A QI is any foreign intermediary (or foreign branch of a U.S. intermediary) that has entered into a qualified withholding agreement with the IRS. A QI is a payee (of U.S. source income) to the extent the QI assumes primary withholding responsibility as primary Form 1099 reporting and backup withholding responsibility for a payment, in this situation the QI is required to withhold the tax. The U.S. payer (U.S. source income) can determine whether a QI has assumed responsibility from the Form W-8 IMY provided by the QI.
A payment to a QI that does not assume primary NRA withholding responsibility is considered made to the person on whose behalf the QI acts. If a QI does not assume Form 1099 reporting and back-up withholding responsibility, the U.S. payor must report on Form 1099, and if applicable, back-up withhold as if making the payment directly to the U.S. persons.
1. Foreign Account Holders: QI is not required to forward their documentation obtained to U.S. withholding agent from whom the QI receives a payment of U.S. source income. The QI maintains such documentation at its location and provides the U.S. withholding agent with withholding rate pools; i.e., a payment of a single type of income that is subject to a single rate of withholding.
2. U.S. Persons: A QI is required to provide the U.S. withholding agent with information regarding U.S. persons subject to Form 1099 information reporting unless the QI assumes the primary obligation to do Form 1099 reporting and back-up withholding.
3. Form 1042-S Reporting: A QI is permitted to report payments made to its direct foreign account holders on a pooled basis rather than reporting payments to each direct account holder specifically. Pooled basis reporting is not available for payments to certain account holders, such as a non-qualified intermediary or a flow-through entity.
4. Collective Refund Procedures: A QI may seek a refund on behalf of its direct account holders. Direct account holders are not required to file returns with the IRS to obtain refunds, but may obtain them from the QI.