Generally, you must withhold 30% from the gross amount paid to a foreign payee unless you can reliably associate the payment with valid documentation that establishes either of the following.

• The payee is a U.S. person.
• The payee is a foreign person that is the beneficial owner of the income and is entitled to a reduced rate of withholding.

Generally, you must get the documentation before you make the payment. The documentation is not valid if you know, or have reason to know, that it is unreliable or incorrect. See Standards of Knowledge, later.

Generally, you can treat the payee as a U.S. person if the payee gives you a Form W-9. The Form W-9 can only be used by a U.S. person and must contain the payee's taxpayer identification number (TIN). See U.S. Taxpayer Identification Numbers, later. U.S. persons are not subject to NRA withholding, but may be subject to Form 1099 reporting and backup withholding.

Generally, a foreign person that is a beneficial owner of the income should give you a Form W-8. If certain requirements are met, the foreign person can give you documentary evidence, rather than a Form W-8.

Other documentation may be required to claim an exemption from, or a reduced rate of, withholding on pay for personal services. The nonresident alien individual may have to give you a Form W-4 or a Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual. These forms are discussed in Pay for Personal Services Performed under Withholding on Specific Income.

See Notice 2001-4 under Important Changes, earlier.

If you cannot reliably associate a payment with valid documentation, you must use the presumption rules discussed later. For example, if you do not have documentation or you cannot determine the portion of a payment that is allocable to specific documentation, you must use the presumption rules.

The specific types of documentation are discussed next. You should, however, also see the discussion, Withholding on Specific Income, as well as the instructions to the particular forms. As the withholding agent, you may also want to see the Instructions for the Requester of Forms W-8BEN, W-8ECI, W-8EXP, and W-8IMY.

Beneficial Owners

If all the appropriate requirements have been established on a Form W-8BEN, W-8ECI, W-8EXP or, if applicable, on documentary evidence, you may treat the payee as a foreign beneficial owner.

Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, is used by a foreign person to:

1. Establish foreign status,
2. Claim that such person is the beneficial owner of the income for which the form is being furnished, and
3. If applicable, claim a reduced rate of, or exemption from, withholding as a resident of a foreign country with which the United States has an income tax treaty.

Form W-8BEN may also be used to claim that the foreign person is exempt from Form 1099 reporting and backup withholding for income that is not subject to NRA withholding. For example, a foreign person may provide a Form W-8BEN to a broker to establish that the gross proceeds from the sale of securities are not subject to Form 1099 reporting or backup withholding.

Claiming treaty benefits. You may apply a reduced rate of withholding to a foreign person that provides a Form W-8BEN claiming a reduced rate of withholding under an income tax treaty only if the person provides a U.S. TIN (unless the exception discussed under Marketable securities applies) and certifies that:

• It is a resident of a treaty country.
• It is the beneficial owner of the income.
• If it is an entity, it derives the income within the meaning of section 894 of the Internal Revenue Code (it is not fiscally transparent).
• It meets any limitation on benefits provision contained in the treaty, if applicable.

If the foreign beneficial owner claiming a treaty benefit is related to you, the foreign beneficial owner must also certify on Form W-8BEN that it will file Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), if the amount subject to NRA withholding received during a calendar year exceeds, in the aggregate, $500,000.

An entity derives income for which it is claiming treaty benefits only if the entity is not treated as fiscally transparent for that income. See Fiscally transparent entities discussed earlier under Flow-Through Entities.

Limitations on benefits provisions generally prohibit third country residents from obtaining treaty benefits. For example, a foreign corporation may not be entitled to a reduced rate of withholding unless a minimum percentage of its owners are citizens or residents of the United States or the treaty country.

The exemptions from, or reduced rates of, U.S. tax vary under each treaty. You must check the provisions of the tax treaty that apply. Tables at the end of this publication show the countries with which the United States has income tax treaties and the rates of withholding that apply in cases where all conditions of the particular treaty articles are satisfied.

If a nonresident alien individual has made an election with his or her U.S. citizen or resident spouse to be treated as a U.S. resident for income tax purposes, the nonresident alien may not claim to be a foreign resident to obtain the benefits of a reduced rate of, or exemption from, U.S. income tax under an income tax treaty.

If you know, or have reason to know, that an owner of income is not eligible for treaty benefits claimed, you must not apply the treaty rate. You are not, however, responsible for misstatements on a Form W-8, documentary evidence, or statements accompanying documentary evidence for which you did not have actual knowledge, or reason to know that the statements were incorrect.

Marketable securities. A Form W-8BEN provided to claim treaty benefits does not need a U.S. TIN if the foreign beneficial owner is claiming the benefits on income from marketable securities. For this purpose, income from a marketable security consists of the following items.

• Dividends and interest from stocks and debt obligations that are actively traded.
• Dividends from any redeemable security issued by an investment company registered under the Investment Company Act of 1940 (mutual fund).
• Dividends, interest, or royalties from units of beneficial interest in a unit investment trust that are (or were upon issuance) publicly offered and are registered with the SEC under the Securities Act of 1933.
• Income related to loans of any of the above securities.

Form W-8ECI, Certificate of Foreign Person's Claim for Exemption From Withholding on Income Effectively Connected With the Conduct of a Trade or Business in the United States, is used by a foreign person to:

1. Establish foreign status,
2. Claim that such person is the beneficial owner of the income for which the form is being furnished, and
3. Claim that the income is effectively connected with the conduct of a trade or business in the United States. (See Effectively Connected Income, later.)

Effectively connected income for which a valid Form W-8ECI has been provided is generally not subject to NRA withholding.

Form W-8EXP, Certificate of Foreign Government or Other Foreign Organization for United States Tax Withholding, is used by a foreign government, international organization, foreign central bank of issue, foreign tax-exempt organization, foreign private foundation, or government of a U.S. possession to:

1. Establish foreign status,
2. Claim that such person is the beneficial owner of the income for which the form is being furnished, and
3. Claim a reduced rate of, an exemption from, withholding as such an entity.

See Foreign Governments and Certain Other Foreign Organizations, later.

Documentary evidence. Under certain circumstances, a foreign payee may establish that it is the beneficial owner of income and, if applicable, entitled to a reduced rate of withholding based on documentary evidence instead of using an IRS form. Documentary evidence provided for an amount subject to NRA withholding must contain sufficient information for you to complete a Form 1042-S.

A payee may give you documentary evidence, rather than Form W-8BEN, if the payment is made outside the United States to an offshore account. Generally, a payment is made outside the United States if you complete the acts necessary to effect the payment outside the United States. However, an amount paid by a bank or other financial institution on a deposit or account will usually be treated as paid at the branch or office where the amount is credited. An offshore account is an account maintained at an office or branch of a U.S. or foreign bank or other financial institution at any location outside the United States and its possessions.

See Notice 2001-4 under Important Changes, earlier.

You may rely on documentary evidence given you by a nonqualified intermediary or a flow-through entity with its Form W-8IMY. This rule applies even though you make the payment to a nonqualified intermediary or flow-through entity in the United States. Generally, the nonqualified intermediary or flow-through entity that gives you documentary evidence will also have to give you a withholding statement, discussed later.

Documentary evidence--marketable securities. You may apply a reduced rate of withholding to income from marketable securities (discussed earlier) paid outside the United States to an offshore account if the beneficial owner gives you documentary evidence in place of a Form W-8BEN. To claim treaty benefits, the documentary evidence must be one of the following:

1. A certificate of residence that:
   1. Is issued by a tax official of the treaty country of which the foreign beneficial owner claims to be a resident,
   2. States that the person has filed its most recent income tax return as a resident of that country, and
   3. Is issued within 3 years prior to being presented to you.

2. Documentation for an individual that:
   1. Includes the individual's name, address and photograph,
   2. Is an official document issued by an authorized governmental body, and
   3. Is issued no more than 3 years prior to being presented to you.

3. Documentation for an entity that:
   1. Includes the name of the entity,
   2. Includes the address of its principal office in the treaty country, and
   3. Is an official document issued by an authorized governmental body.

In addition to the documentary evidence, a foreign beneficial owner that is an entity must provide a statement that it derives the income for which it claims treaty benefits and that it meets one or more of the conditions set forth in a limitation on benefits article, if any, (or similar provision) contained in the applicable treaty.

Foreign Intermediaries and Foreign Flow-Through Entities

Payments made to a foreign intermediary or foreign flow-through entity are treated as made to the payees on whose behalf the intermediary or entity acts. The Form W-8IMY provided by a foreign intermediary or flow-through entity must be accompanied by additional information for you to be able to reliably associate the payment with a payee. The additional information required depends on the type of intermediary or flow-through entity and the extent of the withholding responsibilities it assumes.

Form W-8IMY, Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. Branches for United States Tax Withholding, is used by foreign intermediaries and foreign flow-through entities, as well as certain U.S. branches, to:

• Represent that a foreign person is a qualified intermediary or nonqualified intermediary,
• Represent, if applicable, that the qualified intermediary is assuming primary NRA withholding responsibility and/or primary Form 1099 reporting and backup withholding responsibility,
• Represent that a foreign person is a withholding or nonwithholding foreign partnership, or a withholding or nonwithholding foreign trust, or
• Represent that the provider is a U.S. branch of a foreign bank or insurance company and either is agreeing to be treated as a U.S. person, or is transmitting documentation of the persons on whose behalf it is acting.

Qualified Intermediaries

Although payments made to a QI that does not assume NRA withholding responsibility are treated as paid to its account holders and customers, a QI is not required to provide you with documentation it obtains from its foreign account holders and customers. Instead, it provides withholding rate pool information. A withholding rate pool is a payment of a single type of income, determined in accordance with the categories of income reported on Form 1042-S that is subject to a single rate of withholding. A qualified intermediary is required to provide you with information regarding U.S. persons subject to Form 1099 reporting and to provide you withholding rate pool information separately for each such U.S. person unless it has assumed Form 1099 reporting and backup withholding responsibility.

See Notice 2001-4 under Important Changes, earlier.

The withholding statement must:

1. Designate those accounts for which it acts as a qualified intermediary,
2. Designate those accounts for which it assumes primary NRA withholding responsibility and/or primary Form 1099 and backup withholding responsibility, and
3. Provide sufficient information for you to allocate the payment to a withholding rate pool.

The extent to which you must have withholding rate pool information depends on the withholding and reporting obligations assumed by the QI.

Primary responsibility not assumed. If a QI does not assume primary NRA withholding responsibility or primary Form 1099 reporting and backup withholding responsibility for the payment, you can reliably associate the payment with valid documentation only to the extent you can reliably determine the portion of the payment that relates to each withholding rate pool for foreign payees. In addition, the qualified intermediary must provide you with a separate withholding rate pool for each U.S. person subject to Form 1099 reporting and/or backup withholding. The QI must provide a Form W-9 or, in the absence of the form, the name, address, and TIN, if available, for such person.

Primary NRA withholding responsibility assumed. If you make a payment to a QI that assumes primary NRA withholding responsibility (but not primary Form 1099 reporting and backup withholding responsibility), you can reliably associate the payment with valid documentation only to the extent you can reliably determine the portion of the payment that relates to the withholding rate pool for which the QI assumes primary NRA withholding responsibility and the portion of the payment attributable to withholding rate pools for each U.S. person subject to Form 1099 reporting and/or backup withholding. The QI must provide a Form W-9 or, in absence of the form, the name, address, and TIN, if available, for such person.

Primary NRA and Form 1099 responsibility assumed. If you make a payment to a QI that assumes both primary NRA withholding responsibility and primary Form 1099 reporting and backup withholding responsibility, you can reliably associate a payment with valid documentation provided that you receive a valid Form W-8IMY. It is not necessary to associate the payment with withholding rate pools.

Example. You make a payment of dividends to QI, a foreign bank. QI has 5 customers: FP1 and FP2 are foreign persons who have provided documentation entitling them to a 15% rate of withholding on dividends. FP3 and FP4 are foreign persons subject to a 30% rate of withholding on dividends. USI is a U.S. individual who provides QI with a Form W-9. Each customer is entitled to 20% of the dividend payment. QI provides a Form W-8IMY with which it associates the Form W-9 of USI, and a withholding statement that allocates 40% of the dividend to a 15% withholding rate pool, 40% to a 30% withholding rate pool and 20% to USI. You should report on Form 1042-S 40% of the payment as made to a 15% rate dividend pool and 40% of the payment as made to a 30% rate dividend pool. The portion of the payment allocable to USI (20%) is reportable on Form 1099.

Nonqualified Intermediaries

If you are making a payment to a nonqualified intermediary, foreign flow-through entity, or U.S. branch that is using Form W-8IMY to transmit information about the branch's account holders or customers, you can treat the payment (or a portion of the payment) as reliably associated with valid documentation from a specific payee only if, prior to making the payment:

• You can allocate the payment to a valid Form W-8IMY,
• You can reliably determine how much of the payment relates to valid documentation provided by a payee (a person that is not itself a foreign intermediary, flow-through entity, or a U.S. branch), and
• You have sufficient information to report the payment on Form 1042-S or Form 1099, if reporting is required.

The NQI, flow-through entity, or U.S. branch must give you certain information on a withholding statement that is associated with the Form W-8IMY. A withholding statement must be updated to keep the information accurate prior to each payment.

Generally, a withholding statement must contain the following information.

1. The name, address, and TIN (if any, or if required) of each person for whom documentation is provided.
2. The type of documentation (documentary evidence, Form W-8, or Form W-9) for every person for whom documentation has been provided.
3. The status of the person for whom the documentation has been provided, such as whether the person is a U.S. exempt recipient (U.S. person exempt from Form 1099 reporting), U.S. non-exempt recipient (U.S. person subject to Form 1099 reporting), or a foreign person. For a foreign person, the statement must indicate whether the person is a beneficial owner or a foreign intermediary, flow-through entity, or a U.S. branch.
4. The type of recipient the person is, based on the recipient codes used on Form 1042-S.
5. Information allocating each payment, by income type, to each payee (including U.S. exempt and U.S. non-exempt recipients) for whom documentation has been provided.
6. The rate of withholding that applies to each foreign person to whom a payment is allocated.
7. A foreign payee's country of residence.
8. If a reduced rate of withholding is claimed, the basis for a reduced rate of withholding (e.g., portfolio interest, treaty benefit etc.).
9. In the case of treaty benefits claimed by entities, whether the applicable limitation on benefits statement and the statement that the foreign person derives the income for which treaty benefits are claimed, have been made.
10. If a payee receives income from an NQI, flow-through entity, or U.S. branch, other than the NQI, flow-through entity, or U.S. branch to which you make the payment, the name, address, and TIN (if any) of the other NQI, flow-through entity, or U.S. branch from which the payee will directly receive the payment.
11. Any other information a withholding agent requests to fulfill its reporting and withholding obligations.

Alternative procedure. Under this alternative procedure the NQI can give you the information that allocates each payment to each foreign and U.S. exempt recipient by January 31 following the calendar year of payment, rather than prior to the payment being made as otherwise required. To take advantage of this procedure, the NQI must: (1) inform you, on its withholding statement, that it is using the alternative procedure, and (2) obtain your consent. You must receive the withholding statement with all the required information (other than item 5) prior to making the payment.

The alternative procedure cannot be used for payments to U.S. non-exempt recipients. Therefore, an NQI must always provide you with allocation information for all U.S. non-exempt recipients prior to a payment being made.

Pooled withholding information. If an NQI uses the alternative procedure, it must provide you with withholding rate pool information, as opposed to individual allocation information, prior to the payment of a reportable amount. A withholding rate pool is a payment of a single type of income (as determined by the income categories on Form 1042-S) that is subject to a single rate of withholding. For example, an NQI that has foreign account holders receiving royalties and dividends, both subject to the 15% rate, will provide you with information for two withholding rate pools (one for royalties and one for dividends). The NQI must provide you with the payee specific allocation information (information allocating each payment to each payee) by January 31 following the calendar year of payment.

Failure to provide allocation information. If an NQI fails to provide you with the payee specific allocation information for a withholding rate pool by January 31, you must not apply the alternative procedure to any of the NQI's withholding rate pools from that date forward. Unless the NQI provides all the required information, including account holder specific allocation information, prior to any payments being made, you must treat the payees as undocumented and apply the presumption rules, discussed later. An NQI is deemed to have failed to provide specific allocation information if it does not give you such information for more than 10% of any one withholding rate pool.

An NQI may cure its failure to provide allocation information by providing the required information to you by February 14 following the calendar year of payment. If you receive such information by that date, you may make the appropriate adjustments to repay any excess withholding incurred between February 1st and on or before February 14th.

If the NQI fails to allocate more than 10% of the payment to a withholding rate pool by February 14 following the calendar year of payment, you must file a Form 1042-S for each account holder in the pool on a pro-rata basis. 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, you must file four Forms 1042-S, one for each account holder in the pool, showing $25 of income to each. You must also check the "Pro-rata Basis Reporting" box at the top of each form. If, however, the nonqualified intermediary provides allocation information for 90% or more of the payment to a withholding rate pool, the pro-rata reporting method is not required. Instead, you must file a Form 1042-S for each account holder for whom you have allocation information and report the unallocated portion of the payment on a Form 1042-S issued to "unknown recipient."

Standards of Knowledge

You must withhold in accordance with the presumption rules (discussed later) if you know or have reason to know that a Form W-8 or documentary evidence provided by a payee is unreliable or incorrect. If you rely on an agent to obtain documentation, you are considered to know, or have reason to know, the facts that are within the knowledge of your agent.

Reason to Know

Generally, you are considered to have reason to know that a claim of U.S. status or of a reduced rate of withholding is incorrect if statements contained in the withholding certificate or other documentation, or other relevant facts of which you have knowledge, would cause a reasonably prudent person in your position to question the claims made.

Financial institutions are treated as having reason to know documentation is unreliable or incorrect for payments on marketable securities only in the circumstances discussed next. If the documentation is considered unreliable or incorrect, you must get new documentation. However, you may rely on the original documentation if you receive the additional statements and/or documentation discussed.

The circumstances, discussed next, also apply to a withholding agent that is not a financial institution or making a payment on marketable securities. However, these withholding agents are not limited to these circumstances in determining if they have reason to know that documentation is unreliable or incorrect. These withholding agents cannot base their determination on the receipt of additional statements or documents, they need to get new documentation.

Financial Institutions

A financial institution, which for this purpose includes a regulated investment company, that makes a payment on income from marketable securities, discussed earlier, is treated as having reason to know that the documentation is unreliable or incorrect only in the following circumstances.

Withholding certificates--in general. You have reason to know that a Form W-8 provided by a direct account holder that is a foreign person is unreliable or incorrect if:

1. The Form W-8 is incomplete with respect to any item on the form that is relevant to the claims made by the account holder,
2. The Form W-8 contains any information that is inconsistent with the account holder's claim,
3. The Form W-8 lacks information necessary to establish entitlement to a reduced rate of withholding, if a reduced rate is claimed, or
4. You have information not contained on the form that is inconsistent with the claims made on the form.

Withholding certificate--establishment of foreign status. You have reason to know that a Form W-8BEN or Form W-8EXP is unreliable or incorrect to establish a direct account holder's status as a foreign person if:

1. The Form W-8 has a permanent residence address in the United States,
2. The Form W-8 has a mailing address in the United States,
3. You have a residence or mailing address as part of your account information that is an address in the United States,
4. The person providing the certificate notifies you of a new residence or mailing address in the United States, or
5. If the Form W-8 is provided with respect to an offshore account, the account holder has standing instructions directing you to pay amounts from its account to an address or account maintained in the United States.

Note. Notice 2001-4 provides that items (2) and (3) do not apply if the U.S. mailing address is provided on a Form W-8 received before December 31, 2001.

You may, however, rely on a Form W-8 as establishing the account holder's foreign status if any of the following apply:

1. You receive the Form W-8 from an individual and:
   1. You possess or obtain documentary evidence (that does not contain a U.S. address) that has been presented to you within the last three years and that supports the claim of foreign status, and the beneficial owner provides you with a reasonable explanation in writing supporting the account holder's foreign status, or
   2. If the account is maintained at an office outside the United States, you are required to report annually a payment to the account holder on a tax information statement filed with the tax authority of the country in which your office is located and that country has an income tax treaty in effect with the United States.

2. You receive the Form W-8 from an entity that is not a flow-through entity and:
   1. You have in your possession or obtain documentation that substantiates that the entity is organized or created under foreign law, or
   2. If the account is maintained at an office outside the United States, you are required to report annually a payment to the account holder on a tax information statement filed with the tax authority of the country in which your office is located and that country has an income tax treaty in effect with the United States.

3. You may treat an account holder that has provided standing instructions to make payments with respect to its offshore account to a U.S. account or U.S. address as a foreign person if the account holder provides a reasonable explanation in writing that supports the account holder's foreign status.

Withholding certificate--claim of reduced rate of withholding under treaty. You have reason to know that a Form W-8BEN provided by a direct account holder to claim a reduced rate of withholding under a treaty is unreliable or incorrect for purposes of establishing the account holder's residency in a treaty country if:

1. The permanent residence address on the Form W-8BEN is not in the treaty country or the beneficial owner notifies you of a new permanent residence address that is not in the treaty country,
2. The permanent residence address on the Form W-8BEN is in the treaty country but the withholding certificate (or your account information) contains a mailing address that is not in the treaty country, or
3. The account holder has standing instructions for you to pay amounts from its account to an address or an account not in the treaty country.

You may, however, rely on a Form W-8BEN as establishing an account holder's claim of a reduced rate of withholding under a treaty if any of the following apply.

1. If the permanent residence address is not in the treaty country and:
   1. The account holder provides a reasonable explanation for the permanent residence address outside the treaty country, or
   2. You possess or obtain documentary evidence that establishes residency in a treaty country.

2. If the mailing address is not in the treaty country and:
   1. You possess or obtain additional documentation (that does not contain an address outside the treaty country) supporting the beneficial owner's claim of residence in the treaty country,
   2. You possess or obtain documentation that establishes that the beneficial owner is an entity organized in a treaty country,
   3. You know that the address outside the treaty country is a branch of a bank or insurance company that is a resident of the treaty country, or
   4. You obtain a written statement from the beneficial owner that reasonably establishes its entitlement to treaty benefits.

3. If you have instructions to pay amounts outside the treaty country, and the account holder gives you a reasonable explanation, in writing, establishing residence in the applicable treaty country.

Documentary evidence--in general. You have reason to know that documentary evidence provided by a direct account holder that is a foreign person is unreliable or incorrect if:

1. The documentary evidence does not reasonably establish the identity of the person presenting the documentary evidence,
2. The documentary evidence contains information that is inconsistent with the account holder's claim of a reduced rate of withholding, or
3. You have account information that is inconsistent with the account holder's claim of a reduced rate of withholding, or the documentary evidence lacks information necessary to establish a reduced rate of withholding. For example, the documentary evidence does not contain, or is not supplemented by, statements regarding the derivation of the income or compliance with limitations on benefits provisions in the case of an entity claiming treaty benefits.

Documentary evidence to establish foreign status. You have reason to know that documentary evidence is unreliable or incorrect to establish a direct account holder's status as a foreign person if:

1. The only mailing address on documentary evidence provided after December 31, 2000, is an address at a financial institution (unless the financial institution is the beneficial owner), an in-care-of address, or a P.O. box,
2. You have a mailing or residence address for the account holder in the United States or if the account holder notifies you of a new address in the United States, or
3. The account holder has standing instructions directing you to pay amounts from the account to an address or account maintained in the United States.

You may, however, rely on documentary evidence as establishing an account holder's foreign status if any of the following apply:

1. If the mailing or residence address is in the United States, you receive the documentary evidence from an individual, and
   1. You possess or obtain additional documentary evidence (that does not contain a U.S. address) supporting the claim of foreign status and a reasonable explanation in writing supporting the account holder's foreign status,
   2. You possess or obtain a Form W-8 that contains a permanent residence address and mailing address outside the United States (or if a mailing address is inside the United States the account holder provides a reasonable explanation, in writing, supporting the account holder's foreign status, or the Form W-8 was provided before December 31, 2001), or
   3. The account is maintained at an office outside the United States and you are required to report annually a payment to the account holder on a tax information statement filed with the tax authority of the country in which your office is located and that country has an income tax treaty in effect with the United States.

2. If the mailing or residence address is in the United States, you receive the documentary evidence from an entity (other than a flow-through entity) and:
   1. You possess or obtain documentation to substantiate that the entity is actually organized under the laws of a foreign country,
   2. You obtain a valid Form W-8 that contains a permanent residence address and mailing address outside the United States (or if a mailing address is inside the United States, the account holder provides additional documentary evidence sufficient to establish the account holder's foreign status, or the Form W-8 was provided before December 31, 2001), or
   3. The account is maintained at an office outside the United States and you are required to report annually a payment to the account holder on a tax information statement filed with the tax authority of the country in which your office is located and that country has an income tax treaty in effect with the United States.

3. If you have instructions to pay amounts to an address or an account in the United States and the account holder provides you with a reasonable explanation, in writing, that supports the account holder's foreign status.

Documentary evidence--claim of reduced rate of withholding under a treaty. You have reason to know that documentary evidence provided by a direct account holder to claim a reduced rate of withholding under a treaty is unreliable or incorrect for purposes of establishing the account holder's residency in a treaty country if:

1. You have a mailing or residence address for the account holder that is outside the applicable treaty country,
2. The only address that you have (whether in or outside the treaty country) is a P.O. box, an in-care-of address, or the address of a financial institution (that is not the beneficial owner of the income), or
3. The account holder has standing instructions for you to pay amounts from its account to an address or account not in the treaty country.

Chart A. Presumption Rules in the Absence of Documentation

You may, however, rely on documentary evidence as establishing an account holder's claim of a reduced rate of withholding under a treaty if any of the following apply.

1. If the mailing or residence address is outside the treaty country and:
   1. You possess or obtain additional documentary evidence supporting the account holder's claim of residence in the treaty country (and the documentary evidence does not contain an address outside the treaty country, a P.O. box, an in-care-of address, or the address of a financial institution),
   2. You possess or obtain documentary evidence that establishes that the account holder is an entity organized in a treaty country, or
   3. You obtain a valid Form W-8BEN that contains a permanent residence address and a mailing address in the applicable treaty country.

2. If you have instructions to pay amounts outside the treaty country and the account holder gives you a reasonable explanation, in writing, establishing residence in the applicable treaty country.

Indirect account holders. A financial institution that receives documentation from a payee through a nonqualified intermediary, a flow-through entity, or a U.S. branch of a foreign bank or insurance company subject to U.S. or state regulatory supervision has reason to know that the documentary evidence is unreliable or incorrect if a reasonably prudent person in the financial institution's position would question the claims made. This standard requires, but is not limited to, compliance with the following rules.

The withholding statement. You must review the withholding statement provided with Form W-8IMY and may not rely on information in the statement to the extent the information does not support the claims made for a payee. You may not treat a payee as a foreign person if a U.S. address is provided for the payee. You may not treat a person as a resident of a country with which the United States has an income tax treaty if the address for the person is outside the treaty country.

You may, however, treat a payee as a foreign person and may treat a foreign person as a resident of a treaty country if a reasonable explanation is provided, in writing, by the nonqualified intermediary, flow-through entity, or U.S. branch supporting the payee's foreign status or residence in the treaty country.

Withholding certificate. If you receive a Form W-8 for a payee in association with a Form W-8IMY, you must review each Form W-8 and verify that the information is consistent with the information on the withholding statement. If there is a discrepancy, you may rely on the Form W-8, if valid, and instruct the nonqualified intermediary, flow-through entity, or U.S. branch to correct the withholding statement, or, alternatively, you may apply the presumption rules, discussed later, to the payee.

Documentary evidence. If you receive documentary evidence for a payee in association with a Form W-8IMY, you must review the documentary evidence provided by the nonqualified intermediary, flow-through entity or U.S. branch to determine that there is no obvious indication that the payee is a U.S. person subject to Form 1099 reporting or that the documentary evidence does not establish the identity of the person who provided the documentation (for example, the documentary evidence does not appear to be an identification document).

Presumption Rules

If you cannot reliably associate a payment with valid documentation, you must apply certain presumption rules or you may be liable for tax, interest, and penalties. If you comply with the presumption rules, you are not liable for tax, interest, and penalties even if the rate of withholding that should have been applied based on the payee's actual status is different from that presumed.

The presumption rules apply to determine the status of the person you pay as a U.S. or foreign person and other relevant characteristics, such as whether the payee is a beneficial owner or intermediary, and whether the payee is an individual, corporation, partnership, or trust. You are not permitted to apply a reduced rate of NRA withholding based on a payee's presumed status if documentation is required to establish a reduced rate of withholding. For example, if the payee of interest is presumed to be a foreign person, you may not apply the portfolio interest exception or a reduced rate of withholding under a tax treaty since both exceptions require documentation.

If you rely on your actual knowledge about a payee's status and withhold an amount less than that required under the presumption rules or do not report a payment that is subject to reporting under the presumption rules, you may be liable for tax, interest, and penalties. You should, however, rely on your actual knowledge if doing so results in withholding an amount greater than would apply under the presumption rules or in reporting an amount that would not be subject to reporting under the presumption rules.

The presumption rules, in the absence of documentation, for the subject matter are discussed in the regulation section indicated on Chart A.

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