons to enter

into an agreement with the IRS to act as qualified derivatives dealers (QDDs) and to

assume primary withholding and reporting responsibilities on all dividend equivalent

payments that they make.

.02 Withholding Foreign Partnership and Withholding Foreign Trust Agreements.

Revenue Procedure 2014-47, 2014-35 I.R.B. 393, includes the withholding foreign

partnership (WP) and withholding foreign trust (WT) agreements that are currently in

effect, and that are supposed to expire on December 31, 2016. This revenue procedure

1 Unless 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.

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ents that are currently in

effect, and that are supposed to expire on December 31, 2016. This revenue procedure

1 Unless 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.

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announces that because the updated WP and WT agreements will not be published

before December 31, 2016, WPs and WTs with agreements currently in effect may

continue to treat those agreements as in effect until updated agreements are issued in

January 2017.

SECTION 2. SCOPE

.01 Entities Eligible to Execute a QI Agreement. A QI agreement may be entered

into by persons described in §1.1441-1(e)(5)(ii), including foreign financial institutions

(FFIs) (as defined in §1.1471-5(d)), foreign clearing organizations, and foreign branches

of U.S. financial institutions and clearing organizations. An eligible entity (as defined in

§1.1441-1(e)(6)(ii)) may also enter into a QI agreement for purposes of becoming a

qualified derivatives dealer (QDD).

An FFI may apply to enter into a QI agreement if the FFI is able to, and agrees to,

satisfy the requirements and obligations of (1) a participating FFI (including a reporting

Model 2 FFI), (2) a registered deemed-compliant FFI (including a reporting Model 1 FFI

and a nonreporting Model 2 FFI treated as registered deemed-compliant), or (3) a

registered deemed-compliant Model 1 IGA FFI (as defined in section 2.17(C) of the

2017 QI Agreement)

the FFI is able to, and agrees to,

satisfy the requirements and obligations of (1) a participating FFI (including a reporting

Model 2 FFI), (2) a registered deemed-compliant FFI (including a reporting Model 1 FFI

and a nonreporting Model 2 FFI treated as registered deemed-compliant), or (3) a

registered deemed-compliant Model 1 IGA FFI (as defined in section 2.17(C) of the

2017 QI Agreement). An FFI that is a certified deemed-compliant FFI (including a

nonreporting IGA FFI, as defined in §1.1471-1(b)(83)) may enter into a QI agreement if

the FFI is able to and agrees to assume the obligations of, and to be treated as, a

participating FFI (including a reporting Model 2 FFI), a registered deemed-compliant FFI

(including a reporting Model 1 FFI or a nonreporting Model 2 FFI treated as registered

deemed-compliant), or a registered deemed-compliant Model 1 IGA FFI with respect to

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all accounts that it maintains (even if the FFI does not intend to act as a QI for all of the

accounts it maintains). A central bank of issue may enter into a QI agreement provided

that it meets and agrees to assume the obligations of, and to be treated as, a

participating FFI (including a reporting Model 2 FFI) or registered deemed-compliant FFI

(including a reporting Model 1 FFI) with respect to any account that it maintains that is

held in connection with a commercial financial activity described in §1.1471-6(h) and for

which it receives a withholdable payment (as defined in §1.1471-1(b)(145)). A foreign

branch of a U.S. financial institution or clearing organization may also apply to enter into

a QI agreement provided that it is a reporting Model 1 FFI or it agrees to assume the

requirements and obligations of a participating FFI (including a reporting Model 2 FFI).

An entity that is a territory financial institution (territory FI) (as defined in §1.1471-

1(b)(130)) or a nonparticipating FFI (as defined in §1.1471-1(b)(82)) may not apply to

enter into a QI agreement

enter into

a QI agreement provided that it is a reporting Model 1 FFI or it agrees to assume the

requirements and obligations of a participating FFI (including a reporting Model 2 FFI).

An entity that is a territory financial institution (territory FI) (as defined in §1.1471-

1(b)(130)) or a nonparticipating FFI (as defined in §1.1471-1(b)(82)) may not apply to

enter into a QI agreement.

A foreign corporation that is a non-financial foreign entity or NFFE (as defined in

§1.1471-1(b)(80)) that is described in one of the categories in §1.1441-1(e)(5)(ii) may

also apply to enter into a QI agreement. An NFFE that seeks to act as an intermediary

on behalf of its shareholders should not apply for QI status and instead should apply for

withholding foreign partnership status as a reverse hybrid entity. An NFFE that enters

into a QI agreement to act an as intermediary on behalf of persons other than its

shareholders will be required to satisfy the withholding and reporting requirements of

§§1.1472-1(a) and 1.1474-1(i) with respect to any NFFE that is a beneficial owner for

whom the QI is acting with respect to a withholdable payment. The QI agreement

generally does not apply to a foreign partnership or foreign trust. A foreign partnership

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or foreign trust may apply for status as a withholding foreign partnership or withholding

foreign trust. See §§1.1441-5(c)(2)(ii) and 1.1441-5(e)(5)(v).

.02 Effect on Other Documents. Revenue Procedure 2014-39, 2014-29 I.R.B. 150,

is superseded with respect to a QI’s requirements that apply after December 31, 2016.

A QI agreement in effect prior to December 31, 2016 expires, in accordance with its

terms, on December 31, 2016.

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

with respect to a QI’s requirements that apply after December 31, 2016.

A QI agreement in effect prior to December 31, 2016 expires, in accordance with its

terms, on December 31, 2016.

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 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 deemed-

compliant 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

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ides 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 deemed-

compliant 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

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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 deemed-

compliant FFI, and a registered deemed-compliant 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

deemed-compliant 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)

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

deemed-compliant 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-

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1(b)(1)(iii) and 1.1474-1(i). A withholding agent (including a participating FFI or

registered deemed-compliant 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

ackup 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 Identification 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

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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

holding 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.

SECTION 4. SUMMARY OF CHANGES TO THE QI AGREEMENT

Notice 2016-42, 2016-19 I.R.B. 67, set forth a proposed QI agreement (the Proposed

QI Agreement) that included revisions to the QI agreement currently in effect, contained

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in Revenue Procedure 2014-39 (the 2014 QI Agreement) as well as provisions relating

to QDDs. Comments were received in response to the Proposed QI Agreement. This

section provides a summary of changes reflected in the QI agreement provided in this

Revenue Procedure (the 2017 QI Agreement), including changes made in response to

certain of the comments received to the Proposed QI Agreement.

.01 Provisions Applicable to Qualified Derivatives Dealers. On September 18, 2015,

final and temporary regulations under section 871(m) and sections 1441, 1461, and

1473 (collectively, the 871(m) regulations) were published in T.D. 9734, which

addressed the treatment of dividend equivalents from U.S. sources. On July 1, 2016,

the Treasury Department and the IRS released Notice 2016-42, containing the

Proposed QI Agreement that describes requirements and obligations that were

proposed to be applicable to QDDs and that requested comments

s 1441, 1461, and

1473 (collectively, the 871(m) regulations) were published in T.D. 9734, which

addressed the treatment of dividend equivalents from U.S. sources. On July 1, 2016,

the Treasury Department and the IRS released Notice 2016-42, containing the

Proposed QI Agreement that describes requirements and obligations that were

proposed to be applicable to QDDs and that requested comments. On December 2,

2016, the Treasury Department and the IRS released Notice 2016-76, 2016-51 I.R.B.

834, providing guidance for complying with the section 871(m) regulations in 2017 and

2018 and explaining how the IRS intends to administer those regulations in 2017 and

2018. The QDD provisions of the 2017 QI Agreement reflect anticipated changes to the

871(m) regulations, which are discussed below.

(1) Updates to reflect Notice 2016-76. The Proposed QI Agreement provided rules

for how a QDD calculates its section 871(m) amount and determines its QDD tax

liability. Based on comments received on the Proposed QI Agreement, Notice 2016-76

revised the methodology for determining the section 871(m) amount to use a net delta

approach and announced that the regulations under §1.871-15(q)(1) would be revised

to provide that a QDD will remain liable for tax under section 881(a)(1) and subject to

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withholding under chapters 3 and 4 on dividends on physical shares and deemed

dividends received. Notice 2016-76 also makes calendar year 2017 a phase-in year for

QDDs, as it provides that, in enforcing and administering the QDD rules in the section

871(m) regulations and the relevant provisions of the QI agreement for 2017, the IRS

will take into account the extent to which the QDD made a good faith effort to comply

with the section 871(m) regulations and the relevant provisions of the QI agreement

6-76 also makes calendar year 2017 a phase-in year for

QDDs, as it provides that, in enforcing and administering the QDD rules in the section

871(m) regulations and the relevant provisions of the QI agreement for 2017, the IRS

will take into account the extent to which the QDD made a good faith effort to comply

with the section 871(m) regulations and the relevant provisions of the QI agreement.

The 2017 QI Agreement further modifies the computation of a QDD’s section 871(m)

amount for 2017 and describes certain anticipated changes to the 871(m) regulations,

which are expected to be released in January 2017. To provide QDDs with the time

necessary to implement the computation of the section 871(m) amount announced in

Notice 2016-76, a QDD will not be liable for tax under section 881(a)(1) on dividends on

physical shares (including deemed dividends) or on dividend equivalents that the QDD

receives in its capacity as an equity derivatives dealer in calendar year 2017. Both the

Proposed QI Agreement and Notice 2016-76 provided that a QDD will remain liable for

tax under section 881(a)(1) on dividends and dividend equivalents that a QDD receives

in any capacity other than as an equity derivatives dealer. The 2017 QI Agreement

does not change this result. In addition, a QDD is responsible for withholding on

dividend equivalents it pays to a foreign person on a section 871(m) transaction,

whether in its capacity as an equity derivatives dealer or otherwise.

The 2017 QI Agreement provides that a QDD will be required to compute its section

871(m) amount using the net delta approach (as defined in section 2.47 of the 2017 QI

Agreement) beginning in 2018, and will be subject to withholding on dividends (including

deemed dividends) received on or after January 1, 2018. The Treasury Department

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y as an equity derivatives dealer or otherwise.

The 2017 QI Agreement provides that a QDD will be required to compute its section

871(m) amount using the net delta approach (as defined in section 2.47 of the 2017 QI

Agreement) beginning in 2018, and will be subject to withholding on dividends (including

deemed dividends) received on or after January 1, 2018. The Treasury Department

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and the IRS will consider comments recommending approaches for alleviating any

overwithholding (and preventing any underwithholding) that might occur on dealer

transactions with customers and on positions that hedge customer transactions when

withholding on dividends (including deemed dividends) begins in 2018.

(2) Eligible entity. The Proposed QI Agreement provided that an entity must enter

into a QI agreement and be an eligible entity to be a QDD. Comments to the Proposed

QI Agreement requested that the definition of an eligible entity be expanded.

In response to comments regarding the application of the QDD rules to branches,

the 2017 QI Agreement clarifies the treatment of branches. The 2017 QI Agreement

provides that the home office (as defined in section 2.43 of the 2017 QI Agreement) and

each branch of the person that is applying for the QI agreement must separately qualify

and be approved for QDD status. The home office and any branch that wants to be a

QDD must each separately meet the eligible entity requirements as if it were a separate

entity. When approved as a QDD, the home office and each branch are treated as a

separate QDD and must apply the QDD provisions as if each home office and branch

were separate entities. If a foreign person has one or more branches, the home office

is the foreign person, excluding any branches of the foreign person.

As provided in section 1.02 of the 2017 QI Agreement, if a QI is an FFI, it can only

have a branch also act as a QI if that branch is located in a jurisdiction identified on the

IRS’s Approved KYC List

if each home office and branch

were separate entities. If a foreign person has one or more branches, the home office

is the foreign person, excluding any branches of the foreign person.

As provided in section 1.02 of the 2017 QI Agreement, if a QI is an FFI, it can only

have a branch also act as a QI if that branch is located in a jurisdiction identified on the

IRS’s Approved KYC List. This rule applies to QIs that are FFIs and are applying for

QDD status on behalf of the home office or any branch. The QI agreement does not

require NFFEs applying for QI status to be located or operating in an approved KYC

jurisdiction (because NFFEs under the QI agreement are required to document their

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account holders by collecting withholding certificates and are not allowed to document

their account holders solely with documentary evidence). Similarly, a branch of a NFFE

is not required to be located in a jurisdiction identified on the IRS’s Approved KYC List

(and must document its account holders with withholding certificates) to be able to act

as a QI, including a branch acting as a QDD.

Comments also requested that the definition of an eligible entity be expanded to

include bank holding companies and their subsidiaries. The comments noted that bank

holding companies are subject to extensive regulation, including compliance with risk

management standards. In response to comments, the 2017 QI Agreement expands

the eligible entity definition to include a bank holding company that is subject to

regulatory supervision as a bank holding company by the governmental authority in the

jurisdiction in which it is organized or operates. The eligible entity definitions is also

expanded in the 2017 QI Agreement to include an entity that is wholly-owned (directly or

indirectly) by a bank holding company subject to regulatory supervision as a bank

holding company by a governmental authority in the jurisdiction in which the bank

holding company is organized or operates

ty in the

jurisdiction in which it is organized or operates. The eligible entity definitions is also

expanded in the 2017 QI Agreement to include an entity that is wholly-owned (directly or

indirectly) by a bank holding company subject to regulatory supervision as a bank

holding company by a governmental authority in the jurisdiction in which the bank

holding company is organized or operates. To qualify as a QDD, any bank holding

company or wholly-owned subsidiary of a bank holding company must satisfy the other

requirements of the eligible entity definition. Finally, to provide the IRS with flexibility to

administer the QDD regime, an eligible entity will be defined to include any other person

acceptable to the IRS, which is similar to the allowance provided to the IRS in defining

persons eligible to enter into QI agreement as provided in §1.1441-1(e)(5)(ii)(D).

(3) Section 871(m) amount. The Proposed QI Agreement described the section

871(m) amount as the sum of the amounts by which, for each dividend on each

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underlying security, (A) the dividends on underlying securities associated with potential

section 871(m) transactions and dividend equivalent payments that a QDD receives in

its dealer capacity exceed (B) the dividend equivalent payments and the qualifying

dividend equivalent offsetting payments that a QDD makes with respect to the same

dividend in its dealer capacity. Comments requested that a QDD calculate its section

871(m) amount based on its net delta exposure to an underlying security. Comments

noted that the net delta exposure is used for business or non-tax regulatory purposes.

The net delta exposure is calculated by multiplying the relevant dividend amount per

share by the net delta exposure (measured in number of shares) of the QDD in its

dealer capacity generally as of the close of the day before the ex-dividend date for the

underlying security

n underlying security. Comments

noted that the net delta exposure is used for business or non-tax regulatory purposes.

The net delta exposure is calculated by multiplying the relevant dividend amount per

share by the net delta exposure (measured in number of shares) of the QDD in its

dealer capacity generally as of the close of the day before the ex-dividend date for the

underlying security.

In response to comments, the 2017 QI Agreement provides that the section 871(m)

amount is determined for each dividend on each underlying security by multiplying (A)

the QDD’s net delta exposure to the underlying security for the applicable dividend by

(B) the applicable dividend amount per share. The net delta exposure to an underlying

security for an applicable dividend is the amount (measured in number of shares) by

which (A) the aggregate number of shares in the underlying security that the QDD has

exposure to as a result of positions in the underlying security (including as a result of

owning the underlying security) with values that move in the same direction as the value

of the underlying security (the long positions) exceeds (B) the aggregate number of

shares of in the underlying security that the QDD has exposure to as a result of

positions in the underlying security with values that move in the opposite direction from

the value of the underlying security (the short positions). The net delta exposure

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alues that move in the same direction as the value

of the underlying security (the long positions) exceeds (B) the aggregate number of

shares of in the underlying security that the QDD has exposure to as a result of

positions in the underlying security with values that move in the opposite direction from

the value of the underlying security (the short positions). The net delta exposure

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calculation only includes long positions and short positions that the QDD holds in its

equity derivatives dealer business. Any long positions or short positions that are treated

as effectively connected with the QDD’s conduct of a trade or business in the United

States for U.S. federal income tax purposes are excluded from the net delta exposure

computation. The net delta exposure to an underlying security is determined at the end

of the day on the date provided in §1.871-15(j)(2) for the applicable dividend. If a QDD

calculates net delta for non-tax business purposes, that net delta ordinarily will be used

for this purpose, subject to the modifications required by the net delta exposure

definition. Each QDD must determine its net delta exposure separately only taking into

account transactions that exist and are attributable to that QDD for federal income tax

purposes.

(4) QDD tax liability. Under the Proposed QI Agreement, the QDD tax liability was

the sum of a QDD’s section 881 tax liability for (A) its section 871(m) amount, (B) its

dividends that are not on underlying securities associated with potential section 871(m)

transactions and its dividend equivalent payments received as a QDD in its non-dealer

capacity, and (C) any payments, such as interest, received as a QDD with respect to

potential section 871(m) transactions or underlying securities that are not dividend or

dividend equivalent payments

(m) amount, (B) its

dividends that are not on underlying securities associated with potential section 871(m)

transactions and its dividend equivalent payments received as a QDD in its non-dealer

capacity, and (C) any payments, such as interest, received as a QDD with respect to

potential section 871(m) transactions or underlying securities that are not dividend or

dividend equivalent payments.

As a result of the changes announced in Notice 2016-76 to modify the section

871(m) amount and to require withholding on dividends paid to a QDD, the 2017 QI

Agreement makes corresponding changes to the QDD tax liability. The 2017 QI

Agreement revises the section 871(m) amount to reflect the net delta exposure

computation and permit a QDD to reduce the tax liability on its section 871(m) amount

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by taking into account withholding taxes paid on that same dividend. While the section

871(m) amount computation was expanded to permit offsets for amounts that do not

give rise to withholding tax payments under the 2017 QI Agreement, the QDD is liable

for tax on any dividends received, without offset or credit forward to address concerns

raised by the expansion of offsets in the section 871(m) amount computation. The 2017

QI Agreement is also revised to reflect that QDDs are subject to withholding on all U.S.

source FDAP payments made to a QDD on underlying securities, other than dividend

equivalents

e 2017 QI Agreement, the QDD is liable

for tax on any dividends received, without offset or credit forward to address concerns

raised by the expansion of offsets in the section 871(m) amount computation. The 2017

QI Agreement is also revised to reflect that QDDs are subject to withholding on all U.S.

source FDAP payments made to a QDD on underlying securities, other than dividend

equivalents.

Under the 2017 QI Agreement, a QDD’s QDD tax liability is the sum of (A) for

each dividend on each underlying security, the amount by which its tax liability under

section 881 for its section 871(m) amount exceeds the amount of tax paid by the QDD

in its capacity as an equity derivatives dealer under section 881(a)(1) on that dividend,

(B) its tax liability under section 881 for dividend equivalent payments received as a

QDD in its non-equity derivatives dealer capacity, and (C) its tax liability under section

881 for any payments, such as dividends or interest, received as a QDD with respect to

potential section 871(m) transactions that are not dividend or dividend equivalent

payments to the extent the full liability was not satisfied by withholding.

Under the Proposed QI Agreement, a QDD was required to pay its QDD tax liability

based on the withholding timing and deposit rules for those payments. Comments

requested that the timing for QDD tax liability payments be changed. After considering

the comments, the 2017 QI Agreement removes the requirement that the QDD tax

liability be paid in the same time and manner as would have been required for

withholding on the applicable payments. Instead, the general rules regarding the time

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for a taxpayer to pay its tax liability will apply, which will typically require a QDD to make

quarterly estimates of its QDD tax liability that will be added to the QI’s tax liability and

filing an appropriate U.S. tax return.

lity be paid in the same time and manner as would have been required for

withholding on the applicable payments. Instead, the general rules regarding the time

14

for a taxpayer to pay its tax liability will apply, which will typically require a QDD to make

quarterly estimates of its QDD tax liability that will be added to the QI’s tax liability and

filing an appropriate U.S. tax return.

(5) QDD withholding and reporting of payments. A QDD must assume primary

withholding responsibility for purposes of chapters 3 and 4 for all payments it makes as

a QDD. The amount subject to withholding is determined under the Internal Revenue

Code and the regulations promulgated thereunder and is not reduced by any taxes paid

by the QDD, including any tax paid as part of its QDD tax liability. A QI can elect

whether or not to assume primary withholding responsibility for purposes of chapters 3

and 4 for payments for which it is not required to act as a QDD. Comments requested

that the Proposed QI Agreement be revised to clarify that a QI that is not acting as a

QDD may elect whether to assume primary withholding responsibility for payments that

are not related to its QDD activities. While the Proposed QI Agreement already

contained a rule that allowed a QI to elect whether or not to assume primary withholding

responsibility for payments for which it was not required to act as a QDD, the 2017 QI

Agreement further clarifies this rule.

The Proposed QI Agreement provided that there would be no withholding or

reporting on payments made to a QDD with respect to potential section 871(m)

transactions and underlying securities, other than reporting for dividends and substitute

dividends. A comment requested that the exclusion be limited to dividends and

dividend equivalents

e 2017 QI

Agreement further clarifies this rule.

The Proposed QI Agreement provided that there would be no withholding or

reporting on payments made to a QDD with respect to potential section 871(m)

transactions and underlying securities, other than reporting for dividends and substitute

dividends. A comment requested that the exclusion be limited to dividends and

dividend equivalents. As a result of changes to the section 871(m) amount in the 2017

QI Agreement, all payments (other than dividend equivalent payments) made to a QDD

with respect to underlying securities will be subject to withholding and reporting if the

15

payments would be subject to withholding and reporting to a non-QDD. As described in

section 4.01(1) of the preamble to the 2017 QI Agreement, however, a QDD will be

subject to withholding on dividends (including deemed dividends) beginning with those

payments received on or after January 1, 2018. The 2017 QI Agreement retains the

same withholding and reporting rules for payments made to a QDD with respect to

potential section 871(m) transactions as in the Proposed QI Agreement.

The Proposed QI Agreement expanded the scope of payments that QDDs would

receive without withholding to include any payments on underlying securities or

potential section 871(m) transactions. A comment requested that the withholding

exclusion be limited to dividends and dividend equivalents. The 2017 QI Agreement

provides that a QDD will be subject to withholding on all payments, other than dividend

equivalents, received by the QDD with respect to underlying securities. In addition, the

2017 QI Agreement removes the withholding timing and deposit rules for these

payments.

ons. A comment requested that the withholding

exclusion be limited to dividends and dividend equivalents. The 2017 QI Agreement

provides that a QDD will be subject to withholding on all payments, other than dividend

equivalents, received by the QDD with respect to underlying securities. In addition, the

2017 QI Agreement removes the withholding timing and deposit rules for these

payments.

(6) Securities lending and sale-repurchase transactions. The Proposed QI

Agreement provided that a QI must act as a QDD for any securities lending or sale-

repurchase transaction it enters into that is a section 871(m) transaction, and that for

purposes of the agreement, a QDD is deemed to make and receive payments pursuant

to those securities lending and sale-repurchase transactions as a principal. Comments

requested that this provision be revised to permit entities acting as agents of lenders in

securities lending or sale-repurchase transactions to act as intermediaries and not be

required to obtain QDD status. In response to that comment, the 2017 QI Agreement

provides that to the extent a QI determines that it is acting as an intermediary with

16

respect to a securities lending or sale-repurchase transaction that is a section 871(m)

transaction, it will not be treated as entered into by the QI as a principal; therefore,

those transactions will not be treated as entered into by the QI in its QDD capacity.

Pursuant to Notice 2016-76, taxpayers may continue to rely on Notice 2010-46,

2010-24 I.R.B. 757, during calendar year 2017. As a result, the 2017 QI Agreement

addresses QIs who are qualified securities lenders (QSLs) during 2017. If a QI is acting

as a QDD, the QI must act as a QDD for all payments made as a principal with respect

to potential section 871(m) transactions and all payments received as a principal with

respect to potential section 871(m) transactions and underlying securities

ing calendar year 2017. As a result, the 2017 QI Agreement

addresses QIs who are qualified securities lenders (QSLs) during 2017. If a QI is acting

as a QDD, the QI must act as a QDD for all payments made as a principal with respect

to potential section 871(m) transactions and all payments received as a principal with

respect to potential section 871(m) transactions and underlying securities. Therefore, a

QI cannot be both a QSL and a QDD, except with respect to a securities lending or

sale-repurchase transaction for which the QI has determined that it is acting as an

intermediary.

(7) Form 1042-S reporting. Comments to the Proposed QI Agreement requested

that a QI that is also acting as a QDD be allowed to separate its Form 1042-S reporting

and report payments separately when acting as a QI and when acting as a QDD.

Consistent with the 2017 Form 1042-S and the box 12b requirement on Form 1042-S

that a withholding agent provide its chapter 3 status code, a QI that is also acting as a

QDD is required to file separate Forms 1042-S to report payments made in each

capacity by identifying its specific chapter 3 status code as a QI or QDD. Section 8.01

of the 2017 QI Agreement has been updated to reflect this requirement. In addition,

when a withholding agent makes a payment to a QDD that is subject to reporting under

chapter 3 or 4, a separate Form 1042-S is required for each QDD, identifying the QDD

by its home office or branch, if applicable.

17

h

capacity by identifying its specific chapter 3 status code as a QI or QDD. Section 8.01

of the 2017 QI Agreement has been updated to reflect this requirement. In addition,

when a withholding agent makes a payment to a QDD that is subject to reporting under

chapter 3 or 4, a separate Form 1042-S is required for each QDD, identifying the QDD

by its home office or branch, if applicable.

17

(8) Responsible officer and scope of certification. A comment to the Proposed QI

Agreement requested that QIs that also act as QDDs be able to designate different

responsible officers for purposes of their QDD compliance. Because there is already

flexibility for a QI’s responsible officer to rely on any process, procedure, review, or

certification in making its certification and for a QI’s responsible officer to delegate its

responsibilities as appropriate, this request was not adopted. A QI’s responsible officer

may designate a specific person to be responsible for QDD compliance, but only the

responsible officer may make the certification to the IRS.

.02 Periodic Review and Certifications of Compliance. The 2014 QI Agreement

replaced the previous external audit requirement applicable to a QI with an internal

compliance and review program. As part of this compliance program, the responsible

officer is required to make periodic compliance certifications and provide, with the

certifications, certain factual information to the IRS based, in part, on the results of a

periodic review. After the 2014 QI Agreement was published, comments raised

concerns about the administration of the compliance procedures, including potential

costs of implementing and conducting a compliance program, difficulties in allocating

resources to conduct the periodic review in the last year of the certification period (as

required by the 2014 QI Agreement), and the lack of detailed standards for performance

of the QI’s periodic review similar to those provided in Rev. Proc. 2002-55, 2002-2 C.B.

435

pliance procedures, including potential

costs of implementing and conducting a compliance program, difficulties in allocating

resources to conduct the periodic review in the last year of the certification period (as

required by the 2014 QI Agreement), and the lack of detailed standards for performance

of the QI’s periodic review similar to those provided in Rev. Proc. 2002-55, 2002-2 C.B.

435. To address these comments, the Proposed QI Agreement modified and expanded

upon the compliance provisions in section 10 and included, in Appendix I, the factual

information to be provided by the QI, and, in Appendix II, a statistical sampling

procedure that a QI’s reviewer may use for conducting the periodic review.

18

(1) Certification of internal controls. The 2017 QI Agreement requires the QI’s

responsible officer to make a periodic certification of internal controls provided in

Appendix I, as previewed in the Proposed QI Agreement. The Proposed QI Agreement

also listed the elements of the certification both in section 10.03 and in Appendix I. The

2017 QI Agreement retains the specified list of elements but eliminates the duplication

by only listing the elements of the certification in Appendix I.

In making the periodic certification of internal controls, the responsible officer may

rely on, in addition to the results of the periodic review (if required), any other

processes, procedures, reviews, or certifications made by other persons that the

responsible officer has determined are necessary in order to make the certification.

This flexibility allows the responsible officer to decide, for example, whether to hire an

external reviewer (for example, a law firm or accounting firm) and what the scope of the

engagement should be (for example, whether the external reviewer will conduct a

review of the sufficiency of the QI’s internal controls or whether the review will be limited

to the periodic review, if required)

on.

This flexibility allows the responsible officer to decide, for example, whether to hire an

external reviewer (for example, a law firm or accounting firm) and what the scope of the

engagement should be (for example, whether the external reviewer will conduct a

review of the sufficiency of the QI’s internal controls or whether the review will be limited

to the periodic review, if required). A responsible officer may also rely on a review,

report, or certification made by another officer or employee who may, for example, have

greater subject matter expertise in a particular area (including a responsible officer for

FATCA purposes). The responsible officer must, however, document what he or she

has relied on in making the certification and retain such documentation for the same

period of time for which the compliance review report and certifications are required to

be retained pursuant to section 10.06(D) of the 2017 QI Agreement. For example, if the

responsible officer relies on an internal or external reviewer to conduct a review of the

QI’s internal controls, the responsible officer must retain any report delivered by the

19

reviewer.

Comments to the Proposed QI Agreement requested further clarification regarding

the certification of internal controls, including what a responsible officer should rely on if

the QI requests and obtains a waiver of the periodic review requirement. When a QI

does not request, or does not obtain, a waiver, the responsible officer must take into

account the results of the periodic review in making the certification of internal controls

and must also use any other process, certification, or review necessary in order to be

able to certify to the QI’s internal controls. When a QI does request and obtain a waiver

and does not conduct a periodic review, the responsible officer must use the other

processes, certifications, or reviews that he or she determines are necessary in order to

be able to make the required certification

s

and must also use any other process, certification, or review necessary in order to be

able to certify to the QI’s internal controls. When a QI does request and obtain a waiver

and does not conduct a periodic review, the responsible officer must use the other

processes, certifications, or reviews that he or she determines are necessary in order to

be able to make the required certification.

Generally, regardless of whether a waiver is applied for and obtained, the 2017 QI

Agreement does not provide further prescriptive requirements about what process or

documentation the responsible officer must rely on to make the certification of internal

controls because such prescriptive guidance may unnecessarily limit a responsible

officer’s discretion to structure a compliance program that, in his or her judgment, is

necessary for the responsible officer to make the certification of internal controls.

A comment to the Proposed QI Agreement also requested that a QI be able to

designate different responsible officers based on lines of business (such as for making

the certification when the QI acts as a nonqualified intermediary for payments).

Because there is already flexibility allowing a responsible officer to rely on others in

making his or her certification of internal controls to the IRS, as noted above with

respect to requests for separate responsible officers for QDD purposes, this comment

20

was not adopted.

business (such as for making

the certification when the QI acts as a nonqualified intermediary for payments).

Because there is already flexibility allowing a responsible officer to rely on others in

making his or her certification of internal controls to the IRS, as noted above with

respect to requests for separate responsible officers for QDD purposes, this comment

20

was not adopted.

(2) Certification period. Under the 2014 QI Agreement and the Proposed QI

Agreement, the initial certification period ends at the end of the third full calendar year

that the agreement is in effect. Each subsequent certification period is three full

calendar years thereafter. A comment to the Proposed QI Agreement requested that

the initial certification period be shortened and/or the second certification period be

extended, so that the initial certification period would end on December 31, 2016, the

termination date of the 2014 QI Agreement. Because the certification periods include

any renewals of the QI agreement, it is not necessary that the certification period and an

interim termination date be the same. In addition, the proposed solution fails to address

cases of those QIs that had QI agreements with effective dates in 2015 and 2016. As a

result, the 2017 QI Agreement does not incorporate this change.

Another comment to the Proposed QI Agreement requested that a QI be allowed to

apply the provisions of the 2014 QI Agreement to its initial certification period for

purposes of making the initial periodic certification of compliance and providing the

factual information required. This comment was not adopted because the 2014 QI

Agreement, unlike the 2017 QI Agreement, does not contain compliance provisions and

requirements specific enough for a QI to apply that agreement to its initial compliance

period and provide the factual information required with the periodic certification

itial periodic certification of compliance and providing the

factual information required. This comment was not adopted because the 2014 QI

Agreement, unlike the 2017 QI Agreement, does not contain compliance provisions and

requirements specific enough for a QI to apply that agreement to its initial compliance

period and provide the factual information required with the periodic certification.

With respect to the requirement in Part II.F of Appendix I of the Proposed QI

Agreement that a QI certify to its FATCA status, a comment requested clarification

whether the requirement that the QI certify to its FATCA status over the certification

period meant certification period or calendar year. As having an appropriate FATCA

21

status is a prerequisite to enter into a QI agreement and to maintain the agreement, a

QI is required to certify to its FATCA status for the entire certification period and not just

the calendar year selected for the periodic review.

(3) Periodic review. In addition to making the periodic certification of internal

controls, a QI is required to report certain factual information regarding its

documentation, withholding, reporting, and other obligations under the QI agreement.

This factual information will be gathered, in part, through the testing of accounts and

transactions required as part of the periodic review, as described in sections 10.04 and

10.05 of the 2017 QI Agreement. This review is focused on the testing of accounts and

transactions rather than a substantive evaluation of the sufficiency of a QI’s policies and

procedures. Section 10.05(A) through (E) of the 2017 QI Agreement provides the

objectives for performing the review, and Appendix I to the 2017 QI Agreement

describes the factual information that will be required to be reported to the IRS following

the review when making the periodic certification.

The 2014 QI Agreement required that the periodic review be conducted for the last

year of the certification period

5(A) through (E) of the 2017 QI Agreement provides the

objectives for performing the review, and Appendix I to the 2017 QI Agreement

describes the factual information that will be required to be reported to the IRS following

the review when making the periodic certification.

The 2014 QI Agreement required that the periodic review be conducted for the last

year of the certification period. In response to comments regarding potential difficulties

with this requirement, including resource constraints, the Proposed QI Agreement

allowed a QI to choose any year within the certification period to select for its periodic

review. The 2017 QI Agreement retains this allowance.

Comments to the Proposed QI Agreement requested that QIs that are also acting as

QDDs be allowed to select different years within the certification period for the QI and

QDD portions of their periodic reviews. Requiring a QI to use the same year for both

the QI and QDD portions of the periodic review (when required) improves the efficiency

22

of the IRS review process and assists the IRS with its compliance and administration of

the QI program. As a result, the request was not adopted.

(4) Certification date. The 2014 QI Agreement provides that the initial certification

period ends at the end of the third full calendar year that the 2014 QI Agreement (and

any superseding agreement) is in effect. Therefore, for a QI with a 2014 QI Agreement

with an effective date of June 30, 2014 through December 31, 2016, the initial

certification period would end December 31, 2017, and the certification would be

required to be provided to the IRS on or before July 1, 2018. The Proposed QI

Agreement included these provisions without modification. Comments to the Proposed

QI Agreement requested a six-month extension of the July 1 certification due date, and

some comments also requested an additional, automatic six-month extension

ation period would end December 31, 2017, and the certification would be

required to be provided to the IRS on or before July 1, 2018. The Proposed QI

Agreement included these provisions without modification. Comments to the Proposed

QI Agreement requested a six-month extension of the July 1 certification due date, and

some comments also requested an additional, automatic six-month extension. Because

it would be difficult for QIs that choose the last year of the certification period for their

periodic reviews to make the certification on July 1 of the following year, the 2017 QI

Agreement provides QIs using the third year of the certification period for their periodic

review an additional six months to make the certification. In such cases, the certification

will be due December 31 of the year following the end of the certification period (for

example, December 31, 2018 for a certification period ending December 31, 2017). For

QIs that choose either the first or second year for their periodic review, the same

concerns are not present, and the certification will continue to be due on July 1 following

the end of the certification period.

(5) Consolidated Compliance Program. Comments raised questions regarding the

consolidated compliance program, specifically what is required to apply for a

consolidated compliance program and whether NFFEs are allowed to be in consolidated

23

compliance programs. There is no restriction against NFFEs participating in

consolidated compliance programs. For more information about consolidated

compliance programs or to apply to operate a consolidated compliance program,

contact the Foreign Intermediaries Program by e-mail at: lbi.fi.qiwpissues@irs.gov.

A comment also requested that, in a consolidated compliance program, the

responsible officer of the compliance QI be allowed to rely on certifications by other

responsible officers of the other QIs in the group

bout consolidated

compliance programs or to apply to operate a consolidated compliance program,

contact the Foreign Intermediaries Program by e-mail at: lbi.fi.qiwpissues@irs.gov.

A comment also requested that, in a consolidated compliance program, the

responsible officer of the compliance QI be allowed to rely on certifications by other

responsible officers of the other QIs in the group. A responsible officer (of a QI or a

compliance QI) may rely on any process, procedure, review, or certification that he or

she determines is appropriate in making the periodic certification of compliance.

Therefore, the responsible officer of a compliance QI may rely on certifications made by

other officers or individuals in the QI compliance group. Notwithstanding that the

responsible officer may rely on certifications made by other officers or individuals within

the group, the periodic certification of compliance for the group may only be made by

the responsible officer of the compliance QI.

(6) FATCA requirements. A QI that is an FFI is required to comply with the FATCA

requirements applicable to its chapter 4 status as a participating FFI, registered

deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI. In response

to concerns raised following the 2014 QI Agreement, the Proposed QI Agreement

clarified that a QI’s responsible officer may rely on other personnel with oversight or

responsibility for the QI’s FATCA compliance in making its certifications relating the QI’s

compliance with its FATCA obligations. The Proposed QI Agreement also clarified that

in conducting the periodic review relating to its FATCA compliance, a QI is only required

to review those accounts for which it is acting as a QI. Comments to the Proposed QI

24

Agreement raised this question again, so further revisions were made to the 2017 QI

Agreement to clarify the scope of QI’s FATCA requirements (and related certifications).

oposed QI Agreement also clarified that

in conducting the periodic review relating to its FATCA compliance, a QI is only required

to review those accounts for which it is acting as a QI. Comments to the Proposed QI

24

Agreement raised this question again, so further revisions were made to the 2017 QI

Agreement to clarify the scope of QI’s FATCA requirements (and related certifications).

(7) Standards for internal and external reviewers. A QI may use either an internal

or an external reviewer to conduct the periodic review required by section 10.04 of the

2017 QI Agreement. In response to comments to the 2014 QI Agreement and as

previewed in the Proposed QI Agreement, section 10 of 2017 QI Agreement has been

clarified to prevent unintended inferences in the 2014 QI Agreement that the periodic

review must satisfy the standards of a financial audit or other attestation engagement of

a certified public accountant. References to an “auditor” (whether internal or external) in

the 2014 QI Agreement have been replaced with “reviewer” in the Proposed QI

Agreement and the 2017 QI Agreement.

The Proposed QI Agreement also clarified the description of the standard of

independence required of a reviewer. Whether the reviewer is an internal or external

reviewer, the reviewer must have sufficient independence to objectively conduct the

review and cannot review his or her own work (for example, systems that the reviewer

designed, or documentation that the reviewer validated in assisting a QI in its account

opening processes).

Comments to the Proposed QI Agreement have requested further clarification of the

independence standard, particularly as applicable to external reviewers. Many of these

comments requested that this standard, which is described differently for internal and

external reviewers, be relaxed to allow a wider range of external reviewers who have

connections to, or experience with, the QI’s systems or compliance

the Proposed QI Agreement have requested further clarification of the

independence standard, particularly as applicable to external reviewers. Many of these

comments requested that this standard, which is described differently for internal and

external reviewers, be relaxed to allow a wider range of external reviewers who have

connections to, or experience with, the QI’s systems or compliance. For example,

comments requested that independence for external reviewers be determined based on

25

an individual or team basis (that is, even if an individual or team had established a QI’s

compliance program, another individual or team in the same company or firm could

review the first individual’s or team’s work). One comment suggested that the

independence standard be clarified so that any individual with management

responsibility for implementation of the QI agreement would not be allowed to have

significant involvement with the review. The comment also proposed that people who

review client tax forms, perform withholding for clients, and calculate amounts required

to be reported be disqualified from performing the review. Under this proposal, people

who advise on what the FATCA and QI rules are and how they are applied to a

particular situation, provide advice on how the withholding rules apply to a particular fact

pattern, assist in reporting by physical submission of data to a tax authority (without

responsibility for the underlying data), or provide quality assurance review services

would be permitted to conduct the review.

The provisions of the 2017 QI Agreement regarding the independence of the

reviewer are unchanged from the Proposed QI Agreement. The independence of a

reviewer necessarily depends on specific facts and circumstances, and, as a result,

providing more prescriptive rules than what is in the 2017 QI Agreement would likely be

both over and under-inclusive

be permitted to conduct the review.

The provisions of the 2017 QI Agreement regarding the independence of the

reviewer are unchanged from the Proposed QI Agreement. The independence of a

reviewer necessarily depends on specific facts and circumstances, and, as a result,

providing more prescriptive rules than what is in the 2017 QI Agreement would likely be

both over and under-inclusive. Even though the 2017 QI Agreement does not contain

comprehensive rules regarding what constitutes independence, the independence

standard, as applied to external reviewers, should not be applied on an individual or

team basis but should be applied on a company or firm-wide basis when the firm has

developed or assisted in the development of policies and procedures relevant to a QI’s

compliance with the agreement. To maintain an appropriate level of independence and

26

integrity in the review process, reviewers should not be reviewing their own work and

should be in a position where they would be able to make a negative assessment of the

QI’s practices and procedures without concern about any negative impact for

themselves or their employers. With respect to the comment that requested a specific

allowance for a reviewer that also assisted with physical submission of client data, it is

unclear why that activity would raise questions about independence with respect to a

QI’s compliance with the QI Agreement.

A comment also requested the QI agreement not reference a reviewer’s

“independence” because that term might have a particular meaning for public

accounting firms that may not be relevant for this purpose, however, no suggestions for

alternative language were offered. This comment was not accepted as the term

“independent” or “independence” is appropriate in this context, and it is appropriate for a

reviewer to consider the standards of independence applicable to a public accounting

firm to the extent they apply to a review it is engaged to conduct for a QI

may not be relevant for this purpose, however, no suggestions for

alternative language were offered. This comment was not accepted as the term

“independent” or “independence” is appropriate in this context, and it is appropriate for a

reviewer to consider the standards of independence applicable to a public accounting

firm to the extent they apply to a review it is engaged to conduct for a QI.

The terms of the Proposed QI Agreement also required that an internal reviewer be

“competent” to perform the review. A comment requested that the definition of

“competence” in this context be clarified, particularly with respect to an internal

reviewer. A reviewer must have enough knowledge and experience (including that

received by training) to conduct the required review in order to provide the necessary

information to the IRS, as required by Appendix I to the 2017 QI Agreement, and to

enable the responsible officer to make the required certification.

(8) Waiver. Section 10.07 of the Proposed QI Agreement allowed, under certain

circumstances, a QI that is an FFI that is not acting as a QDD and that is not part of a

27

consolidated compliance group to apply for a waiver of the requirement to conduct the

periodic review. In cases where a QI applies for a waiver, it is required to provide

certain factual information along with its periodic certification, as specified in Parts I and

III of Appendix I. Comments to the Proposed QI Agreement requested that the

information required to be provided with a waiver request be reduced. In order to obtain

the necessary information to approve a waiver request, it is important for the IRS to

receive information regarding the QI’s account population that is specified in Part III of

Appendix I (information that is generally consistent with the information that was

required for a waiver of a QI audit under the QI agreement that was in effect prior to the

2014 QI Agreement)

uced. In order to obtain

the necessary information to approve a waiver request, it is important for the IRS to

receive information regarding the QI’s account population that is specified in Part III of

Appendix I (information that is generally consistent with the information that was

required for a waiver of a QI audit under the QI agreement that was in effect prior to the

2014 QI Agreement). As a result, this request was not adopted, and the information

required to be provided with a waiver request remains unchanged from the Proposed QI

Agreement. However, in response to comments, Part III of Appendix I of the 2017 QI

Agreement clarifies that a QI is not required to conduct a periodic review in order to

provide the factual information required for the waiver request.

In addition, a comment to the Proposed QI Agreement requested that QIs in a

consolidated compliance group also be allowed to apply for a waiver of the periodic

review. This request was not adopted due to concerns that allowing a waiver for QIs

that participate in a consolidated compliance program would reduce the effectiveness of

the consolidated compliance program. Thus, the 2017 QI Agreement retains this

prohibition, consistent with the terms of the QI agreements prior to the 2014 QI

Agreement.

(9) Statistical sampling for periodic review. The Proposed QI Agreement allowed

for the use of statistical sampling of a QI’s accounts for purposes of the periodic review

28

ram would reduce the effectiveness of

the consolidated compliance program. Thus, the 2017 QI Agreement retains this

prohibition, consistent with the terms of the QI agreements prior to the 2014 QI

Agreement.

(9) Statistical sampling for periodic review. The Proposed QI Agreement allowed

for the use of statistical sampling of a QI’s accounts for purposes of the periodic review

28

(rather than requiring a review of all accounts) provided that the QI has 50 or more

accounts to review. The Proposed QI Agreement also included, in Appendix II, a safe

harbor method for determining a statistical sample of accounts for the periodic review.

Comments were received on Appendix II to the Proposed QI Agreement, and

changes in response to certain of those comments are reflected in Appendix II to the

2017 QI Agreement. One comment requested that a QI’s reviewer be permitted to

perform a “spot check” (rather than take a statistical sample) for certain parts of the

review to the extent that spot check procedures were permitted for a QI’s audit under

the former QI agreement audit guidelines in Rev. Proc. 2002-55. In response to this

comment, Appendix II has been revised to permit the use of spot check procedures with

respect to the review procedures performed pursuant to sections 10.05(B) through (D)

of the 2017 QI Agreement and to specify the requirements for these procedures.

Other comments requested that a QI’s reviewer not be required to project an amount

of underwithholding determined as a result of a sample tested for the periodic review

unless specifically requested to do so by the IRS during its review of a QI’s compliance.

One comment also requested that projection not be required as a result of a single

error

fy the requirements for these procedures.

Other comments requested that a QI’s reviewer not be required to project an amount

of underwithholding determined as a result of a sample tested for the periodic review

unless specifically requested to do so by the IRS during its review of a QI’s compliance.

One comment also requested that projection not be required as a result of a single

error. In response to these comments, Appendix II to the 2017 QI Agreement provides

that a QI will pay any underwithheld tax without regard to projection and that the IRS will

determine if a projection of any underwithholding from a sample is required at the time

of the IRS’s review of the QI’s periodic certification (and, if so, will direct the reviewer in

performing the projection). Appendix II to the 2017 QI Agreement was also revised to

indicate that when a reviewer determines an amount of underwithholding, the QI should

pay the amount determined and report both the underwithholding determined by the

29

review and any amount of underwithholding that was cured (that is, for which valid

documentation to support a reduced rate of withholding applied by the QI was obtained

after the selection of the sample) following the review.

Another comment requested that the U.S. account population used for the sample be

limited to accounts that received a reportable amount (rather than a reportable payment,

as required by the Proposed QI Agreement) given the additional requirements for a QI

that is a non-U.S. payor to determine reportable payments made to an account that are

not reportable amounts. The comment was not accepted because sampling of U.S.

accounts receiving reportable payments (not just reportable amounts) is useful for

determining whether such payments have been properly reflected on Forms 1099 or

identified on Forms 8966 for purposes of the review steps under section 10.05(D) of the

2017 QI Agreement

reportable payments made to an account that are

not reportable amounts. The comment was not accepted because sampling of U.S.

accounts receiving reportable payments (not just reportable amounts) is useful for

determining whether such payments have been properly reflected on Forms 1099 or

identified on Forms 8966 for purposes of the review steps under section 10.05(D) of the

2017 QI Agreement. Additionally, this requirement imposes minimal additional burden

on a QI’s review as the reviewer may determine such payments based on the

determinations made by the QI for purposes of identifying the population of U.S.

accounts for the sample.

Other changes were made to Appendix II to the 2017 QI Agreement upon further

consideration by the IRS. Appendix II to the 2017 QI Agreement does not include a

sample of QDD accounts, which will be added in 2017 for use by QIs that act as QDDs

to conduct a periodic review when the QI’s certification period ends after December 31,

2017. Appendix II to the 2017 QI Agreement specifies that a reviewer, when applying

statistical sampling based on the Appendix, is required to take into account the

principles of Notice 2011-42, 2011 I.R.B. 318 (providing guidance on taxpayers applying

statistical sampling). To better target circumstances where the statistical sampling

30

approach is appropriate, the 2017 QI Agreement has been revised to permit statistical

sampling to be used for purposes of the periodic review only when there are 60 or more

accounts to review (rather than 50, as in the Proposed QI Agreement). This

requirement applies regardless of whether the QI’s reviewer applies the provisions of

Appendix II in determining a statistical sample

ling

30

approach is appropriate, the 2017 QI Agreement has been revised to permit statistical

sampling to be used for purposes of the periodic review only when there are 60 or more

accounts to review (rather than 50, as in the Proposed QI Agreement). This

requirement applies regardless of whether the QI’s reviewer applies the provisions of

Appendix II in determining a statistical sample.

The strata required for determining the sample have been consolidated in Appendix

II to the 2017 QI Agreement, and the separate stratum for those accounts for which the

QI has assumed primary withholding responsibilities for substitute interest has been

removed (that is, such accounts are now included in the population of QI accounts).

This consolidation will reduce the number of transactions required to be reviewed for

purposes of the spot check procedures.

Appendix II to the 2017 QI Agreement has also been revised to address how

accounts of those partnerships and trusts to which a QI applies the agency option are to

be included in the sample for cases in which the partnership or trust did not arrange for

the performance of its own periodic review. These accounts, similar to accounts held by

private arrangement intermediaries (PAIs), are to be included in separate strata in

addition to the strata already applicable to the sample of QI accounts, and the number

of sample units required has been specified.

be included in the sample for cases in which the partnership or trust did not arrange for

the performance of its own periodic review. These accounts, similar to accounts held by

private arrangement intermediaries (PAIs), are to be included in separate strata in

addition to the strata already applicable to the sample of QI accounts, and the number

of sample units required has been specified.

(10) Information and certifications in Appendix I. The Proposed QI Agreement

required a QDD to report certain factual information (described in Appendix I) related to

the determination of its QDD tax liability (as described in section 3.09 of the Proposed

QI Agreement). The factual information relating to a QDD’s tax liability in Appendix I of

the 2017 QI Agreement is reserved and will be added in 2017. In addition, Appendix I

31

to the 2017 QI Agreement was also revised to include a limited number of changes and

minor corrections to conform to the changes to Appendix II and in response to

comments.

(11) Form 8966 XML schema. Comments to the Proposed QI Agreement noted

that section 10.05(D)(3) requires review of Form 8966 reporting and requested

clarification of whether review of the Form 8966 XML schema rather than paper forms

would be sufficient. Although no change is being made to the 2017 QI Agreement, in

this context an “original” Form 8966 does not refer exclusively to a paper form, and

review of the Form 8966 XML schema would be appropriate. In addition, for purposes

of the review, a QI that is a reporting Model 1 FFI should include in its review any

analogous forms used for reporting account information pursuant to the applicable

Model 1 IGA.

.03 Limited FFIs and Limited Branches

n

this context an “original” Form 8966 does not refer exclusively to a paper form, and

review of the Form 8966 XML schema would be appropriate. In addition, for purposes

of the review, a QI that is a reporting Model 1 FFI should include in its review any

analogous forms used for reporting account information pursuant to the applicable

Model 1 IGA.

.03 Limited FFIs and Limited Branches. As noted in the preamble to the Proposed

QI Agreement, because limited FFI (and limited branch) status will no longer be

available as of January 1, 2017 (pursuant to the regulations under chapter 4), and, as

previewed in the Proposed QI Agreement, the 2017 QI Agreement removes limited FFI

as a category of entity eligible to enter into a QI agreement.

.04 Entities Eligible for QI Agreements. Pursuant to §1.1441-1(e)(5)(ii) and the 2014

QI Agreement, the QI Agreement may be entered into by (1) FFIs that are participating

FFIs, registered deemed-compliant FFIs, or registered deemed-compliant Model 1 IGA

FFIs, (2) foreign branches of U.S. financial institutions or clearing organizations that are

either reporting Model 1 FFIs or agree to the reporting requirements of a PFFI; (3)

foreign corporations (that is, NFFEs) for purposes of presenting claims of benefits under

32

an income tax treaty on behalf of their shareholders, and (4) any other persons

acceptable to the IRS. In the preamble to the Proposed QI Agreement, the Treasury

Department and the IRS requested comments on the types of entities where an NFFE

would be acting as a QI on behalf of its shareholders rather than entering into a

withholding foreign partnership agreement as a reverse hybrid. No comments were

received. As a result, and consistent with revisions to the chapter 3 regulations, this

category of NFFE is removed from the 2017 QI Agreement as an entity eligible to enter

into the QI agreement, together with the related requirement for such QIs to also act as

direct reporting NFFEs for purposes of chapter 4

a

withholding foreign partnership agreement as a reverse hybrid. No comments were

received. As a result, and consistent with revisions to the chapter 3 regulations, this

category of NFFE is removed from the 2017 QI Agreement as an entity eligible to enter

into the QI agreement, together with the related requirement for such QIs to also act as

direct reporting NFFEs for purposes of chapter 4.

.05 Assumption of Withholding on Substitute Interest. As noted in the preamble to

the Proposed QI Agreement, comments requested that, as the QSL regime is

incorporated into the QDD regime, consideration be given to covering payments of

substitute interest on debt securities under the QI agreement in addition to substitute

dividend payments. The Proposed QI Agreement previewed this allowance for a QI to

assume primary chapters 3 and 4 withholding responsibility and primary Form 1099

reporting and section 3406 backup withholding responsibility for payments of interest

and substitute interest it receives in connection with a sale-repurchase or similar

agreement, a securities lending transaction, or collateral that it holds in connection with

its activities as a securities dealer. The 2017 QI Agreement retains this allowance.

Enabling a QI to assume primary withholding responsibility for payments of interest

and substitute interest will allow a QI to provide a Form W-8IMY, Certificate of Foreign

Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States

Tax Withholding and Reporting, to a withholding agent to certify that the QI is a QI

33

QI Agreement retains this allowance.

Enabling a QI to assume primary withholding responsibility for payments of interest

and substitute interest will allow a QI to provide a Form W-8IMY, Certificate of Foreign

Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States

Tax Withholding and Reporting, to a withholding agent to certify that the QI is a QI

33

assuming primary withholding responsibility without requiring the QI to distinguish

between payments of interest and substitute interest the QI receives as a principal and

those that it receives as an intermediary. QIs that assume primary withholding

responsibility for payments of interest and substitute interest as described in this

paragraph will be required to assume primary withholding responsibility for all such

payments.

Some comments to the Proposed QI Agreement asked for more clarity as to

whether the allowance for a QI to assume primary withholding responsibility for

payments of interest and substitute interest required a QI to be a QDD. A QI’s

assumption of primary withholding responsibility for payments of interest and substitute

interest is independent from responsibilities the QI has when it acts as QDD or whether

a QI is eligible to act as a QDD, and thus a QI is permitted to assume primary

withholding responsibility for such payments without having to act as a QDD and without

regard to whether the QI is eligible to act as a QDD.

.06 Partnerships or Trusts Applying the Joint Account or Agency Options. The

Proposed QI Agreement previewed two changes to the application of the joint account

and agency options. Comments were received on the 2014 QI Agreement regarding

the chapter 4 statuses required of a partnership or trust to which a QI may apply these

options

regard to whether the QI is eligible to act as a QDD.

.06 Partnerships or Trusts Applying the Joint Account or Agency Options. The

Proposed QI Agreement previewed two changes to the application of the joint account

and agency options. Comments were received on the 2014 QI Agreement regarding

the chapter 4 statuses required of a partnership or trust to which a QI may apply these

options. As previewed in the Proposed QI Agreement, sections 4.05(A)(1) and

4.06(A)(2) of the 2017 QI Agreement have been modified to allow a QI to apply the joint

account or agency option to partnerships or trusts that are covered as accounts that are

excluded from the definition of financial accounts under Annex II of an applicable IGA or

under §1.1471-5(a). In addition, consistent with the withholding foreign partnership and

34

withholding foreign trust agreements, a QI can apply the joint account or agency option

to partnerships or trusts that are owner-documented FFIs with respect to the QI.

Comments to the Proposed QI Agreement noted an inconsistency between section

4.05(B)(3) of the Proposed QI Agreement and section 8.02(E) and Appendix I to the

Proposed QI Agreement with respect to whether a QI would be required to specifically

report and provide the names of partnerships or trusts to which it applies the joint

account option. Consistent with the obligations described in section 4.05(B)(3) that do

not require specific reporting for a partnership or trust to which a QI applies the joint

account option, the 2017 QI Agreement does not require that the partnership or trust be

identified on a Form 1042-S; accordingly, section 8.02(E) was removed, and Appendix I

was modified to remove the requirement that a QI disclose to the IRS the names of

these partnerships and trusts.

Similarly, comments requested that Appendix I be modified to remove the

requirement that QIs provide the names of partnerships or trusts to which they apply the

agency option

p or trust be

identified on a Form 1042-S; accordingly, section 8.02(E) was removed, and Appendix I

was modified to remove the requirement that a QI disclose to the IRS the names of

these partnerships and trusts.

Similarly, comments requested that Appendix I be modified to remove the

requirement that QIs provide the names of partnerships or trusts to which they apply the

agency option. This requirement has been removed from Appendix I to the 2017 QI

Agreement, except for cases in which the QI reports a material failure with respect to

the partnership or trust.

A comment to the Proposed QI Agreement requested clarification regarding the

requirement in section 4.05(A)(1) that a partnership or trust to which a QI applies the

joint account option is required to provide the QI with a certification regarding its chapter

4 status. This certification requirement was a new requirement in the Proposed QI

Agreement and is maintained in the 2017 QI Agreement, although the partnership or

trust to which a QI applies the joint account or agency option, even prior to this change,

35

was required to maintain a certain chapter 4 status and to certify to that status on the

Form W-8IMY it provided to the QI.

The Proposed QI Agreement did not allow QIs that are QDDs to enter into a

private arrangement intermediary (PAI) agreement or to apply the joint account or

agency options with respect to accounts or transactions in their QDD capacities.

Comments requested that QIs acting as QDDs be allowed to use the joint account

option. This request was adopted, and accordingly the 2017 QI Agreement allows QIs

to use the joint account option when making payments in its capacity as a QDD. The

2017 QI Agreement does not allow a QDD to apply the agency option with respect to an

account or transaction in its QDD capacity due to concerns about the administration of

the QDD rules and the calculation of the QDD tax liability.

.07 Limitation on Benefits for Treaty Claims

2017 QI Agreement allows QIs

to use the joint account option when making payments in its capacity as a QDD. The

2017 QI Agreement does not allow a QDD to apply the agency option with respect to an

account or transaction in its QDD capacity due to concerns about the administration of

the QDD rules and the calculation of the QDD tax liability.

.07 Limitation on Benefits for Treaty Claims. Form W-8BEN-E, Certificate of Status

of Beneficial Owner for United States Tax Withholding and Reporting (Entities), was

revised in April 2016 to include checkboxes for a beneficial owner to provide information

regarding the limitation on benefits provision of an applicable treaty that it satisfies, and

Form 1042-S was revised in 2016 to include a line for a withholding agent to report the

corresponding limitation on benefits provision code, when required. The Proposed QI

Agreement previewed the standard of knowledge required by a withholding agent with

respect to an applicable limitation on benefits claim associated with a claim for treaty

benefits. Consistent with revisions to the chapter 3 regulations, the Proposed QI

Agreement modified the requirements for a QI using documentary evidence to

document an entity account holder claiming a reduced rate of withholding under an

income tax treaty to require the collection of information regarding limitation on benefits

36

on the treaty statement provided by the account holder, and the 2017 QI Agreement

includes this revision. A QI opening an account for an entity account holder on or after

January 1, 2017, will be required to collect this limitation on benefits information

a reduced rate of withholding under an

income tax treaty to require the collection of information regarding limitation on benefits

36

on the treaty statement provided by the account holder, and the 2017 QI Agreement

includes this revision. A QI opening an account for an entity account holder on or after

January 1, 2017, will be required to collect this limitation on benefits information. For

QIs with pre-existing entity accounts (as described in section 5.10(A) of the 2017 QI

Agreement) that were documented with documentary evidence, there will be a two-year

transition period provided for the collection of the appropriate limitation on benefits

information (unless there is a change in circumstances that requires the QI to obtain

corrected information sooner than the two-year period). For QIs that documented entity

accounts with Forms W-8, those forms may be relied up on until their normal expiration

period (unless there is a change in circumstances that requires a QI to obtain corrected

information sooner than the expiration period). Comments to the Proposed QI

Agreement requested a three-year transition period for accounts documented with

documentary evidence, consistent with the validity period for a Form W-8 with respect to

a claim for reduced withholding under an income tax treaty. This request was not

adopted because a QI that documents account holders making a treaty claim on a

withholding certificate would not in all cases have a full three-year period starting in

2017 to obtain a new withholding certificate containing the limitation on benefits

information. Additionally, the Treasury Department and the IRS believe that two years

is a reasonable period for a QI to obtain the limitation on benefits information from these

account holders, especially considering that the requirement is intended to enhance

compliance of persons claiming treaty benefits

in

2017 to obtain a new withholding certificate containing the limitation on benefits

information. Additionally, the Treasury Department and the IRS believe that two years

is a reasonable period for a QI to obtain the limitation on benefits information from these

account holders, especially considering that the requirement is intended to enhance

compliance of persons claiming treaty benefits.

The standard of knowledge for the limitation on benefits claims under the Proposed

QI Agreement was actual knowledge. The chapter 3 regulations are also amended to

37

apply an actual knowledge standard for limitation on benefits claims. The 2017 QI

Agreement removes the discussion of the actual knowledge standard from section

5.10(A) and replaces it with a citation to the chapter 3 regulations in §1.1441-6(b)(1)

that include this standard.

.08 Validity Period for Documentary Evidence and Treaty Statements. In connection

with the revisions to the chapter 3 regulations requiring limitation on benefits

information, the chapter 3 regulations are also amended to provide that treaty

statements associated with documentary evidence for establishing residence in a treaty

country have a three-year validity period, consistent with the validity period for

withholding certificates that contain a claim for treaty benefits. Section 5.11(A) of the

2017 QI Agreement provides that a treaty statement (including a statement provided in

section 5.03 of the 2017 QI Agreement) will be subject to the same validity period as

prescribed in the chapter 3 regulations. The 2017 QI Agreement does not, however,

change the existing rule for the validity period of documentary evidence that was

included in prior versions of the QI agreement, including documentary evidence

supporting a claim for treaty benefits

ng a statement provided in

section 5.03 of the 2017 QI Agreement) will be subject to the same validity period as

prescribed in the chapter 3 regulations. The 2017 QI Agreement does not, however,

change the existing rule for the validity period of documentary evidence that was

included in prior versions of the QI agreement, including documentary evidence

supporting a claim for treaty benefits. The Treasury Department and the IRS are

considering applying the same three-year validity period to documentary evidence

obtained QIs supporting an account holder’s claim for treaty benefits to align with the

validity period of the treaty statement.

.09 Validation of Treaty Claims. In addition to the standard of knowledge for

limitation on benefits claims, the Proposed QI Agreement provided that a QI will be

considered to have reason to know that a claim for treaty benefits is unreliable or

incorrect if, among other requirements, the account holder claims benefits under a

38

treaty that does not exist or is not in force. QIs may determine this, for example, by

checking whether a jurisdiction is included on the list maintained at

https://www.irs.gov/businesses/international-businesses/united-states-income-tax-

treaties-a-to-z. This reason to know rule will generally apply to pre-existing accounts for

which the QI already holds valid documentation only upon a change in circumstances.

For a pre-existing entity account, this reason to know rule will also apply when the QI

obtains a written limitation on benefits statement. For purposes of applying this rule, a

“pre-existing account” or “pre-existing entity account” is an account for which QI holds

valid documentation prior to January 1, 2017, for a QI with a QI agreement in effect prior

to that date. For a QI that did not have a QI agreement in effect prior to January 1,

2017, a pre-existing account means an account maintained (and for which QI has valid

documentation) prior to the effective date of its QI agreement

unt” or “pre-existing entity account” is an account for which QI holds

valid documentation prior to January 1, 2017, for a QI with a QI agreement in effect prior

to that date. For a QI that did not have a QI agreement in effect prior to January 1,

2017, a pre-existing account means an account maintained (and for which QI has valid

documentation) prior to the effective date of its QI agreement. For all new accounts, the

reason-to-know rule will apply upon account opening. The chapter 3 regulations are

also revised to include this reason to know rule for all withholding agents, and the 2017

QI Agreement removes the reference to this standard from section 5.10(A) of the

Proposed QI Agreement and replaces it with a citation to this same general rule in the

chapter 3 regulations.

.10 Term of Agreement. The Proposed QI Agreement specified a term of three full

calendar years following the effective date of the QI agreement. Comments requested

that the three year term be extended, with suggestions of a six year agreement or an

agreement that was valid indefinitely. The 2017 QI Agreement has been revised to

include a six-year term.

.11 Effective Date. Notice 2016-42 and the Proposed QI Agreement included

39

application procedures that provided that if a prospective QI applies prior to March 31 of

a given calendar year and its application is approved, its QI agreement will have an

effective date as of January 1 of that year. Similarly, if an existing QI renews its 2014

QI Agreement prior to March 31, 2017, it will be considered to have a January 1

effective date for its 2017 QI Agreement with no change in its QI status. If a prospective

QI applies after March 31 of a calendar year but has not received any reportable

payments prior to submitting its application and its application is approved, its QI

agreement will have an effective date of January 1 of that year

reement prior to March 31, 2017, it will be considered to have a January 1

effective date for its 2017 QI Agreement with no change in its QI status. If a prospective

QI applies after March 31 of a calendar year but has not received any reportable

payments prior to submitting its application and its application is approved, its QI

agreement will have an effective date of January 1 of that year. However, if a

prospective QI applies after March 31 of a calendar year and has received a reportable

payment prior to submitting its application and its application is approved, its QI

agreement will have an effective date of the first of the month in which both its

application is approved and its QI-EIN is issued.

Comments to the Proposed QI Agreement requested that prospective QIs be

allowed to apply for QI status at any point during the calendar year and, if their

applications are approved, have effective dates retroactive to January 1 of that year.

This suggestion was not adopted. Although comments noted potential inconvenience

with having two types of types of reporting (QI and NQI) in a single year, this

inconvenience is outweighed by the potential for underwithholding and misreporting for

the period during which the entity was not yet approved for QI status. A prospective QI

could wait until the next year to apply for QI status (similar to the process for withholding

foreign partnerships and withholding foreign trusts).

.12 Documentation of Account Holders and Presumption Rules.

his

inconvenience is outweighed by the potential for underwithholding and misreporting for

the period during which the entity was not yet approved for QI status. A prospective QI

could wait until the next year to apply for QI status (similar to the process for withholding

foreign partnerships and withholding foreign trusts).

.12 Documentation of Account Holders and Presumption Rules.

(1) Interaction with Intergovernmental Agreements (IGAs). Comments to the 2014

40

QI Agreement and the Proposed QI Agreement noted an inconsistency in the

documentation requirements with an FFI’s requirements under an applicable IGA. In

response to these comments, section 5 of the 2017 QI Agreement has been modified to

clarify that a QI that is an FFI may document account holders for chapter 4 purposes

consistent with its applicable requirements under Annex I of the applicable IGA. In

addition, section 5.10(B) was clarified and simplified by replacing the parts of the text of

the Proposed QI Agreement that were identical to the provisions of the chapter 3

regulations with a cross-reference to the chapter 3 regulations.

In addition, a comment to the 2014 QI Agreement raised the question of whether the

presumption rules under an applicable IGA apply rather than the presumption rules in

the QI agreement or in the regulations. A QI that is also a reporting Model 1 or 2 FFI

may apply the due diligence procedures described in Annex I to document the status of

its account holders under the IGA as U.S. accounts, nonparticipating FFIs, in the case

of a reporting Model 2 FFI, non-consenting U.S. accounts, or, in the case of a Model 1

FFI, U.S. reportable accounts, and if such procedures are applied, cases in which an

entity account holder is undocumented should not arise

apply the due diligence procedures described in Annex I to document the status of

its account holders under the IGA as U.S. accounts, nonparticipating FFIs, in the case

of a reporting Model 2 FFI, non-consenting U.S. accounts, or, in the case of a Model 1

FFI, U.S. reportable accounts, and if such procedures are applied, cases in which an

entity account holder is undocumented should not arise. If a QI that is a reporting

Model 1 FFI or reporting Model 2 FFI does not have information in its possession or that

is publicly available based on which it can reasonably determine the chapter 4 status of

an entity account holder, the FFI must obtain a self-certification to establish the status of

such entity (or in some cases, a self-certification to establish the status of the controlling

persons of a passive NFFE) consistent with Annex I of the applicable IGA. When the QI

acts as an intermediary for a withholdable payment made to an entity account and is

unable to document the account by obtaining information or a self-certification

41

consistent with the procedures described in Annex I of the applicable IGA, the chapter 4

regulations and the 2017 QI Agreement provide that the QI must apply the presumption

rules in §1.1471-3(f) to treat such entity account as a nonparticipating FFI. Additionally,

because there typically should not be undocumented accounts pursuant to the IGA, if

an FFI has many such undocumented accounts, the U.S. Competent Authority may

determine that there is significant non-compliance with respect to the FFI.

2017 QI Agreement provide that the QI must apply the presumption

rules in §1.1471-3(f) to treat such entity account as a nonparticipating FFI. Additionally,

because there typically should not be undocumented accounts pursuant to the IGA, if

an FFI has many such undocumented accounts, the U.S. Competent Authority may

determine that there is significant non-compliance with respect to the FFI.

(2) FFIs not using documentary evidence. A comment to the Proposed QI

Agreement requested that QIs that are FFIs and that document their account holders

using withholding certificates rather than documentary evidence be allowed to operate

as QIs in jurisdictions without KYC rules approved by the IRS. This request was not

adopted because after a QI enters into the agreement, there is no further distinction

between whether an FFI documents with withholding certificates or documentary

evidence (that is, nothing in the agreement prevents an FFI from documenting with

documentary evidence, notwithstanding an intent not to do so). Allowing this could also

create administration and compliance issues for the IRS.

.13 Collective Refunds. Section 9.04 of the Proposed QI Agreement provided that if

there has been overwithholding and a QI does not apply for a collective refund, it must

provide a specific Form 1042-S for the payment subject to the overwithholding if

requested by an account holder. Comments to the Proposed QI Agreement asked that

this provision be removed because of potential administrative difficulties. This request

was not adopted because an account holder can only get a refund for overwithholding

through a QI’s collective refund or by having a Form 1042-S to substantiate the

withholding (see §301.6402-3(e)), and a QI should not prevent its account holders from

42

Comments to the Proposed QI Agreement asked that

this provision be removed because of potential administrative difficulties. This request

was not adopted because an account holder can only get a refund for overwithholding

through a QI’s collective refund or by having a Form 1042-S to substantiate the

withholding (see §301.6402-3(e)), and a QI should not prevent its account holders from

42

obtaining refunds by declining to apply the collective refund procedures or by refusing to

issue a specific Form 1042-S if it declines to apply the collective refund procedures.

.14 Correction of Errors. In addition to the minor changes and corrections that were

previewed in the Proposed QI Agreement, the 2017 QI Agreement includes additional

minor changes and corrections. For example, references to the “KYC attachment” or

other attachments were deleted because printed and signed agreements are no longer

used. In addition, in response to comments regarding the length and complexity of the

agreement, certain nonsubstantive clarifications and deletions were made to remove

repetitive references and generally simplify the agreement (including with respect to the

standard of knowledge for limitation on benefits claims and reason to know for treaty

claims, as discussed previously in this section).

.15 Revised Chapter 3 and 61 Regulations and Revised Chapter 4 Regulations. The

2017 QI agreement also incorporates and references certain provisions in final and

temporary regulations issued under chapters 3 and 61 of the Code (T.D. 9808) and

under chapter 4 of the Code (T.D. 9809), both of which are to be published shortly after

the publication date of the 2017 QI Agreement.

SECTION 5. APPLICATION FOR QI STATUS

.01 Prospective QI (Including a QI Acting as a QDD)

2017 QI agreement also incorporates and references certain provisions in final and

temporary regulations issued under chapters 3 and 61 of the Code (T.D. 9808) and

under chapter 4 of the Code (T.D. 9809), both of which are to be published shortly after

the publication date of the 2017 QI Agreement.

SECTION 5. APPLICATION FOR QI STATUS

.01 Prospective QI (Including a QI Acting as a QDD). Prior to submitting the

information specified in Form 14345, Application for Qualified Intermediary, Withholding

Foreign Partnership, or Withholding Foreign Trust Status, a prospective QI (other than

an NFFE that is acting as an intermediary on behalf of persons other than its

shareholders and certain foreign central banks of issue) must have submitted the

information specified in Form 8957, Foreign Account Tax Compliance Act (FATCA)

43

Registration, through the FATCA registration website available at www.irs.gov/FATCA,

and obtained its chapter 4 status as a participating FFI (including a reporting Model 2

FFI), registered deemed-compliant FFI (including a reporting Model 1 FFI and a

nonreporting Model 2 FFI treated as registered deemed-compliant), registered deemed-

compliant Model 1 IGA FFI, or sponsoring entity of a direct reporting NFFE, as

applicable, along with a global intermediary identification number (GIIN) to be used to

identify itself to withholding agents and to tax administrators for FATCA reporting (the

GIIN is separate from the QI-EIN).

The IRS will not enter into a QI agreement with an FFI if the IRS has not approved

the know-your-customer practices and procedures for opening accounts of the

jurisdiction where the FFI is located because the QI agreement as applicable to an FFI

allows for the use of documentary evidence obtained under a jurisdiction’s know-your-

customer practices

GIIN is separate from the QI-EIN).

The IRS will not enter into a QI agreement with an FFI if the IRS has not approved

the know-your-customer practices and procedures for opening accounts of the

jurisdiction where the FFI is located because the QI agreement as applicable to an FFI

allows for the use of documentary evidence obtained under a jurisdiction’s know-your-

customer practices. A list of jurisdictions for which the IRS has received know-your-

customer information and for which the know-your-customer rules have been approved

is available at:

http://www.irs.gov/Businesses/International-Businesses/List-of-Approved-KYC-Rules.

To request approval of a jurisdiction’s know-your-customer rules, contact the KYC

coordinator in the Foreign Intermediaries Program at lbi.fi.qiwpissues@irs.gov.

A QI that is an NFFE generally is not required to be located in an approved KYC

jurisdiction because an NFFE is required to collect Forms W-8 and W-9 and may not

use KYC documentation. See section 5.01(B)(2) of the 2017 QI Agreement for the

documentation requirements applicable to a QI that is an NFFE.

To become a QI, a prospective QI must submit the information specified in Form

44

14345 through the QI/WP/WT Application and Accounts Management System

accessible through the QI landing page available at:

https://www.irs.gov/businesses/corporations/qualified-intermediary-system. An

application must also include any additional information and documentation requested

by the IRS. The application must establish to the satisfaction of the IRS that the

applicant has adequate resources and procedures to comply with the terms of the

agreement. An entity that would like to become a QI to act as a QDD must apply to

enter into a QI agreement and include the information on the application relating to

QDDs.

If the IRS approves the QI application, it will notify the QI of its approval

ion must establish to the satisfaction of the IRS that the

applicant has adequate resources and procedures to comply with the terms of the

agreement. An entity that would like to become a QI to act as a QDD must apply to

enter into a QI agreement and include the information on the application relating to

QDDs.

If the IRS approves the QI application, it will notify the QI of its approval. The

approval notice will include a QI-EIN for fulfilling the requirements of a QI (including a QI

acting as a QDD if approved for such purpose) under the QI Agreement.

.02 Existing QI. An FFI that seeks to renew its QI agreement must do so through the

QI/WP/WT Application and Accounts Management System. The QI will retain its QI-EIN

to fulfill the requirements of a QI under chapters 3, 4, and 61 and sections 871, 881, and

3406, including making tax deposits and filing Forms 945, 1042, 1042-S, 1099, and

8966.

A QI that seeks to renew its QI agreement and also seeks to act as a QDD must

supplement the renewal request by providing all of the information required by the

application relating to a QDD.

.03 Effective Date. The QI agreement provided in section 6 of this Revenue

Procedure is effective on or after January 1, 2017. The effective date of the QI

agreement for a new QI applicant will depend on when the QI submits its application

45

and whether the QI has received any reportable payments prior to when it submits its

application. Beginning on January 1, 2017, a prospective QI that applies for QI status

on or before March 31 of a calendar year and is approved will have a QI agreement with

an effective date of January 1 of that year. If a prospective QI applies for QI status after

March 31 of a calendar year and has not received a reportable payment prior to the

date it applies for QI status and is approved, it will have a QI agreement with an

effective date of January 1 of that year

status

on or before March 31 of a calendar year and is approved will have a QI agreement with

an effective date of January 1 of that year. If a prospective QI applies for QI status after

March 31 of a calendar year and has not received a reportable payment prior to the

date it applies for QI status and is approved, it will have a QI agreement with an

effective date of January 1 of that year. If a prospective QI applies for QI status after

March 31 and has received a reportable payment prior to the date it applies and is

approved, it will have a QI agreement with an effective date of the first of the month in

which its QI application is approved and the prospective QI is issued a QI-EIN. A QI

that seeks to renew its QI agreement must renew prior to March 31, 2017 for its

renewed QI agreement to have an effective date of January 1, 2017.

.04 Contact Information. For questions regarding the QI application process, contact

the Foreign Intermediaries Program at lbi.fi.qiwpissues@irs.gov.

SECTION 6. QUALIFIED INTERMEDIARY AGREEMENT

The text of the QI agreement is set forth below. The IRS will not provide signed

copies of the QI agreement. A reporting Model 2 FFI should apply this Agreement by

substituting the term “reporting Model 2 FFI” for “participating FFI” throughout this

Agreement, except in cases where this Agreement explicitly refers to a reporting Model

2 FFI. A reporting Model 1 FFI and nonreporting Model 2 FFI treated as a registered

deemed-compliant FFI should apply this Agreement by substituting the term “reporting

Model 1 FFI” or “nonreporting Model 2 FFI” (as applicable) for “registered deemed-

46

del 2 FFI” for “participating FFI” throughout this

Agreement, except in cases where this Agreement explicitly refers to a reporting Model

2 FFI. A reporting Model 1 FFI and nonreporting Model 2 FFI treated as a registered

deemed-compliant FFI should apply this Agreement by substituting the term “reporting

Model 1 FFI” or “nonreporting Model 2 FFI” (as applicable) for “registered deemed-

46

compliant FFI” throughout this Agreement, except in cases where this Agreement

explicitly refers to a reporting Model 1 FFI or nonreporting Model 2 FFI treated as a

registered deemed-compliant FFI.

THIS AGREEMENT is made under and in pursuance of sections 1441, 1442, 1471, and

1472 and §§1.1441-1(e)(5) and 1.1441-1(e)(6):

WHEREAS, QI has submitted an application in accordance with Revenue

Procedure 2017-15 to be a qualified intermediary;

WHEREAS, QI and the IRS desire to enter into an agreement to establish QI's

rights and obligations regarding documentation, withholding, information reporting, tax

return filing, deposit, and refund procedures under sections 1441, 1442, 1443, 1461,

1471, 1472, 1474, 3406, 6041, 6042, 6045, 6049, 6050N, 6302, 6402, and 6414, and

tax liability under sections 871(a) and 881 for a QI that is acting as a qualified

derivatives dealer (QDD), with respect to certain types of payments;

WHEREAS, QI represents that there are no legal restrictions that prohibit it from

complying with the requirements of this Agreement; and

WHEREAS, if QI is a foreign financial institution (FFI), QI represents that, as of

the effective date of this Agreement, it has agreed to comply with the requirements of

the FFI agreement, in the case of a participating FFI (including a reporting Model 2 FFI);

§1.1471-5(f)(1) or the applicable Model 2 IGA, in the case of a registered deemed-

compliant FFI (other than a reporting Model 1 FFI); or the applicable Model 1 IGA, in the

case of a reporting Model 1 FFI or a registered deemed-compliant Model 1 IGA FFI;

NOW, THEREFORE, in consideration of

irements of

the FFI agreement, in the case of a participating FFI (including a reporting Model 2 FFI);

§1.1471-5(f)(1) or the applicable Model 2 IGA, in the case of a registered deemed-

compliant FFI (other than a reporting Model 1 FFI); or the applicable Model 1 IGA, in the

case of a reporting Model 1 FFI or a registered deemed-compliant Model 1 IGA FFI;

NOW, THEREFORE, in consideration of the following terms, representations,

and conditions, the parties agree as follows:

SECTION 1. PURPOSE AND SCOPE

Sec. 1.01. General Obligations. When the IRS enters into a QI Agreement with a

foreign person or a foreign branch of a U.S. person, that foreign person (or foreign

branch) becomes a QI. 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.

If QI is an FFI, the requirements QI has agreed to as a participating FFI, registered

deemed-compliant FFI, or registered deemed-compliant Model 1 IGA FFI apply in

addition to the requirements under this Agreement. If QI acts as a QI with respect to an

account, this Agreement will reference QI’s chapter 4 obligations when necessary to

facilitate coordination with the QI’s obligations under chapters 3, 4, and 61 and section

47

3406 with respect to such account holders. A participating FFI’s (including a reporting

Model 2 FFI) obligations are provided in the FFI agreement, a registered deemed-

compliant FFI’s (other than a reporting Model 1 FFI) obligations are provided in

§1.1471-5(f)(1) or the applicable Model 2 IGA, and the obligations of a reporting Model

1 FFI or a registered deemed-compliant Model 1 IGA FFI are provided in the applicable

Model 1 IGA

s. A participating FFI’s (including a reporting

Model 2 FFI) obligations are provided in the FFI agreement, a registered deemed-

compliant FFI’s (other than a reporting Model 1 FFI) obligations are provided in

§1.1471-5(f)(1) or the applicable Model 2 IGA, and the obligations of a reporting Model

1 FFI or a registered deemed-compliant Model 1 IGA FFI are provided in the applicable

Model 1 IGA. For purposes of chapter 4, QI must comply with its FATCA requirements

as a participating FFI, registered deemed-compliant FFI, or registered deemed-

compliant Model 1 IGA FFI (as applicable) in order to maintain its required chapter 4

status, as well as the requirements of a withholding agent for any payee that is a

nonparticipating FFI or NFFE that is not an account holder. If QI is an FFI, QI must

also, pursuant to this Agreement, assume primary reporting responsibility for purposes

of section 1472, for certain indirect account holders for which it acts as a QI. If QI is an

NFFE acting on behalf of persons other than its shareholders, QI must assume primary

reporting responsibility for purposes of section 1472 for any person for which it acts as a

QI.

If QI acts as a sponsoring entity on behalf of a sponsored FFI (as defined in §1.1471-

1(b)(121)) or sponsored direct reporting NFFE (as defined in §1.1471-1(b)(123)), it must

comply with the due diligence, withholding, reporting, and compliance requirements of a

sponsoring entity in addition to its requirements under this Agreement.

For purposes of chapters 3 and 61 and section 3406, QI must act in its capacity as a QI

pursuant to this Agreement for those accounts that QI holds with a withholding agent

and that QI has identified as accounts for which it acts as a QI. QI is not required to act

as a QI for all accounts that it holds with a withholding agent

ng entity in addition to its requirements under this Agreement.

For purposes of chapters 3 and 61 and section 3406, QI must act in its capacity as a QI

pursuant to this Agreement for those accounts that QI holds with a withholding agent

and that QI has identified as accounts for which it acts as a QI. QI is not required to act

as a QI for all accounts that it holds with a withholding agent. However, QI must, as

part of its QI Agreement, materially comply with the requirements of a withholding agent

or payor, as applicable to a nonqualified intermediary (NQI) under chapters 3 and 61

and section 3406, for any account for which it does not (or cannot) act as a QI and for

any payee that is not an account holder. If QI identifies an account as one for which it

will act as a QI, it must act as a QI for all payments made to that account and obtain the

documentation required under section 5 of this Agreement for such account.

When QI acts as a QI for an account and assumes primary chapter 3 withholding

responsibility for payments to the account, QI must also assume primary withholding

responsibility for withholdable payments made to such account for chapter 4 purposes.

If QI acts as a QI with respect to payments of substitute interest, as described in section

3.03(A) of this Agreement, it must act as a QI and assume primary withholding

responsibility for all such payments of substitute interest.

If QI acts as a qualified securities lender (QSL) with respect to substitute dividend

payments (as defined in §1.861-3(a)(6)), QI is required to act as a QSL and assume

primary withholding responsibility for all substitute dividends received and paid by QI

when acting as an intermediary or dealer with respect to securities lending and similar

transactions. A QI that acts as a QDD may not act as a QSL, except with respect to a

48

er (QSL) with respect to substitute dividend

payments (as defined in §1.861-3(a)(6)), QI is required to act as a QSL and assume

primary withholding responsibility for all substitute dividends received and paid by QI

when acting as an intermediary or dealer with respect to securities lending and similar

transactions. A QI that acts as a QDD may not act as a QSL, except with respect to a

48

payment on a securities lending or sale-repurchase transaction for which the QI has

determined that it is acting as an intermediary for the payment.

The home office (as defined in section 2.43 of this Agreement) and each branch of a

foreign person that intends to act as a QDD must each separately qualify and be

approved for QDD status, as provided in section 1.02 of this Agreement. A foreign

branch of a U.S. financial institution may also apply for QI and QDD status provided it

separately qualifies as an eligible entity. If QI acts as a QDD with respect to the home

office or branch, the home office or branch, as applicable, must act as a QDD for all

payments made as a principal with respect to potential section 871(m) transactions and

all payments received as a principal with respect to potential section 871(m)

transactions and underlying securities, excluding any payments made or received by

the QDD to the extent the payment is treated as effectively connected with the conduct

of a trade or business within the United States within the meaning of section 864. For

purposes of this Agreement, any securities lending or sale-repurchase transaction (as

defined in §1.871-15(a)(13)) QI enters into that is a section 871(m) transaction is treated

as entered into by QI as a principal unless QI determines that it is acting as an

intermediary with respect to that transaction. A QI may not act as a QDD when it

receives or makes payments as an intermediary and must act as either a QI or NQI for

the payment

lending or sale-repurchase transaction (as

defined in §1.871-15(a)(13)) QI enters into that is a section 871(m) transaction is treated

as entered into by QI as a principal unless QI determines that it is acting as an

intermediary with respect to that transaction. A QI may not act as a QDD when it

receives or makes payments as an intermediary and must act as either a QI or NQI for

the payment. A QI acting as a QDD must assume primary chapter 3 and chapter 4

withholding responsibility and primary Form 1099 reporting and backup withholding

responsibility under section 3406 for payments made as a QDD with respect to any

potential section 871(m) transaction provided the amount paid is an amount subject to

chapter 3 or 4 withholding or a reportable payment under chapter 61. A QI acting as a

QDD (other than a QDD that is a foreign branch of a U.S. financial institution) also must

satisfy its QDD tax liability as determined under section 3.09 of this Agreement. The

QDD (other than a QDD that is a foreign branch of a U.S. financial institution) must

report its withholding tax liability under chapters 3 and 4 on Form 1042 and must report

its QDD tax liability on the appropriate U.S. tax return (as prescribed by the IRS). A

U.S. financial institution with a foreign branch that acts as a QDD must file the

appropriate U.S. income tax return (e.g., Form 1120, U.S. Corporation Income Tax

Return) for the tax year covered by this Agreement to report and pay its tax liability

under chapter 1 and would not have a separate QDD tax liability.

A dividend or dividend equivalent is treated as received by a QDD acting in its non-

equity derivatives dealer capacity if the dividend or dividend equivalent is received by a

QDD acting as a proprietary trader. Transactions properly reflected in a QDD’s equity

derivatives dealer book are presumed to be held by a dealer in its equity derivatives

dealer capacity for purposes of determining the QDD tax liability

idend equivalent is treated as received by a QDD acting in its non-

equity derivatives dealer capacity if the dividend or dividend equivalent is received by a

QDD acting as a proprietary trader. Transactions properly reflected in a QDD’s equity

derivatives dealer book are presumed to be held by a dealer in its equity derivatives

dealer capacity for purposes of determining the QDD tax liability. In addition, for

purposes of determining whether a dealer is acting in its equity derivatives dealer

capacity, only the dealer’s activities as an equity derivatives dealer are taken into

account.

Sec. 1.02. Parties to the Agreement. This Agreement applies to:

49

(A) QI; and

(B) The Internal Revenue Service.

If QI is an FFI, QI can only act as a QI for an account if the branch of QI that holds the

account operates in a KYC jurisdiction identified on the IRS’s Approved KYC List. QI

may add any jurisdiction in which it operates a branch that is not initially included in its

QI application without prior IRS approval if the jurisdiction is identified on the IRS’s

Approved KYC List and QI updates its information on the QI/WP/WT Application and

Accounts Management System with respect to such branch prior to treating such

branch as a QI. Notwithstanding the preceding sentence, a QI may not add a branch

that will act as a QDD through the QI/WP/WT Application and Accounts Management

System. Instead, the branch must separately qualify and be approved for QDD status in

accordance with the procedures to be prescribed by the IRS. A branch of a QI that is

not subject to the provisions of this Agreement remains subject to the rules of chapters

3, 4, and 61 and section 3406, as provided in section 1.01 of this Agreement.

SECTION 2. DEFINITIONS

For purposes of this Agreement, except as otherwise provided in this Agreement, the

terms listed below are defined as follows:

Sec. 2.01. Account

o be prescribed by the IRS. A branch of a QI that is

not subject to the provisions of this Agreement remains subject to the rules of chapters

3, 4, and 61 and section 3406, as provided in section 1.01 of this Agreement.

SECTION 2. DEFINITIONS

For purposes of this Agreement, except as otherwise provided in this Agreement, the

terms listed below are defined as follows:

Sec. 2.01. Account. “Account” or “Financial Account” has the meaning given to that

term in §1.1471-1(b) with respect to QI’s obligations for chapter 4 purposes. For other

purposes under this Agreement, “account” or “financial account” means any account for

which QI acts as a QI. With respect to a QI acting as a QDD, “account” means any

potential section 871(m) transaction or underlying security where QDD receives

payments as a principal and any potential section 871(m) transaction where QDD

makes payments as a principal.

Sec. 2.02. Account Holder. If QI is an FFI, an “account holder” means any person that

is a direct account holder or an indirect account holder of an account that QI has

identified to a withholding agent as an account for which it is acting as a QI and also

includes any person that receives a U.S. source substitute dividend payment from a QI

that is a QSL for the payment. “Account holder” also means any person that enters into

or holds a potential section 871(m) transaction with a QI acting as a QDD. If QI is an

NFFE acting as a QI on behalf of persons other than its shareholders, an “account

holder” means any person for whom QI is acting as an intermediary with respect to a

reportable payment or withholdable payment. With respect to a QI that assumes

primary withholding responsibility for a substitute interest payment as described in

section 3.03(A) of this Agreement, an “account holder” includes any person that

receives such a payment from the QI.

(A) Direct Account Holder. A direct account holder is any account holder who has a

direct relationship with QI

eportable payment or withholdable payment. With respect to a QI that assumes

primary withholding responsibility for a substitute interest payment as described in

section 3.03(A) of this Agreement, an “account holder” includes any person that

receives such a payment from the QI.

(A) Direct Account Holder. A direct account holder is any account holder who has a

direct relationship with QI. In the case of an NFFE acting as a QI on behalf of persons

other than its shareholders, a direct account holder is any person for whom QI is acting

50

with respect to a reportable payment regardless of whether such person is the beneficial

owner.

(B) Indirect Account Holder. An indirect account holder is any account holder who

does not have a direct relationship with QI. For example, a person that holds an

account with a foreign intermediary or an interest in a foreign flow-through entity which,

in turn, has a direct relationship with QI is an indirect account holder of QI. A person is

an indirect account holder even if there are multiple tiers of intermediaries or flow-

through entities between the person and QI.

Sec. 2.03. Agreement. “Agreement” means this Agreement, the Appendices to this

Agreement, and QI's application to become a QI. The Appendices and QI's application

are incorporated into this Agreement by reference.

Sec. 2.04. Amount Subject to Chapter 3 Withholding. An “amount subject to chapter

3 withholding” is an amount described in §1.1441-2(a) regardless of whether such

amount is withheld upon.

Sec. 2.05. Amount Subject to Chapter 4 Withholding. An “amount subject to chapter

4 withholding” is a withhholdable payment (as defined in §1.1473-1(a)) for which

withholding is required under chapter 4 or an amount for which withholding was

otherwise applied under chapter 4.

Sec. 2.06. Assuming Primary Withholding Responsibility

) regardless of whether such

amount is withheld upon.

Sec. 2.05. Amount Subject to Chapter 4 Withholding. An “amount subject to chapter

4 withholding” is a withhholdable payment (as defined in §1.1473-1(a)) for which

withholding is required under chapter 4 or an amount for which withholding was

otherwise applied under chapter 4.

Sec. 2.06. Assuming Primary Withholding Responsibility. “Assuming primary

withholding responsibility” refers to when a QI 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. A QI that

assumes primary withholding responsibility assumes the primary responsibility for

deducting, withholding, and depositing the appropriate amount from a payment.

Generally, a QI assuming primary chapters 3 and 4 withholding responsibility or

assuming primary backup withholding responsibility relieves the person who makes a

payment to the QI from the responsibility to withhold. Notwithstanding the preceding

sentence, a QI acting as a QDD (that assumes primary withholding responsibility as

required by section 3 of this Agreement) remains liable for the tax under section 881

and therefore remains subject to withholding on all U.S. source FDAP payments with

respect to underlying securities, other than dividend equivalents; however, with respect

to dividends (including deemed dividends), a QDD will not be subject to withholding on

those payments until January 1, 2018.

Sec. 2.07. Backup Withholding. “Backup withholding” means the withholding required

under section 3406.

Sec. 2.08. Beneficial Owner. A “beneficial owner” has the meaning given to that term

in §1.1441-1(c)(6).

51

dividend equivalents; however, with respect

to dividends (including deemed dividends), a QDD will not be subject to withholding on

those payments until January 1, 2018.

Sec. 2.07. Backup Withholding. “Backup withholding” means the withholding required

under section 3406.

Sec. 2.08. Beneficial Owner. A “beneficial owner” has the meaning given to that term

in §1.1441-1(c)(6).

51

Sec. 2.09. Broker Proceeds. “Broker proceeds” means gross proceeds (as defined in

§1.6045-1(d)(5)) from a sale that is reportable under §1.6045-1(c).

Sec. 2.10. Chapter 3. Any reference to “chapter 3” means sections 1441, 1442, 1443,

1461, 1463, and 1464.

Sec. 2.11. Chapter 3 Reporting Pool. A “chapter 3 reporting pool” means a reporting

pool described in section 8.03(B) of this Agreement.

Sec. 2.12. Chapter 4. Any reference to “chapter 4” means sections 1471, 1472, 1473,

and 1474.

Sec. 2.13. Chapter 4 Reporting Pool. A “chapter 4 reporting pool” means a reporting

pool described in section 8.03(A) of this Agreement.

Sec. 2.14. Chapter 4 Status. “Chapter 4 status” means the status of a person as a

U.S. person, a specified U.S. person, an individual that is a foreign person, a

participating FFI, a deemed-compliant FFI, a restricted distributor, an exempt beneficial

owner, a nonparticipating FFI, a territory financial institution, an excepted NFFE, or a

passive NFFE.

Sec. 2.15. Chapter 61. Any reference to “chapter 61” means sections 6041, 6042,

6045, 6049, and 6050N.

Sec. 2.16. Dealer. A “dealer” has the meaning given to the term dealer in §1.871-

15(a)(2) (i.e., a dealer in securities within the meaning of section 475(c)(1)).

Sec. 2.17. Deemed-Compliant FFI. “Deemed-compliant FFI” means an FFI that is

treated, pursuant to section 1471(b)(2) and §1.1471-5(f), as meeting the requirements

of section 1471(b).

(A) Certified Deemed-Compliant FFI

6050N.

Sec. 2.16. Dealer. A “dealer” has the meaning given to the term dealer in §1.871-

15(a)(2) (i.e., a dealer in securities within the meaning of section 475(c)(1)).

Sec. 2.17. Deemed-Compliant FFI. “Deemed-compliant FFI” means an FFI that is

treated, pursuant to section 1471(b)(2) and §1.1471-5(f), as meeting the requirements

of section 1471(b).

(A) Certified Deemed-Compliant FFI. “Certified deemed-compliant FFI” means an FFI

described in §1.1471-5(f)(2) and includes a nonreporting IGA FFI but excludes a

nonreporting Model 2 FFI that is treated as a registered deemed-compliant FFI.

(B) Registered Deemed-Compliant FFI. “Registered deemed-compliant FFI” means

an FFI described in §1.1471-5(f)(1) and includes a reporting Model 1 FFI and a

nonreporting Model 2 FFI that is treated as registered deemed-compliant FFI. For

purposes of this Agreement, a reference to a registered deemed-compliant FFI that is

providing a chapter 4 withholding rate pool of U.S. payees includes a registered

deemed-compliant Model 1 IGA FFI.

(C) Registered Deemed-Compliant Model 1 IGA FFI. “Registered deemed-compliant

Model 1 IGA FFI” means an FFI treated as a deemed-compliant FFI under an applicable

Model 1 IGA that is subject to similar due diligence and reporting requirements with

52

respect to U.S. accounts as those applicable to a registered deemed-compliant FFI

under §1.1471-5(f)(1), including the requirement to register with the IRS.

Sec. 2.18. Deposit Interest. “Deposit interest” means interest described in section

871(i)(2)(A).

Sec. 2.19. Dividend Equivalent. A “dividend equivalent” has the meaning given to that

term in §1.871-15(c).

Sec. 2.20. Documentary Evidence

o U.S. accounts as those applicable to a registered deemed-compliant FFI

under §1.1471-5(f)(1), including the requirement to register with the IRS.

Sec. 2.18. Deposit Interest. “Deposit interest” means interest described in section

871(i)(2)(A).

Sec. 2.19. Dividend Equivalent. A “dividend equivalent” has the meaning given to that

term in §1.871-15(c).

Sec. 2.20. Documentary Evidence. “Documentary evidence” means any

documentation obtained under the appropriate know-your-customer rules, any

documentary evidence described in §1.1441-6 sufficient to establish entitlement to a

reduced rate of withholding under an income tax treaty, or any documentary evidence

described in §1.6049-5(c) sufficient to establish an account holder's status as a foreign

person for purposes of chapter 61. Documentary evidence does not include a Form W-8

or Form W-9 (or an acceptable substitute Form W-8 or Form W-9).

Sec. 2.21. Documentation. “Documentation” means any valid Form W-8, Form W-9

(or an acceptable substitute Form W-8 or Form W-9), or documentary evidence as

defined in section 2.20 of this Agreement, including all statements or other information

required to be associated with the form or documentary evidence.

Sec. 2.22. Effective Date. For a prospective QI that applies to be a QI on or before to

March 31 of a given calendar year, the effective date of this Agreement will be January

1 of that year. For a prospective QI that applies after March 31 of a given calendar year

and that has not received any reportable payments prior to the date the application is

submitted, the effective date of this Agreement will be January 1 of that year. For a

prospective QI that applies after March 31 of a given calendar year and that has

received a reportable payment in the calendar year prior to the date the application is

submitted, the effective date of this Agreement will be the first of the month in which the

QI application is complete and the QI has received its QI-EIN.

Sec. 2.23

of this Agreement will be January 1 of that year. For a

prospective QI that applies after March 31 of a given calendar year and that has

received a reportable payment in the calendar year prior to the date the application is

submitted, the effective date of this Agreement will be the first of the month in which the

QI application is complete and the QI has received its QI-EIN.

Sec. 2.23. Eligible Entity. “Eligible entity” for QDD status means a home office or

branch that is a QI and that is—

(A) An equity derivatives dealer subject to regulatory supervision as a dealer by a

governmental authority in the jurisdiction in which it was organized or operates;

(B) A bank or bank holding company subject to regulatory supervision as a bank or

bank holding company, as applicable, by a governmental authority in the jurisdiction in

which it was organized or operates and that, in its equity derivatives dealer capacity, (1)

issues potential section 871(m) transactions to customers, and (2) receives dividends

with respect to stock or dividend equivalent payments pursuant to potential section

871(m) transactions that hedge potential section 871(m) transactions that it issued;

53

(C) An entity that is wholly-owned (directly or indirectly) by a bank or bank holding

company subject to regulatory supervision as a bank or bank holding company, as

applicable, by a governmental authority in the jurisdiction in which the bank or bank

holding company was organized or operates and that, in its equity derivatives dealer

capacity, (1) issues potential section 871(m) transactions to customers, and (2) receives

dividends with respect to stock or dividend equivalent payments pursuant to potential

section 871(m) transactions that hedge potential section 871(m) transactions that it

issued; or

(D) A foreign branch of a U.S. financial institution, if the foreign branch would meet the

requirements of paragraph (A), (B), or (C), if it were a separate entity

(m) transactions to customers, and (2) receives

dividends with respect to stock or dividend equivalent payments pursuant to potential

section 871(m) transactions that hedge potential section 871(m) transactions that it

issued; or

(D) A foreign branch of a U.S. financial institution, if the foreign branch would meet the

requirements of paragraph (A), (B), or (C), if it were a separate entity.

The home office or any branch that wants to be a QDD must separately meet the

requirements of paragraph (A), (B), or (C) as if it were a separate entity.

Sec. 2.24. Excepted NFFE. “Excepted NFFE” means a person described in §1.1471-

1(b)(41).

Sec. 2.25. Exempt Beneficial Owner. “Exempt beneficial owner” means a person

described in §1.1471-1(b)(42) and includes any person that is treated as an exempt

beneficial owner under an applicable Model 1 or Model 2 IGA.

Sec. 2.26. Exempt Recipient. For purposes of Form 1099 reporting and backup

withholding, an “exempt recipient” means a person described in §1.6049-4(c)(1)(ii) (for

interest, dividends, and royalties), a person described in §1.6045-2(b)(2)(i) (for broker

proceeds), and a person described in §1.6041-3(q) (for rents, amounts paid on notional

principal contracts, and other fixed or determinable income), for which no Form 1099

reporting is required. Exempt recipients are not exempt from reporting or withholding

under chapter 3 or 4.

Sec. 2.27. FATCA Requirements as a Participating FFI, Registered Deemed-

Compliant FFI, or Registered Deemed-Compliant Model 1 IGA FFI

on described in §1.6041-3(q) (for rents, amounts paid on notional

principal contracts, and other fixed or determinable income), for which no Form 1099

reporting is required. Exempt recipients are not exempt from reporting or withholding

under chapter 3 or 4.

Sec. 2.27. FATCA Requirements as a Participating FFI, Registered Deemed-

Compliant FFI, or Registered Deemed-Compliant Model 1 IGA FFI. “FATCA

requirements as a participating FFI, registered deemed-compliant FFI, or registered

deemed-compliant Model 1 IGA FFI” means—

(A) For a participating FFI or an FFI that agrees to be treated as a participating FFI, the

requirements set forth in the FFI agreement;

(B) For a registered deemed-compliant FFI (other than a reporting Model 1 FFI) or an

FFI that agrees to be treated as a registered deemed-compliant FFI, the requirements

under §1.1471-5(f)(1) or an applicable Model 2 IGA; or

(C) For a registered deemed-compliant Model 1 IGA FFI, reporting Model 1 FFI, or an

FFI that agrees to be treated as a registered deemed-compliant Model 1 IGA FFI or

reporting Model 1 FFI, the requirements under an applicable Model 1 IGA.

54

Sec. 2.28. Financial Institution (FI). “Financial institution” or “FI” is defined in §1.1471-

5(d) and includes a financial institution as defined under an applicable Model 1 or Model

2 IGA.

Sec. 2.29. Foreign Financial Institution (FFI). “Foreign Financial Institution” or “FFI”

means a foreign entity (as defined in §1.1473-1(e)) that is a financial institution.

Sec. 2.30. FFI Agreement. “FFI Agreement” means an agreement described in

§1.1471-4(a) and provided in Rev. Proc. 2014-3, 2014-3 I.R.B. 419, as revised by Rev.

Proc. 2014-38, 2014-29 I.R.B. 131 (and any superseding revenue procedure).

Sec. 2.31. Flow-Through Entity

eign Financial Institution” or “FFI”

means a foreign entity (as defined in §1.1473-1(e)) that is a financial institution.

Sec. 2.30. FFI Agreement. “FFI Agreement” means an agreement described in

§1.1471-4(a) and provided in Rev. Proc. 2014-3, 2014-3 I.R.B. 419, as revised by Rev.

Proc. 2014-38, 2014-29 I.R.B. 131 (and any superseding revenue procedure).

Sec. 2.31. Flow-Through Entity. A flow-through entity is a foreign partnership

described in §301.7701-2 or 3 (other than a withholding foreign partnership), a foreign

trust (other than a withholding foreign trust) that is described in section 651(a), or a

foreign trust if all or a portion of such trust is treated as owned by the grantor or other

person under sections 671 through 679. For an item of income for which a treaty

benefit is claimed, an entity is also a flow-through entity to the extent it is treated as

fiscally transparent under section 894 and the regulations thereunder.

Sec. 2.32. Foreign Person. A “foreign person” is any person that is not a “United

States person” and includes a “nonresident alien individual,” a “foreign corporation,” a

“foreign partnership,” a “foreign trust,” and a “foreign estate,” as those terms are defined

in section 7701. For purposes of chapters 3 and 4, the term foreign person also means,

with respect to a payment by a withholding agent, a foreign branch (including a foreign

disregarded entity) of a U.S. person that provides a valid Form W-8IMY on which it

represents that it is a QI. A foreign branch of a U.S. person that is a QI is, however, a

U.S. payor for purposes of chapter 61 and section 3406.

Sec. 2.33. Foreign TIN. A “foreign TIN” is a taxpayer identification number issued by a

foreign person’s country of residence.

Sec. 2.34. Form W-8

ng a foreign

disregarded entity) of a U.S. person that provides a valid Form W-8IMY on which it

represents that it is a QI. A foreign branch of a U.S. person that is a QI is, however, a

U.S. payor for purposes of chapter 61 and section 3406.

Sec. 2.33. Foreign TIN. A “foreign TIN” is a taxpayer identification number issued by a

foreign person’s country of residence.

Sec. 2.34. Form W-8. “Form W-8” means IRS Form W-8BEN, Certificate of Foreign

Status of Beneficial Owner for United States Tax Withholding (Individuals); IRS Form

W-8BEN-E, Certificate of Status of Beneficial Owner for United States Tax Withholding

and Reporting (Entities); IRS Form W-8ECI, Certificate of Foreign Person's Claim That

Income is Effectively Connected With the Conduct of a Trade or Business in the United

States; IRS Form W-8EXP, Certificate of Foreign Government or Other Foreign

Organization for United States Tax Withholding and Reporting; and IRS Form W-8IMY,

Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S.

Branches for United States Tax Withholding and Reporting, as appropriate. It also

includes any acceptable substitute Form W-8.

Sec. 2.35. Form W-9. “Form W-9” means IRS Form W-9, Request for Taxpayer

Identification Number and Certification, or any acceptable substitute Form W-9.

55

Sec. 2.36. Form 945. “Form 945” means IRS Form 945, Annual Return of Withheld

Federal Income Tax.

Sec. 2.37. Form 1042. “Form 1042” means IRS Form 1042, Annual Withholding Tax

Return for U.S. Source Income of Foreign Persons.

Sec. 2.38. Form 1042-S. “Form 1042-S” means IRS Form 1042-S, Foreign Person's

U.S. Source Income Subject to Withholding.

Sec. 2.39. Form 1099

m W-9.

55

Sec. 2.36. Form 945. “Form 945” means IRS Form 945, Annual Return of Withheld

Federal Income Tax.

Sec. 2.37. Form 1042. “Form 1042” means IRS Form 1042, Annual Withholding Tax

Return for U.S. Source Income of Foreign Persons.

Sec. 2.38. Form 1042-S. “Form 1042-S” means IRS Form 1042-S, Foreign Person's

U.S. Source Income Subject to Withholding.

Sec. 2.39. Form 1099. “Form 1099” means IRS Form 1099-B, Proceeds From Broker

and Barter Exchange Transactions; IRS Form 1099-DIV, Dividends and Distributions;

IRS Form 1099-INT, Interest Income; IRS Form 1099-MISC, Miscellaneous Income;

IRS Form 1099-OID, Original Issue Discount; and any other form in the IRS Form 1099

series appropriate to the type of payment required to be reported.

Sec. 2.40. Form 8966. “Form 8966” means IRS Form 8966, FATCA Report.

Sec. 2.41. Form 1099 Reporting. “Form 1099 reporting” means the reporting required

on Form 1099.

Sec. 2.42. Global Intermediary Identification Number (GIIN). “Global intermediary

identification number” or “GIIN” means the identification number that is assigned to a

participating FFI, registered deemed-compliant FFI, direct reporting NFFE, or

sponsoring entity of a direct reporting NFFE. The term also includes the identification

number assigned to a reporting Model 1 FFI or registered deemed-compliant Model 1

IGA FFI that is a QI for the purpose of identifying itself to withholding agents.

Sec. 2.43. Home Office. “Home office” means a foreign person, excluding any

branches of the foreign person, that applies for QDD status.

Sec. 2.44. Intermediary. An “intermediary” means any person that acts on behalf of

another person such as a custodian, broker, nominee, or other agent or a person that

acts as a QSL with respect to a substitute dividend payment.

Sec. 2.45. Know-Your-Customer Rules

me Office. “Home office” means a foreign person, excluding any

branches of the foreign person, that applies for QDD status.

Sec. 2.44. Intermediary. An “intermediary” means any person that acts on behalf of

another person such as a custodian, broker, nominee, or other agent or a person that

acts as a QSL with respect to a substitute dividend payment.

Sec. 2.45. Know-Your-Customer Rules. “Know-your-customer rules” refers to the

applicable laws, regulations, rules, and administrative practices and procedures

governing the requirements of QI to obtain documentation confirming the identity of QI's

account holders.

Sec. 2.46. Marketable Securities. For purposes of this Agreement, the term

“marketable securities” means those securities described in §1.1441-6 for which a U.S.

TIN (or foreign TIN) is not required to obtain treaty benefits.

56

Sec. 2.47. Net Delta Exposure. Net delta exposure to an underlying security is the

amount (measured in number of shares) by which (A) the aggregate number of shares

in an underlying security that the QDD has exposure to as a result of positions in the

underlying security (including as a result of owning the underlying security) with values

that move in the same direction as the underlying security (the “long positions”) exceeds

(B) the aggregate number of shares of in an underlying security that the QDD has

exposure to as a result of positions in the underlying security with values that move in

the opposite direction from the underlying security (the “short positions”). The net delta

exposure calculation only includes long positions and short positions that the QDD

holds in its equity derivatives dealer business. Any long positions or short positions that

are treated as effectively connected with the QDD’s conduct of a trade or business in

the United States for U.S. federal income tax purposes are excluded from the net delta

exposure computation

sitions”). The net delta

exposure calculation only includes long positions and short positions that the QDD

holds in its equity derivatives dealer business. Any long positions or short positions that

are treated as effectively connected with the QDD’s conduct of a trade or business in

the United States for U.S. federal income tax purposes are excluded from the net delta

exposure computation. The net delta exposure to an underlying security is determined

at the end of the day on the date provided in §1.871-15(j)(2) for the applicable dividend.

For purposes of this calculation, net delta must be determined in a commercially

reasonable manner. If a QDD calculates net delta for non-tax business purposes, the

net delta ordinary will be the delta used for this purpose, subject to the modifications

required by this definition. Each QDD must determine its net delta exposure separately

only taking into account transactions that exist and are attributable to that QDD for U.S.

federal income tax purposes.

Sec. 2.48. Non-Consenting U.S. Account. For purposes of a reporting Model 2 FFI,

“non-consenting U.S. account” has the meaning that such term has under an applicable

Model 2 IGA.

Sec. 2.49. Non-Exempt Recipient. A “non-exempt recipient” means a person that is

not an exempt recipient under the definition in section 2.26 of this Agreement.

Sec. 2.50. Non-Financial Foreign Entity (NFFE). A “non-financial foreign entity” or

“NFFE” means a foreign entity that is not a financial institution (including an entity that is

incorporated or organized under the laws of any U.S. territory and that is not a financial

institution). The term also means a foreign entity treated as an NFFE pursuant to a

Model 1 or Model 2 IGA.

Sec. 2.51. Nonparticipating FFI. A “nonparticipating FFI” means an FFI other than a

participating FFI, a deemed-compliant FFI, or an exempt beneficial owner.

Sec. 2.52. Nonqualified Intermediary (NQI)

or organized under the laws of any U.S. territory and that is not a financial

institution). The term also means a foreign entity treated as an NFFE pursuant to a

Model 1 or Model 2 IGA.

Sec. 2.51. Nonparticipating FFI. A “nonparticipating FFI” means an FFI other than a

participating FFI, a deemed-compliant FFI, or an exempt beneficial owner.

Sec. 2.52. Nonqualified Intermediary (NQI). A “nonqualified intermediary” or “NQI” is

any intermediary that is not a qualified intermediary. An NQI includes any intermediary

that is a foreign person unless such person enters an agreement to be a QI and acts in

such capacity. An NQI also includes an intermediary that is a territory FI unless such

institution agrees to be treated as a U.S. person.

Sec. 2.53. Non-U.S. Payor. A “non-U.S. payor” means a payor other than a U.S. payor

as defined in this section 2.81 of this Agreement.

57

Sec. 2.54. Nonwithholding Foreign Partnership. A “nonwithholding foreign

partnership” means a foreign partnership other than a withholding foreign partnership as

defined in §1.1441–5(c)(2)(i).

Sec. 2.55. Nonwithholding Foreign Trust. A “nonwithholding foreign trust” means a

foreign trust (as defined in section 7701(a)(31)(B)) that is a foreign simple trust or a

foreign grantor trust and that is not a withholding foreign trust.

Sec. 2.56. Overwithholding. The term “overwithholding” means any amount actually

withheld (determined before application of the adjustment procedures described in

section 9 of this Agreement) from an item of income or other payment that is in excess

of:

(A) The amount required to be withheld under chapter 4 with respect to such item of

income or other payment, if applicable, and,

(B) In the case of an amount subject to chapter 3 withholding, the actual tax liability of

the beneficial owner of the income or payment to which the withheld amount is

attributable, regardless of whether such overwithholding was in error or appeared

correct at the time it occurred

ired to be withheld under chapter 4 with respect to such item of

income or other payment, if applicable, and,

(B) In the case of an amount subject to chapter 3 withholding, the actual tax liability of

the beneficial owner of the income or payment to which the withheld amount is

attributable, regardless of whether such overwithholding was in error or appeared

correct at the time it occurred.

For purposes of section 3406, the term “overwithholding” means the excess of the

amount actually withheld under section 3406 over the amount required to be withheld.

Sec. 2.57. Participating FFI. A “participating FFI” means an FFI described in §1.1471-

1(b)(91). The term participating FFI also includes a QI branch of a U.S. financial

institution, unless such branch is a reporting Model 1 FFI.

Sec. 2.58. Payee. For chapter 4 purposes, a “payee” means a person described in

§1.1471-3(a). For purposes of chapter 61, a “payee” means the person to whom a

payment is made. For purposes of chapter 3, a “payee” means a person described in

§1.1441-1(c)(12).

Sec. 2.59. Payment. A “payment” is considered made to a person if that person

realizes income, whether or not such income results from an actual transfer of cash or

other property. See §1.1441-2(e). For example, a payment includes crediting an

amount to an account. For any payment of a dividend equivalent, a “payment” has the

meaning provided in §1.871-15(i).

Sec. 2.60. Payor. A “payor” is defined in §31.3406(a)-2 and §1.6049-4(a)(2) and

generally means any person required to make an information return under chapter 61.

The term includes any person that makes a payment, directly or indirectly, to QI and to

whom QI provides information, pursuant to this Agreement, so that such person can

report a payment on Form 1099 and, if appropriate, backup withhold. See also sections

58

defined in §31.3406(a)-2 and §1.6049-4(a)(2) and

generally means any person required to make an information return under chapter 61.

The term includes any person that makes a payment, directly or indirectly, to QI and to

whom QI provides information, pursuant to this Agreement, so that such person can

report a payment on Form 1099 and, if appropriate, backup withhold. See also sections

58

2.81 and 2.53 of this Agreement for the definition of U.S. payor and non-U.S. payor.

Sec. 2.61. Potential Section 871(m) Transaction. A “potential section 871(m)

transaction” is any securities lending or sale-repurchase transaction, notional principal

contract (NPC), or equity linked instrument (ELI) that references one or more underlying

securities. For purposes of this definition, securities lending or sale-repurchase

transaction, NPC, ELI, reference, and underlying security have the meaning given to the

terms in §§1.871-15(a)(13), (7), (4), (11), and (15), respectively.

Sec. 2.62. Private Arrangement Intermediary (PAI). A “private arrangement

intermediary” or “PAI” is an intermediary described in section 4 of this Agreement.

Sec. 2.63. Qualified Derivatives Dealer (QDD). A “qualified derivatives dealer” or

“QDD” is an eligible entity that agrees to meet the requirements of §1.1441-1(e)(6)(i)

and of this Agreement with respect to payments on potential section 871(m)

transactions and underlying securities that it receives or makes as a principal. In order

to act as a QDD, the home office or branch, as applicable, must qualify and be

approved for QDD status and must represent itself as a QDD on its Form W-8IMY and

separately identify the home office or branch as the recipient on a withholding statement

(if necessary). Each home office or branch that obtains QDD status is treated as a

separate QDD.

Sec. 2.64. QDD Tax Liability. A “QDD tax liability” is the amount described in section

3.09 of this Agreement.

Sec. 2.65. Qualified Intermediary (QI)

represent itself as a QDD on its Form W-8IMY and

separately identify the home office or branch as the recipient on a withholding statement

(if necessary). Each home office or branch that obtains QDD status is treated as a

separate QDD.

Sec. 2.64. QDD Tax Liability. A “QDD tax liability” is the amount described in section

3.09 of this Agreement.

Sec. 2.65. Qualified Intermediary (QI). A “qualified intermediary” or “QI” is a person

(or branch) described in §1.1441-1(e)(5)(ii) that has in effect an agreement with the IRS

to be treated as a QI and acts as a QI.

Sec. 2.66. QI-EIN. A “QI-EIN” means the employer identification number assigned by

the IRS to a QI. QI's QI-EIN is only to be used when QI is acting as a QI. For example,

QI must give a withholding agent its EIN (other than its QI-EIN), if any, if it is receiving

income as a beneficial owner (excluding when it receives income as a principal when

acting as a QDD or as a QI assuming primary withholding responsibility for a substitute

interest payment). QI must also use its non-QI EIN, if any, when acting as an NQI.

Each signatory to this Agreement must have its own QI-EIN.

Sec. 2.67. Qualified Securities Lender (QSL). A “qualified securities lender” or “QSL”

is a person described as a qualified securities lender in Notice 2010-46, 2010-24 I.R.B.

757. A QI that acts as a QSL with respect to a substitute dividend payment (as defined

in §1.861-3(a)(6)) is required to act as a QSL for all U.S. source substitute dividends

received by the QI when acting as an intermediary or dealer with respect to securities

lending and similar transactions. A QI is only permitted to act as a QSL until December

31, 2017.

59

2010-46, 2010-24 I.R.B.

757. A QI that acts as a QSL with respect to a substitute dividend payment (as defined

in §1.861-3(a)(6)) is required to act as a QSL for all U.S. source substitute dividends

received by the QI when acting as an intermediary or dealer with respect to securities

lending and similar transactions. A QI is only permitted to act as a QSL until December

31, 2017.

59

Sec. 2.68. Reportable Amount. A “reportable amount” means U.S. source FDAP

income that is an amount subject to chapter 3 withholding, U.S. source deposit interest,

and U.S. source interest or original issue discount paid on the redemption of short-term

obligations. The term does not include payments on deposits with banks and other

financial institutions that remain on deposit for two weeks or less. It also does not

include amounts of original issue discount arising from a sale and repurchase

transaction completed within a period of two weeks or less, or amounts described in

§1.6049-5(b)(7), (10), or (11) (relating to certain foreign targeted registered obligations

and certain obligations issued in bearer form).

Sec. 2.69. Reportable Payment. For purposes of this Agreement, a “reportable

payment” means an amount described in section 2.69(A) of this Agreement, in the case

of a U.S. payor, and an amount described in section 2.69(B) of this Agreement, in the

case of a non-U.S. payor.

(A) U.S. Payor. If QI is a U.S. payor, a “reportable payment” means, unless an

exception to reporting applies under chapter 61,--

(1) Any reportable amount;

(2) Any broker proceeds from a sale reportable under §1.6045-1(c); and

(3) Any foreign source interest, dividends, rents, royalties, or other fixed and

determinable income.

(B) Non-U.S. Payor. If QI is a non-U.S. payor, a “reportable payment” means, unless

an exception to reporting applies under chapter 61, --

(1) Any reportable amount;

r chapter 61,--

(1) Any reportable amount;

(2) Any broker proceeds from a sale reportable under §1.6045-1(c); and

(3) Any foreign source interest, dividends, rents, royalties, or other fixed and

determinable income.

(B) Non-U.S. Payor. If QI is a non-U.S. payor, a “reportable payment” means, unless

an exception to reporting applies under chapter 61, --

(1) Any reportable amount;

(2) Any broker proceeds from a sale effected at an office inside the United States, as

defined in §1.6045-1(g

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