EFTA00284497.pdf

Publication 515 Cal No 15319L Contents Department What's New 2 of the Treasury Internal Withholding Reminders introduction 2 2 Revenue Service of Tax on Withholding of Tax Withholding Agent 3 3 Nonresident Withholding and Reporting Obligations 3 Aliens and Persons Subject to NRA Withholding Identifying the Payee 4 4 Foreign Foreign Persons Documentation 6 7 Entities Beneficial Owners Foreign Intermediaries and Foreign Flow-Through 7 Entities 9 Standards of Knowledge 11 Presumption Rules 13 Income Subject to NRA For use in 2011 Withholding 14 Source of Income 14 Fixed or Determinable Annual or Periodical Income 15 Withholding on Specific Income 16 Effectively Connected Income 16 Income Not Effectively Connected 16 Pay for Personal Services Performed 22 Artists and Athletes 27 Other Income 27 Foreign Governments and Certain Other Foreign Organizations 28 U.S. Taxpayer Identification Numbers 28 Depositing Withheld Taxes 29 Returns Required 30 Partnership Withholding on Effectively Connected Income 31 U.S. Real Property Interest 33 Tax Treaty Tables 37 Table 1. Withholding Tax Rates on Income Other Than Personal Service Income —For Withholding in 2011 38 Table 2. Compensation for Personal Services Performed in the United States Exempt from Withholding and U.S. Income Tax Under Income Tax Treaties 43 Table 3. List of Tax Treaties 55 How To Get Tax Help 56 Index 58 Mar 18, 2011 EFTA00284497  For files submitted on the FIRE system, it is real property interests and the withholding by What's New the responsibility of the filer to verify the results of the transmission within 5 business days. The partnerships on income effectively connected with the active conduct of a U.S. trade or busi- IRS will not mail error reports for files that are ness. Dividend equivalent payments. Beginning bad. September 14, 2010, a dividend equivalent Is Comments and suggestions. We welcome treated as a U.S-source dividend. Dividend IRS taxpayer identification numbers for your comments about this publication and your equivalent payments are described under Divi- aliens. The IRS will issue an individual tax- suggestions for future editions. dends. payer identification number (ITIN) to an alien You can write to us at the following address: who does not have and is not eligble to get a Specified notional principal contracts. Be- social security number (SSN). ginning September 14, 2010, a payment made Internal Revenue Service An ITIN is for tax use only. It does not entitle Individual Forms and Publications Branch under a specified notional principal contract is an alien to social security benefits or change his SE:W:CAR:MP:T:i treated as a dividend equivalent. Specified no- or her employment or immigration status under tional principal contracts are described under 1111 Constitution Ave. NW. IR-6526 U.S. law. Washington. DC 20224 Dividend equivalent payments. For more information on ITINs, see U.S. Tax- Guarantees of Indebtedness. Payments on payer identification Numbers, later. We respond to many letters by telephone. certain guarantees of indebtedness issued after Therefore, it would be helpful if you would in- September 27, 2010, are U.S. source income. Real estate mortgage investment conduits (REMIC). Excess inclusion income is treated clude your daytime phone number, including the See Guarantee income. area code, in your correspondence. as income from sources in the United States. The date an excess inclusion allocated to a You can email us at [email protected]. (The Automatic extension for filing certain Forms foreign person by certain pass-through entities asterisk must be included in the address.) 1042 and 1042-S. If you paid substitute divi- is subject to withholding is, generally, the close Please put "Publications Comment" on the sub- dends after September 13, 2010, you have an of the entity's tax year. An excess inclusion is ject line. You can also send us comments from automatic extension of up to six months to file not eligible for any reduction in withholding tax www.irs.gov/formspubs/index. Select "Com- Form 1042-S for such substitute dividend pay- (by treaty or otherwise). See REMIC excess ment on Tax Forms and Publications" under ments. See Substitute dividendpayments. inclusions. Information About." Exemption from requirement to withhold for Although we cannot respond individually to certain payments to qualified securities Partnership withholding on effectively con- each comment received, we do appreciate your lenders. If you made U.S.-source substitute nected income (ECI). A partnership must feedback and will consider your comments as dividend payments after September 13, 2010, to withhold tax on ECI allocated to a foreign part- we revise our tax products. qualified securities lenders, and these payments ner. However, a publicly traded partnership Ordering forms and publications. Visit are part of a chain of substitute dividend pay- (PTP) cannot elect to withhold tax based on ECI www.irs.gov/formspubs to download forms and ments, you may be exempt from withholcing tax allocable to its foreign partners. The PTP must publications, call 1.800.829.3676, or write to the on the payments. See Amounts paid to qualified withhold on the distribution of that income to its address below and receive a response within 10 securities lenders. foreign partners. days after your request is received. For more information, see Publicly Traded Extension requests. Requests for extensions Partnerships under Partnership Withholding on to provide statements to recipients of more than Effectively Connected Income. Internal Revenue Service 10 withholding agents must be submitted elec- 1201 N. Mitsubishi Motorway tronically. See Extension of time to file. Qualified intermediaries. A branch of a fi- Bloomington. IL 61705-6613 nancial institution may not act as a qualified Deposit coupons eliminated. You must intermediary in a country that does not have make all deposits of taxes electronically. Form Tax questions. If you have a tax question, approved know-your-customer rules. See Quali- 8109 can no longer be used. check the information available on IRS.gov or fied intermediary under Foreign Intermediaries call 1.800-829.1040. We cannot answer tax beginning on page 5. Penalties increased. The penalties have in- questions sent to either of the above addresses. creased if you fail to file Form 1042 or provide Photographs of missing children. The Inter- Form 1042-S to the recipients or the IRS or if nal Revenue Service is a proud partner with the Useful Items you provide incorrect or incomplete information. National Center for Missing and Exploited Chil- You may want to see: See Penalties. dren. Photographs of missing children selected by the Center may appear in this publication on Publication New tax treaty and protocol. The United pages that would otherwise be blank. You can States has exchanged instruments of ratification U 15 (Circular E), Employers Tax Guide help bring these children home by looking at the for a new income tax treaty with Malta and a new photographs and calling 1.800-THE-LOST O 15-A Employers Supplemental Tax protocol amending the income tax treaty with (1-800-843-5678) if you recognize a child. Guide New Zealand. The effective dates for both are as follows. O 15-B Employer's Tax Guide to Fringe Benefits • The provisions for withholding tax at (Circular A), Agricultural Employer's source are effective for amounts paid or Introduction O 51 Tax Guide credited on or after January 1. 2011. This publication is for withholding agents who • The provisions for other taxes are gener- O 519 U.S. Tax Guide for Aliens pay income to foreign persons, including non- ally effective for tax periods beginning on resident aliens, foreign corporations. foreign U 901 U.S. Tax Treaties or after January 1, 2011. partnerships, foreign trusts, foreign estates, for- eign governments, and international organiza- Form (and instructions) tions. Specifically, it describes the persons responsible for withholding (withholding a SS-4 Application for Employer Identification Number agents). the types of Income subject to withhold- Reminders ing, and the information retum and tax return ❑ W-2 Wage and Tax Statement filing obligations of withholding agents. In addi- Filing electronically. II you file Form 1042-S ❑ W-4 Employee's Withholding Allowance tion to discussing the rules that apply generally Certificate electronically, you will use the Filing Information to payments of U.S. source income to foreign Returns Electronically (FIRE) system. You get to persons, it also contains sections on the with- U W-4P Withholding Certificate for Pension the system through the Internet at fire.irs.gov. holding that applies to the disposition of U.S. or Annuity Payments Page 2 Publication 515 (2011) EFTA00284498  O W-7 Application for IRS Individual the payment with documentation from a benefi- When to withhold. Withholding is required at Taxpayer Identification Number cial owner that is a foreign person entitled to a the time you make a payment of an amount reduced rate of withholding. subject to withholding. A payment is made to a O W4BEN Certificate of Foreign Status of person If that person realizes income, whether Beneficial Owner for United States Tax Withholding Withholding Agent or not there is an actual transfer of cash or other property. A payment is considered made to a O W4ECI Certificate of Foreign Person's You are a withholding agent if you are a U.S. or person if it is paid for that person's benefit. For Claim That Income Is Effectively foreign person that has control, receipt, custody, example, a payment made to a creditor of a Connected With the Conduct of a disposal, or payment of any item of income of a person in satisfaction of that person's debt to the Trade or Business in the United foreign person that is subject to withholding. A creditor is considered made to the person. A States withholding agent may be an individual, corpora- payment also is considered made to a person if tion, partnership, trust, association, nominee it is made to that person's agent. • W-SEXP Certificate of Foreign (under section 1446 of the Code), or any other A U.S. partnership should withhold when any Government or Other Foreign entity, including any foreign intermediary, for- distributions that include amounts subject to Organization for United States Tax eign partnership, or U.S. branch of certain for- withholding are made. However, if a foreign Withholding eign banks and Insurance companies. You may partners distributive share of income subject to O W-BIMY Certificate of Foreign be a withholding agent even if there is no re- withholding is not actually distributed. the U.S. Intermediary. Foreign Flow-Through quirement to withhold from a payment or even if partnership must withhold on the foreign part- Entity, or Certain U.S. Branches for another person has withheld the required ner's distributive share of the income on the United States Tax Withholdng amount from the payment. earlier of the date that a Schedule K-1 (Form Although several persons may be withhold- 1065) is provided or mailed to the partner or the O 941 Employer's QUARTERLY Federal ing agents for a single payment, the full tax Is due date for furnishing that schedule. II the dis- Tax Return required to be withheld only once. Generally, the tributable amount consists of effectively con- O 1042 Annual Withholding Tax Return for U.S. person who pays an amount subject to nected income, see Partnership Withholding on U.S. Source Income of Foreign NRA withholding is the person responsible for Effectively Connected Income, later. Persons withholding. However, other persons may be A U.S. trust is required to withhold on the required to withhold. For example, a payment amount includible in the gross income of a for- O 1042-S Foreign Person's U.S. Source made by a flow-through entity or nonqualified eign beneficiary to the extent the trust's distribut- Income Subject to Withholding intermediary that knows, or has reason to know, able net income consists of an amount subject to CI 1042-T Annual Summary and Transmittal that the lull amount of NRA withholding was not withholding. To the extent a U.S. trust is required of Forms 1042-S done by the person from which it receives a to distribute an amount subject to withholding payment is required to do the appropriate with- but does not actually distribute the amount, it See How To Get Tax Help at the end of this holding since it also falls within the definition of a must withhold on the foreign beneficiary's allo- publication, for information about getting publi- withholding agent. In addition, withholding must cable share at the time the Income Is required to cations and forms. be done by any qualified intermediary, withhold- be reported on Form 1042-S. ing foreign partnership, or withholding foreign trust in accordance with the terms of its withhold- Withholding and ing agreement, discussed later. Reporting Obligations Withholding of Tax Liability for tax. As a withholding agent, you are personally liable for any tax required to be You are required to report payments subject to Generally, a foreign person is subject to U.S. lax withheld. This liability is independent of the tax NRA withholding on Form 1042-S and to file a on its U.S. source income. Most types of U.S. liability of the foreign person to whom the pay- tax return on Form 1042. (See Returns Re- source income received by a foreign person are quired, later.) An exception from reporting may subject to U.S. tax of 30%. A reduced rate, ment is made. If you fail to withhold and the foreign payee fails to satisfy its U.S. tax liability, apply to individuals who are not required to with- including exemption. may apply if there is a tax then both you and the foreign person are liable hold from a payment and who do not make the treaty between the foreign person's country of payment in the course of their trade or business. residence and the United States. The tax is for tax, as well as interest and any applicable generally withheld (NRA withholding) from the penalties. Form 1099 reporting and backup withhold- payment made to the foreign person. The applicable tax will be collected only ing. You also may be responsible as a payer once. If the foreign person satisfies Its U.S. tax The term 'NRA withholding" is used in this for reporting on Form 1099 payments made to a liability, you are not liable for the tax but remain publication descriptively to refer to withholding U.S. person. You must withhold 28% (backup liable for any interest and penalties for failure to required under sections 1441, 1442, and 1443 withholding rate) from a reportable payment withhold. of the Internal Revenue Code. Generally, NRA made to a U.S. person that is subject to Form withholding describes the withholding regime Determination of amount to withhold. You 1099 reporting if (1) the U.S. person has not that requires withholding on a payment of U.S. must withhold on the gross amount subject to provided its taxpayer identification number (TIN) source income. Payments to foreign persons, NRA withholding. You cannot reduce the gross in the manner required, (2) the IRS notifies you including nonresident alien individuals, foreign amount by any deductions. However, see Schol- that the TIN furnished by the payee is incorrect, entities, and governments, may be subject to arships and Fellowship Grants and Pay for Per- (3) there has been a notified payee underreport- NRA withholding. sonal Services Performed, later, for when a ing, or (4) there has been a payee certification deduction for a personal exemption may be al- failure. Generally, a TIN must be provided by a NRA withholding does not include with- A holdingunder section 1445 of the Code (see U.S. Real Property Interest, later) lowed. If the determination of the source of the in- come or the amount subject to tax depends on U.S. non-exempt recipient on Form W-9. A payer files a tax return on Form 945 for backup withholding. or under section 1446 of the Code (see Partner- facts that are not known at the time of payment, You may be required to file Form 1099 and, if ship Withholding on Effectively Connected In- you muss withhold an amount sufficient to en- appropriate, backup withhold, even if you do not come, later). sure that at least 30% of the amount subse- make the payments directly to that U.S. person. A withholding agent (defined next) is the per- quently determined to be subject to withholding For example. you are required to report income son responsible for withholding on payments is withheld. In no case, however, should you paid to a foreign intermediary or flow-through made to a foreign person. However, a withhold- withhold more than 30% of the total amount entity that collects for a U.S. person subject to ing agent that can reliably associate the pay- paid. Or. you may make a reasonable estimate Form 1099 reporting. See Identifying the Payee, ment with documentation (discussed later) from of the amount from U.S. sources and put a later, for more information. Also see Section S. a U.S. person is not required to withhold. In corresponding portion of the amount due in es- Special Rules for Reporting Payments Made addition, a withholding agent may apply a re- crow until the amount from U.S. sources can be Through Foreign intermediaries and Foreign duced rate of withholding (including an exemp- determined, at which time withholding becomes Flow-Through Entities on Form 1099in the Gen- tion from withholding) if it can reliably associate due. eral Instructions for Certain Information Returns Publication 515 (2011) Page 3 EFTA00284499 (Forms 1097, 1098, 1099, 3921, 3922, 5498, Disregarded entities. A business entity that treated as foreign under the Income tax regula- and W-26). is not a corporation and that has a single owner tions. II a foreign partnership is not a withholding may be disregarded as an entity separate from foreign partnership, the payees of income are Foreign persons who provide Form its owner (a disregarded entity) for federal tax the partners of the partnership, provided the W-8BEN, Form W-8EC1, or Form purposes. The payee of a payment made to a partners are not themselves a flow-through en- W-8EXP (or applicable documentary disregarded entity is the owner of the entity. tity or a foreign intermediary. However, the evidence) are exempt from backup withholding and Form 1099 reporting. If the owner of the entity is a foreign person, payee Is the partnership itself if the partnership you must apply NRA withholding unless you can is claiming treaty benefits on the basis that It is Wages paid to employees. II you are the treat the foreign owner as a beneficial owner not fiscally transparent and that it meets all the employer of a nonresident alien, you generally entitled to a reduced rate of withholding. other requirements for claiming treaty benefits. If must withhold taxes at graduated rates. See Pay If the owner is a U.S. person, you do not a partner is a foreign flow-through entity or a for Personal Services Performed, later. apply NRA withholding. However, you may be foreign intermediary, you apply the payee deter- required to report the payment on Form 1099 mination rules to that partner to determine the Effectively connected income by partner- and. if applicable. backup withhold. You may payees. ships. A withholding agent that is a partner- assume that a foreign entity is not a disregarded ship (whether U.S. or foreign) Is also entity unless you can reliably associate the pay- Example 1. A nonwithholding foreign part- responsible for withholding on its income effec- ment with documentation provided by the owner nership has three partners: a nonresident alien tively connected with a U.S. trade or business or you have actual knowledge or reason to know individual; a foreign corporation; and a U.S. citi- that is allocable to foreign partners. See Partner- that the foreign entity is a disregarded entity. zen. You make a payment of U.S. source inter- ship Withholding on Effectively Connected In- est to the partnership. II gives you a Form come (ECI), later. for more information. W-8IMY with which it associates Forms Flow-Through Entities W-8BEN from the nonresident alien and the U.S. real property interest. A withholding foreign corporation and a Form W-9 from the agent also may be responstle for withholding if The payees of payments (other than income effectively connected with a U.S. trade or busi- U.S. citizen. The partnership also gives you a a foreign person transfers a U.S. real property interest to the agent, or if it is a corporation, ness) made to a foreign (low-through entity are complete withholding statement that enables partnership, trust, or estate that dstributes a the owners or beneficiaries of the flow-through you to associate a portion of the interest pay- U.S. real property interest to a shareholder, part- entity. This rule applies for purposes of NRA ment to each partner. ner. or beneficiary that is a foreign person. See withholding and for Form 1099 reporting and You must treat all three partners as the pay- U.S. Real Property Interest, later. backup withholding. Income that is, or is ees of the interest payment as if the payment deemed to be, effectively connected with the were made directly to them. Report the payment conduct of a U.S. trade or business of a to the nonresident alien and the foreign corpora- flow-through entity is treated as paid to the en- tion on Forms 1042-S. Report the payment to Persons Subject to tity. the U.S. citizen on Form 1099-INT. All of the following are flow-through entitles. NRA Withholding • A foreign partnership (other than a with- Example 2. A nonwithholding foreign part- nership has two partners: a foreign corporation NRA withholding applies only to payments made holding foreign partnership). and a nonwithholding foreign partnership. The to a payee that is a foreign person. It does not • A foreign simple or foreign grantor trust second partnership has two partners. both non- apply to payments made to U.S. persons. (other than a withholding foreign trust). resident alien individuals. You make a payment Usually, you determine the payee's status as of U.S. source interest to the first partnership. It a U.S. or foreign person based on the documen- • A fiscally transparent entity receiving in- gives you a valid Form WIMMY with which it tation that person provides. See Documenta- come for which treaty benefits are associates a Form W-8BEN from the foreign tion, later. However. if you have received no claimed. See Fiscally transparent entity. corporation and a Form W-8IMY from the sec- documentation or you cannot reliably associate later. ond partnership. In addition, Forms W-8BEN all or a portion of a payment with documentation, from the partners are associated with the Form then you must apply certain presumption rules, Generally, you treat a payee as a flow-through entity if it provides you with a Form W-8IMY (see W-8IMY from the second partnership. The discussed later. Forms W-8IMY from the partnerships nave com- Documentation, later) on which it claims such status. You also may be required to treat the plete withholding statements associated with Identifying the Payee entity as a flow-through entity under the pre- them. Because you can reliably associate a por- sumption rules, discussed later. tion of the interest payment with the Forms Generally, the payee is the person to whom you W-8BEN provided by the foreign corporation make the payment, regardless of whether that You must determine whether the owners or beneficiaries of a flow-through entity are U.S. or and the nonresident alien individual partners as person is the beneficial owner of the income. a result of the withholding statements, you must However, there are situations in which the foreign persons. how much of the payment re- lates to each owner or beneficiary, and, If the treat them as the payees of the interest. payee is a person other than the one to whom you actually make a payment. owner or beneficiary is foreign, whether a re- duced rate of NRA withholding applies. You Example 3. You make a payment of U.S. U.S. agent of foreign person. II you make a make these determinations based on the docu- source dividends to a withholding foreign part- payment to a U.S. person and you have actual mentation and other information (contained in a nership. The partnership has two partners, both knowledge that the U.S. person is receiving the withholding statement) that is associated with foreign corporations. You can reliably associate payment as an agent of a foreign person, you the flow-through entity's Form W-8IMY. If you do the payment with a valid Form W-8IMY from the must treat the payment as made to the foreign not have all of the information that is required to partnership on which it represents that it is a person. However, if the U.S. person is a financial reliably associate a payment with a specific withholding foreign partnership. You must treat institution, you may treat the institution as the payee, you must apply the presumption rules. the partnership as the payee of the dividends. payee provided you have no reason to believe See Documentation and Presumption Rules, that the institution will not comply with its own later. Foreign simple and grantor trust. A trust is obligation to withhold. Withholding foreign partnerships and with- foreign unless it meets both the following tests. If the payment is not subject to NRA with- holding foreign trusts are not flow-through enti- • A court within the United States is able to holding (for example, gross proceeds from the ties. exercise primary supervision over the ad- sales of securities), you must treat the payment ministration of the trust. as made to a U.S. person and not as a payment Foreign partnerships. A foreign partnership to a foreign person. You may be required to is any partnership that is not organized under • One or more U.S. persons have the au- report the payment on Form 1099 and, if appli- the laws of any state of the United States or the thority to control all substantial decisions cable, backup withhold. District of Columbia or any partnership that is of the trust. Page 4 Publication 515 (2011) EFTA00284500  Generally, a foreign simple trust is a foreign an income tax treaty in force with the United foreign person and that is not a qualified inter- trust that is required to distribute all of its income States. mediary. The payees of a payment made to an annually. A foreign grantor trust is a foreign trust A receives royalty income from U.S. sources NOI are the customers or account holders on that is treated as a grantor trust under sections that is not effectively connected with the conduct whose behalf the NOI is acting. 671 through 679 of the Code. of a trade or business in the United States. For The payees of a payment made to a foreign U.S. income tax purposes. A is treated as a Example. You make a payment of interest simple trust are the beneficiaries of the trust. partnership. Country X treats A as a partnership to a foreign bank that is a nonqualifled intermedi- The payees of a payment made to a foreign and requires the interest holders in A to sepa- ary. The bank gives you a Form W-81MY and the grantor trust are the owners of the trust. How- rately take into account on a current basis their Forms W-8BEN of two foreign persons, and a ever, the payee is the foreign simple or grantor respective shares of the income paid to A even if Form W-9 from a U.S. person for whom the bank trust itself if the trust is claiming treaty benefits the income is not distributed. The laws of coun- Is collecting the payments. The bank also asso- on the basis that it is not fiscally transparent and try X provide that the character and source of the ciates with its Form W-81MY a withholding state- that it meets all the other requirements for claim- income to A's interest holders are determined as ment on which it allocates the interest payment ing treaty benefits. If the beneficiaries or owners if the income was realized directly from the to each account holder and provides all other are themselves flow-through entities or foreign source that paid it to A. Accordingly, A is fiscally information required to be on the withholding intermediaries, you apply the payee determina- transparent in its jurisdiction, country X. statement. The account holders are the payees tion rules to that beneficiary or owner to deter- B and C are not fiscally transparent under the of the interest payment. You should report the mine the payees. laws of their respective countries of incorpora- portion of the interest paid to the two foreign tion. Country Y requires B to separately take into persons on Forms 1042-S and the portion paid Example. A foreign simple trust has three account on a current basis B's share of the to the U.S. person on Form 1099-INT. beneficiaries: a nonresident alien individual, a income paid to A, and the character and source Qualified intermediary. A qualified intermedi- foreign corporation, and a U.S. citizen. You of the Income to B is determined as if the Income ary (O1) is any foreign intermediary (or foreign make a payment of interest to the foreign trust. It was realized directly from the source that paid it branch of a U.S. intermediary) that has entered gives you a Form W-8IMY with which it associ- to A. Accordingly, A is fiscally transparent for into a qualified intermediary withholding agree- ates Forms W-8BEN from the nonresident alien that income under the laws of country Y, and B is ment (discussed later) with the IRS. You may and the foreign corporation and a Form W-9 treated as deriving its share of the U.S. source treat a O1 as a payee to the extent the O1 as- from the U.S. citizen. The trust also gives you a royalty income for purposes of the U.S.-Y in- sumes primary withholding responsibility or pri- complete withholding statement that enables come tax treaty. Country Z. on the other hand, mary Form 1099 reporting and backup you to associate a portion of the interest pay- treats A as a corporation and does not require C withholding responsibility for a payment. In this ment with the forms provided by each benefi- to take into account its share of A's income on a situation, the 01 is required to withhold the tax. ciary. You must treat all three beneficiaries as current basis whether or not distributed. There- You can determine whether a O1 has assumed the payees of the interest payment as if the fore. A is not treated as fiscally transparent responsibility from the Form W-81MY provided payment were made directly to them. Report the under the laws of country Z. Accordingly, C is by the 01. payment to the nonresident alien and the foreign not treated as deriving its share of the U.S. A payment to a O1 to the extent it does not corporation on Forms 1042-S. Report the pay- source royalty income for purposes of the U.S.-Z assume primary NRA withholding responsibility ment to the U.S. citizen on Form 1099-INT. income tax treaty. is considered made to the person on whose behalf the (Maas. IIa QI does not assume Form Fiscally transparent entity. If a reduced rate 1099 reporting and backup withholding respon- of withholding under an income tax treaty is Foreign Intermediaries sibility, you must report on Form 1099 and, if claimed, a flow-through entity includes any en- Generally, if you make payments to a foreign applicable, backup withhold as if you were mak- tity in which the interest holder must treat the intermediary, the payees are the persons for ing the payment tiredly to the U.S. person. entity as fiscally transparent. The determination whom the foreign intermediary collects the pay- Branches of financial institutions. of whether an entity is fiscally transparent is ment, such as account holders or customers, Branches of financial institutions are not permit- made on an item of income basis (that is, the not the intermediary itself. This rule applies for ted to operate as Ols if they are located outside determination is made separately for interest. purposes of NRA withholding and for Form 1099 of countries having approved dividends, royalties, etc.). The interest holder in reporting and backup withholding. You may, 'know-your-customer (KYC) rules. The coun- an entity makes the determination by applying however, treat a qualified intermediary that has tries with appr