Guide to Global Payroll Management - 2020 - D-86

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Guide to Global Payroll Management

* A participating FFI or
deemed-compliant FFI that is the
beneficial owner, including a
nonreporting FFI under a Model 1 or
Model 2 IGA.
* A U.S. branch or territory FI treated
as a U.S. person under Regulations
section 1.1441-1(b)(2)(iv)(A).
* An NFFE that is not a flow-through
entity or acting as an intermediary.
* A foreign partnership or a foreign trust
(other than a WP or WT), but only to the
extent the income is effectively
connected with its conduct of a trade or
business in the United States.
* A partner or beneficiary of a
flow-through entity that is an NFFE
(other than a WP or WT).
* A nonparticipating FFI that is a
beneficial owner.
* An exempt beneficial owner that is
not a flow-through entity or acting as an
intermediary.
For chapter 4 purposes, a recipient is
generally the same person that is a
recipient for chapter 3 purposes.

Specified notional principal contract
(SNPC). An SNPC is any notional
principal contract that satisfies one or
more of the following.
* In connection with entering into the
contract, any long party to the contract
transfers the underlying security to any
short party to the contract.
* In connection with the termination of
the contract, any short party to the
contract transfers the underlying
security to any long party to the
contract.
* The underlying security is not readily
tradable on an established securities
market.
* In connection with entering into the
contract, the underlying security is
posted as collateral by any short party
to the contract with any long party to the
contract.
* The IRS identifies the contract as an
SNPC.
Specified U.S. person. A specified
U.S. person is any U.S. person other
than a person identified in Regulations
section 1.1473-1(c).

Substantial U.S. owner. A substantial
U.S. owner is a specified U.S. person
described in Regulations section
1.1473-1(b). For purposes of filing this
form, a reporting Model 2 FFI reporting
an account held by a passive NFFE
should substitute the term "controlling
person that is a specified U.S. person"
for "substantial U.S. owner" and refer to
the applicable Model 2 IGA for the
definition of controlling person. A
territory NFFE that is not an excepted

NFFE determines its substantial U.S.
owners by applying the 10% threshold
in Regulations section 1.1473-1(b)(1).

Territory FI. A territory FI is a financial
institution that is incorporated or
organized under the laws of any U.S.
territory and is not an investment entity.
See Regulations section 1.1471-5(e)(1)
(iii) for the definition of investment entity.

U.S. branch treated as a U.S. person.
A U.S. branch may agree to be treated
as a U.S. person if it meets the
requirements described in the
regulations under chapter 3. See
Regulations section 1.1441-1(b)(2)(iv)
(A). Additionally, a territory FI may agree
to be treated as a U.S. person.
The U.S. branch or territory FI must
provide a Form W-8IMY evidencing that
it is agreeing to be treated as a U.S.
person.
A U.S. branch that is treated as
a U.S. person is treated as such
CAUTION solely for purposes of
determining whether a payment is
subject to withholding. The branch is,
for purposes of information reporting, a
foreign person, and payments to such a
branch must be reported on Form
1042-S.

Withholdable payment. A
withholdable payment is generally any
payment of U.S. source FDAP income,
subject to certain exceptions. For
exceptions and additional information,
see Pub. 515 and Regulations section
1.1473-1(a).
Withholding certificate. The term
"withholding certificate" refers to Form
W-8 or Form W-9 in most cases.

Note. Throughout these instructions, a
reference to or mention of "Form W-8" is
a reference to Forms W-8BEN,
W-8BEN-E, W-8ECI, W-8EXP, and/or
W-8IMY.
Withholding foreign partnership
(WP) or withholding foreign trust
(WT). A WP or WT is a foreign
partnership or trust that has entered into
a withholding agreement with the IRS in
which it agrees to assume primary
withholding responsibility for all
payments that are made to it for its
partners, beneficiaries, or owners under
chapter 3 (except for sections 1445 and
1446) and under chapter 4. For
information on these withholding
agreements, see Rev. Proc. 2017-21 at
IRS.gov/irb/2017-06_IRB#RP-2017-21
and Regulations section 1.1441-5.

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D-86

Nonwithholding foreign
partnership (NWP) or
nonwithholding foreign trust (NWT).
An NWP or NWT is any partnership or
trust (other than a complex trust) that is
not a U.S. person and that is not a WP
or WT.

Amounts Subject to
Reporting on Form 1042-S

Amounts subject to reporting on Form
1042-S are amounts from U.S. sources
paid to foreign persons (including
persons presumed to be foreign) or
included in a U.S. payee pool that are
reportable under chapters 3 and 4, even
if no amount is deducted and withheld
from the payment because of a treaty or
Code exception to taxation or if any
amount withheld was repaid to the
payee. Amounts subject to reporting are
amounts from sources within the United
States that constitute (a) fixed or
determinable annual or periodical
(FDAP) income (including deposit
interest); (b) certain gains from the
disposal of timber, coal, or domestic
iron ore with a retained economic
interest; and (c) gains relating to
contingent payments received from the
sale or exchange of patents, copyrights,
and similar intangible property. A
payment is also subject to reporting if
withholding under chapter 4 is applied
(or required to be applied) to the
payment.

Amounts subject to reporting on
Form 1042-S include, but are not limited
to, the following amounts to the extent
they are from U.S. sources.
* Interest on deposits paid to
certain nonresident aliens.
Withholding agents must report certain
interest described in section 871(i)(2)(A)
aggregating $10 or more paid with
respect to a deposit maintained at an
office within the United States if such
interest is paid to a nonresident alien
individual who is a resident of a country
identified in Rev. Proc. 2019-23,
2019-38 I.R.B. 725, available at
IRS.gov/irb/2019-38_IRB#REVPROC-2019-23 (or any superseding
Revenue Procedure that is effective as
of January 1, 2020). A payer may elect
to report interest described above paid
to any nonresident alien individual by
reporting all such interest.
When completing Form 1042-S, use
income code 29 in Box 1 and exemption
code 02 in Box 3a for chapter 3
purposes, and the applicable chapter 4
exemption code in Box 4a (see the
instructions for Boxes 3a and 4a, later).
Instructions for Form 1042-S (2020)

Guide to Global Payroll Management - 2020

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