Regs. § 1.1441-0 Outline of provisions for section 1441.
Regs. § 1.1441-1 Requirement for the deduction and withholding of tax on payments to foreign persons.
Regs. § 1.1441-2 Amounts subject to withholding.
Regs. § 1.1441-3 Determination of amounts to be withheld.
Regs. § 1.1441-4 Exemptions from withholding for certain effectively connected income and other amounts.
Regs. § 1.1441-5 Withholding on payments to partnerships, trusts and estates.
Regs. § 1.1441-6 Claim of reduced withholding under an income tax treaty.
Regs. § 1.1441-7 General provisions relating to withholding agents.
Regs. § 1.1441-8 Exemption from withholding for payments to foreign governments, international organizations, foreign central banks of issue, and the Bank for International Settlements.
Regs. § 1.1441-9 Exemption from withholding on exempt income of a foreign tax-exempt organization, including foreign private foundations.
This section lists captions contained in sections 1.1441-1 through 1.1441-9.
Sec. 1441-1 Requirement for the deduction and withholding of tax on payments to foreign persons.
(a) Purpose and scope
(b) General rules of withholding
(1) Requirement to withhold on payments to foreign persons
(2) Determination of payee and payee's status
(i) In general
(ii) Payments to a U.S. agent of a foreign person
(iii) Payments to wholly-owned entities
(A) Foreign-owned domestic entity
(B) Foreign entity
(iv) Payments to a U.S. branch of certain foreign banks or foreign insurance companies
(A) U.S. branch treated as a U.S. person in certain cases
(B) Consequences to the withholding agent
(C) Consequences to the U.S. branch
(D) Definition of payment to a U.S. branch
(E) Payments to other U.S. branches
(v) Payments to a foreign intermediary
(A) Payments treated as made to persons for whom the intermediary collects the payment
(B) Payments treated as made to foreign intermediary
(vi) Other payees
(vii) Rules for reliably associating a payment with a withholding certificate or other appropriate documentation
(A) Generally
(B) Special rules applicable to a withholding certificate from a nonqualified intermediary or flow-through entity
(C) Special rules applicable to a withholding certificate provided by a qualified intermediary that does not assume primary withholding responsibility
(D) Special rules applicable to a withholding certificate provided by a qualified intermediary that assumes primary withholding responsibility under chapter 3 of the Internal Revenue Code
(E) Special rules applicable to a withholding certificate provided by a qualified intermediary that assumes primary Form 1099 reporting and backup withholding responsibility but not primary withholding under chapter 3
(F) Special rules applicable to a withholding certificate provided by a qualified intermediary that assumes primary withholding responsibility under chapter 3 and primary Form 1099 reporting and backup withholding responsibility and a withholding certificate provided by a withholding foreign partnership
(3) Presumptions regarding payee's status in the absence of documentation
(i) General rules
(ii) Presumptions of classification as individual, corporation, partnership, etc.
(A) In general
(B) No documentation provided
(C) Documentary evidence furnished for offshore account
(iii) Presumption of U.S. or foreign status
(A) Payments to exempt recipients
(B) Scholarships and grants
(C) Pensions, annuities, etc.
(D) Certain payments to offshore accounts
(iv) Grace period
(v) Special rules applicable to payments to foreign intermediaries
(A) Reliance on claim of status as foreign intermediary
(B) Beneficial owner documentation or allocation information is lacking or unreliable
(C) Information regarding allocation of payment is lacking or unreliable
(D) Certification that the foreign intermediary has furnished documentation for all of the persons to whom the intermediary certificate relates is lacking or unreliable
(vi) U.S. branches
(vii) Joint payees
(A) In general
(B) Special rule for offshore accounts
(viii) Rebuttal of presumptions
(ix) Effect of reliance on presumptions and of actual knowledge or reason to know otherwise
(A) General rule
(B) Actual knowledge or reason to know that amount of withholding is greater than is required under the presumptions or that reporting of the payment is required
(x) Examples
(4) List of exemptions from, or reduced rates of, withholding under chapter 3 of the Code
(5) Establishing foreign status under applicable provisions of chapter 61 of the Code
(6) Rules of withholding for payments by a foreign intermediary or certain U.S. branches
(i) In general
(ii) Example
(7) Liability for failure to obtain documentation timely or to act in accordance with applicable presumptions
(i) General rule
(ii) Proof that tax liability has been satisfied
(iii) Liability for interest and penalties
(iv) Special effective date
(v) Examples
(8) Adjustments, refunds, or credits of overwithheld amounts
(9) Payments to joint owners
(c) Definitions
(1) Withholding
(2) Foreign and U.S. person
(3) Individual
(i) Alien individual
(ii) Nonresident alien individual
(4) Certain foreign corporations
(5) Financial institution and foreign financial institution
(6) Beneficial owner
(i) General rule
(ii) Special rules
(A) General rule
(B) Foreign partnerships
(C) Foreign simple trusts and foreign grantor trusts
(D) Other foreign trusts and foreign estates
(7) Withholding agent
(8) Person
(9) Source of income
(10) Chapter 3 of the Code
(11) Reduced rate
(12) Payee
(13) Intermediary
(14) Nonqualified intermediary
(15) Qualified intermediary
(16) Withholding certificate
(17) Documentary evidence; other appropriate documentation
(18) Documentation
(19) Payor
(20) Exempt recipient
(21) Non-exempt recipient
(22) Reportable amounts
(23) Flow-through entity
(24) Foreign simple trust
(25) Foreign complex trust
(26) Foreign grantor trust
(27) Partnership
(28) Nonwithholding foreign partnership
(29) Withholding foreign partnership
(d) Beneficial owner's or payee's claim of U.S. status
(1) In general
(2) Payments for which a Form W-9 is otherwise required
(3) Payments for which a Form W-9 is not otherwise required
(4) When a payment to an intermediary or flow-through entity may be treated as made to a U.S. payee
(e) Beneficial owner's claim of foreign status
(1) Withholding agent's reliance
(i) In general
(ii) Payments that a withholding agent may treat as made to a foreign person that is a beneficial owner
(A) General rule
(B) Additional requirements
(2) Beneficial owner withholding certificate
(i) In general
(ii) Requirements for validity of certificate
(3) Intermediary, flow-through, or U.S. branch withholding certificate
(i) In general
(ii) Intermediary withholding certificate from a qualified intermediary
(iii) Intermediary withholding certificate from a nonqualified intermediary
(iv) Withholding statement provided by nonqualified Intermediary
(A) In general
(B) General requirements
(C) Content of withholding statement
(D) Alternative procedures
(E) Notice procedures
(v) Withholding certificate from certain U.S. branches
(vi) Reportable amounts
(4) Applicable rules
(i) Who may sign the certificate
(ii) Period of validity
(A) Three-year period
(B) Indefinite validity period
(C) Withholding certificate for effectively connected income
(D) Change in circumstances
(iii) Retention of withholding certificate
(iv) Electronic transmission of information
(A) In general
(B) Requirements
(C) Special requirements for transmission of Forms W-8 by an intermediary [Reserved]
(v) Electronic confirmation of taxpayer identifying number on withholding certificate
(vi) Acceptable substitute form
(vii) Requirement of taxpayer identifying number
(viii) Reliance rules
(A) Classification
(B) Status of payee as an intermediary or as a person acting for its own account
(ix) Certificates to be furnished for each account unless exception applies
(A) Coordinated account information system in effect
(B) Family of mutual funds
(C) Special rule for brokers
(5) Qualified intermediaries
(i) General rule
(ii) Definition of qualified intermediary
(iii) Withholding agreement
(A) In general
(B) Terms of the withholding agreement
(iv) Assignment of primary withholding responsibility
(v) Withholding statement
(A) General rule
(B) Content of withholding statement
(C) Withholding rate pools
(f) Effective date
(1) In general
(2) Transition rules
(i) Special rules for existing documentation
(ii) Lack of documentation for past years
Sec. 1.1441-2 Amounts subject to withholding
(a) In general
(b) Fixed or determinable annual or periodical income
(1) In general
(i) Definition
(ii) Manner of payment
(iii) Determinability of amount
(2) Exceptions
(3) Original issue discount
(i) Amount subject to tax
(ii) Amounts subject to withholding
(4) Securities lending transactions and equivalent transactions
(c) Other income subject to withholding
(d) Exceptions to withholding where no money or property is paid or lack of knowledge
(1) General rule
(2) Cancellation of debt
(3) Satisfaction of liability following underwithholding by withholding agent
(e) Payment
(1) General rule
(2) Income allocated under section 482
(3) Blocked income
(4) Special rules for dividends
(5) Certain interest accrued by a foreign corporation
(6) Payments other than in U.S. dollars
(f) Effective date
Sec. 1.1441-3 Determination of amounts to amounts to be withheld
(a) Withholding on gross amount
(b) Withholding on payments on certain obligations
(1) Withholding at time of payment of interest
(2) No withholding between interest payment dates
(i) In general
(ii) Anti-abuse rule
(c) Corporate distributions
(1) General rule
(2) Exception to withholding on distributions
(i) In general
(ii) Reasonable estimate of accumulated and current earnings and profits on the date of payment
(A) General rule
(B) Procedures in case of underwithholding
(C) Reliance by intermediary on reasonable estimate
(D) Example
(3) Special rules in the case of distributions from a regulated investment company
(i) General rule
(ii) Reliance by intermediary on reasonable estimate
(4) Coordination with withholding under section 1445
(i) In general
(A) Withholding under section 1441
(B) Withholding under both sections 1441 and 1445
(C) Coordination with REIT withholding
(ii) Intermediary reliance rule
(d) Withholding on payments that include an undetermined amount of income
(1) In general
(2) Withholding on certain gains
(e) Payments other than in U.S. dollars.
(1) In general
(2) Payments in foreign currency
(f) Tax liability of beneficial owner satisfied by withholding agent
(1) General rule
(2) Example
(g) Conduit financing arrangements
(h) Effective date
Sec. 1.1441-4 Exemptions from withholding for certain effectively connected income and other amounts
(a) Certain income connected with a U.S. trade or business
(1) In general
(2) Withholding agent's reliance on a claim of effectively connected income
(i) In general
(ii) Special rules for U.S. branches of foreign persons
(A) U.S. branches of certain foreign banks or foreign insurance companies
(B) Other U.S. branches
(3) Income on notional principal contracts
(i) General rule
(ii) Exception for certain payments
(b) Compensation for personal services of an individual
(1) Exemption from withholding
(2) Manner of obtaining withholding exemption under tax treaty
(i) In general
(ii) Withholding certificate claiming withholding exemption
(iii) Review by withholding agent
(iv) Acceptance by withholding agent
(v) Copies of Form 8233
(3) Withholding agreements
(4) Final payments exemption
(i) General rule
(ii) Final payment of compensation for personal services
(iii) Manner of applying for final payment exemption
(iv) Letter to withholding agent
(5) Requirement of return
(6) Personal exemption
(i) In general
(ii) Multiple exemptions
(iii) Special rule where both certain scholarship and compensation income are received
(c) Special rules for scholarship and fellowship income
(1) In general
(2) Alternate withholding election
(d) Annuities received under qualified plans
(e) Per diem of certain alien trainees
(f) Failure to receive withholding certificates timely or to act in accordance with applicable presumptions
(g) Effective date
(1) General rule
(2) Transition rules
Sec. 1.1441-5 Withholding on payments to partnerships, trusts and estates
(a) In general
(b) Rules applicable to U.S. partnerships, trusts, and estates
(1) Payments to U.S. partnerships, trusts, and estates
(2) Withholding by U.S. payees
(i) U.S. partnerships
(A) In general
(B) Effectively connected income of partners
(ii) U.S. simple trusts
(iii) U.S. complex trusts and U.S. estates
(iv) U.S. grantor trusts
(v) Subsequent distribution
(c) Foreign partnerships
(1) Determination of payee
(i) Payments treated as made to partners
(ii) Payments treated as made to the partnership
(iii) Rules for reliably associating a payment with documentation
(iv) Examples
(2) Withholding foreign partnerships
(i) Reliance on claim of withholding foreign partnership status
(ii) Withholding agreement
(iii) Withholding responsibility
(iv) Withholding certificate from a withholding foreign partnership
(3) Nonwithholding foreign partnerships
(i) Reliance on claim of foreign partnership status
(ii) Reliance on claim of reduced withholding by a partnership for its partners
(iii) Withholding certificate from a nonwithholding foreign partnership
(iv) Withholding statement provided by nonwithholding foreign partnership
(v) Withholding and reporting by a foreign partnership
(d) Presumption rules
(1) In general
(2) Determination of partnership's status as domestic or foreign in the absence of documentation
(3) Determination of partners' status in the absence of certain documentation
(4) Determination by a withholding foreign partnership of the status of its partners
(e) Foreign trusts and estates
(1) In general
(2) Payments to foreign complex trusts and estates
(3) Payees of payments to foreign simple trusts and foreign grantor trusts
(i) Payments for which beneficiaries and owners are payees
(ii) Payments for which trust is payee
(4) Reliance on claim of foreign complex trust or foreign estate status
(5) Foreign simple trust and foreign grantor trust
(i) Reliance on claim of foreign simple trust or foreign grantor trust status
(ii) Reliance on claim of reduced withholding by a foreign simple trust or foreign grantor trust for its beneficiaries or owners
(iii) Withholding certificate from foreign simple trust or foreign grantor trust
(iv) Withholding statement provided by a foreign simple trust or foreign grantor trust
(v) Withholding foreign trusts
(6) Presumption rules
(i) In general
(ii) Determination of status as U.S. or foreign trust or estate in the absence of documentation
(iii) Determination of beneficiary or owner's status in the absence of certain documentation
(f) Failure to receive withholding certificate timely or to act in accordance with applicable presumptions
(g) Effective date
(1) General rule
(2) Transition rules
Sec. 1.1441-6 Claim of reduced withholding under an income tax treaty
(a) In general
(b) Reliance on claim of reduced withholding under an income tax treaty
(1) In general
(2) Payment to fiscally transparent entity
(i) In general
(ii) Certification by qualified intermediary
(iii) Dual treatment
(iv) Examples
(3) Certified TIN
(4) Claim of benefits under an income tax treaty by a U.S. person
(c) Exemption from requirement to furnish a taxpayer identifying number and special documentary evidence rules for certain income
(1) In general
(2) Income to which special rules apply
(3) Certificate of residence
(4) Documentary evidence establishing residence in the treaty country
(i) Individuals
(ii) Persons other than individuals
(5) Statements regarding entitlement to treaty benefits
(i) Statement regarding conditions under a limitation on benefits provision
(ii) Statement regarding whether the taxpayer derives the income
(d) Joint owners
(e) Competent authority
(f) Failure to receive withholding certificate timely
(g) Effective date
(1) General rule
(2) Transition rules
Sec. 1.1441-7 General provisions relating to withholding agents.
(a) Withholding agent defined
(1) In general
(2) Examples.
(b) Standards of knowledge
(1) In general
(2) Reason to know
(3) Financial institutions -- limits on reason to know
(4) Rules applicable to withholding certificates
(i) In general
ii) Examples
(5) Withholding certificate -- establishment of foreign status
(6) Withholding certificate -- claim of reduced rate of withholding under treaty
(7) Documentary evidence
(8) Documentary evidence -- establishment of foreign status
(9) Documentary evidence -- claim of reduced rate of withholding under treaty
(10) Limits on reason to know -- indirect account holders
(11) Additional guidance
(c) Authorized agent
(1) In general
(2) Authorized foreign agent
(3) Notification
(4) Liability of U.S. withholding agent
(5) Filing of returns
(d) United States obligations
(e) Assumed obligations
(f) Conduit financing arrangements
(g) Effective date
Sec. 1.1441-8 Exemption from withholding for payments to foreign governments, international organizations, foreign central banks of issue, and the Bank for International Settlements
(a) Foreign governments
(b) Reliance on claim of exemption by foreign government
(c) Income of a foreign central bank of issue or the Bank for International Settlements
(1) Certain interest income
(2) Bankers' acceptances
(d) Exemption for payments to international organizations
(e) Failure to receive withholding certificate timely and other applicable procedures
(f) Effective date
(1) In general
(2) Transition rules
Sec. 1.1441-9 Exemption from withholding on exempt income of a foreign tax-exempt organization, including foreign private foundations
(a) Exemption from withholding for exempt income
(b) Reliance on foreign organization's claim of exemption from withholding
(1) General rule
(2) Withholding certificate
(3) Presumptions in the absence of documentation
(4) Reason to know
(c) Failure to receive withholding certificate timely and other applicable procedures
(d) Effective date
(1) In general
(2) Transition rules
(a) Purpose and scope
This section, sections 1.1441-2 through 1.1441-9, and 1.1443-1 provide rules for withholding under sections 1441, 1442, and 1443 when a payment is made to a foreign person. This section provides definitions of terms used in chapter 3 of the Internal Revenue Code (Code) and regulations thereunder. It prescribes procedures to determine whether an amount must be withheld under chapter 3 of the Code and documentation that a withholding agent may rely upon to determine the status of a payee or a beneficial owner as a U.S. person or as a foreign person and other relevant characteristics of the payee that may affect a withholding agent's obligation to withhold under chapter 3 of the Code and the regulations thereunder. Special procedures regarding payments to foreign persons that act as intermediaries are also provided. Section 1.1441-2 defines the income subject to withholding under section 1441, 1442, and 1443 and the regulations under these sections. Section 1.1441-3 provides rules regarding the amount subject to withholding. Section 1.1441-4 provides exemptions from withholding for, among other things, certain income effectively connected with the conduct of a trade or business in the United States, including certain compensation for the personal services of an individual. Section 1.1441-5 provides rules for withholding on payments made to flow-through entities and other similar arrangements. Section 1.1441- 6 provides rules for claiming a reduced rate of withholding under an income tax treaty. Section 1.1441-7 defines the term withholding agent and provides due diligence rules governing a withholding agent's obligation to withhold. Section 1.1441-8 provides rules for relying on claims of exemption from withholding for payments to a foreign government, an international organization, a foreign central bank of issue, or the Bank for International Settlements. Sections 1.1441-9 and 1.1443-1 provide rules for relying on claims of exemption from withholding for payments to foreign tax exempt organizations and foreign private foundations.
(b) General rules of withholding
(1) Requirement to withhold on payments to foreign persons
A withholding agent must withhold 30- percent of any payment of an amount subject to withholding made to a payee that is a foreign person unless it can reliably associate the payment with documentation upon which it can rely to treat the payment as made to a beneficial owner that is U.S. person or as made to a beneficial owner that is a foreign person entitled to a reduced rate of withholding. However, a withholding agent making a payment to a foreign person need not withhold where the foreign person assumes responsibility for withholding on the payment under chapter 3 of the Code and the regulations thereunder as a qualified intermediary (see paragraph (e)(5) of this section), as a U.S. branch of a foreign person (see paragraph (b)(2)(iv) of this section), as a withholding foreign partnership (see section 1.1441-5(c)(2)(i)), or as an authorized foreign agent (see section 1.1441-7(c)(1)). This section (dealing with general rules of withholding and claims of foreign or U.S. status by a payee or a beneficial owner), and sections 1.1441-4, 1.1441-5, 1.1441-6, 1.1441-8, 1.1441-9, and 1.1443-1 provide rules for determining whether documentation is required as a condition for reducing the rate of withholding on a payment to a foreign beneficial owner or to a U.S. payee and if so, the nature of the documentation upon which a withholding agent may rely in order to reduce such rate. Paragraph (b)(2) of this section prescribes the rules for determining who the payee is, the extent to which a payment is treated as made to a foreign payee, and reliable association of a payment with documentation. Paragraph (b)(3) of this section describes the applicable presumptions for determining the payee's status as U.S. or foreign and the payee's other characteristics (i.e., as an owner or intermediary, as an individual, partnership, corporation, etc.). Paragraph (b)(4) of this section lists the types of payments for which the 30-percent withholding rate may be reduced. Because the treatment of a payee as a U.S. or a foreign person also has consequences for purposes of making an information return under the provisions of chapter 61 of the Code and for withholding under other provisions of the Code, such as sections 3402, 3405 or 3406, paragraph (b)(5) of this section lists applicable provisions outside chapter 3 of the Code that require certain payees to establish their foreign status (e.g., in order to be exempt from information reporting). Paragraph (b)(6) of this section describes the withholding obligations of a foreign person making a payment that it has received in its capacity as an intermediary. Paragraph (b)(7) of this section describes the liability of a withholding agent that fails to withhold at the required 30-percent rate in the absence of documentation. Paragraph (b)(8) of this section deals with adjustments and refunds in the case of overwithholding. Paragraph (b)(9) of this section deals with determining the status of the payee when the payment is jointly owned. See paragraph (c)(6) of this section for a definition of beneficial owner. See section 1.1441-7(a) for a definition of withholding agent. See section 1.1441-2(a) for the determination of an amount subject to withholding. See section 1.1441-2(e) for the definition of a payment and when it is considered made. Except as otherwise provided, the provisions of this section apply only for purposes of determining a withholding agent's obligation to withhold under chapter 3 of the Code and the regulations thereunder.
(2) Determination of payee and payee's status
(i) In general
Except as otherwise provided in this paragraph (b)(2), a payee is the person to whom a payment is made, regardless of whether such person is the beneficial owner of the amount (as defined in paragraph (c)(6) of this section). A foreign payee is a payee who is a foreign person. A U.S. payee is a payee who is a U.S. person. Generally, the determination by a withholding agent of the U.S. or foreign status of a payee and of its other relevant characteristics (e.g., as a beneficial owner or intermediary, or as an individual, corporation, or flow-through entity) is made on the basis of a withholding certificate that is a Form W-8 or a Form 8233 (indicating foreign status of the payee or beneficial owner) or a Form W-9 (indicating U.S. status of the payee). The provisions of this paragraph (b)(2), paragraph (b)(3) of this section, and section 1.1441-5(c), (d), and (e) dealing with determinations of payee and applicable presumptions in the absence of documentation, apply only to payments of amounts subject to withholding under chapter 3 of the Code (within the meaning of section 1.1441-2(a)). Similar payee and presumption provisions are set forth under section 1.6049-5(d) for payments of amounts that are not subject to withholding under chapter 3 of the Code (or the regulations thereunder) but that may be reportable under provisions of chapter 61 of the Code (and the regulations thereunder). See paragraph (d) of this section for documentation upon which the withholding agent may rely in order to treat the payee or beneficial owner as a U.S. person. See paragraph (e) of this section for documentation upon which the withholding agent may rely in order to treat the payee or beneficial owner as a foreign person. For applicable presumptions of status in the absence of documentation, see paragraph (b)(3) of this section and section 1.1441-5(d). For definitions of a foreign person and U.S. person, see paragraph (c)(2) of this section.
(ii) Payments to a U.S. agent of a foreign person
A withholding agent making a payment to a U.S. person (other than to a U.S. branch that is treated as a U.S. person pursuant to paragraph (b)(2)(iv) of this section) and who has actual knowledge that the U.S. person receives the payment as an agent of a foreign person must treat the payment as made to the foreign person. However, the withholding agent may treat the payment as made to the U.S. person if the U.S. person is a financial institution and the withholding agent has no reason to believe that the financial institution will not comply with its obligation to withhold. See paragraph (c)(5) of this section for the definition of a financial institution.
(iii) Payments to wholly-owned entities
(A) Foreign-owned domestic entity
A payment to a wholly-owned domestic entity that is disregarded for federal tax purposes under section 301.7701-2(c)(2) of this chapter as an entity separate from its owner and whose single owner is a foreign person shall be treated as a payment to the owner of the entity, subject to the provisions of paragraph (b)(2)(iv) of this section. For purposes of this paragraph (b)(2)(iii)(A), a domestic entity means a person that would be treated as a U.S. person if it had an election in effect under section 301.7701-3(c)(1)(i) of this chapter to be treated as a corporation. For example, a limited liability company, A, organized under the laws of the State of Delaware, opens an account at a U.S. bank. Upon opening of the account, the bank requests A to furnish a Form W-9 as required under section 6049(a) and the regulations under that section. A does not have an election in effect under section 301.7701-3(c)(1)(i) of this chapter and, therefore, is not treated as an organization taxable as a corporation, including for purposes of the exempt recipient provisions in section 1.6049-4(c)(1). If A has a single owner and the owner is a foreign person (as defined in paragraph (c)(2) of this section), then A may not furnish a Form W-9 because it may not represent that it is a U.S. person for purposes of the provisions of chapters 3 and 61 of the Code, and section 3406. Therefore, A must furnish a Form W-8 with the name, address, and taxpayer identifying number (TIN) (if required) of the foreign person who is the single owner in the same manner as if the account were opened directly by the foreign single owner. See sections 1.894-1T(d) and 1.1441-6(b)(4) for special rules where the entity's owner is claiming a reduced rate of withholding under an income tax treaty.
(B) Foreign entity
A payment to a wholly-owned foreign entity that is disregarded under section 301.7701-2(c)(2) of this chapter as an entity separate from its owner shall be treated as a payment to the single owner of the entity, subject to the provisions of paragraph (b)(2)(iv) of this section if the foreign entity has a U.S. branch in the United States. For purposes of this paragraph (b)(2)(iii)(B), a foreign entity means a person that would be treated as a foreign person if it had an election in effect under section 301.7701-3(c)(1)(i) of this chapter to be treated as a corporation. See sections 1.894-1T(d) and 1.1441-6(b)(4) for special rules where the foreign entity or its owner is claiming a reduced rate of withholding under an income tax treaty. Thus, for example, if the foreign entity's single owner is a U.S. person, the payment shall be treated as a payment to a U.S. person. Therefore, based on the savings clause in U.S. income tax treaties, such an entity may not claim benefits under an income tax treaty even if the entity is organized in a country with which the United States has an income tax treaty in effect and treats the entity as a non-fiscally transparent entity. See section 1.894-1T(d)(6), Example 10. Unless it has actual knowledge or reason to know that the foreign entity to whom the payment is made is disregarded under section 301.7701-2(c)(2) of this chapter, a withholding agent may treat a foreign entity as an entity separate from its owner unless it can reliably associate the payment with a withholding certificate from the entity's owner.
(iv) Payments to a U.S. branch of certain foreign banks or foreign insurance companies
(A) U.S. branch treated as a U.S. person in certain cases. A payment to the U.S. branch of a foreign person is a payment to the foreign person. However, a U.S. branch described in this paragraph (b)(2)(iv)(A) and a withholding agent (including another U.S. branch described in this paragraph (b)(2)(iv)(A)) may agree to treat the branch as a U.S. person for purposes of withholding on specified payments to the U.S. branch. Such agreement must be evidenced by a U.S. branch withholding certificate described in paragraph (e)(3)(v) of this section furnished by the U.S. branch to the withholding agent. A U.S. branch described in this paragraph (b)(2)(iv)(A) is any U.S. branch of a foreign bank subject to regulatory supervision by the Federal Reserve Board or a U.S. branch of a foreign insurance company required to file an annual statement on a form approved by the National Association of Insurance Commissioner with the Insurance Department of a State, a Territory, or the District of Columbia. The Internal Revenue Service (IRS) may approve a list of U.S. branches that may qualify for treatment as a U.S. person under this paragraph (b)(2)(iv)(A) (see section 601.601(d)(2) of this chapter).
(B) Consequences to the withholding agent. Any person that is otherwise a withholding agent regarding a payment to a U.S. branch described in paragraph (b)(2)(iv)(A) of this section shall treat the payment in one of the following ways--
(1) As a payment to a U.S. person, in which case the withholding agent is not responsible for withholding on such payment to the extent it can reliably associate the payment with a withholding certificate described in paragraph (e)(3)(v) of this section that has been furnished by the U.S. branch under its agreement with the withholding agent to be treated as U.S. person;
(2) As a payment directly to the persons whose names are on withholding certificates or other appropriate documentation forwarded by the U.S. branch to the withholding agent when no agreement is in effect to treat the U.S. branch as a U.S. person for such payment, to the extent the withholding agent can reliably associate the payment with such certificates or documentation; or
(3) As a payment to a foreign person of income that is effectively connected with the conduct by that foreign person of a trade or business in the United States if the withholding agent cannot reliably associate the payment with a certificate from the U.S. branch or any other certificate or other appropriate documentation from another person.
(C) Consequences to the U.S. branch
A U.S. branch that is treated as a U.S. person under paragraph (b)(2)(iv)(A) of this section shall be treated as a person for purposes of section 1441(a) and all other provisions of chapter 3 of the Code and the regulations thereunder for any payment that it receives as such. Thus, the U.S. branch shall be responsible for withholding on the payment in accordance with the provisions under chapter 3 of the Code and the regulations thereunder and other applicable withholding provisions of the Code. For this purpose, it shall obtain and retain documentation from payees or beneficial owners of the payments that it receives as a U.S. person in the same manner as if it were a separate entity. For example, if a U.S. branch receives a payment on behalf of its home office and the home office is a qualified intermediary, the U.S. branch must obtain a withholding certificate described in paragraph (e)(3)(ii) of this section from its home office. In addition, a U.S. branch that has not provided documentation to the withholding agent for a payment that is, in fact, not effectively connected income is a withholding agent with respect to that payment. See paragraph (b)(6) of this section.
(D) Definition of payment to a U.S. branch
A payment is treated as a payment to a U.S. branch of a foreign bank or foreign insurance company if the payment is credited to an account maintained in the United States in the name of a U.S. branch of the foreign person, or the payment is made to an address in the United States where the U.S. branch is located and the name of the U.S. branch appears on documents (in written or electronic form) associated with the payment (e.g., the check mailed or a letter addressed to the branch).
(E) Payments to other U.S. branches
Similar withholding procedures may apply to payments to U.S. branches that are not described in paragraph (b)(2)(iv)(A) of this section to the extent permitted by the district director or the Assistant Commissioner (International). Any such branch must establish that its situation is analogous to that of a U.S. branch described in paragraph (b)(2)(iv)(A) of this section regarding its registration with, and regulation by, a U.S. governmental institution, the type and amounts of assets it is required to, or actually maintain in the United States, and the personnel who carry out the activities of the branch in the United States. In the alternative, the branch must establish that the withholding and reporting requirements under chapter 3 of the Code and the regulations thereunder impose an undue administrative burden and that the collection of the tax imposed by section 871(a) or 881(a) on the foreign person (or its members in the case of a foreign partnership) will not be jeopardized by the exemption from withholding. Generally, an undue administrative burden will be found to exist in a case where the person entitled to the income, such as a foreign insurance company, receives from the withholding agent income on securities issued by a single corporation, some of which is, and some of which is not, effectively connected with conduct of a trade or business within the United States and the criteria for determining the effective connection are unduly difficult to apply because of the circumstances under which such securities are held. No exemption from withholding shall be granted under this paragraph (b)(2)(iv)(E) unless the person entitled to the income complies with such other requirements as may be imposed by the district director or the Assistant Commissioner (International) and unless the district director or the Assistant Commissioner (International) is satisfied that the collection of the tax on the income involved will not be jeopardized by the exemption from withholding. The IRS may prescribe such procedures as are necessary to make these determinations (see section 601.601(d)(2) of this chapter).
(v) Payments to a foreign intermediary
(A) Payments treated as made to persons for whom the intermediary collects the payment
Except as otherwise provided in paragraph (b)(2)(v)(B) of this section, a payment to a person that the withholding agent may treat as a foreign intermediary in accordance with the provisions of paragraph (b)(3)(v)(A) of this section is treated as a payment made directly to the person or persons for whom the intermediary collects the payment. Thus, for example, a payment that the withholding agent can reliably associate with a withholding certificate from a qualified intermediary (defined in paragraph (e)(5)(ii) of this section) and that is allocable to the category of assets described in paragraph (e)(5)(v)(B)(3) of this section (i.e., assets allocable to persons for whom the foreign qualified intermediary does not hold documentation as specified under its agreement with the IRS) is treated as a payment to the persons holding assets in that category. See paragraph (b)(3)(v)(B) of this section for applicable presumptions in such a case. For similar rules for payments to flow- through entities, see section 1.1441-5(c)(1)(i) and (e).
(B) Payments treated as made to foreign intermediary
A payment to a person that the withholding agent can reliably associate with a withholding certificate described in paragraph (e)(3)(ii) of this section from a qualified intermediary that has elected to assume primary withholding responsibility in accordance with paragraph (e)(5)(iv) of this section is treated as a payment to the qualified intermediary, except to the extent of the portion of the payment that the withholding agent can reliably associate with Forms W-9. See paragraphs (b)(1) and (e)(5)(iv) of this section for consequences to the withholding agent.
(vi) Other payees
A payment to a person described in section 1.6049-4(c)(1)(ii) that the withholding agent would treat as a payment to a foreign person without obtaining documentation for purposes of information reporting under section 6049 (if the payment were interest) is treated as a payment to a foreign payee for purposes of chapter 3 of the Code and the regulations thereunder (or to a foreign beneficial owner to the extent provided in paragraph (e)(1)(ii)(A)(6) or (7) of this section). Further, payments that the withholding agent can reliably associate with documentary evidence described in section 1.6049-5(c)(4) relating to the payee is treated as a payment to a foreign payee. A payment that the withholding agent may treat as a payment to an authorized foreign agent (as defined in section 1.1441-7(c)(2)) is treated as a payment to the agent and not to the persons for whom the agent collects the payment. See section 1.1441-5(b)(1) and (c)(1) for payee determinations for payments to partnerships. See section 1.1441-5(e) for payee determinations for payments to foreign trusts or foreign estates.
(vii) Rules for reliably associating a payment with documentation
Generally, a withholding agent can reliably associate a payment with documentation if, for that payment, it holds valid documentation to which the payment relates, it can reliably determine how much of the payment relates to the valid documentation (e.g., based on information furnished in accordance with paragraph (e)(3)(iv) or (5)(v) of this section in the case of a payment to a foreign intermediary or in accordance with section 1.1441-5(c)(3)(iv) in the case of a payment to a foreign partnership), and it has no actual knowledge or reason to know that any of the information or certifications stated in the documentation are incorrect. The documentation referred to in this paragraph (b)(2)(vii) is documentation described in paragraph (d) or (e) of this section upon which a withholding agent may rely in order to treat the payment as a payment made to a payee or beneficial owner that is a U.S. or a foreign person, and to ascertain the characteristics of the payee or beneficial owner, as may be relevant to withholding or reporting under chapter 3 of the Code and the regulations thereunder (e.g., beneficial owner or intermediary, corporation or partnership). For purposes of this paragraph (b)(2)(vii), documentation also includes a withholding certificate described in paragraph (e)(3)(ii) of this section from a person representing to be a qualified intermediary that has assumed primary withholding responsibility, a withholding certificate described in paragraph (e)(3)(v) of this section from a person representing to be a U.S. branch described in paragraph (b)(2)(iv)(A) of this section, a withholding certificate described in section 1.1441-5(c)(2)(iv) from a person representing to be a withholding foreign partnership, and the agreement that the withholding agent has in effect with an authorized foreign agent in accordance with section 1.1441-7(c)(2)(i). A withholding agent that is not required to obtain documentation with respect to a payment is considered to lack documentation for purposes of this paragraph (b)(2)(vii). For example, a withholding agent paying U.S. source interest to a person that is an exempt recipient, as defined in section 1.6049-4(c)(1)(ii), is not required to obtain documentation from that person in order to determine whether an amount paid to that person is reportable under an applicable information reporting provision under chapter 61 of the Code. Therefore, the withholding agent may rely on the provisions of paragraph (b)(3)(iii)(A) of this section to determine whether the person is presumed to be a U.S. person (in which case, no withholding is required under this section), or whether the person is presumed to be a foreign person (in which case 30-percent withholding is required under this section). See paragraph (b)(3)(v)(A) of this section for special reliance rules in the case of a payment to a foreign intermediary and section 1.1441-5(d)(3) for special reliance rules in the case of a payment to a foreign partnership.
(3) Presumptions regarding payee's status in the absence of documentation
(i) General rules
A withholding agent that cannot reliably associate a payment with documentation may rely on the presumptions of this paragraph (b)(3) in order to determine the status of the payee as a U.S. or a foreign person and the payee's other relevant characteristics (e.g., as an owner or intermediary, as an individual, trust, partnership, or corporation). The determination of withholding and reporting requirements applicable to payments to a person presumed to be a foreign person is governed only by the provisions of chapter 3 of the Code and the regulations thereunder. For the determination of withholding and reporting requirements applicable to payments to a person presumed to be a U.S. person, see chapter 61 of the Code, sections 3402, 3405, or 3406, and the regulations under these provisions. A presumption that a payee is a foreign payee is not a presumption that the payee is a foreign beneficial owner. Therefore, the provisions of this paragraph (b)(3) have no effect for purposes of reducing the withholding rate if associating the payment with documentation of foreign beneficial ownership is required as a condition for such rate reduction. See paragraph (b)(3)(ix) of this section for consequences to a withholding agent that fails to withhold in accordance with the presumptions set forth in this paragraph (b)(3) or if the withholding agent has actual knowledge or reason to know of facts that are contrary to the presumptions set forth in this paragraph (b)(3). See paragraph (b)(2)(vii) of this section for rules regarding the extent which a withholding agent can reliably associate a payment with documentation.
(ii) Presumptions of status as individual, corporation, partnership, etc.
A withholding agent that cannot reliably associate a payment with documentation must presume that the payee is an individual, a trust, or an estate, if the payee appears to be such person (i.e., based on the payee's name or other indications). In the absence of reliable indications that the payee is an individual, estate, or trust, the withholding agent must presume that the payee is a corporation or one of the persons enumerated under section 1.6049-4(c)(1)(ii)(B) through (Q) if it can be so treated under section 1.6049-4(c)(1)(ii)(A)(1) or any one of the paragraphs under section 1.6049-4(c)(1)(ii)(B) through (Q) without the need to furnish documentation. If the withholding agent cannot treat a payee as a person described in section 1.6049-4(c)(1)(ii)(A)(1) through (Q), then the payee shall be presumed to be a partnership. The fact that a payee is presumed to have a certain status under the provisions of this paragraph (b)(3)(ii) does not mean that it is excused from furnishing documentation, if documentation is otherwise required in order to obtain a reduced rate of withholding under this section. For example, if, for purposes of this paragraph (b)(3)(ii), a payee is presumed to be a tax-exempt organization based on section 1.6049- 4(c)(1)(ii)(B), the withholding agent cannot rely on this presumption to reduce the rate of withholding on payments to such person (if such person is also presumed to be a foreign person under paragraph (b)(3)(iii)(A) of this section) because a reduction in the rate of withholding for payments to a foreign tax-exempt organization generally requires that a valid Form W-8 described in section 1.1441- 9(b)(2) be furnished to the withholding agent.
(iii) Presumption of U.S. or foreign status
A payment that the withholding agent cannot reliably associate with documentation is presumed to be made to a U.S. person, except as otherwise provided in this paragraph (b)(3)(iii), in paragraphs (b)(3)(iv) and (v) of this section, or in section 1.1441-5(d) or (e).
(A) Payments to exempt recipients
If a withholding agent cannot reliably associate a payment with documentation from the payee and the payee is an exempt recipient (as determined under the provisions of section 1.6049-4(c)(1)(ii) in the case of interest, or under similar provisions under chapter 61 of the Code applicable to the type of payment involved, but not including a payee that the withholding agent may treat as a foreign intermediary in accordance with paragraph (b)(3)(v) of this section), the payee is presumed to be a foreign person and not a U.S. person--
(1) If the withholding agent has actual knowledge of the payee's employer identification number and that number begins with the two digits "98";
(2) If the withholding agent's communications with the payee are mailed to an address in a foreign country;
(3) If the name of the payee indicates that the entity is the type of entity that is on the per se list of foreign corporations contained in section 301.7701-2(b)(8)(i) of this chapter; or
(4) If the payment is made outside the United States (as defined in section 1.6049-5(e)).
(B) Scholarships and grants
A payment representing taxable scholarship or fellowship grant income that does not represent compensation for services (but is not excluded from tax under section 117) and that a withholding agent that cannot reliably associate with documentation is presumed to be made to a foreign person if the withholding agent has a record that the payee has a U.S. visa that is not an immigrant visa. See section 871(c) and section 1.1441-4(c) for applicable tax rate and withholding rules.
(C) Pensions, annuities, etc.
A payment from a trust described in section 401(a), an annuity plan described in section 401(a), an annuity plan described in section 403(a), or a payment with respect to any annuity, custodial account, or retirement income account described in section 403(b) that a withholding agent cannot reliably associate with documentation is presumed to be made to a U.S. person only if the withholding agent has a record of a Social Security number for the payee and relies on a mailing address described in the following sentence. A mailing address is an address used for purposes of information reporting or otherwise communicating with the payee that is an address in the United States or in a foreign country with which the United States has an income tax treaty in effect that provides that the payee, if an individual resident in that country, would be entitled to an exemption from U.S. tax on amounts described in this paragraph (b)(3)(iii)(C). Any payment described in this paragraph (b)(3)(iii)(C) that is not presumed made to a U.S. person is presumed to be made to a foreign person. A withholding agent making a payment to a person presumed to be a foreign person may not reduce the 30-percent amount of withholding required on such payment unless it receives a withholding certificate described in paragraph (e)(2)(i) of this section furnished by the beneficial owner. For basis of reduction in the 30-percent rate, see section 1.1441-4(e) or section 1.1441-6(b).
(D) Certain payments to offshore accounts
A payment that would be subject to withholding under section 1441, 1442, or 1443 if made to a foreign person and is exempt from backup withholding under section 3406 by reason of section 31.3406(g)-1(e) of this chapter (relating to exemption from backup withholding under section 3406 for certain payments to offshore accounts) is presumed to be made to a foreign payee.
(iv) Grace period in the case of indicia of a foreign payee
A withholding agent may choose, in its discretion, to apply the provisions of section 1.6049-5(d)(2)(ii) regarding a 90-day grace period for purposes of this paragraph (b)(3) (by substituting the term withholding agent for the term payor) to amounts described in section 1.1441-6(b)(2)(ii) and to amounts covered by a Form 8233 described in section 1.1441-4(b)(2)(ii). Thus, for these amounts, a withholding agent may, in its discretion, choose to treat an account holder as a foreign person and withhold under chapter 3 of the Code (and the regulations thereunder) while awaiting documentation. For purposes of determining the rate of withholding under this section, the withholding agent must withhold at the unreduced 30-percent rate at the time that the amounts are credited to the account. However, a withholding agent who can reliably associate the payment with a withholding certificate that is otherwise valid within the meaning of the applicable provisions except for the fact that it is transmitted by facsimile may rely on that facsimile form for purposes of withholding at the claimed reduced rate. For reporting of amounts credited both before and after the grace period, see section 1.1461- 1(c)(7). The following adjustments shall be made at the expiration of the grace period:
(A) If, at the end of the grace period, the documentation is not furnished in the manner required under this section and the account holder is presumed to be a U.S. person who is not an exempt recipient, then backup withholding applies to amounts credited to the account after the expiration of the grace period only. Amounts credited to the account during the grace period shall be treated as owned by a foreign payee and adjustments must be made to correct any underwithholding on such amounts in the manner described in section 1.1461-2.
(B) If, at the end of the grace period, the documentation is not furnished in the manner required under this section and the account holder is presumed to be a foreign person, or if documentation is furnished that does not support the claimed rate reduction, then adjustments must be made to correct the underwithholding on amounts credited to the account during the grace period, based on adjustment procedures described in section 1.1461-2.
(v) Special rules applicable to payments to foreign intermediaries
(A) Reliance on claim of status as foreign intermediary. A withholding agent that can reliably associate a payment with a withholding certificate described in paragraph (e)(3)(ii) or (iii) of this section may treat the payment as made to a foreign intermediary, as represented in the certificate. For this purpose, a U.S. person's foreign branch that is a qualified intermediary defined in paragraph (e)(5)(ii) of this section shall be treated as a foreign intermediary. For purposes of this section, a payment that the withholding agent can reliably associate with a withholding certificate described in paragraph (e)(3)(ii) or (iii) of this section that would be valid except for the fact that some or all of the withholding certificates or other appropriate documentation required to be attached are lacking or are unreliable or that information for allocating the payment among the various persons for whom the intermediary is acting is lacking or is unreliable shall nevertheless be treated as a payment to a foreign intermediary and the rules of this paragraph (b)(3)(v) shall apply accordingly. A payee that the withholding agent may not reliably treat as a foreign intermediary under this paragraph (b)(3)(v)(A) is presumed to be an owner whose status as an individual, trust, estate, etc., must be determined in accordance with paragraph (b)(3)(ii) of this section, to the extent relevant. In addition, such payee is presumed to be a U.S. or a foreign payee based upon the presumptions described in paragraph (b)(3)(iii) of this section. The provisions of paragraphs (b)(3)(v)(B), (C), and (D) of this section are not relevant to a withholding agent that can reliably associate a payment with a withholding certificate from a person representing to be a qualified intermediary that has assumed primary withholding responsibility in accordance with paragraph (e)(5)(iv) of this section.
(B) Beneficial owner documentation is lacking or unreliable. Any portion of a payment that the withholding agent may treat as made to a foreign intermediary in accordance with paragraph (b)(3)(v)(A) of this section but cannot reliably associate with a beneficial owner due to the lack of a withholding certificate or other appropriate documentation for that beneficial owner is presumed to be made to a foreign payee for whom the foreign intermediary collects the payment (see paragraph (b)(2)(v) of this section). For purposes of this paragraph (b)(2)(v)(B), any payment that a foreign qualified intermediary represents to be allocable to the category of assets described in paragraph (e)(5)(v)(B)(3) of this section (i.e., assets allocable to persons for whom the qualified intermediary does not hold documentation as specified under its agreement with the IRS) is treated as a payment that the withholding agent cannot reliably associate with beneficial owners. As a result, any payment allocable to such category of assets is presumed to be made to an unidentified foreign payee. Under paragraph (b)(1) of this section, a payment to a foreign payee is subject to withholding at a 30-percent rate.
(C) Information regarding allocation of payment is lacking or unreliable. If a withholding agent can reliably associate a payment with a group of beneficial owners or payees but lacks reliable information to determine how much of the payment is allocable to one or more of the beneficial owners or payees in the group (because, for example, the statement described in paragraph (e)(3)(iv) of this section has not been furnished), the payment, to the extent it cannot reliably be allocated, is presumed to be allocable entirely to the beneficial owner or payee in the group with the highest applicable withholding rate or, if the rates are equal, to the beneficial owner or payee in the group with the highest U.S. tax liability, as the withholding agent shall estimate, based on its knowledge and available information. If a withholding certificate attached to an intermediary certificate is another intermediary certificate or a certificate from a foreign partnership described in section 1.1441- 5(c)(3)(iii), the rules of this paragraph (b)(3)(v)(C) apply by treating the share of the payment allocable to the other intermediary or to the foreign partnership as if the payment were made directly to the other intermediary or to the foreign partnership.
(D) Certification that the foreign intermediary has furnished documentation for all of the persons to whom the intermediary certificate relates is lacking or unreliable. If the certification required under paragraph (e)(3)(iii)(D) of this section (that the attached withholding certificates and other appropriate documentation represent all of the persons to whom the intermediary withholding certificate relates) is lacking or is unreliable and, as a result, the withholding agent cannot reliably determine how much of the payment is allocable to each of the persons or group of persons for which the withholding agent holds a withholding certificate or other appropriate documentation, then none of the payment can reliably be associated with any one person and the entire payment is presumed to be made to an unidentified foreign payee for whom the intermediary collects the payment and from which a 30-percent amount must be withheld in accordance with paragraph (b)(1) of this section.
(vi) U.S. branches and foreign flow-through entities
The rules of paragraphs (b)(3)(v)(B), (C), and (D) of this section shall apply to payments to a U.S. branch described in paragraph (b)(2)(iv)(A) of this section that has agreed to assume withholding responsibility in the same manner that they apply to payments to a foreign intermediary. See section 1.1441-5(d) for similar rules in the case of payments to foreign partnerships. See section 1.1441-5(e) for similar rules in the case of payments to foreign trusts or foreign estates.
(vii) Joint payees
A payment made to joint payees for whom the withholding agent cannot reliably associate documentation for all joint payees or can reliably associate the payment with a Form W-9 furnished in accordance with the procedures described in sections 31.3406(d)-1 through 31.3406(d)-5 of this chapter from one of the joint payees is presumed to be made to U.S. persons. For purposes of applying this paragraph (b)(3), the grace period rules in paragraph (b)(3)(iv) of this section shall apply only if each payee qualifies for the conditions described in paragraph (b)(3)(iv) of this section. However, as provided in paragraph (b)(3)(iii)(D) of this section, a payment of an amount that would be subject to withholding under section 1441, 1442, or 1443 if paid to a foreign person and is exempt from the application of the provisions of section 3406 by reason of section 31.3406(g)-1(e) of this chapter (relating to exemption from backup withholding under section 3406 of the Code for certain payments made with respect to offshore accounts), is presumed to be made to foreign persons.
(viii) Rebuttal of presumptions.
A payee or beneficial owner may rebut the presumptions described in this paragraph (b)(3) by providing reliable documentation to the withholding agent or, if applicable, to the IRS.
(ix) Effect of reliance on presumptions and of actual knowledge or reason to know otherwise
(A) General rule
Except as otherwise provided in paragraph (b)(3)(ix)(B) of this section, a withholding agent that withholds on a payment under section 3402, 3405 or 3406 in accordance with the presumptions set forth in this paragraph (b)(3) shall not be liable for withholding under this section even it is later established that the beneficial owner of the payment is, in fact, a foreign person. Similarly, a withholding agent that withholds on a payment under this section in accordance with the presumptions set forth in this paragraph (b)(3) shall not be liable for withholding under section 3402 or 3405 or for backup withholding under section 3406 even if it is later established that the payee or beneficial owner is, in fact, a U.S. person. A withholding agent that, instead of relying on the presumptions described in this paragraph (b)(3), relies on its own actual knowledge to withhold a lesser amount, not withhold, or not report a payment, even though reporting of the payment or withholding a greater amount would be required if the withholding agent relied on the presumptions described in this paragraph (b)(3) shall be liable for tax, interest, and penalties to the extent provided under section 1461 and the regulations under that section. See paragraph (b)(7) of this section for provisions regarding such liability if the withholding agent fails to withhold in accordance with the presumptions described in this paragraph (b)(3).
(B) Actual knowledge or reason to know that amount of withholding is greater than is required under the presumptions or that reporting of the payment is required. Notwithstanding the provisions of paragraph (b)(3)(ix)(A) of this section, a withholding agent may not rely on the presumptions described in this paragraph (b)(3) to the extent it has actual knowledge or reason to know that the status or characteristics of the payee or of the beneficial owner are other than what is presumed under this paragraph (b)(3) and, if based on such knowledge or reason to know, it should withhold (under this section or another withholding provision of the Code) an amount greater than would be the case if it relied on the presumptions described in this paragraph (b)(3) or it should report (under this section or under another provision of the Code) an amount that would not otherwise be reportable if it relied on the presumptions described in this paragraph (b)(3). In such a case, the withholding agent must rely on its actual knowledge or reason to know rather than on the presumptions set forth in this paragraph (b)(3). Failure to do so and, as a result, failure to withhold the higher amount or to report the payment, shall result in liability for tax, interest, and penalties to the extent provided under sections 1461 and 1463 and the regulations under those sections.
(x) Examples
The provisions of this paragraph (b)(3) are illustrated by the following examples:
Example 1. A withholding agent, W, makes a payment of U.S. source dividends to person X, Inc. at an address outside the United States. W cannot reliably associate the payment to X with documentation. Under sections 1.6042-3(b)(1)(vii) and 1.6049- 4(c)(1)(ii)(A)(1), W may treat X as a corporation. Thus, under the presumptions described in paragraph (b)(3)(iii) of this section, W must presume that X is a foreign person (because the payment is made outside the United States). However, W knows that X is a U.S. person who is an exempt recipient. W may not rely on its actual knowledge to not withhold under this section. If W's knowledge is, in fact, incorrect, W would be liable for tax, interest, and, if applicable, penalties, under section 1461. W would be permitted to reduce or eliminate its liability for the tax by establishing, in accordance with paragraph (b)(7) of this section, that the tax is not due or has been satisfied. If W's actual knowledge is, in fact, correct, W may nevertheless be liable for tax, interest, or penalties under section 1461 for the amount that W should have withheld based upon the presumptions. W would be permitted to reduce or eliminate its liability for the tax by establishing, in accordance with paragraph (b)(7) of this section, that its actual knowledge was, in fact, correct and that no tax or a lesser amount of tax was due.
Example 2. A withholding agent, W, makes a payment of U.S. source dividends to Y who does not qualify as an exempt recipient under sections 1.6042-3(b)(1)(vii) and 1.6049- 4(c)(1)(ii). W cannot reliably associate the payment to Y with documentation. Under the presumptions described in paragraph (b)(3)(iii) of this section, W must presume that Y is a U.S. person who is not an exempt recipient for purposes of section 6042. However, W knows that Y is a foreign person. W may not rely on its actual knowledge to withhold under this section rather than backup withhold under section 3406. If W's knowledge is, in fact, incorrect, W would be liable for tax, interest, and, if applicable, penalties, under section 3403. If W's actual knowledge is, in fact, correct, W may nevertheless be liable for tax, interest, or penalties under section 3403 for the amount that W should have withheld based upon the presumptions. Paragraph (b)(7) of this section does not apply to provide relief from liability under section 3403.
Example 3. A withholding agent, W, makes a payment of U.S. source dividends to X, Inc. W cannot reliably associate the payment to X, Inc. with documentation. X, Inc. presents none of the indicia of foreign status described in paragraph (b)(3)(iii)(A) of this section, but W has actual knowledge that X, Inc. is a foreign corporation. W may treat X, Inc. as an exempt recipient under section 1.6042-3(b)(1)(vii). Because there are no indicia of foreign status, W would, absent actual knowledge or reason to know otherwise, be permitted to treat X, Inc. as a domestic corporation in accordance with the presumptions of paragraph (b)(3)(iii) of this section. However, under paragraph (b)(3)(ix)(B) of this section, W may not rely on the presumption of U.S. status since reliance on its actual knowledge requires that it withhold an amount greater than would be the case under the presumptions.
Example 4. A withholding agent, W, is a plan administrator who makes pension payments to person X with a mailing address in a foreign country with which the United States has an income tax treaty in effect. Under that treaty, the type of pension income paid to X is taxable solely in the country of residence. The plan administrator has a record of X's U.S. social security number. W has no actual knowledge or reason to know that X is a foreign person. W may rely on the presumption of paragraph (b)(3)(iii)(C) of this section in order to treat X as a U.S. person. Therefore, any withholding and reporting requirements for the payment are governed by the provisions of section 3405 and the regulations under that section.
(4) List of exemptions from, or reduced rates of, withholding under chapter 3 of the Code
A withholding agent that has determined that the payee is a foreign person for purposes of paragraph (b)(1) of this section must determine whether the payee is entitled to a reduced rate of withholding under section 1441, 1442, or 1443. This paragraph (b)(4) identifies items for which a reduction in the rate of withholding may apply and whether the rate reduction is conditioned upon documentation being furnished to the withholding agent. Documentation required under this paragraph (b)(4) is documentation that a withholding agent must be able to associate with a payment upon which it can rely to treat the payment as made to a foreign person that is the beneficial owner of the payment in accordance with paragraph (e)(1)(ii) of this section. This paragraph (b)(4) also cross-references other sections of the Code and applicable regulations in which some of these exceptions, exemptions, or reductions are further explained. See, for example, paragraph (b)(4)(viii) of this section, dealing with effectively connected income, that cross-references section 1.1441-4(a); see paragraph (b)(4)(xv) of this section, dealing with exemptions from, or reductions of, withholding under an income tax treaty, that cross- references section 1.1441-6. This paragraph (b)(4) is not an exclusive list of items to which a reduction of the rate of withholding may apply and, thus, does not preclude an exemption from, or reduction in, the rate of withholding that may otherwise be allowed under the regulations under the provisions of chapter 3 of the Code for a particular item of income identified in this paragraph (b)(4).
(i) Portfolio interest described in section 871(h) or 881(c) and substitute interest payments described in section 1.871- 7(b)(2)(i) or 1.881-2(b)(2) are exempt from withholding under section 1441(a). See section 1.871-14 for regulations regarding portfolio interest and section 1441(c)(9) for exemption from withholding. Documentation establishing foreign status is required for interest on an obligation in registered form to qualify as portfolio interest. See section 871(h)(2)(B)(ii) and section 1.871-14(c)(1)(ii)(C). For special documentation rules regarding foreign-targeted registered obligations described in section 1.871-14(e)(2), see section 1.871- 14(e)(3) and (4) and, in particular, section 1.871-14(e)(4)(i)(A) and (ii)(A) regarding the time when the withholding agent must receive the documentation. The documentation furnished for purposes of qualifying interest as portfolio interest serves as the basis for the withholding exemption for purposes of this section and for purposes of establishing foreign status for purposes of section 6049. See section 1.6049-5(b)(8). Documentation establishing foreign status is not required for qualifying interest on an obligation in bearer form described in section 1.871-14(b)(1) as portfolio interest. However, in certain cases, documentation for portfolio interest on a bearer obligation may have to be furnished in order to establish foreign status for purposes of the information reporting provisions of section 6049 and backup withholding under section 3406. See section 1.6049-5(b)(7).
(ii) Bank deposit interest and similar types of deposit interest (including original issue discount) described in section 871(i)(2)(A) or 881(d) that are from sources within the United States are exempt from withholding under section 1441(a). See section 1441(c)(10). Documentation establishing foreign status is not required for purposes of this withholding exemption but may have to be furnished for purposes of the information reporting provisions of section 6049 and backup withholding under section 3406. See section 1.6049- 5(d)(3)(iii) for exceptions to the foreign payee and exempt recipient rules regarding this type of income. See also section 1.6049-5(b)(11) for applicable documentation exemptions for certain bank deposit interest paid on obligations in bearer form.
(iii) Bank deposit interest (including original issue discount) described in section 861(a)(1)(B) is exempt from withholding under sections 1441(a) as income that is not from U.S. sources. Documentation establishing foreign status is not required for purposes of this withholding exemption but may have to be furnished for purposes of the information reporting provisions of section 6049 and backup withholding under section 3406. Reporting requirements for payments of such interest are governed by section 6049 and the regulations under that section. See section 1.6049-5(b)(12) and alternative documentation rules under section 1.6049-5(c)(4).
(iv) Interest or original issue discount from sources within the United States on certain short-term obligations described in section 871(g)(1)(B) or 881(a)(3) is exempt from withholding under sections 1441(a). Documentation establishing foreign status is not required for purposes of this withholding exemption but may have to be furnished for purposes of the information reporting provisions of section 6049 and backup withholding under section 3406. See section 1.6049-5(b)(12) for applicable documentation for establishing foreign status and section 1.6049-5(d)(3)(iii) for exceptions to the foreign payee and exempt recipient rules regarding this type of income. See also section 1.6049-5(b)(10) for applicable documentation exemptions for certain obligations in bearer form.
(v) Income from sources without the United States is exempt from withholding under sections 1441(a). Documentation establishing foreign status is not required for purposes of this withholding exemption but may have to be furnished for purposes of the information reporting provisions of section 6049 or other applicable provisions of chapter 61 of the Code and backup withholding under section 3406. See, for example, section 1.6049-5(b)(6) and (12) and alternative documentation rules under section 1.6049-5(c)(4). See also paragraph (b)(5) of this section for cross references to other applicable provisions of the regulations under chapter 61 of the Code.
(vi) Distributions from certain domestic corporations described in section 871(i)(2)(B) or 881(d) are exempt from withholding under section 1441(a). See section 1441(c)(10). Documentation establishing foreign status is not required for purposes of this withholding exemption but may have to be furnished for purposes of the information reporting provisions of section 6042 and backup withholding under section 3406. See section 1.6042-3(b)(1)(iii) through (vi).
(vii) Dividends paid by certain foreign corporations that are treated as income from sources within the United States by reason of section 861(a)(2)(B) are exempt from withholding under section 884(e)(3) to the extent that the distributions are paid out of earnings and profits in any taxable year that the corporation was subject to branch profits tax for that year. Documentation establishing foreign status is not required for purposes of this withholding exemption but may have to be furnished for purposes of the information reporting provisions of section 6042 and backup withholding under section 3406. See section 1.6042-3(b)(1)(iii) through (vii).
(viii) Certain income that is effectively connected with the conduct of a U.S. trade or business is exempt from withholding under section 1441(a). See section 1441(c)(1). Documentation establishing foreign status and status of the income as effectively connected must be furnished for purposes of this withholding exemption to the extent required under the provisions of section 1.1441-4(a). Documentation furnished for this purpose also serves as documentation establishing foreign status for purposes of applicable information reporting provisions under chapter 61 of the Code and for backup withholding under section 3406. See, for example, section 1.6041-4(a)(1).
(ix) Certain income with respect to compensation for personal services of an individual that are performed in the United States is exempt from withholding under section 1441(a). See section 1441(c)(4) and section 1.1441-4(b). However, such income may be subject to withholding as wages under section 3402. Documentation establishing foreign status must be furnished for purposes of any withholding exemption or reduction to the extent required under section 1.1441- 4(b) or 31.3401(a)(6)-1(e) and (f) of this chapter. Documentation furnished for this purpose also serves as documentation establishing foreign status for purposes of information reporting under section 6041. See section 1.6041-4(a)(1).
(x) Amounts described in section 871(f) that are received as annuities from certain qualified plans are exempt from withholding under section 1441(a). See section 1441(c)(7). Documentation establishing foreign status must be furnished for purposes of the withholding exemption as required under section 1.1441-4(d). Documentation furnished for this purpose also serves as documentation establishing foreign status for purposes of information reporting under section 6041. See section 1.6041-4(a)(1).
(xi) Payments to a foreign government (including a foreign central bank of issue) that are excludable from gross income under section 892(a) are exempt from withholding under section 1442. See section 1.1441-8(b). Documentation establishing status as a foreign government is required for purposes of this withholding exemption. Payments to a foreign government are exempt from information reporting under chapter 61 of the Code (see section 1.6049- 4(c)(1)(ii)(F)).
(xii) Payments of certain interest income to a foreign central bank of issue or the Bank for International Settlements that are exempt from tax under section 895 are exempt from withholding under section 1442. Documentation establishing eligibility for such exemption is required to the extent provided in section 1.1441- 8(c)(1). Payments to a foreign central bank of issue or to the Bank for International Settlements are exempt from information reporting under chapter 61 of the Code (see section 1.6049-4(c)(1)(ii)(H) and (M)).
(xiii) Amounts derived by a foreign central bank of issue from bankers' acceptances described in section 871(i)(2)(C) or 881(d) are exempt from tax and, therefore, from withholding. See section 1441(c)(10). Documentation establishing foreign status is not required for purposes of this withholding exemption if the name of the payee and other facts surrounding the payment reasonably indicate that the beneficial owner of the payment is a foreign central bank of issue as defined in section 1.861-2(b)(4). See section 1.1441-8(c)(2) for withholding procedures. See also sections 1.6049-4(c)(1)(ii)(H) and 1.6041-3(q)(8) for a similar exemption from information reporting.
(xiv) Payments to an international organization from investments in the United States of stocks, bonds, or other domestic securities or from interest on deposits in banks in the United States of funds belonging to such international organization are exempt from tax under section 892(b) and, thus, from withholding. Documentation establishing status as an international organization is not required if the name of the payee and other facts surrounding the payment reasonably indicate that the beneficial owner of the payment is an international organization within the meaning of section 7701(a)(18). See section 1.1441-8(d). Payments to an international organization are exempt from information reporting under chapter 61 of the Code (see section 1.6049-4(c)(1)(ii)(G)).
(xv) Amounts may be exempt from, or subject to a reduced rate of, withholding under an income tax treaty. Documentation establishing eligibility for benefits under an income tax treaty is required for this purpose as provided under sections 1.1441-6. Documentation furnished for this purpose also serves as documentation establishing foreign status for purposes of applicable information reporting provisions under chapter 61 of the Code and for backup withholding under section 3406. See, for example, section 1.6041- 4(a)(1).
(xvi) Amounts of scholarships and grants paid to certain exchange or training program participants that do not represent compensation for services but are not excluded from tax under section 117 are subject to a reduced rate of withholding of 14-percent under section 1441(b). Documentation establishing foreign status is required for purposes of this reduction in rate as provided under section 1.1441-4(c). This income is not subject to information reporting under chapter 61 of the Code nor to backup withholding under section 3406. The compensatory portion of a scholarship or grant is reportable as wage income. See section 1.6041-3(o).
(xvii) Amounts paid to a foreign organization described in section 501(c) are exempt from withholding under section 1441 to the extent that the amounts are not income includible under section 512 in computing the organization's unrelated business taxable income and are not subject to the tax imposed by section 4948(a). Documentation establishing status as a tax-exempt organization is required for purposes of this exemption to the extent provided in section 1.1441- 9. Amounts includible under section 512 in computing the organization's unrelated business taxable income are subject to withholding to the extent provided in section 1443(a) and section 1.1443-1(a). Gross investment income (as defined in section 4940(c)(2)) of a private foundation is subject to withholding at a 4-percent rate to the extent provided in section 1443(b) and section 1.1443-1(b). Payments to a tax-exempt organization are exempt from information reporting under chapter 61 of the Code and the regulations thereunder (see section 1.6049-4(c)(1)(ii)(B)(1)).
(xviii) Per diem amounts for subsistence paid by the U.S. government to a nonresident alien individual who is engaged in any program of training in the United States under the Mutual Security Act of 1954 are exempt from withholding under section 1441(a). See section 1441(c)(6). Documentation of foreign status is required under section 1.1441-4(e) for purposes of establishing eligibility for this exemption. See section 1.6041-3(p).
(xix) Interest with respect to tax-free covenant bonds issued prior to 1934 is subject to special withholding procedures set forth in section 1.1461-1 in effect prior to January 1, 1999 (see section 1.1461-1 as contained in 26 CFR part 1, revised April 1, 1997).
(xx) Income from certain gambling winnings of a nonresident alien individual is exempt from tax under section 871(j) and from withholding under section 1441(a). See section 1441(c)(11). Documentation establishing foreign status is not required for purposes of this exemption but may have to be furnished for purposes of the information reporting provisions of section 6041 and backup withholding under section 3406. See sections 1.6041-1 and 1.6041- 4(a)(1).
(xxi) Any payments not otherwise mentioned in this paragraph (b)(4) shall be subject to withholding at the rate of 30-percent if it is an amount subject to withholding (as defined in section 1.1441- 2(a)) unless and to the extent the IRS may otherwise prescribe in published guidance (see section 601.601(d)(2) of this chapter) or unless otherwise provided in regulations under chapter 3 of the Code.
(5) Establishing foreign status under applicable provisions of chapter 61 of the Code.
This paragraph (b)(5) identifies relevant provisions of the regulations under chapter 61 of the Code that exempt payments from information reporting, and therefore, from backup withholding under section 3406, based on the payee's status as a foreign person. Many of these exemptions require that the payee's foreign status be established in order for the exemption to apply. The regulations under applicable provisions of chapter 61 of the Code generally provide that the documentation described in this section may be relied upon for purposes of determining foreign status.
(i) Payments to a foreign person that are governed by section 6041 (dealing with certain trade or business income) are exempt from information reporting under section 1.6041-4(a).
(ii) Payments to a foreign person that are governed by section 6041A (dealing with remuneration for services and certain sales) are exempt from information reporting under section 1.6041A-1(d)(3).
(iii) Payments to a foreign person that are governed by section 6042 (dealing with dividends) are exempt from information reporting under section 1.6042-3(b)(1)(iii) through (vi).
(iv) Payments to a foreign person that are governed by section 6044 (dealing with patronage dividends) are exempt from information reporting under section 1.6044-3(c)(1).
(v) Payments to a foreign person that are governed by section 6045 (dealing with broker proceeds) are exempt from information reporting under section 1.6045-1(g).
(vi) Payments to a foreign person that are governed by section 6049 (dealing with interest) to a foreign person are exempt from information reporting under section 1.6049-5(b)(6) through (15).
(vii) Payments to a foreign person that are governed by section 6050N (dealing with royalties) are exempt from information reporting under section 1.6050N-1(c).
(viii) Payments to a foreign person that are governed by section 6050P (dealing with income from cancellation of debt) are exempt from information reporting under section 6050P or the regulations under that section except to the extent provided in Notice 96-61 (I.R.B. 1996-49); see also section 601.601(b)(2) of this chapter.
(6) Rules of withholding for payments by a foreign intermediary or certain U.S. branches
A foreign intermediary described in paragraph (e)(3)(i) of this section or a U.S. branch described in paragraph (b)(2)(iv) of this section that receives an amount subject to withholding (as defined in section 1.1441-2(a)) shall be deemed to have satisfied any obligation it has under chapter 3 of the Code and the regulations thereunder to withhold and report the amount when it, in turn, pays such amount to another person (whether or not the beneficial owner) to the extent that the payment is associated with a valid withholding certificate described in paragraph (e)(3)(ii), (iii), or (v) of this section that it has furnished to another withholding agent and the intermediary does not know and has no reason to know that the correct amount has not been withheld under chapter 3 of the Code and the regulations thereunder. See section 1.1441-5(c)(3)(v) for a similar rule for payments by certain foreign partnerships.
(i) General rule
A withholding agent that cannot reliably associate a payment with documentation on the date of payment and that does not withhold under this section, or withholds at less than the 30-percent rate prescribed under section 1441(a) and paragraph (b)(1) of this section, is liable under section 1461 for the tax required to be withheld under chapter 3 of the Code and the regulations thereunder, without the benefit of a reduced rate unless--
(A) The withholding agent has appropriately relied on the presumptions described in paragraph (b)(3) of this section (including the grace period described in paragraph (b)(3)(iv) of this section) in order to treat the payee as a U.S. person or, if applicable, on the presumptions described in section 1.1441-4(a)(2)(i) or (3) to treat the payment as effectively connected income; or
(B) The withholding agent can demonstrate to the satisfaction of the district director or the Assistant Commissioner (International) that the proper amount of tax, if any, was in fact paid to the IRS; or
(C) No documentation is required under section 1441 or this section in order for a reduced rate of withholding to apply.
(ii) Proof that tax liability has been satisfied
Proof of payment of tax may be established for purposes of paragraph (b)(7)(i)(B) of this section on the basis of a Form 4669 (or such other form as the IRS may prescribe in published guidance (see section 601.601(d)(2) of this chapter)), establishing the amount of tax, if any, actually paid by or for the beneficial owner on the income. Proof that a reduced rate of withholding was, in fact, appropriate under the provisions of chapter 3 of the Code and the regulations thereunder may also be established after the date of payment by the withholding agent on the basis of a valid withholding certificate or other appropriate documentation furnished after that date. However, in the case of a withholding certificate or other appropriate documentation received after the date of payment (or after the grace period specified in paragraph (b)(3)(iv) of this section), the district director or the Assistant Commissioner (International) may require additional proof if it is determined that the delays in obtaining the withholding certificate affect its reliability.
(iii) Liability for interest and penalties
A withholding agent that has failed to withhold other than based on appropriate reliance on the presumptions described in paragraph (b)(3) of this section or in section 1.1441-4(a)(2)(i) or (3) is not relieved from liability for interest under section 6601. Such liability exists even if there is no underl