Rev. Proc. 2014-39 - QI withholding agreement is updated, reflecting FATCA regime 

June 27: The IRS today released an advance copy of Rev. Proc. 2014-39 as guidance for entering into a qualified intermediary (QI) withholding agreement.

Overview

Rev. Proc. 2014-39 provides:


  • Background on the withholding and reporting requirements of Chapter 3, FATCA (Chapter 4), and Chapter 61 and section 3406, and provides a highlight of changes to the existing QI agreement
  • Procedures for becoming a QI and renewing a QI agreement
  • The final QI withholding agreement, clarifying that such agreement is not intended to be modified by a rider

The objective of the QI agreement is to allow a foreign intermediary to assume the withholding and reporting obligations for payments of income (including interest, dividends, royalties, and gross proceeds) made to its account holders or payees through one or more foreign intermediaries or flow-through entities.


Rev. Proc. 2014-39 updates the QI agreement to reflect the FATCA regime and the regulations under section 3406 and Chapters 3, 4, and 61 of the Code. As such, Rev. Proc. 2014-39 supersedes Rev. Prov. 2000-12 with respect to the requirements of a QI that apply on or after June 30, 2014.


Read text of the 108-page Rev. Proc. 2014-39 [PDF 358 KB]

Eligible and ineligible entities

Today’s revenue procedure states that entities eligible to execute a QI agreement include:


  • Foreign financial institutions (FFIs)
  • Foreign clearing organizations
  • Foreign branches of U.S. financial institutions or U.S. clearing organizations

In general, 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:


  • A participating FFI (including a reporting Model 2 FFI)
  • A registered deemed-compliant FFI (including a reporting Model 1 FFI and a nonreporting Model 2 FFI treated as registered deemed-compliant)
  • A registered deemed-compliant Model 1 IGA FFI (as defined in the QI agreement)
  • A limited FFI, for a transitional period

An FFI that is a certified deemed-compliant FFI (including a nonreporting IGA FFI) may enter into a QI agreement if the FFI meets 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)
  • A registered deemed-compliant Model 1 IGA FFI with respect to all accounts that it maintains (even if the FFI does not intend to designate an account as one for which it will act as a QI)

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)
  • A registered deemed-compliant FFI (including a reporting Model 1 FFI) with respect to any account that it maintains and that is held in connection with a “commercial financial activity” and for which it receives a “withholdable payment”

A foreign branch of a U.S. financial institution may also apply to enter into a QI agreement provided that either 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 or a nonparticipating FFI may not apply for a QI agreement.


The QI agreement described in today’s revenue procedure may apply to a foreign corporation that is a non-financial foreign entity (NFFE) seeking to become a QI to, for example, present claims of benefits under an income tax treaty on behalf of its shareholders or other persons (other than an FFI) for which the foreign corporation acts as an intermediary and that the IRS accepts as a qualified intermediary.


  • An NFFE that enters into a QI agreement to act on behalf of its shareholders must meet and agree to assume the obligations of, and to be treated as, a direct reporting NFFE.
  • An NFFE that enters into a QI agreement to act on behalf of persons other than its shareholders will be required to satisfy the withholding and reporting requirements of Reg. sections 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 does not apply to a foreign partnership or foreign trust. A foreign partnership or foreign trust may seek to qualify as a withholding foreign partnership or withholding foreign trust.

Effective date

Rev. Proc. 2014-39 provides that these QI agreement rules have an effective date on or after June 30, 2014.


An FFI, an NFFE acting as a QI on behalf of its shareholders, or an NFFE that is a sponsoring entity that applies for QI status before June 30, 2014, and is issued a GIIN before such date will have a QI agreement with an effective date of June 30, 2014.


An FFI, an NFFE acting as a QI on behalf of its shareholders, or an NFFE that is a sponsoring entity that applies for QI status on or after June 30, 2014, will have a QI agreement with an effective date on the date it is issued a GIIN.


A QI that is an NFFE that is not acting on behalf of its shareholders and is not a sponsoring entity and that renews its QI agreement on or before June 30, 2014, will have a QI agreement with an effective date of June 30, 2014, and, if it renews after June 30, 2014, the effective date of the QI agreement will be the date of renewal provided in the IRS approval notice.


An NFFE that is not acting on behalf of its shareholders, that is not a sponsoring entity, and that is applying to obtain QI status will have a QI agreement with an effective date on the date it is issued a QI-EIN.


A QI that has submitted an application for QI status to the IRS before July 31, 2014, and is approved during calendar year 2014 may act as a qualified intermediary in accordance with Rev. Proc. 2000-12 (as amended) until June 30, 2014, as if the QI agreement of such QI were effective on January 1, 2014, and expires on June 30, 2014.


With today’s release, Rev. Proc. 2000-12 is superseded with respect to the requirements of a QI that apply on or after June 30, 2014. A QI agreement (which includes any riders to such agreement) in effect before June 30, 2014, expires on June 30, 2014.




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