§ 1.1471-2T - Requirement to deduct and withhold tax on withholdable payments to certain FFIs (temporary).

§ 1.1471-2T Requirement to deduct and withhold tax on withholdable payments to certain FFIs (temporary).

(a) [Reserved] For further guidance, see § 1.1471-2(a).

(1) General rule of withholding. Under section 1471(a), notwithstanding any exemption from withholding under any other provision of the Code or regulations, a withholding agent must withhold 30 percent of any withholdable payment made after June 30, 2014, to a payee that is an FFI unless either the withholding agent can reliably associate the payment with documentation upon which it is permitted to rely to treat the payment as exempt from withholding under paragraph (a)(4) of this section or the payment is made under a grandfathered obligation that is described in paragraph (b) of this section or constitutes gross proceeds from the disposition of such an obligation. A withholding agent that is making a payment must determine who the payee is under § 1.1471-3(a) with respect to that payment and the chapter 4 status of such payee. See § 1.1471-3 for requirements for determining the chapter 4 status of a payee, including additional documentation requirements that apply when a payment is made to an intermediary or flow-through entity that is not the payee. Withholding under this section applies without regard to whether the payee receives a withholdable payment as a beneficial owner or as an intermediary. See paragraph (a)(2)(iv) of this section for a description of the withholding requirements imposed on territory financial institutions as withholding agents under chapter 4. In the case of a withholdable payment to a NFFE, a withholding agent is required to determine whether withholding applies under section 1472 and § 1.1472-1. Except as otherwise provided in the regulations under chapter 4, a withholding obligation arises on the date a payment is made, as determined under § 1.1473-1(a).

(2) [Reserved] For further guidance, see § 1.1471-2(a)(2).

(i) Requirement to withhold on payments of U.S. source FDAP income to participating FFIs and deemed-compliant FFIs that are NQIs, NWPs, or NWTs. A withholding agent that, after June 30, 2014, makes a payment of U.S. source FDAP income to a participating FFI or deemed-compliant FFI that is an NQI receiving the payment as an intermediary, or a NWP or NWT, must withhold 30 percent of the payment unless the withholding is reduced under this paragraph (a)(2)(i). A withholding agent is not required to withhold on a payment, or portion of a payment, that it can reliably associate, in the manner described in § 1.1471-3(c)(2), with a valid intermediary or flow-through withholding certificate that meets the requirements of § 1.1471-3(d)(4) and a withholding statement that meets the requirements of § 1.1471-3(c)(3)(iii)(B) and that allocates the payment or portion of the payment to payees for which no withholding is required under chapter 4. Further, a withholding agent is not required to withhold on a payment that it can reliably associate with documentation indicating that the payee is a U.S. branch treated as a U.S. person (as defined in § 1.1471-1(b)(135)).

(ii) Residual withholding responsibility of intermediaries and flow-through entities. An intermediary or flow-through entity that receives a withholdable payment after June 30, 2014, is required to withhold on such payment to the extent required under chapter 4. Notwithstanding the previous sentence, an intermediary or flow-through entity is not required to withhold if another withholding agent has withheld the full amount required. Further, an NQI, NWP, or NWT is not required to withhold with respect to a withholdable payment under chapter 4 if it has provided a valid intermediary withholding certificate or flow-through withholding certificate and all of the information required by § 1.1471-3(c)(3)(iii), and it does not know, and has no reason to know, that another withholding agent failed to withhold the correct amount. A QI's, WP's, or WT's obligation to withhold and report is determined in accordance with its QI withholding agreement, WP agreement, or WT agreement.

(iii) [Reserved] For further guidance, see § 1.1471-2(a)(2)(iii).

(A) Election to be withheld upon for U.S. source FDAP income. A withholding agent is required to withhold with respect to a payment, or portion of a payment, that is U.S. source FDAP income subject to withholding that is made after June 30, 2014, to a QI that has elected in accordance with this paragraph to be withheld upon, unless such withholding agent also makes an election to be withheld upon under this paragraph (a)(2)(iii)(A) or is an FFI that may not accept primary withholding responsibility for the payment. In such case, the withholding agent must withhold 30 percent of the portion of the payment that is allocable, pursuant to a withholding statement described in § 1.1471-3(c)(3)(iii)(B) provided by the QI, to recalcitrant account holders and nonparticipating FFIs. If no such allocation information is provided, the withholding agent must apply the presumption rules of § 1.1471-3(f) to determine the chapter 4 status of the payee. A QI that is an FFI and that makes the election to be withheld upon with respect to a payment of U.S. source FDAP income may not assume primary withholding responsibility under chapter 3 for that payment. Conversely, a QI that is an FFI and that does not make the election to be withheld upon with respect to a payment of U.S. source FDAP income is required to assume primary withholding responsibility under chapter 3 for that payment. The election to be withheld upon is only available with respect to a payment of U.S. source FDAP income if -

(1) through (4) [Reserved] For further guidance, see § 1.1471-2(a)(2)(iii)(A)(1) through (4).

(B) [Reserved] For further guidance, see § 1.1471-2(a)(2)(iii)(B).

(iv) [Reserved] For further guidance, see § 1.1471-2(a)(2)(iv).

(v) Withholding obligation of a foreign branch of a U.S. financial institution. Generally, a foreign branch of a U.S. financial institution is a withholding agent and is not an FFI. However, a QI branch of a U.S. financial institution is both a withholding agent and either a participating FFI or a registered deemed-compliant FFI. Accordingly, a QI branch of a U.S. financial institution must withhold in accordance with this section and § 1.1472-1(b) in addition to meeting its obligations under either § 1.1471-4(b) and its FFI agreement or § 1.1471-5(f). Similarly, a foreign branch of a U.S. financial institution that is also a reporting Model 1 FFI is both a withholding agent and a registered deemed-compliant FFI. Accordingly, a foreign branch of a U.S. financial institution that is a reporting Model 1 FFI must withhold in accordance with this section and § 1.1472-1(b). A foreign branch of a U.S. financial institution that is not a QI is not permitted to make an election to be withheld upon.

(vi) [Reserved] For further guidance, see § 1.1471-2(a)(2)(vi).

(3) [Reserved] For further guidance, see § 1.1471-2(a)(3).

(4) [Reserved] For further guidance, see § 1.1471-2(a)(4).

(i) through (i)(B) [Reserved] For further guidance, see § 1.1471-2(a)(4)(i) through (a)(4)(i)(B).

(ii) Exception to withholding for certain payments made prior to July 1, 2016 (transitional).

(A) In general. For any withholdable payment made prior to July 1, 2016, with respect to a preexisting obligation for which a withholding agent does not have documentation indicating the payee's status as a nonparticipating FFI, the withholding agent is not required to withhold under this section and section 1471(a) unless the payee is a prima facie FFI.

(B) Prima facie FFIs. If the payee is a prima facie FFI, the withholding agent must treat the payee as a nonparticipating FFI beginning on January 1, 2015, until the date the withholding agent obtains documentation sufficient to establish a different chapter 4 status of the payee. A prima facie FFI means any payee if -

(1) through (2) (xviii) [Reserved] For further guidance, see § 1.1471-2(a)(4)(ii)(B)(1) through (a)(4)(ii)(B)(2)(xviii).

(iii) through (viii) [Reserved] For further guidance, see § 1.1471-2(a)(4)(iii) through (viii).

(5) through (5)(ii) [Reserved] For further guidance, see § 1.1471-2(a)(5) through (a)(5)(ii).

(b) [Reserved] For further guidance, see § 1.1471-2(b).

(1) [Reserved] For further guidance, see § 1.1471-2(b)(1).

(2) [Reserved] For further guidance, see § 1.1471-2(b)(2).

(i) [Reserved] For further guidance, see § 1.1471-2(b)(2)(i).

(A) [Reserved] For further guidance, see § 1.1471-2(b)(2)(i)(A).

(1) Any obligation outstanding on July 1, 2014;

(2) through (3) [Reserved] For further guidance, see § 1.1471-2(b)(2)(i)(A)(2) through (3).

(B) [Reserved] For further guidance, see § 1.1471-2(b)(2)(i)(B).

(ii) [Reserved] For further guidance, see § 1.1471-2(b)(2)(ii).

(A) [Reserved] For further guidance, see § 1.1471-2(b)(2)(ii)(A).

(1) through (3) [Reserved] For further guidance, see § 1.1471-2(b)(2)(ii)(A)(1) through (3).

(4) A life insurance contract under which the entire contract value is payable no later than upon the death of the individual(s) insured under the contract but, in the case of a life insurance contract that contains a provision that permits the substitution of a new individual as the insured under the contract, only until a substitution occurs; and

(5) [Reserved] For further guidance, see § 1.1471-2(b)(2)(ii)(A)(5).

(B) [Reserved] For further guidance, see § 1.1471-2(b)(2)(ii)(B).

(1) [Reserved] For further guidance, see § 1.1471-2(b)(2)(ii)(B)(1).

(2) Lacks a stated expiration or term (for example, a savings deposit or demand deposit, a deferred annuity contract, or an annuity contract that permits a substitution of a new individual as the annuitant under the contract);

(3) through (4) [Reserved] For further guidance, see § 1.1471-2(b)(2)(ii)(B)(3) through (4).

(iii) [Reserved] For further guidance, see § 1.1471-2(b)(2)(iii).

(iv) Material modification. In the case of an obligation that constitutes indebtedness for U.S. tax purposes, a material modification is any significant modification of the debt instrument as defined in § 1.1001-3(e). For life insurance contracts, a material modification includes any substitution of the insured under the contract. In all other cases, whether a modification of an obligation is material is determined based on the facts and circumstances.

(3) through (3)(iii) [Reserved] For further guidance, see § 1.1471-2(b)(3) through (b)(3)(iii).

(4) [Reserved] For further guidance, see § 1.1471-2(b)(4).

(i) [Reserved] For further guidance, see § 1.1471-2(b)(4)(i).

(ii) Determination of material modification. For purposes of paragraph (b)(2)(iv) of this section (defining material modification), a withholding agent, other than the issuer of the obligation (or an agent of the issuer), is required to treat a modification of the obligation as material only if the withholding agent has actual knowledge thereof, such as in the event the withholding agent receives a disclosure indicating that there has been or will be a material modification to such obligation. The issuer of the obligation (or an agent of the issuer) that is a withholding agent is required to treat a modification of the obligation as material if the withholding agent knows or has reason to know that a material modification has occurred with respect to the obligation.

(iii) [Reserved] For further guidance, see § 1.1471-2(b)(4)(iii).

(c) [Reserved] For further guidance, see § 1.1471-2(c).

(d) Expiration date. The applicability of this section expires on February 28, 2017.

[T.D. 9657, 79 FR 12828, Mar. 6, 2014; 79 FR 37177, July 1, 2014]