Guide to Global Payroll Management - 2020 - D-94

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Guide to Global Payroll Management

code 29 (unknown recipient) as the
chapter 4 status code. Also, the name,
country code, address, chapter 4 status
code, and TIN (if any) of the
nonparticipating FFI should be entered
on Form 1042-S in Boxes 15a through
15i.
If, however, an NQI or flow-through
entity that is a nonparticipating FFI
provides documentation described in
Regulations section 1.1471-3(d)(8)(ii) to
establish that the withholdable payment
or a portion of the payment is
beneficially owned by an exempt
beneficial owner, then the withholding
agent should complete a Form 1042-S
for each exempt beneficial owner
showing the chapter 4 exemption code
15 (payee not subject to chapter 4
withholding), the exempt beneficial
owner as the recipient in Box 13a, and
the name, country code, address,
chapter 4 status code, and TIN (if any)
of the nonparticipating FFI in Boxes 15a
through 15i. For any remaining portion
of the payment, the withholding agent
should complete a Form 1042-S to an
unknown recipient as described directly
above.

Pro-rata reporting. If the
withholding agent has agreed that an
NQI (other than a nonparticipating FFI)
may provide information allocating a
payment to its account holders under
the alternative procedure of Regulations
section 1.1441-1(e)(3)(iv)(D) (no later
than February 14, 2021) and the NQI
fails to allocate more than 10% of the
payment in a withholding rate pool to
the specific recipients in the pool or an
applicable chapter 4 withholding rate
pool, the withholding agent must file a
Form 1042-S for each recipient in the
pool on a pro-rata basis. The
withholding agent must check Box 15
(pro-rata basis reporting) on each Form
1042-S. For example, if there are four
account holders in a withholding rate
pool that receives a $100 payment and
the NQI fails to allocate more than $10
of the payment, the withholding agent
must file four Forms 1042-S, one for
each account holder in the pool,
showing $25 of the income to each and
Box 15 checked. If, instead, the NQI
fails to timely allocate 10% or less of the
payment in a withholding rate pool to
the specific recipients in a pool, the
withholding agent must file a Form
1042-S for each recipient for which it
has allocation information and report the
unallocated part of the payment on a
Form 1042-S as made to an "unknown
recipient." In this case, the withholding

agent does not check Box 15 on any of
the Forms 1042-S.

Payments allocated, or presumed
made, to U.S. nonexempt recipients.
You may be given Forms W-9 or other
information regarding U.S. nonexempt
recipients from an NQI or flow-through
entity together with information
allocating all or a part of the payment to
U.S. nonexempt recipients. You must
report income allocable to a U.S.
nonexempt recipient on the appropriate
Form 1099 and not on Form 1042-S,
even though you are paying that income
to an NQI or a flow-through entity. If,
however, a participating FFI or
registered deemed-compliant FFI
provides a withholding statement
allocating all or part of the payment to a
chapter 4 withholding rate pool of U.S.
payees along with the certification
provided on Form W-8IMY required for
reporting such pool (as described in
Regulations section 1.1471-3(c)(3)(iii)
(B)), you must report the income
allocable to such pool on Form 1042-S.

Example 8. FP is a nonwithholding
foreign partnership (flow-through entity)
that is a certified deemed-compliant FFI.
FP receives from WA, a U.S.
withholding agent, a withholdable
payment of interest described by
income code 01 (interest paid by U.S.
obligors - general). FP has three
partners, A, B, and C, all of whom are
individuals. FP provides WA with a
Form W-8IMY certifying that it is
transmitting Forms W-9 for U.S.
nonexempt recipients and Forms
W-8BEN from A and B and a Form W-9
from C, a U.S. nonexempt recipient. In
addition, FP provides a complete
withholding statement in association
with its Form W-8IMY that allocates the
interest payments among A, B, and C.
WA must file two Forms 1042-S, one
each for A and B, treating FP as the
intermediary in Boxes 15a through 15i.
WA should also file a Form 1099-INT for
C.

Example 9. The facts are the same
as in Example 8, except that FP does
not provide any documentation from its
partners. Because WA cannot reliably
associate the withholdable payment of
interest with documentation from a
payee, it must apply the presumption
rules of Regulations section 1.1471-3(f)
to treat the interest as paid to a
nonparticipating FFI. A Form 1042-S
should be completed by entering "4" in
Box 3, "Unknown Recipient" in Box 13a,
recipient code 21 (unknown recipient)
as the chapter 3 status code, and
recipient code 29 (unknown recipient)
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D-94

as the chapter 4 status code. Also, the
name, country code, address, status
codes, and TIN (if any) of FP should be
entered in Boxes 15a through 15i.

Example 10. The facts are the same
as in Example 9, except that FP is a
participating FFI and provides WA with
a Form W-8IMY certifying that it is
reporting its U.S. accounts under
chapter 4 and a withholding statement
allocating 33% of the payment to a pool
of U.S. payees. With respect to the U.S.
pool of payees, WA must file a Form
1042-S showing FP as the recipient in
Box 13a and include FP's GIIN,
recipient code 08 as the chapter 3
status code (partnership other than a
withholding foreign partnership), and
recipient code 48 (U.S. payees pool) as
the chapter 4 status code. WA should
enter "3" in Box 3 as the chapter
indicator, leave Boxes 3a and 3b blank,
and enter exemption code 18 (U.S.
payees of a participating FFI or
registered deemed-compliant FFI) in
Box 4a and "00.00" in Box 4b.

Specified Federal Procurement
Payments Made to Foreign
Persons

Section 5000C imposes a 2% tax on
any foreign person that receives a
specified federal procurement payment.
A specified federal procurement
payment is a payment made to a foreign
person pursuant to a contract with the
U.S. government for (1) the provision of
goods that are manufactured or
produced in a country that does not
have an international procurement
agreement with the United States, or (2)
the provision of services in a country
that does not have an international
procurement agreement with the United
States.
For purposes of section 5000C, a
payer of a specified federal
procurement payment to a foreign
person must complete a Form 1042-S
for payments withheld upon in the name
of the foreign person. Use income code
44 to report payments subject to
withholding under section 5000C. Box 2
should include the amount of the
specified federal procurement payments
subject to withholding and Box 7 should
include the amount of tax withheld
under section 5000C.
If you are reporting tax withheld
under section 5000C, enter "3" in Box 3
as if the tax were a chapter 3 tax, enter
"00" in Box 3a, and report the tax
withheld in Box 7. You do not need to
complete Box 4a, 4b, or any Box for a
chapter 3 or 4 status code. In Boxes 13a
Instructions for Form 1042-S (2020)

Guide to Global Payroll Management - 2020

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