QI – Qualified Intermediary framework

I am still trying to wrap my head around the whole IRS QI relationship and I have put together a post surrounding the framework of the agreement as I see it.

The QI Relationship

A QI relationship is an agreement with the IRS. Specifically a qualified intermediary (QI) is any foreign intermediary that has entered into a qualified intermediary withholding agreement with the IRS.

Agreement

Foreign financial institutions and foreign branches of U.S. financial institutions can enter into an agreement with the IRS to be a qualified intermediary. A QI is entitled to certain simplified withholding and reporting rules.

Compliance

A QI is not required to forward documentation obtained from foreign account holders to the 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. A withholding rate pool is a payment of a single type of income that is subject to a single rate of withholding.

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 backup withholding.

Withholding

A QI assumes primary withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for IRS reportable payments where the source of the payment is in US dollars. In this situation, the QI is responsible for withholding the tax. A QI assumes this responsibility by submission of a signed W8IMY form to the paying agent. If the W8IMY is not submitted then the withholding agent (in our case the withholding agent is the broker) is responsible for the withholding and would be compelled to withhold. If the source of the payment is in Canadian dollars or any other foreign non-US currency, then the withholding agent would not be obligated to withhold.

W-8IMY

Do not send Form W-8IMY to the IRS. Instead, the W8IMY should be submitted to the withholding agent (the broker.) If you do not provide this form, the withholding agent may have to withhold at the 30% rate, backup withholding rate with respect to non effectively connected income, or the 35% rate for net effectively connected taxable income allocable to a foreign partner in a partnership. Generally, a separate Form W-8IMY must be submitted to each withholding agent.

Changes

If a change in circumstances makes any information on the Form W-8IMY (or any documentation or a withholding statement associated with the Form W-8IMY) you have submitted incorrect, you must notify the withholding agent or payer within 30 days of the changes in circumstances and you must file a new Form W-8IMY or provide new documentation or a new withholding statement.

You must update the information associated with Form W-8IMY as often as is necessary to enable the withholding agent to withhold at the appropriate rate on each payment and to report such income.

Expiration

Generally, a Form W-8IMY remains valid until the status of the person whose name is on the certificate is changed in a way relevant to the certificate or circumstances change that make the information on the certificate no longer correct. The indefinite validity period does not extend, however, to any withholding certificates, documentary evidence, or withholding statements associated with the certificate.